Should Merck exercise the First Option in 2008, AstraZeneca will make payments in respect of the Partial Retirement, the First Option and the true-up totalling a minimum of $4.7bn. If AstraZeneca exercises the First Option in 2010, the combined effect of the amounts paid to Merck in 2008 and 2010 will total the same amount.
If the Second Option is exercised, Merck will then have relinquished all its interests in the partnership and the agreement products including rights to contingent payments.
Benefits include relief from contingent payments, anticipated cost savings from cessation of manufacturing arrangements and other cost efficiencies together with the strategic advantages of increased freedom to operate.
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Accounting treatments
Annual contingent payments: The annual contingent payments on agreement products are expensed as incurred.
Payment in the event of a business combination: The Lump Sum Payment was expensed at the point of merger since it caused no incremental benefits over the prior years’ aggregate Astra and Zeneca performance to accrue to the merged AstraZeneca entity.
Termination arrangements: AstraZeneca considers that the termination arrangements described above represent the acquisition, in stages, of Merck’s interests in the partnership and agreement products (including Merck’s rights to contingent payments) and depend, in part, on the exercise of the First and Second Options. The effects will only be reflected in the Financial Statements as these stages are reached. If and when all such payments are made, AstraZeneca will have unencumbered discretion in its operations in the US market.
The Advance Payment has been accounted for as an intangible asset and is being amortised over 20 years. This approach reflects the fact that, under the Agreements, AstraZeneca has acquired rights relieving it of potential obligations or restrictions in respect of Astra products with no existing or pending patents at the time of merger. Although these rights apply in perpetuity, the period of amortisation of 20 years has been chosen to reflect the typical timescale of development and marketing of a product.
The payments under the Partial Retirement, the First Option and true-up and the Second Option will be accounted for under the extant guidance when they are paid, with allocations to intangibles and goodwill, as appropriate. If Merck exercises the First Option in 2008, the net minimum payment to be made to Merck, being the combined payments of $4.7bn less the repayment of the loan note of $1.4bn, would be $3.3bn. In accounting for the Restructuring in 1998, the loan note was included in the determination of the fair values of the assets and liabilities to be acquired. At that time, the loan note was ascribed a fair value of zero on acquisition and on the balance sheet because it was estimated that the net minimum payment of $3.3bn equated to the fair value of the rights to be acquired under the Partial Retirement, true-up and First Option.
Ongoing monitoring of the projected payments to Merck and the value to AstraZeneca of the related rights takes full account of changing business circumstances and the range of possible outcomes to ensure that the payments to be made to Merck are covered by the economic benefits expected to be realised. Should the monitoring reveal that these payments exceed the economic benefits expected to be realised, a provision for an onerous contract would be recognised.
Environmental costs and liabilities
The Group’s expenditure on environmental protection, including both capital and revenue items, relates to costs which are necessary for implementing internal systems and programmes and meeting legal and regulatory requirements for processes and products.
They are an integral part of normal ongoing expenditure for carrying out the Group’s research, manufacturing and commercial operations and are not separated from overall operating and development costs. There are no known changes in legal, regulatory or other requirements resulting in material changes to the levels of expenditure for 2003, 2004 or 2005.
In addition to expenditure for meeting current and foreseen environmental protection requirements, the Group incurs costs in investigating and cleaning up land and groundwater contamination. In particular, AstraZeneca and/or its affiliates have environmental liabilities at some currently or formerly owned, leased and third party sites.
In the US, the AstraZeneca affiliate, Zeneca Inc., and/or its indemnitees, have been named as potentially responsible parties (PRPs) or defendants at approximately 14 sites where Zeneca Inc. is likely to incur future investigation, remediation or operation and maintenance costs under federal or state, statutory or common law environmental liability allocations schemes. Similarly, the AstraZeneca affiliate, Stauffer Management Company LLC (SMC), which was established in 1987 to own and manage certain assets of Stauffer Chemical Company acquired that year, and/or its indemnitees, have been named as PRPs or defendants at approximately 32 sites where SMC is likely to incur future investigation, remediation or operation and maintenance costs under federal or state, statutory or common law environmental liability allocations schemes. In Europe and other parts of the world outside the US, AstraZeneca is likely to incur costs at three currently owned sites and has given indemnities to third parties in respect of approximately 45 other sites. These environmental liabilities arise almost entirely from legacy operations that are not part of our current pharmaceuticals business and, at most of these sites, remediation, where required, is either completed or nearing completion. In the aggregate, however, expenditure on clean up and monitoring is likely to be required.
AstraZeneca has made provisions for the estimated costs of future environmental investigation, remediation and operation and maintenance activity beyond normal ongoing expenditure for maintaining the Group’s R&D and manufacturing capacity and product ranges where a present obligation exists, it is probable that such costs will be incurred, and they can be estimated reliably. With respect to such estimated, future costs, there were provisions at 31 December 2005 in the aggregate of approximately $80m, of which approximately $68m relates to the US. These provisions do not include possible additional costs that are not currently probable, nor do these provisions include costs that, by agreement, will be borne by viable third party indemnitors. In addition, these provisions: (1) include, where appropriate, unasserted claims where future costs are nonetheless probable (at owned sites, for example); (2) are based, where applicable, on liability allocation or cost sharing agreements that we believe are enforceable against viable third parties; (3) reflect expected insurance recoveries where an insurer has agreed to provide an indemnity; and (4) typically cover a time period of five years (with the exception of operation and maintenance activities, which can last for decades). AstraZeneca is not presently aware of any circumstances or uncertainties regarding the viability of liable third parties, indemnitors or insurers that would cause these provisions to be altered.
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| It is possible that the Company, or its affiliates, could incur future environmental costs beyond the extent of our current provisions. The extent of such possible, additional costs is inherently difficult to estimate due to a number of factors, including, but not limited to: (1) the nature and extent of claims that may be asserted in the future; (2) whether the Company or any of its affiliates has or will have any legal obligation with respect to asserted or unasserted claims; (3) the type of remedial action, if any, that may be selected at sites where the remedy is presently not known; (4) the potential for recoveries from or allocation of liability to third parties; and (5) the length of time that the environmental investigation, remediation and liability allocation process can take. Notwithstanding and subject to the foregoing, it is estimated that potential additional loss for future environmental investigation, remediation and remedial operation and maintenance activity above and beyond our provisions could be, in the aggregate, in the order of $20m to $40m. |
Legal proceedings
AstraZeneca is involved in various legal proceedings considered typical to its businesses, including litigation relating to employment, product liability, commercial disputes, infringement of intellectual property rights, the validity of certain patents, and securities law. The more significant matters are discussed below.
Crestor (rosuvastatin)
AstraZeneca Pharmaceuticals LP and/or AstraZeneca LP in the US were served with two individual lawsuits in 2004 involving alleged injury in association with the use of Crestor. One of these lawsuits has now been dismissed. In addition, a motion for authorisation to institute a class action and to be a representative was filed in Quebec, Canada against AstraZeneca PLC and AstraZeneca Canada Inc. The petitioner claims alleged injury as a result of the use of Crestor. During 2005, AstraZeneca was served with five other similar complaints in the US, two of which were recently dismissed. AstraZeneca is vigorously defending all the remaining actions.
Diprivan (propofol)
In August 2002, AstraZeneca LP received a letter from ESI Lederle, a division of Wyeth, informing AstraZeneca of Wyeth’s intention to market a generic version of Diprivan prior to the expiration of AstraZeneca’s patents covering the current formulation. AstraZeneca filed a patent infringement action against Wyeth in the US District Court for the Southern District of New York. Through a series of transactions, the holder of the relevant Abbreviated New Drug Application and now defendant in AstraZeneca’s suit is Mayne Pharma (USA) Inc. (formerly called Faulding Pharmaceutical Co.). Mayne responded to AstraZeneca’s complaint and filed counterclaims alleging non-infringement, invalidity and unenforceability. The trial, post-trial briefing and closing arguments took place in early 2005. In November 2005, the court issued its decision finding the AstraZeneca patents to be valid and enforceable and infringed by Mayne’s propofol product. The court has issued an injunction preventing the manufacture, use, sale and offering for sale in the US of Mayne’s propofol product. Mayne has filed an appeal of the court’s findings to the Federal Circuit Court of Appeals.
In September 2005, AstraZeneca received notification from Amphastar Pharmaceuticals Inc. under section 505(b)(2) of the US Food, Drug and Cosmetic Act that, after approval by the FDA, it intends to manufacture and sell propofol in the US prior to the expiration of certain of AstraZeneca’s propofol-related patents. Amphastar contends that these patents would not be infringed by such manufacture and sale. AstraZeneca did not file a patent infringement complaint against Amphastar.
Exanta (ximelagatran)
Four putative and essentially similar securities class actions were filed in the US against AstraZeneca PLC, Håkan Mogren, Sir Tom McKillop, Jonathan Symonds and Percy Barnevik between January and March 2005. These actions allege that the defendants made materially false and misleading statements regarding Exanta clinical trials and the status of the Exanta New Drug Application in the US. The cases purport to assert claims on behalf of purchasers of AstraZeneca publicly traded securities during the period 2 April 2003 to 11 October 2004 under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The cases were all filed in federal district courts – one in the District of Massachusetts, one in the District of Delaware and two in the Southern District of New York. The Delaware case was dismissed voluntarily and the Massachusetts case has been transferred to the Southern District of New York by way of stipulation. The remaining cases are likely to be consolidated in a single action in New York.
The defendants deny the allegations made in the lawsuits and will vigorously defend the actions.
Iressa (gefitinib)
During 2004 and 2005, five claims have been filed against AstraZeneca KK in Japan, in the Osaka and Tokyo District Courts. In four of the claims, it is alleged that Iressa caused a fatal incidence of interstitial lung disease (ILD) in a Japanese patient. In the fifth claim, which did not involve a fatality, it is alleged that Iressa caused an incidence of ILD. AstraZeneca KK, following consultation with external legal advisers, believes the claims are without merit and is defending all of the cases. ILD is a known complication of lung disease, including advanced lung cancer, regardless of treatment.
Losec/Prilosec (omeprazole)
In 2001, AstraZeneca filed suit in the US against Andrx Pharmaceuticals, Inc. for infringement of a patent directed to a process for making an omeprazole formulation (the ’281 patent). Andrx filed counterclaims of non-infringement, invalidity and unenforceability for inequitable conduct during prosecution of the ’281 patent. Andrx also asserted that in addition to the ’281 patent, two other formulation patents, the ’505 and ’230 patents, were unenforceable for alleged litigation misconduct by AstraZeneca. Both parties sought attorneys’ fees. In May 2004, the US District Court for the Southern District of New York ruled that the ’281 patent was infringed, but also ruled that the ’281 patent was invalid.
The court dismissed Andrx’s litigation misconduct and other counterclaims and affirmative defences, leaving intact the court’s October 2002 decision finding the ’230 and ’505 patents not invalid and infringed by Andrx. The October 2002 decision was affirmed in all respects on appeal in December 2003. The court entered final judgement regarding the ’281 patent in July 2004, after determining to stay the attorneys’ fees claims pending any appeals. Andrx has appealed the judgement and AstraZeneca has cross-appealed.
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| During 2000 and 2001, AstraZeneca had filed suits against Lek Pharmaceutical and Chemical Company d.d. and Lek Services USA, Inc., Impax Laboratories Inc., Eon Labs Manufacturing Inc., Mylan Pharmaceuticals Inc., Apotex Corp, Apotex, Inc. and Torpharm, Inc. and Zenith Goldline Pharmaceuticals, Inc. (now known as IVAXPharmaceuticals, Inc.). These suits followed the filing of Abbreviated New Drug Applica tions by these companies with the FDA concerning the companies’ intention to market generic omeprazole products in the US. The basis for the proceedings is that the actions of all the companies infringe the ’505 and ’230 formulation patents relating to omeprazole. The cases are proceeding under the US Hatch-Waxman legislation. The case against IVAXwas dismissed without prejudice shortly after it was filed, after IVAXwithdrew its application to market generic omeprazole. During 2003, after Mylan commenced commercial sale of its product, AstraZeneca filed suit against Laboratorios Esteve, SA and Esteve Quimica, SA, manufacturers of the omeprazole product to be distributed in the US by Mylan. In 2003 and 2004, Lek, Apotex and Impax all began commercial sales of their generic omeprazole products. In July 2004, Lek filed a motion for summary judgement of non-infringement. In January 2005, AstraZeneca filed suit against Teva Pharmaceutical Industries Ltd. and Teva Pharmaceuticals USA, Inc., which are marketing and selling Impax’s omeprazole products. The Teva case was stayed in June 2005 until liability issues in the Impax action are resolved. AstraZeneca has made claims for damages against each of the selling defendants. Anti-trust and non-infringement counterclaims have been filed by Andrx, Apotex/Torpharm, Impax, Eon and Lek. All defendants except Lek have also raised invalidity and unenforceability counterclaims. The anti-trust counterclaims, as well as AstraZeneca’s claims for damages, have been stayed pending resolution of the patent liability issues. The cases have been consolidated for discovery before, or are directly assigned to, Judge Jones in the US District Court for the Southern District of New York. All discovery in these cases was completed in February 2005. Briefing on the summary judgement motion filed by Lek and 14 additional motions for summary judgement was completed in July 2005. All of the defendants’ motions for summary judgement were denied in January 2006. In July 2005, AstraZeneca filed suit against Ranbaxy Laboratories Ltd., Ranbaxy Inc. and Ranbaxy Pharmaceuticals, Inc. for infringement of the’505 and ’230 formulation patents. The Ranbaxy case has been consolidated with the other omeprazole patent cases for pre-trial purposes. Judge Jones has scheduled a consolidated bench trial to begin in March 2006. |
In June and July 2004, AstraZeneca applied in France for injunctions based on its omeprazole formulation patent against six companies for marketing generic omeprazole. In August 2004, the applications were rejected at first instance. AstraZeneca appealed this decision and in March 2005 the applications were rejected on appeal. In May 2004, AstraZeneca also started legal proceedings against the same companies for infringement of its omeprazole formulation patent in France. These proceedings have been consolidated with a case challenging the validity of the patent, brought by one of the companies against AstraZeneca. No date has yet been set for a hearing.
During 2000, AstraZeneca was granted interlocutory injunctions based on certain of AstraZeneca’s omeprazole patents against the generic company, Scandinavian Pharmaceuticals-Generics AB (Scand Pharm), in Denmark and Norway. In October 2001, Oslo City Court in Norway confirmed that Scand Pharm had infringed AstraZeneca’s formulation patent for omeprazole. At the same time, the court declared AstraZeneca’s formulation patent valid. In November 2004, these findings were upheld by the Appeal Court. As a result of the Norwegian case, Scand Pharm cannot sell its omeprazole product in Norway. Furthermore, it is also prevented from selling its omeprazole product in Denmark pending the outcome of the main action in the Danish case. If the final decision in this case is against AstraZeneca, Scand Pharm may claim damages for lost sales due to the interlocutory injunctions. During 2003 and 2004, AstraZeneca was denied interlocutory injunctions based on certain of its omeprazole patents against Novartis Sverige AB and ratiopharm AB in Sweden and Novartis Finland Oy and ratiopharm Oy in Finland. An interlocutory injunction against Biochemie Novartis Healthcare A/S was granted in Denmark during 2003, based on AstraZeneca’s omeprazole formulation patent. Also during 2003, the District Court in Norway found that the generic omeprazole product marketed by ratiopharm AS did not infringe AstraZeneca’s omeprazole formulation patent. This judgement was confirmed by the Norwegian Appeal Court in October 2005. In January 2006, the Supreme Court in Norway denied AstraZeneca leave to appeal. In December 2004, an interlocutory injunction against Nomeco A/S, a Danish distributor of a generic omeprazole product from ratiopharm, was granted in Denmark based on AstraZeneca’s omeprazole formulation patent. The case was heard on appeal in November and December 2005. The court’s decision is anticipated in February 2006.
AstraZeneca continues to be involved in numerous proceedings in Canada involving Reddy Cheminor and Apotex. These cases relate to omeprazole capsules or omeprazole magnesium tablets and involve various patents. Apotex launched a generic omeprazole capsule product in Canada in January 2004. Following this launch, AstraZeneca commenced judicial review proceedings seeking to quash Apotex’s notice of compliance (marketing approval) and AstraZeneca sued Apotex in July 2004 alleging infringement of its formulation patents by Apotex’s omeprazole capsules. In May 2005, the Canadian Federal Court of Appeal quashed Apotex’s notice of compliance (marketing approval), overruling the first instance decision in September 2004, which went against AstraZeneca. In June 2005, the Canadian Federal Court of Appeal granted Apotex’s motion for a stay of the court’s decision to quash the notice of compliance, pending an application by Apotex for leave to appeal to the Supreme Court of Canada. The Supreme Court of Canada has granted Apotex leave to appeal and the appeal is tentatively scheduled to be heard in May 2006. The Supreme Court has also continued the stay granted by the Federal Court of Appeal, thereby allowing Apotex to continue selling its omeprazole capsules pending a decision by the Supreme Court on Apotex’s appeal.
In January 2006, AstraZeneca Canada Inc. was served with a claim in the Federal Court of Canada for payment of an undetermined sum based on damages allegedly suffered by Apotex due to the delay from January 2002 to January 2004 in the issuance to Apotex of a notice of compliance (marketing approval) in Canada for its 20mg omeprazole capsule product. AstraZeneca believes the claim is without merit and intends to defend it and to pursue its already pending patent infringement action against Apotex vigorously.
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| In February 2000, the European Commission commenced an investigation relating to certain omeprazole intellectual property rights, and associated regulatory and patent infringement litigation. The investigation is pursuant to Article 82 of the EC Treaty, which prohibits an abuse of a dominant position. The investigation was precipitated by a complaint by a party to a number of patent and other proceedings involving AstraZeneca. AstraZeneca has, in accordance with its corporate policy, co-operated with the Commission. In July 2003, the Commission served a Statement of Objections on AstraZeneca, referring to alleged infringements regarding the obtaining of supplementary protection certificates for omeprazole in certain European countries; and regarding AstraZeneca’s replacement of omeprazole capsules by omeprazole MUPS (tablets) and withdrawal of capsule marketing authorisations in three European countries. AstraZeneca replied fully to the Commission, explaining why its actions were in AstraZeneca’s view lawful. An oral hearing took place in February 2004. In June 2005, the European Commission notified AstraZeneca PLC and AstraZeneca AB of its Decision to impose fines totalling €60m on the companies for infringement of European competition law (Article 82 of the EC Treaty and Article 54 of the EEA Agreement). The Commission alleges that the companies abused their dominant positions in the periods between 1993 and 2000 by making a pattern of misleading representations before the patent offices and/or courts in Belgium, Denmark, Germany, the Netherlands, Norway and the UK in regard to obtaining supplementary protection certificates for omeprazole; and by requesting the surrender of market authorisations for omeprazole capsules in Denmark, Norway and Sweden, combined with withdrawal from these countries of omeprazole capsules and the launch of omeprazole MUPS (tablets). AstraZeneca does not accept the Commission’s Decision and has appealed it to the Court of First Instance. AstraZeneca denies that it had a dominant position or that it was engaged in the behaviours as characterised by the Commission. In the meantime, the fine was fully provided for in the half year results through a charge to operating profit of $75m. It is alleged by the Commission that these activities had the effect of hindering the entry of the generic version of Losec and parallel trade. It is possible that third parties could seek damages for alleged losses arising from this matter. Any such claims would be vigorously resisted. |
Nexium (esomeprazole)
AstraZeneca entities have been sued in various state and federal courts in the US in purported representative and class actions involving the marketing of Nexium (esomeprazole). These actions generally allege that AstraZeneca’s promotion and advertising of Nexium to physicians and consumers is unfair, unlawful and deceptive conduct, particularly as the promotion relates to comparisons of Nexium with Prilosec. They also allege that AstraZeneca’s conduct relating to the pricing of Nexium was unfair, unlawful and deceptive. The plaintiffs allege claims under various state consumer protection, unfair practices and false advertising laws. The plaintiffs in these cases seek remedies that include restitution, disgorgement of profits, damages, punitive damages, injunctive relief, attorneys’ fees and costs of suit.
The first action was brought in 2004 in the Superior Court of the State of California for the County of Los Angeles by the AFL-CIO, two unincorporated associations and an individual on behalf of themselves, the general public and a class of California consumers, third party payers, cash payers and those making co-pay. A second action was filed in the same court on behalf of a similar putative class of consumers. Actions making substantially similar allegations were filed in 2004 and 2005 on behalf of putative classes of consumers, third party payers, purchasers and labour management trust funds in the Circuit Court of Searcy County, Arkansas; in the Superior Court of the State of Delaware in and for New Castle County; in the Superior Court of Massachusetts in Boston; in the US District Court for the District of Delaware; and in the Circuit Court of the 11th Judicial Court in and for Miami-Dade County, Florida.
In September 2005, the court in California issued a ruling on AstraZeneca’s demurrer and motion to strike in the two California actions. The court granted AstraZeneca’s motion with respect to the associational plaintiffs and denied the motion with respect to the individual plaintiffs, allowing the cases of the individuals to proceed. In October 2005, the court in Massachusetts issued an order denying AstraZeneca’s motion to dismiss. In November 2005, the US District Court for the District of Delaware issued an order granting AstraZeneca’s motion to dismiss the consolidated class action complaint in the three consolidated Delaware actions.
AstraZeneca denies the allegations and is vigorously defending each of these actions.
In November 2003, the European Patent Office ruled that the European substance patent covering magnesium esomeprazole, the active pharmaceutical ingredient in Nexium, is valid. The patent, which expires in May 2014, was challenged by the generic manufacturer ratiopharm. The European Patent Office ruling has been appealed by ratiopharm. It is not anticipated that the appeal will be heard before the end of 2006.
In October 2004, AstraZeneca LP filed suit in the US District Court for the District of Delaware seeking declaratory judgement that its ‘Better is Better’ campaign for Nexium is not false or misleading advertising in violation of section 43(a) of the Lanham Act, a federal statute governing false advertising claims. The action was taken in response to a letter from TAP Pharmaceuticals, Inc. demanding that AstraZeneca immediately withdraw the television commercial and other components of the direct-to-consumer advertising campaign for Nexium on the basis that they allegedly violated the statute. In November 2004, TAP requested expedited consideration of the case by filing a motion for a preliminary injunction and in December 2004, the court denied the request for a preliminary injunction. The case is scheduled to be tried in the second or third quarter of 2006.
In October 2005, AstraZeneca received a notice from Ranbaxy Pharmaceuticals, Inc. that Ranbaxy Laboratories Limited had submitted an Abbreviated New Drug Application to the US FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. The ANDA contained paragraph IV certifications of invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA’s Orange Book with reference to Nexium. In November 2005, AstraZeneca commenced wilful infringement patent litigation in the US District Court for the District of New Jersey against Ranbaxy Pharmaceuticals, Inc. and its affiliates in response to Ranbaxy’s paragraph IV certifications regarding Nexium.
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| In January 2006, AstraZeneca received a notice from IVAX Pharmaceuticals Inc. that IVAX Corporation had submitted an ANDA to the US FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. The ANDA contained paragraph IV certifications of invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA’s Orange Book with reference to Nexium. IVAX also certified in respect of certain other AstraZeneca US patents listed in the Orange Book with reference to Nexium that IVAX will not launch its product prior to the expiry of those patents, the latter of which expires in October 2007. The 45 day time period within which AstraZeneca can commence a patent infringement lawsuit against IVAX that would automatically stay, or bar, the FDA from approving IVAX’s ANDA for 30 months (or until an adverse court decision, whichever occurs earlier) expires in March 2006. |
AstraZeneca continues to have full confidence in and will vigorously defend and enforce its intellectual property protecting Nexium.
Nolvadex (tamoxifen)
AstraZeneca is a co-defendant with Barr Laboratories, Inc. in numerous purported class actions filed in federal and state courts throughout the US. All of the state court actions were removed to federal court and have been consolidated, along with all of the cases originally filed in the federal courts, in a federal multi-district litigation proceeding pending in the US District Court for the Eastern District of New York. Some of the cases were filed by plaintiffs representing a putative class of consumers who purchased tamoxifen. The other cases were filed on behalf of a putative class of ‘third party payers’ (including health maintenance organisations, insurers and other managed care providers and health plans) that have reimbursed or otherwise paid for prescriptions of tamoxifen. The plaintiffs allege that they paid ‘supra-competitive and monopolistic prices’ for tamoxifen as a result of the settlement of patent litigation between Zeneca and Barr in 1993. The plaintiffs seek injunctive relief, treble damages under the antitrust laws, disgorgement and restitution. In April 2002, AstraZeneca filed a motion to dismiss the cases for failure to state a cause of action. In May 2003, the US District Court for the Eastern District of New York granted AstraZeneca’s motion to dismiss. The plaintiffs appealed the decision. In November 2005, the US Court of Appeals for the Second Circuit affirmed the District Court’s decision. The plaintiffs have moved for re-hearing by the original panel of judges in the case and re-hearing by a panel of all of the judges on the US Court of Appeals for the Second Circuit.
Pulmicort Respules (budesonide inhalation suspension)
In September 2005, AstraZeneca received a notice from IVAX Pharmaceuticals Inc. that IVAX had submitted an Abbreviated New Drug Application to the US FDA for a budesonide inhalation suspension containing a paragraph IV certification and alleging invalidity and non-infringement in respect of certain of AstraZeneca’s patents relating to budesonide inhalation suspension. In October 2005, AstraZeneca filed a patent infringement action against IVAX in the US District Court for the District of New Jersey. In December 2005, IVAX responded and filed counterclaims alleging non-infringement and invalidity. In January 2006, AstraZeneca filed an Amended Complaint, withdrawing averments as to the infringement of one of the patents-in-suit. AstraZeneca continues to have full confidence in and will vigorously defend and enforce its intellectual property protecting Pulmicort Respules.
Seroquel (quetiapine fumarate)
AstraZeneca PLC and AstraZeneca Pharmaceuticals LP were named as defendants in the case of Susan Zehel-Miller et al. v. AstraZenaca [sic], AstraZenaca Pharmaceuticals, LP [sic], a putative class action suit filed in August 2003 in the US District Court for the Middle District of Florida on behalf of a purported class consisting of “all persons in the US who purchased and/or used Seroquel” contending that AstraZeneca failed to provide adequate warnings in connection with an alleged association between Seroquel and the onset of diabetes. In the first quarter of 2005, subsequent to a 2004 court decision denying class certification in this matter, the case was dismissed with prejudice. A second Seroquel lawsuit involving a minor who claimed to have developed diabetes mellitus as a result of using Seroquel was also dismissed with prejudice in December 2005, approximately one week before oral argument on AstraZeneca’s motion for summary judgement was scheduled to take place.
Since 2003, AstraZeneca has been served with approximately 60 lawsuits in the US in which plaintiffs have contended that they developed diabetes or other allegedly related injuries as a result of taking Seroquel and/or other atypical anti-psychotics made by other pharmaceutical companies. About 40 of these cases were filed in Missouri in August 2005, days before Missouri’s tort reform laws became effective. Eli Lilly, the maker of olanzapine, is a defendant in the majority of the cases served on AstraZeneca. Janssen Pharmaceutica and Bristol-Myers Squibb are also defending a number of them.
AstraZeneca is also aware of more than 100 other cases involving Seroquel that have recently been filed in California, Delaware, Illinois, Louisiana, Missouri, New Jersey and Texas, but these have not been served. One involves a putative nationwide class action complaint, which was recently filed in federal court in the Southern District of Illinois. AstraZeneca has seen this complaint and it is very similar in form and content to the complaint filed in the US District Court for the Middle District of Florida in 2003 (Susan Zehel-Miller et al. v. AstraZenaca [sic], AstraZenaca Pharmaceuticals LP, [sic], described above) that sought certification of a nationwide class of Seroquel users and others, including individuals who were alleged to have developed diabetes as a result of using Seroquel. The federal court in Florida denied certification of the class in the Zehel-Miller case. In early 2005, after the plaintiffs’ efforts in that case to secure appellate relief failed, the plaintiffs agreed to a voluntary dismissal of all of their claims with prejudice. It is possible that plaintiffs’ lawyers are contemplating the filing of potentially numerous lawsuits against AstraZeneca and other manufacturers of atypical anti-psychotics involving allegations of diabetes.
AstraZeneca intends to defend vigorously all of the pending cases relating to Seroquel.
In September 2005, AstraZeneca received a notice from Teva Pharmaceuticals USA that Teva had submitted an Abbreviated New Drug Application (ANDA) for quetiapine fumarate tablets (25mg base) to the US FDA. The ANDA contained a paragraph IV certification alleging invalidity and non-infringement in respect of AstraZeneca’s US patent listed in the FDA’s Orange Book with reference to Seroquel. In November 2005, in response to Teva’s ANDA and Teva’s intent to market a generic version of Seroquel in the US prior to the expiration of AstraZeneca’s patent, AstraZeneca filed a lawsuit against Teva in the US District Court for the District of New Jersey for wilful patent infringement.
AstraZeneca continues to have full confidence in and will vigorously defend and enforce its intellectual property protecting Seroquel.
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| Symbicort (budesonide/formoterol) |
| In March 2005, the European Patent Office ruled that the European patent covering the combination of formoterol and budesonide in Symbicort is valid. The patent, which expires in 2012, was challenged by the generic manufacturers Yamanouchi Europe BV, Miat SpA, Liconsa, Chiesi Farmaceutici SpA, Zambon Group SpA, Generics (UK) Limited and Norton Healthcare Ltd. In May 2005, the European Patent Office ruled that the European patent for Symbicort in the treatment of chronic obstructive pulmonary disease (COPD) is valid. The patent, which expires in 2018, was challenged by the generic manufacturers Chiesi Farmaceutici SpA, Norton Healthcare Ltd and Generics (UK) Limited. |
The European Patent Office rulings relating to both the combination and the COPD European patents for Symbicort have been appealed by certain of the opponents in the proceedings. It is not anticipated that the appeals will be heard before 2007.
In February 2004, IVAX Pharmaceuticals (UK) Limited initiated proceedings against AstraZeneca AB claiming that the UK parts of the two European patents related to Symbicort were invalid. In May 2004, the court granted AstraZeneca’s application for a stay of the proceedings pending the determination of the parallel opposition proceedings before the European Patent Office, described above. In April 2004, IVAX initiated proceedings against AstraZeneca AB in relation to the Republic of Ireland claiming that the Irish parts of the two European patents related to Symbicort were invalid. In October 2004, the court granted AstraZeneca’s application for a stay of proceedings pending the final decision of the European Patent Office and its Boards of Appeal in the opposition proceedings.
Toprol-XL (metoprolol succinate)
In May 2003, AstraZeneca filed a patent infringement action against KV Pharmaceutical Company in the US District Court for the Eastern District of Missouri in response to KV’s notification of its intention to market a generic version of Toprol-XL tablets in the 200mg dose prior to the expiration of AstraZeneca’s patents covering the substance and its formulation. In response to later similar notices from KV related to the 25mg, 50mg and 100mg doses, AstraZeneca filed further actions. KV responded in each instance and filed counterclaims alleging non-infringement, invalidity and unenforceability of the listed patents.
In February 2004, AstraZeneca filed a patent infringement action against Andrx Pharmaceuticals LLC in the US District Court for the District of Delaware in response to Andrx’s notification of its intention to market a generic version of Toprol-XL tablets in the 50mg dose prior to the expiration of AstraZeneca’s patents. In response to two later similar notices from Andrx related to the 25mg, 100mg and 200mg doses, AstraZeneca filed two additional patent infringement actions in the same court. In each instance, Andrx claimed that each of the listed patents is invalid, not infringed and unenforceable.
In April 2004, AstraZeneca filed a patent infringement action against Eon Labs Manufacturing Inc. in the US District Court for the District of Delaware in response to Eon’s notification of its intention to market generic versions of Toprol-XL tablets in the 25mg, 50mg, 100mg and 200mg doses prior to the expiration of AstraZeneca’s patents. In its response, Eon alleged that each of the listed patents is invalid, not infringed and unenforceable. Eon also alleged that the filing of the infringement complaints, as well as other actions by AstraZeneca, constitutes anti-competitive conduct in violation of US anti-trust laws. Pursuant to a joint motion of AstraZeneca and Eon these anti-trust counts were severed from the case and stayed, for possible consideration depending on the outcome of the trial of the patent claims.
In January 2005, AstraZeneca filed a terminal disclaimer of the Toprol-XL patents-in-suit over one of the other patents raised by the defendants, which will result in a revision of the expiration date of the Toprol-XL patents-in-suit from March 2008 to September 2007.
All of the patent litigation relating to Toprol-XL against KV, Andrx and Eon was consolidated for pre-trial discovery purposes and motion practice in the US District Court for the Eastern District of Missouri. The defendants filed a motion for summary judgement in December 2004 alleging that the Toprol-XL patents are invalid due to double patenting. A summary judgement motion of unenforceability was filed by the defendants in 2005 and AstraZeneca filed summary judgement motions on infringement and validity in 2005. Oral argument on all of the pending summary judgement motions was heard in November 2005. In January 2006, the US District Court for the Eastern District of Missouri issued a ruling finding that the two patents-in-suit are unenforceable (based on the Company’s inequitable conduct in the prosecution of these patents in the US Patent and Trademark Office) and invalid. AstraZeneca disagrees with and is disappointed by these conclusions. It will appeal this decision to the US Court of Appeals for the Federal Circuit.
None of the Abbreviated New Drug Applications filed by KV, Andrx or Eon has received tentative approval from the US Food and Drug Administration. Under the ANDA statute, the January 2006 adverse decision concerning the validity and enforceability of the AstraZeneca patents-in-suit automatically removes any stay on the FDA’s authority to grant a final approval of the ANDAs.
In January 2006, AstraZeneca was served with a complaint filed in the US District Court for the District of Delaware entitled Meijer, Inc. and Meijer Distribution, Inc. v. AstraZeneca Pharmaceuticals LP, AstraZeneca LP, AstraZeneca AB and Aktiebolaget Hassle. The complaint is a putative class action that alleges that the AstraZeneca defendants attempted to illegally maintain monopoly power in the US over Toprol-XL in violation of the Sherman Act through the listing of invalid and unenforceable patents in the FDA’s Orange Book and the enforcement of such patents through litigation against generic manufacturers seeking to market metoprolol succinate. The complaint seeks treble damages based on alleged overcharges to the putative class of plaintiffs. The lawsuit is based upon the finding described above by the US District Court for the Eastern District of Missouri in the consolidated litigation against KV, Andrx and Eon that the AstraZeneca patents relating to Toprol-XL are invalid and unenforceable. As noted above, AstraZeneca is appealing this ruling in the patent litigation. AstraZeneca denies the allegations of this anti-trust complaint and will vigorously defend the lawsuit.
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| | | |
| | 124 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
| 25 | COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED |
| AstraZeneca continues to maintain that its patents for Toprol-XL are valid, enforceable and infringed by the proposed generic products of KV, Andrx and Eon and that its enforcement of its patents did not violate anti-trust laws. |
Zestril (lisinopril)
In 1996, two of AstraZeneca’s predecessor companies, Zeneca Limited and Zeneca Pharma Inc. (as licensees), Merck & Co., Inc. and Merck Frosst Canada Inc. commenced a patent infringement action in the Federal Court of Canada against Apotex Inc., alleging infringement of Merck’s lisinopril patent. Apotex has sold and continues to sell a generic version of AstraZeneca’s Zestril and Merck’s Prinivil tablets. Apotex has admitted infringement but has raised positive defences to infringement, including that it acquired certain quantities of lisinopril prior to issuance of the patent and that certain quantities were licensed under a compulsory licence. Apotex has also alleged invalidity of the patent. The trial started in January 2006.
AstraZeneca (as licensee) has a case pending in the Federal Court of Canada against Cobalt Pharmaceuticals Inc., pertaining to the same Merck lisinopril patent, on the basis that Cobalt is seeking a notice of compliance (marketing approval) in Canada based on a comparison with AstraZeneca’s Zestril. AstraZeneca is potentially liable for damages in the event that Cobalt’s market entry is held to have been improperly delayed.
Zestoretic (lisinopril/hydrochlorothiazide)
AstraZeneca (as licensee) has a case pending in the Federal Court of Canada against Apotex Inc., pertaining to Merck’s lisinopril/hydrochlorothiazide combination patent, on the basis that Apotex is seeking a notice of compliance (marketing approval) in Canada based on a comparison with AstraZeneca’s Zestoretic. AstraZeneca is potentially liable for damages in the event that Apotex’s market entry is held to have been improperly delayed.
Average wholesale price class action litigation
In January 2002, AstraZeneca was named as a defendant along with 24 other pharmaceutical manufacturers in a class action suit, in Massachusetts, brought on behalf of a putative class of plaintiffs alleged to have overpaid for prescription drugs as a result of inflated wholesale list prices. The suit seeks to recover unspecified damages. Following the Massachusetts complaint, nearly identical class action suits were filed against AstraZeneca and various other pharmaceutical manufacturers in four other states. AstraZeneca and other manufacturers have since been sued in similar lawsuits filed by the state Attorneys General of Pennsylvania, Nevada, Montana, Wisconsin, Illinois, Alabama, Kentucky, Arizona and Mississippi, as well as by multiple individual counties in the State of New York. The Attorney General lawsuits seek to recover alleged overpayments under Medicaid and other state-funded healthcare programmes. In several cases, the states are also suing to recover alleged overpayments by state residents. Many of these suits have been consolidated with the Massachusetts action for pre-trial purposes, pursuant to federal multi-district litigation procedures.
In August 2005, the District Court in Boston issued a decision on class certification favourable to the defendants. The plaintiffs in the consolidated class action suit had sought to certify three types of nationwide classes of plaintiffs: (1) Medicare Part B beneficiaries who paid allegedly inflated co-insurance for certain physician-administered drugs reimbursed under the Medicare Part B programme; (2) third party insurers offering coverage for the same physician-administered drugs; and (3) third party insurers for certain self-administered (non-Part B) drugs.
The court denied the self-administered drug class entirely. As to the proposed classes involving physician-administered drugs, the court certified a nationwide class of Part B beneficiaries against AstraZeneca and three other manufacturers. The additional proposed classes involving physician-administered drugs, third party payers who reimbursed for physician-administered drugs or who covered Part B co-payments, have been certified only as Massachusetts state, as opposed to nationwide, classes. For all classes, the only AstraZeneca drug at issue is Zoladex (goserelin acetate implant).
There is a possibility that the decision on class certification will be appealed. Following a decision on the appeal, the court will set a schedule for summary judgement proceedings and trial. In the interim, Attorney General cases are proceeding independently of the consolidated action in Pennsylvania, Alabama, Mississippi, Arizona and Wisconsin.
AstraZeneca denies the allegations made in all of the average wholesale price lawsuits and will vigorously defend the actions.
340b class action litigation
In August 2004, AstraZeneca was named as a defendant along with multiple other pharmaceutical manufacturers in a class action suit filed in the Alabama federal court on behalf of all so-called ‘disproportionate share’ entities. These are the hospitals and clinics that treat a substantial portion of uninsured patients and thus qualify for preferential pricing under the US Public Health Service Act drug discount programme (the ‘340b’ programme). According to the complaint, the genesis of the suit is an audit report by the US Department of Health and Human Services Office of Inspector General (OIG) in June 2004.
A similar class action suit was filed in August 2005 by the County of Santa Clara in the California state court. In the second suit, the County of Santa Clara is suing as a representative of a class of similarly situated counties and cities in California alleged to have overpaid for 340b drugs. AstraZeneca believes the allegations in both of these lawsuits are without merit and intends to defend them vigorously.
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| | |
| 25 | COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED |
| Additional government investigations into drug marketing practices |
| As is true for most, if not all, major prescription pharmaceutical companies operating in the US, AstraZeneca is currently involved in multiple US federal and state criminal and civil investigations into drug marketing and pricing practices. Two of the active investigations are being handled by the US Attorney’s Office in Boston. The first involves a request for production of documents and information relating to speaker programmes involving healthcare professionals at three regional healthcare entities in the Boston area. The second involves a subpoena for documents and information relating to marketing and sales interactions with a leading provider of pharmacy services to long term care facilities. |
In October 2004, AstraZeneca received a subpoena from the US Attorney’s Office in Philadelphia principally seeking documents relating to the formulary status of AstraZeneca drugs at a regional health maintenance organisation and a national pharmacy benefits manager. Most recently, AstraZeneca, along with 12 other pharmaceutical manufacturers, was served with a subpoena from the US Attorney’s Office in Philadelphia seeking documents in connection with the government’s pending civil litigation against Medco Health Systems. That subpoena seeks documents relating to contracts, programmes, grants or payments to Medco.
In January 2006, AstraZeneca first received notice of an investigation by the US Attorney’s Office in Los Angeles into field promotional activities in the area served by AstraZeneca’s Los Angeles regional business centre. AstraZeneca has been provided with little information concerning the nature of the investigation, other than a representation that the government is looking into the preparation and dissemination of patient education and similar materials to physicians.
It is not possible to predict the outcome of any of these investigations, which could include the payment of damages and the imposition of fines, penalties and administrative remedies.
Drug importation anti-trust litigation
In May 2004, plaintiffs in a purported class action filed complaints in the US District Court for Minnesota and for New Jersey, alleging that AstraZeneca Pharmaceuticals LP and eight other pharmaceutical manufacturer defendants conspired to prevent American consumers from purchasing prescription drugs from Canada, “depriving consumers of the ability to purchase” drugs at competitive prices. The New Jersey case was voluntarily dismissed in July 2004. In August 2005, the Minnesota District Court dismissed with prejudice the plaintiffs’ federal anti-trust claims and declined to exercise supplemental jurisdiction in relation to the state statutory and common law claims, which claims were dismissed without prejudice. The plaintiffs have appealed the district court’s decision.
In August 2004, Californian retail pharmacy plaintiffs filed an action in the Superior Court of California making similar allegations. In July 2005, the court overruled in part and sustained in part, without leave to amend, the defendants’ motion to dismiss the plaintiffs’ third amended complaint in these proceedings. The court overruled the defendants’ motion in respect of conspiracy claims but sustained the motion in respect of the California Unfair Competition Law claims. Discovery is ongoing and the trial is scheduled for September 2006.
AstraZeneca denies the material allegations of both the Minnesota and California actions and is vigorously defending these matters.
StarLink
AstraZeneca Insurance Company Limited (AZIC) has commenced arbitration proceedings in the UK against insurers in respect of amounts paid by Garst Seed Company of the US in settlement of claims arising in the US from Garst’s sale of StarLink, a genetically engineered corn seed. The English High Court has ruled, on appeal by reinsurers from a preliminary finding in AZIC’s favour by the arbitration panel, that English law applies to recovery under the reinsurance arrangements. This is contrary to AZIC’s view, which is that recovery should be assessed under Iowa law, and AZIC is seeking leave to appeal this finding to the Court of Appeal. AstraZeneca’s interest in Garst was through AstraZeneca’s 50% ownership of Advanta BV, the sale of which to Syngenta AG was announced in May 2004 and completed in September 2004. AZIC’s claim against the insurers was not affected by the disposal of AstraZeneca’s interest in Advanta BV.
Aptium Oncology
In April 2004, Comprehensive Cancer Centers, Inc. (CCC), a subsidiary of Aptium Oncology (formerly called Salick Health Care) received a subpoena from the US Department of Justice seeking, among other items, medical records and related documentation for services provided to patients at the Comprehensive Cancer Center at Desert Regional Medical Center in Palm Springs, California. The Center is managed by CCC, which is co-operating fully with the document request.
Avorelin
In 1999, AstraZeneca UK Limited entered into a licence agreement with Mediolanum farmaceutici SpA under which Mediolanum licensed to AstraZeneca certain rights in respect of avorelin, a luteinising hormone-releasing hormone agonist. At the end of 2000, AstraZeneca terminated the agreement. Mediolanum commenced proceedings against AstraZeneca alleging that AstraZeneca breached the terms of the agreement and claiming damages. This matter has now been settled by the parties on terms satisfactory to AstraZeneca (which admits no liability).
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| | | |
| | 126 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
| 25 | COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED |
| General |
| With respect to each of the legal proceedings described above, other than those which have been disposed of, we are unable to make estimates of the loss or range of losses at this stage, other than where noted in the case of the European Commission fine. We also do not believe that disclosure of the amount sought by plaintiffs, if that is known, would be meaningful with respect to those legal proceedings. This is due to a number of factors including: the stage of the proceedings (in many cases trial dates have not been set) and overall length and extent of legal discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. However, although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note 25 to the Financial Statements, we do not expect them to have a materially adverse effect on our financial position or profitability. |
Taxation
Where tax exposures can be quantified, a provision is made based on best estimates and management’s judgement. Details of the movements in relation to material tax exposures are discussed below.
AstraZeneca had made certain double taxation relief claims in accordance with its understanding of existing law. Management estimated that the tax exposure as at 31 December 2004 in respect of the issue was $197m and the potential for additional losses above and beyond the amount provided was up to $130m, although considered that these additional losses were unlikely to arise. It was also reported as at 31 December 2004 that AstraZeneca expected a definitive ruling on the matter within the next 12 months. During the course of 2005, the relevant law on the availability of credit for foreign taxes was clarified, confirming that tax credits were to be allowed in accordance with the original claims made by AstraZeneca and with retrospective effect. The Company has consequently released this provision of $197m to the income statement.
AstraZeneca faces a number of transfer pricing audits in jurisdictions around the world. The issues under audit are often complex and can require many years to resolve. Accruals for tax contingencies require management to make estimates and judgements with respect to the ultimate outcome of a tax audit, and actual results could vary from these estimates. The total accrual included in the Financial Statements to cover the worldwide exposure to transfer pricing audits is $543m, an increase of $143m due to a number of new audits and revisions of estimates relating to existing audits. For certain of the audits, AstraZeneca estimates the potential for additional losses above and beyond the amount provided to be up to $190m; however, management believes that it is unlikely that these additional losses will arise.
Of the remaining tax exposures, the Company does not expect material additional losses. It is not possible to estimate the timing of tax cash flows in relation to each outcome.
Included in the provision is an amount of interest of $174m. Interest is accrued as a tax expense.
| 26 | LEASES |
| Total rentals under operating leases charged to the income statement were as follows: |
| | 2005 | | 2004 | | 2003 | |
| | $m | | $m | | $m | |
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| | 155 | | 127 | | 94 | |
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The future minimum lease payments under operating leases that have initial or remaining terms in excess of one year at 31 December 2005 were as follows:
| | | | | | Operating leases | |
| |
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| | 2005 | | 2004 | | 2003 | |
| | $m | | $m | | $m | |
|
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| Obligations under leases comprise | | | | | | |
| Rentals due within one year | 83 | | 112 | | 112 | |
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| Rentals due after more than one year: | | | | | | |
| | After five years | 90 | | 69 | | 80 | |
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| | From four to five years | 18 | | 28 | | 25 | |
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| | From three to four years | 26 | | 35 | | 28 | |
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| | From two to three years | 41 | | 45 | | 40 | |
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| | From one to two years | 52 | | 63 | | 56 | |
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| | 227 | | 240 | | 229 | |
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| | 310 | | 352 | | 341 | |
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| | |
| 27 | STATUTORY AND OTHER INFORMATION |
| | 2005 | | 2004 | | 2003 | |
| | $m | | $m | | $m | |
|
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| Payable to KPMG Audit Plc and its associates | | | | | | |
| Audit services | 10.0 | | 8.4 | | 5.4 | |
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| Further assurance services | 1.0 | | 1.4 | | 2.1 | |
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| Taxation services | 1.0 | | 2.0 | | 1.8 | |
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| Other services | – | | – | | – | |
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| | 12.0 | | 11.8 | | 9.3 | |
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| Audit fees – other firms | – | | – | | – | |
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| | 12.0 | | 11.8 | | 9.3 | |
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Audit services include fees in respect of the Group audit, fees of $1.9m (2004 $2.1m, 2003 $0.2m) in relation to Sarbanes-Oxley s404 and IFRS, and fees for other services required by statute or regulation. The fee for the audit of the Company is $1,600 (2004 $1,600, 2003 $1,600). Fees for further assurance services include employee pension fund and other benefit plan audit services together with control reviews associated with the implementation of new systems. Taxation services consist of tax compliance services and tax advice.
$0.6m (2004 $0.9m, 2003 $0.5m) of the total fees for further assurance, taxation and other services were charged in the UK.
Related party transactions
The Group had no material related party transactions which might reasonably be expected to influence decisions made by the users of these Financial Statements.
Key management personnel compensation
| | 2005 | | 2004 | | 2003 | |
| | $’000 | | $’000 | | $’000 | |
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| Short term employee benefits | 19,334 | | 17,382 | | 17,633 | |
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| Post-employment benefits | 816 | | 736 | | 754 | |
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| Share-based payments | 5,663 | | 6,086 | | 5,747 | |
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| | 25,813 | | 24,204 | | 24,134 | |
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Total remuneration is included within employee costs (Note 24).
Subsequent events
Other than the completion of the three collaboration agreements and the acquisition agreement signed in December 2005 and completed in January 2006 (as set out in Note 25) there were no material subsequent events.
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| | | |
| | 128 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
28 SHARE CAPITAL OF PARENT COMPANY
| | Authorised | | | | Allotted, called-up and fully paid | |
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| | 2005 | | 2005 | | 2004 | | 2003 | |
| | $m | | $m | | $m | | $m | |
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| Issued Ordinary Shares ($0.25 each) | 395 | | 395 | | 411 | | 423 | |
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| Unissued Ordinary Shares ($0.25 each) | 205 | | – | | – | | – | |
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| Redeemable Preference Shares (£1 each – £50,000) | – | | – | | – | | – | |
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| | 600 | | 395 | | 411 | | 423 | |
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The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
The movements in share capital during the year can be summarised as follows:
| | No. of shares | | | |
| | (million) | | $m | |
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| At 1 January 2005 | 1,645 | | 411 | |
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| Issues of shares | 4 | | 1 | |
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| Re-purchase of shares | (68 | ) | (17 | ) |
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| At 31 December 2005 | 1,581 | | 395 | |
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Share re-purchase
During the year the Company re-purchased, and subsequently cancelled, 67,650,000 Ordinary Shares at an average price of 2445 pence per share. The total consideration, including expenses, was $3,001m. The excess of the consideration over the nominal value has been charged against retained earnings.
Share schemes
A total of 3,500,109 Ordinary Shares were issued during the year in respect of share schemes. Details of movements in the number of Ordinary Shares under option are shown in Note 24; details of options granted to Directors are shown in the Directors’ Remuneration Report.
Shares held by subsidiaries
No shares in the Company are held by subsidiaries in any year.
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PRINCIPAL SUBSIDIARIES
| | | Percentage of voting | | | |
| At 31 December 2005 | Country | share capital held | | Principal activity | |
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| UK | | | | | |
| AstraZeneca UK Limited | England | 1001 | | Research and development, | |
| | | | | manufacturing, marketing | |
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| AstraZeneca Insurance Company Limited | England | 100 | | Insurance and reinsurance underwriting | |
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| AstraZeneca Treasury Limited | England | 100 | | Treasury | |
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| | | | | | |
| Continental Europe | | | | | |
| NV AstraZeneca SA | Belgium | 100 | | Manufacturing, marketing | |
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| AstraZeneca Dunkerque Production SCS | France | 100 | | Manufacturing | |
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| AstraZeneca SAS | France | 100 | | Research, manufacturing, marketing | |
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| AstraZeneca GmbH | Germany | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca Holding GmbH | Germany | 100 | | Manufacturing, marketing | |
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| AstraZeneca SpA | Italy | 100 | | Manufacturing, marketing | |
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| AstraZeneca Farmaceutica Spain SA | Spain | 100 | | Manufacturing, marketing | |
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| AstraZeneca AB | Sweden | 100 | | Research and development, | |
| | | | | manufacturing, marketing | |
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| AstraZeneca BV | The Netherlands | 100 | | Marketing | |
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| | | | | | |
| The Americas | | | | | |
| AstraZeneca Canada Inc. | Canada | 100 | | Research, manufacturing, marketing | |
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| IPR Pharmaceuticals Inc. | Puerto Rico | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca LP | US | 99 | | Research and development, | |
| | | | | manufacturing, marketing | |
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| AstraZeneca Pharmaceuticals LP | US | 100 | | Research and development, | |
| | | | | manufacturing, marketing | |
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| Zeneca Holdings Inc. | US | 100 | | Manufacturing, marketing | |
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| | | | | | |
| Asia, Africa & Australasia | | | | | |
| AstraZeneca Pty Limited | Australia | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca KK | Japan | 80 | | Manufacturing, marketing | |
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The companies and other entities listed above are those whose results or financial position principally affected the figures shown in the Group Financial Statements. A full list of subsidiaries, joint ventures and associates will be annexed to the Company’s next annual return filed with the Registrar of Companies. The country of registration or incorporation is stated alongside each company. The accounting year ends of subsidiaries and associates are 31 December, except for Aptium Oncology, Inc. which, owing to local conditions and to avoid undue delay in the preparation of the Financial Statements, is 30 November. AstraZeneca operates through 236 subsidiaries worldwide. The Group Financial Statements consolidate the Financial Statements of AstraZeneca PLC and its subsidiaries at 31 December 2005. Products are manufactured in 19 countries worldwide and are sold in over 100 countries.
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| | | |
| | 130 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
ADDITIONAL INFORMATION FOR US INVESTORS
INTRODUCTION
The accompanying consolidated Financial Statements included in this Annual Report are prepared in accordance with IFRS as adopted by the EU. There are certain significant differences between IFRS and US GAAP which affect AstraZeneca’s net income and shareholders’ equity and, on pages 130 to 136, additional information under US GAAP is set out as follows:
| > | Summary of differences between IFRS and US GAAP accounting principles; page 130. |
| > | Net income; page 131. |
| > | US GAAP condensed consolidated statement of operations; page 131. |
| > | US GAAP statement of comprehensive income; page 132. |
| > | Stock-based compensation; page 132. |
| > | Pension and post-retirement benefits; page 132. |
| > | Taxation; page 134. |
| > | Shareholders’ equity; page 135. |
| > | Acquired intangible assets and goodwill; page 135. |
| > | US GAAP condensed consolidated statement of cash flows; page 136. |
DIFFERENCES BETWEEN INTERNATIONAL AND US ACCOUNTING PRINCIPLES
Purchase accounting adjustments
Under IFRS, the merger of Astra and Zeneca is accounted for as a ‘merger of equals’ (pooling-of-interests) as a result of the business combinations exemption permitted by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’. Under US GAAP the merger was accounted for as the acquisition of Astra by Zeneca using ‘purchase accounting’. Under purchase accounting, the assets and liabilities of the acquired entity are recorded at fair value. As a result of the fair value exercise, increases in the values of Astra’s property, plant and equipment and inventory were recognised and values attributed to its in-process research and development and existing products, together with appropriate deferred taxation effects. The difference between the cost of investment and the fair value of the assets and liabilities of Astra was recorded as goodwill. The amount allocated to in-process research and development was, as required by US GAAP, expensed immediately in the first reporting period after the business combination. Fair value adjustments to the recorded amount of inventory were expensed in the period the inventory was utilised. Additional amortisation and depreciation have also been recorded in respect of the fair value adjustments to tangible and intangible assets.
Under IFRS, up until 31 December 2002, goodwill was required to be capitalised and amortised. From 1 January 2003, goodwill is tested annually for impairment but not amortised. Under US GAAP, there is an equivalent requirement, but the effective date was 1 January 2002.
Capitalisation of interest
AstraZeneca does not capitalise interest under IFRS. US GAAP requires interest incurred as part of the cost of constructing property, plant and equipment to be capitalised and amortised over the life of the asset.
Deferred taxation
Under IFRS, full provision for deferred taxation is made although there are a number of different bases from US GAAP on which this calculation is made; for example, the elimination of intra-group profit on inventories and share-based payment transactions. Deferred taxation is provided on a full liability basis under US GAAP, which requires deferred tax assets to be recognised without a valuation allowance if their realisation is considered to be more likely than not.
Pension and post-retirement benefits
IFRS requires that in respect of defined benefit plans, obligations are measured at discounted fair value whilst plan assets are recorded at fair value. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. US GAAP adopts a similar approach. Under IFRS, actuarial gains and losses are permitted to be recognised immediately in the statement of recognised income and expense. Under US GAAP, such actuarial gains and losses are permitted to be amortised on a straight-line basis over the average remaining service period of employees. A minimum pension liability is also recognised through other comprehensive income in certain circumstances when there is a deficit of plan assets relative to the accumulated benefits obligation.
Intangible assets
Under IFRS, certain payments for rights to compounds in development are capitalised. Under US GAAP, these payments are generally expensed.
Financial instruments and hedging activities
Under IFRS, certain financial assets and certain financial liabilities (including derivatives) are recognised at fair value; movements in the fair value may be recorded in equity or through income, depending upon their designation. Under US GAAP, marketable securities are recognised at fair value, with movements in fair value taken to a separate component of equity. Derivatives are also measured at fair value with movements taken through income. However, financial liabilities are recorded at amortised cost.
New accounting standards adopted
AstraZeneca has adopted the provisions of SFAS No. 123 (R) ‘Share-Based Payment’ in 2005. SFAS No. 123 (R) requires compensation cost related to share-based payments to be recognised in the financial statements. AstraZeneca has followed the transitional arrangements for modified retrospective application in adopting SFAS No. 123 (R). As a consequence, the 2004 comparative US GAAP income before tax has been reduced by $147m with a related tax credit of $58m and the shareholders’ equity at 31 December 2004 increased by $163m. The impact in 2003 was to reduce income before tax by $154m with a related tax credit of $23m and increase shareholders’ equity at 31 December 2003 by $105m.
New accounting standards not adopted
In November 2004, the FASB issued SFAS No. 151 ‘Inventory Costs’ to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after 15 June 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the results or net assets of AstraZeneca.
In December 2004, the FASB issued SFAS No. 152 ‘Accounting for Real Estate Timesharing Transactions, an amendment of FASB Statements No. 66 and 67’ which provides that real estate time-sharing transactions should be accounted for as non-retail land sales. SFAS No. 152 is effective for fiscal years beginning after 15 June 2005. The adoption of SFAS No. 152 is not expected to have a material effect on the net assets or results of AstraZeneca.
In December 2004, the FASB issued SFAS No. 153 ‘Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29’ which replaces the current exception from fair value measurement for non-monetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 shall be applied prospectively and is effective for non-monetary asset exchanges occurring in fiscal periods beginning after 15 June 2005. The adoption of SFAS No. 153 is not expected to have a material effect on the results or net assets of AstraZeneca.
In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections –a replacement of APB Opinion No. 20 and FASB Statement No. 3’. SFAS No. 154 requires retrospective application of prior periods’ financial statements for changes in accounting principle. SFAS No. 154 applies to accounting periods beginning after 15 December 2005. The adoption of SFAS No. 154 is not expected to have a material effect on the results or net assets of AstraZeneca.
Back to Contents
| | | |
| Additional Information for US Investors | 131 | |
| |
| | | |
NET INCOME
As a result of the significant difference between the IFRS and US GAAP treatment of the combination of Astra and Zeneca in the year of acquisition, and in the results of preceding periods, condensed statements of operations and cash flow under US GAAP have been prepared for the benefit of US investors.
The following is a summary of the adjustments to net income and shareholders’ equity which would have been required if US GAAP had been applied instead of IFRS.
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| | $m | | $m | | $m | |
|
|
|
|
|
| |
| Net income for the period under IFRS | 4,706 | | 3,664 | | 3,022 | |
|
|
|
|
|
| |
| Adjustments to conform to US GAAP | | | | | | |
| Purchase accounting adjustments (including goodwill and intangibles) | | | | | | |
| Deemed acquisition of Astra | | | | | | |
| Amortisation and other acquisition adjustments | (1,019 | ) | (1,014 | ) | (952 | ) |
|
|
|
|
|
| |
| Others | – | | – | | – | |
|
|
|
|
|
| |
| Capitalisation, less disposals and amortisation of interest | (13 | ) | (1 | ) | 17 | |
|
|
|
|
|
| |
| Deferred taxation | | | | | | |
| On fair values of Astra | 283 | | 283 | | 266 | |
|
|
|
|
|
| |
| Others | 65 | | 55 | | (178 | ) |
|
|
|
|
|
| |
| Pension and other post-retirement benefits expense | (74 | ) | (52 | ) | (23 | ) |
|
|
|
|
|
| |
| Financial instruments | (35 | ) | 61 | | 1 | |
|
|
|
|
|
| |
| In-licensed development intangibles | (29 | ) | (46 | ) | (21 | ) |
|
|
|
|
|
| |
| Deferred income recognition | – | | – | | 14 | |
|
|
|
|
|
| |
| Unrealised losses on foreign exchange and others | – | | 1 | | 3 | |
|
|
|
|
|
| |
| Net income in accordance with US GAAP | 3,884 | | 2,951 | | 2,149 | |
|
|
|
|
|
| |
| | | | | | | |
| * Restated in respect of SFAS 123 (R) | | | | | | |
US GAAP CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| For the years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Sales | 23,950 | | 21,426 | | 18,849 | |
|
|
|
|
|
| |
| Cost of sales | (5,356 | ) | (5,152 | ) | (4,471 | ) |
|
|
|
|
|
| |
| Distribution costs | (211 | ) | (177 | ) | (162 | ) |
|
|
|
|
|
| |
| Research and development | (3,429 | ) | (3,900 | ) | (3,493 | ) |
|
|
|
|
|
| |
| Selling, general and administrative expenses | (8,783 | ) | (8,003 | ) | (7,036 | ) |
|
|
|
|
|
| |
| Amortisation of intangibles | (1,009 | ) | (953 | ) | (881 | ) |
|
|
|
|
|
| |
| Other income | 193 | | 534 | | 225 | |
|
|
|
|
|
| |
| Operating income | 5,355 | | 3,775 | | 3,031 | |
|
|
|
|
|
| |
| Net interest income/(expense) | 123 | | (1 | ) | 63 | |
|
|
|
|
|
| |
| Income from continuing operations before taxation | 5,478 | | 3,774 | | 3,094 | |
|
|
|
|
|
| |
| Taxes on income from continuing operations | (1,594 | ) | (823 | ) | (945 | ) |
|
|
|
|
|
| |
| Net income from continuing operations | 3,884 | | 2,951 | | 2,149 | |
|
|
|
|
|
| |
| Net income for the year | 3,884 | | 2,951 | | 2,149 | |
|
|
|
|
|
| |
| Weighted average number of $0.25 Ordinary Shares in issue (millions) | 1,617 | | 1,673 | | 1,709 | |
|
|
|
|
|
| |
| Dilutive impact of share options outstanding (millions) | 1 | | 2 | | 3 | |
|
|
|
|
|
| |
| Diluted weighted average number of $0.25 Ordinary Shares in accordance with US GAAP (millions) | 1,618 | | 1,675 | | 1,712 | |
|
|
|
|
|
| |
| Net income per $0.25 Ordinary Share and ADS in accordance with US GAAP – basic and diluted | $2.40 | | $1.76 | | $1.26 | |
|
|
|
|
|
| |
| * Restated in respect of SFAS 123 (R) | | | | | | |
Back to Contents
| | | |
| | 132 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
ADDITIONAL INFORMATION FOR US INVESTORS CONTINUED
US GAAP STATEMENT OF COMPREHENSIVE INCOME
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| For the years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Net income for the year | 3,884 | | 2,951 | | 2,149 | |
|
|
|
|
|
| |
| Exchange (losses)/gains, net of tax | (3,279 | ) | 2,106 | | 3,635 | |
|
|
|
|
|
| |
| Other movements, net of tax | 218 | | 20 | | (81 | ) |
|
|
|
|
|
| |
| Total comprehensive income | 823 | | 5,077 | | 5,703 | |
|
|
|
|
|
| |
| | | | | | | |
| * Restated in respect of SFAS 123 (R) | | | | | | |
Other movements in 2005 include a reduction in the minimum liability under SFAS No. 87 ‘Employers’ Accounting for Pensions’ from $253m to $36m. Tax effects on exchange gains/(losses) were $(46)m and on other movements $61m. The cumulative exchange gains and losses (net of tax) on the translation of foreign currency financial statements under US GAAP are set out in the following note:
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| For the years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Balance at 1 January | 4,342 | | 2,236 | | (1,399 | ) |
|
|
|
|
|
| |
| Movement in year | (3,279 | ) | 2,106 | | 3,635 | |
|
|
|
|
|
| |
| Balance at 31 December | 1,063 | | 4,342 | | 2,236 | |
|
|
|
|
|
| |
| | | | | | | |
| * Restated in respect of SFAS 123 (R) | | | | | | |
The cumulative total of other movements (net of tax) at 31 December 2005 was a credit of $84m (2004 charge of $134m, 2003 charge of $154m).
STOCK-BASED COMPENSATION
The Group has adopted SFAS No. 123 (R) ‘Share-Based Payments’ in the year under review in respect of share options granted and has applied its provisions retrospectively. The effects on income from continuing operations, income before tax, net income and basic and diluted earnings per share are set out in the table below. There were no impacts from adoption on the cash flows of the Group.
| | 2005 | | 2004 | | 2003 | |
| For the years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Income from continuing operations | (128 | ) | (147 | ) | (154 | ) |
|
|
|
|
|
| |
| Income before tax | (128 | ) | (147 | ) | (154 | ) |
|
|
|
|
|
| |
| Net income | (100 | ) | (107 | ) | (111 | ) |
|
|
|
|
|
| |
| Earnings per $0.25 Ordinary Share and ADS in accordance with US GAAP (basic and diluted) | ($0.06 | ) | ($0.06 | ) | ($0.06 | ) |
|
|
|
|
|
| |
The total compensation cost for nonvested awards not yet recognised at 31 December 2005 was approximately $137m and is expected to be recognised over a weighted average period of 21 months. $143m was received during 2005 from the exercise of share options and similar instruments granted under share-based payment arrangements and $3.9m tax benefit was realised from share options exercised during the year.
PENSION AND POST-RETIREMENT BENEFITS
For the purposes of US GAAP, the pension information as set out in Note 23 in respect of the UK retirement plans and of the retirement plans of the non-UK subsidiaries has been restated in the following tables in accordance with the requirements of SFAS No. 132 ‘Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106’. These plans comprise substantially all of the actuarial liabilities of all AstraZeneca retirement plans. The changes in projected benefit obligations, plan assets and details of the funded status of these retirement plans, together with the changes in the accumulated other post-retirement benefit obligations, under SFAS No. 132 are as follows:
| | Pension benefits | | Other post-retirement benefits | |
| |
| |
| |
| | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |
| Change in projected benefit obligation | $m | | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Benefit obligation at beginning of year | 8,707 | | 7,416 | | 5,943 | | 249 | | 242 | | 210 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Service cost | 256 | | 229 | | 171 | | 12 | | 11 | | 9 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Interest cost | 419 | | 385 | | 329 | | 14 | | 14 | | 14 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Participant contributions | 31 | | 30 | | 26 | | 1 | | 1 | | 1 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Actuarial loss/(gain) | 764 | | 328 | | 545 | | (1) | | (3) | | 24 | |
|
|
|
|
|
|
|
|
|
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|
| |
| Settlement and curtailment | – | | 10 | | 5 | | – | | – | | – | |
|
|
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|
|
|
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|
|
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|
| |
| Benefits paid | (305 | ) | (281 | ) | (245 | ) | (15 | ) | (18 | ) | (19 | ) |
|
|
|
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|
|
|
|
|
|
|
| |
| Exchange | (825 | ) | 590 | | 642 | | (3 | ) | 2 | | 3 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Benefit obligation at end of year | 9,047 | | 8,707 | | 7,416 | | 257 | | 249 | | 242 | |
|
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|
|
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|
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| |
Back to Contents
| | | |
| Additional Information for US Investors | 133 | |
| |
| | | |
PENSION AND POST-RETIREMENT BENEFITS CONTINUED
| | Pension benefits | | Other post-retirement benefits | |
| |
| |
| |
| | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |
| Change in plan assets | $m | | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Fair value at beginning of year | 6,972 | | 5,905 | | 4,549 | | 217 | | 195 | | 133 | |
|
|
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|
|
|
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| |
| Actual return on plan assets | 1,134 | | 565 | | 590 | | 13 | | 22 | | 35 | |
|
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|
|
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|
| |
| Group contribution | 165 | | 280 | | 489 | | 13 | | 17 | | 43 | |
|
|
|
|
|
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|
| |
| Participant contributions | 31 | | 30 | | 26 | | 1 | | – | | 1 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Benefits paid | (305 | ) | (281 | ) | (245 | ) | (15 | ) | (17 | ) | (17 | ) |
|
|
|
|
|
|
|
|
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|
|
| |
| Exchange | (629 | ) | 473 | | 496 | | 1 | | – | | – | |
|
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| |
| Fair value of plan assets at end of year | 7,368 | | 6,972 | | 5,905 | | 230 | | 217 | | 195 | |
|
|
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|
|
|
|
|
|
|
| |
| Funded status of plans | (1,679 | ) | (1,735 | ) | (1,511 | ) | (27 | ) | (32 | ) | (47 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Unrecognised net loss | 1,420 | | 1,644 | | 1,503 | | 32 | | 29 | | 36 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Prior service cost not recognised | 25 | | 15 | | 25 | | (8 | ) | (11 | ) | (9 | ) |
|
|
|
|
|
|
|
|
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|
| |
| Unrecognised net obligation on implementation | – | | (1 | ) | (1 | ) | 19 | | 25 | | 29 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| | (234 | ) | (77 | ) | 16 | | 16 | | 11 | | 9 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Adjustments to recognise minimum liability: | | | | | | | | | | | | |
| Intangible assets | – | | (36 | ) | (39 | ) | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Accumulated other comprehensive income | (36 | ) | (217 | ) | (260 | ) | – | | – | | – | |
|
|
|
|
|
|
|
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|
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|
| |
| Accrued benefit (liability)/asset | (270 | ) | (330 | ) | (283 | ) | 16 | | 11 | | 9 | |
|
|
|
|
|
|
|
|
|
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| |
At 31 December 2005, the projected benefit obligation, accumulated benefit obligation and fair value of the plan assets in respect of the pension plans above with accumulated benefit obligations in excess of plan assets were $6,984m, $5,990m and $5,566m, (2004 $6,699m, $5,800m and $5,220m) respectively. The total of accumulated benefit obligations for the pension plans was $7,965m (2004 $7,443m). The measurement date for the plan assets and benefit obligations set out above was 31 December 2005. Contributions to the plans in 2006 are estimated to be $163m.
Following an employee vote in December 2005, and subject to regulatory approval, the Japanese defined benefit pension scheme is to be closed and its assets and obligations transferred to a defined contribution scheme. The curtailment and settlement cost, to be recognised in 2006, will be approximately $35m and the cash payment in the region of $100m.
Assumed discount rates and rates of increase in remuneration used in calculating the projected benefit obligations together with long term rates of return on plan assets vary according to the economic conditions of the country in which the retirement plans are situated. The weighted average rates used for calculation of year end benefit obligations and forecast benefit cost in the retirement plans and other benefit obligations for SFAS No. 132 purposes were as follows:
| | Pension benefits | | Other post-retirement benefits | |
| |
| |
| |
| | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |
| | % | | % | | % | | % | | % | | % | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Discount rate | 4.8 | | 5.2 | | 5.5 | | 5.4 | | 5.7 | | 5.9 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Long term rate of increase in remuneration | 3.8 | | 3.9 | | 4.0 | | n/a | | n/a | | n/a | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Expected long term return on assets | 6.4 | | 6.8 | | 6.6 | | 6.5 | | 7.8 | | 7.8 | |
|
|
|
|
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|
|
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| |
| | | | | | | | | | | | | |
The Group has assumed a long term rate of increase in healthcare costs of 9.9%, reducing to 4.9%.
| | Pension benefits | | Other post-retirement benefits | |
| |
|
|
| |
|
|
| |
| | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |
| | $m | | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Net periodic cost | | | | | | | | | | | | |
| Service cost – present value of benefits | | | | | | | | | | | | |
| accruing during the year | 256 | | 229 | | 171 | | 12 | | 11 | | 9 | |
|
|
|
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|
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| |
| Interest cost on projected benefit obligations | 419 | | 385 | | 329 | | 14 | | 14 | | 14 | |
|
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|
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|
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| |
| Expected return on assets | (431 | ) | (406 | ) | (308 | ) | (17 | ) | (15 | ) | (14 | ) |
|
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| |
| Net amortisation and deferral | 111 | | 76 | | 45 | | 3 | | 3 | | 2 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Net periodic cost for the year | 355 | | 284 | | 237 | | 12 | | 13 | | 11 | |
|
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Back to Contents
| | | |
| | 134 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
ADDITIONAL INFORMATION FOR US INVESTORS CONTINUED
| PENSION AND POST-RETIREMENT BENEFITS CONTINUED | | | | | | |
| The weighted average allocation of pension and other post-retirement plan assets was as follows: | | | | | | |
| | | | | | | |
| | 2005 | | 2004 | | 2003 | |
| | % | | % | | % | |
|
|
|
|
|
| |
| Equities | 46.6 | | 48.2 | | 49.2 | |
|
|
|
|
|
| |
| Bonds | 37.5 | | 35.6 | | 48.8 | |
|
|
|
|
|
| |
| Other | 15.9 | | 16.2 | | 2.0 | |
|
|
|
|
|
| |
|
| | | |
| The benefits expected to be paid in the future are as follows: | | |
| | | |
| | $m | |
|
| |
| 2006 | 295 | |
|
| |
| 2007 | 306 | |
|
| |
| 2008 | 319 | |
|
| |
| 2009 | 332 | |
|
| |
| 2010 | 344 | |
|
| |
| 2011 – 2015 | 1,909 | |
|
| |
| TAXATION | | | | | | |
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| Years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Taxes on income from continuing operations | | | | | | |
| Current tax expense | | | | | | |
| Current year | 1,747 | | 1,349 | | 902 | |
|
|
|
|
|
| |
| Adjustment for prior years | 112 | | (171) | | 26 | |
|
|
|
|
|
| |
| Deferred tax expense | | | | | | |
| Origination and reversal of temporary differences | (265) | | (355) | | 17 | |
|
|
|
|
|
| |
| Total taxation expense in the income statement | 1,594 | | 823 | | 945 | |
|
|
|
|
|
| |
| | | | | | | |
| * | Restated in respect of SFAS 123 (R) |
| | | | | | |
| The table below reconciles the UK statutory tax charge with the Group’s actual charge on income from continuing operations. | | | | | |
| | | | | | | |
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| Years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
| |
| Income from continuing operations | 5,478 | | 3,774 | | 3,094 | |
|
|
|
|
|
| |
| Taxation charge at UK corporation tax rate of 30% for 2005 (30% for 2004, 30% for 2003) | 1,644 | | 1,132 | | 928 | |
|
|
|
|
|
| |
| Differences in effective overseas tax rates | (147 | ) | 2 | | (41 | ) |
|
|
|
|
|
| |
| Unrecognised deferred tax asset | 25 | | 25 | | – | |
|
|
|
|
|
| |
| Items not deductible for tax purposes | 136 | | 30 | | 111 | |
|
|
|
|
|
| |
| Items not chargeable for tax purposes | (95 | ) | (71 | ) | (88 | ) |
|
|
|
|
|
| |
| Adjustments in respect of prior periods | 31 | | (171 | ) | 35 | |
|
|
|
|
|
| |
| Exceptional items | – | | (124 | ) | – | |
|
|
|
|
|
| |
| Tax on income from continuing operations | 1,594 | | 823 | | 945 | |
|
|
|
|
|
| |
| | | | | | | |
| * | Restated in respect of SFAS 123 (R) |
In 2005, claims amounting to $nil (2004 $nil, 2003 $95m) for tax relief were made arising as a result of a restructuring of the AMI joint venture in 1998. Under US GAAP, these reliefs are adjusted against the goodwill arising on the restructuring and included in other adjustments.
Back to Contents
| | | |
| Additional Information for US Investors | 135 | |
| |
| | | |
| SHAREHOLDERS’ EQUITY | | | | | | |
| | | | 2004 | | 2003 | |
| | 2005 | | restated | * | restated | * |
| | $m | | $m | | $m | |
|
|
|
|
|
| |
| Total shareholders’ equity under IFRS | 13,597 | | 14,404 | | 13,086 | |
|
|
|
|
|
| |
| | | | | | | |
| Adjustments to conform to US GAAP | | | | | | |
| Purchase accounting adjustments (including goodwill and intangibles) | | | | | | |
| Deemed acquisition of Astra | | | | | | |
| Goodwill | 13,504 | | 15,130 | | 14,342 | |
|
|
|
|
|
| |
| Property, plant and equipment and intangible assets | 5,229 | | 6,988 | | 7,661 | |
|
|
|
|
|
| |
| Others | 58 | | 99 | | 55 | |
|
|
|
|
|
| |
| Capitalisation, less disposals and amortisation of interest | 241 | | 254 | | 255 | |
|
|
|
|
|
| |
| Deferred taxation | | | | | | |
| On fair value of Astra | (1,629 | ) | (2,134 | ) | (2,313 | ) |
|
|
|
|
|
| |
| Others | (492 | ) | (618 | ) | (555 | ) |
|
|
|
|
|
| |
| In-licensed development intangibles | (112 | ) | (83 | ) | (38 | ) |
|
|
|
|
|
| |
| Pension and other post-retirement benefits | 1,483 | | 1,418 | | 1,212 | |
|
|
|
|
|
| |
| Financial instruments | 18 | | 22 | | 57 | |
|
|
|
|
|
| |
| Others | (3 | ) | (3 | ) | (3 | ) |
|
|
|
|
|
| |
| Shareholders’ equity in accordance with US GAAP | 31,894 | | 35,477 | | 33,759 | |
|
|
|
|
|
| |
| | | | | | | |
| * | Restated in respect of SFAS 123 (R) |
| | | | | | | | | | | | | |
| ACQUIRED INTANGIBLE ASSETS AND GOODWILL | | | | | | | | | | | | |
| Details of the carrying amounts of intangible assets and past and projected amortisation expenses are set out below. | | | | | |
| | | | | | | | | | | | | |
| | | | 2005 | | | | 2004 | | | | 2003 | |
| |
|
|
| |
|
|
| |
|
|
| |
| | Gross | | | | Gross | | | | Gross | | | |
| | carrying | | Accumulated | | carrying | | Accumulated | | carrying | | Accumulated | |
| | amount | | amortisation | | amount | | amortisation | | amount | | amortisation | |
| | $m | | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Product rights | 12,961 | | (7,011 | ) | 14,590 | | (6,744 | ) | 13,733 | | (5,274 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Marketing and distribution rights | 1,494 | | (1,043 | ) | 1,729 | | (1,043 | ) | 1,659 | | (831 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Software | 652 | | (396 | ) | 589 | | (367 | ) | 462 | | (305 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Others | 437 | | (310 | ) | 460 | | (360 | ) | 421 | | (329 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Total | 15,544 | | (8,760 | ) | 17,368 | | (8,514 | ) | 16,275 | | (6,739 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate amortisation expense | | |
| | $m | |
|
| |
| For year ended 31 December 2005 | 1,287 | |
|
| |
| For year ended 31 December 2004 | 1,316 | |
|
| |
| For year ended 31 December 2003 | 1,245 | |
|
| |
| | | |
| Estimated amortisation expense | | |
| | | |
|
| |
| For year ended 31 December 2006 | 1,275 | |
|
| |
| For year ended 31 December 2007 | 1,187 | |
|
| |
| For year ended 31 December 2008 | 1,187 | |
|
| |
| For year ended 31 December 2009 | 1,187 | |
|
| |
| For year ended 31 December 2010 | 1,187 | |
|
| |
The weighted average amortisation period in respect of each class of intangible asset is as follows:
| Product rights | | 13 years | |
| Marketing and distribution rights | | 16 years | |
| Software | | 4 years | |
| Other | | 8 years | |
Back to Contents
| | | |
| | 136 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
ACQUIRED INTANGIBLE ASSETS AND GOODWILL CONTINUED
Goodwill
The changes in the carrying amount of goodwill for the three years ended 31 December 2005 were as follows:
| | $m | |
|
| |
| Balance as at 1 January 2003 | 13,647 | |
|
| |
| Acquired | 1 | |
|
| |
| Exchange movements | 1,658 | |
|
| |
| Balance as at 31 December 2003 | 15,306 | |
|
| |
| Exchange movements | 837 | |
|
| |
| Balance as at 31 December 2004 | 16,143 | |
|
| |
| Exchange movements | (1,737 | ) |
|
| |
| Balance as at 31 December 2005 | 14,406 | |
|
| |
|
| | | | | | | |
| US GAAP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | | | | | | |
| | | 2005 | | 2004 | | 2003 | |
| For the years ended 31 December | $m | | $m | | $m | |
|
|
|
|
|
|
| |
| Cash flows from operating activities | 6,919 | | 4,842 | | 3,416 | |
|
|
|
|
|
|
| |
| Cash flows from investing activities | | | | | | |
| | Movement in short term investments and fixed deposits | (1,922 | ) | (862 | ) | 771 | |
|
|
|
|
|
|
| |
| | New non-current investments | (12 | ) | (117 | ) | (120 | ) |
|
|
|
|
|
|
| |
| | Disposal of property, plant and equipment | 87 | | 35 | | 38 | |
|
|
|
|
|
|
| |
| | Acquisitions and disposals | – | | 355 | | 80 | |
|
|
|
|
|
|
| |
| | Capital expenditure | (942 | ) | (1,183 | ) | (1,515 | ) |
|
|
| |
| |
| |
| Net cash outflows from investing activities | (2,789 | ) | (1,772 | ) | (746 | ) |
|
|
|
|
|
|
| �� |
| Net cash flow before financing | 4,130 | | 3,070 | | 2,670 | |
|
|
|
|
|
|
| |
| Cash flows from financing activities | | | | | | |
| | Equity dividends paid | (1,717 | ) | (1,378 | ) | (1,222 | ) |
|
|
|
|
|
|
| |
| | Proceeds from issue of AstraZeneca PLC Ordinary Shares | 143 | | 102 | | 47 | |
|
|
|
|
|
|
| |
| | Re-purchase of AstraZeneca PLC Ordinary Shares | (3,001 | ) | (2,212 | ) | (1,154 | ) |
|
|
|
|
|
|
| |
| | Net increase in short term borrowings | 3 | | 2 | | – | |
|
|
|
|
|
|
| |
| | New loans/(loans repaid) | – | | 725 | | (345 | ) |
|
|
|
|
|
|
| |
| Net cash outflows from financing activities | (4,572 | ) | (2,761 | ) | (2,674 | ) |
|
|
|
|
|
|
| |
| (Decrease)/increase in cash | (442 | ) | 309 | | (4 | ) |
|
|
|
|
|
|
| |
| Cash: | | | | | | |
| At 1 January | 915 | | 581 | | 524 | |
|
|
|
|
|
|
| |
| (Decrease)/increase in cash | (442 | ) | 309 | | (4 | ) |
|
|
|
|
|
|
| |
| Exchange movements | (12 | ) | 25 | | 61 | |
|
|
|
|
|
|
| |
| At 31 December | 461 | | 915 | | 581 | |
|
|
|
|
|
|
| |
Interest paid was $32m in 2005 (2004 $69m, 2003 $39m). Interest received was $206m in 2005 (2004 $119m, 2003 $117m). Tax paid was $1,606m in 2005 (2004 $1,246m, 2003 $886m).
Back to Contents
| | | |
| Explanation of transition to IFRS | 137 | |
| |
| | | |
EXPLANATION OF TRANSITION TO IFRS
These are the Group’s first consolidated financial statements prepared in accordance with IFRS.
The accounting policies set out on pages 87 to 89 have been applied in preparing the Financial Statements for the year ended 31 December 2005, the comparative information presented in these financial statements for the years ended 31 December 2004 and 31 December 2003 and in the preparation of an opening IFRS balance sheet at 1 January 2003 (the Group’s date of transition).
In preparing its opening balance sheet, the Group has adjusted amounts reported previously in Financial Statements prepared in accordance with UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected the Group’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
The information below differs from that presented in January 2005 in the 2004 Annual Report and Form 20-F Information in that certain income statement and balance sheet items have been reclassified. In addition, as noted in the accounting policies on page 88, the comparative information has also been restated to reflect the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement – the Fair Value Option’.
| Total equity | 31 Dec 2004 | | 1 Jan 2003 | |
| $m | $m |
|
|
|
|
|
| Total equity under UK GAAP | 14,519 | | 11,226 | |
|
|
|
|
| |
| Adjustments to conform to IFRS | | | | |
| Employee benefits | (2,010 | ) | (1,380 | ) |
|
|
|
| |
| Financial instruments | 11 | | 153 | |
|
|
|
| |
| Share-based payments | – | | – | |
|
|
|
|
| |
| Goodwill | | 108 | | – | |
|
|
|
|
| |
| Dividends | | 1,061 | | 808 | |
|
|
|
|
| |
| Capitalised software and other intangibles | 106 | | 80 | |
|
|
|
|
| |
| Other | | 12 | | 1 | |
|
|
|
|
| |
| Deferred tax | – IFRS adjustments above | 579 | | 362 | |
|
|
|
|
| |
| | – other | 111 | | (82 | ) |
|
|
|
|
| |
| Total equity under IFRS | 14,497 | | 11,168 | |
|
|
|
|
| |
| | | | |
| | | Year ended | |
| 31 Dec 2004 |
| Profit for the period | | $m | |
|
|
| |
| Profit for the period under UK GAAP | 3,831 | |
|
|
| |
| Adjustments to conform to IFRS | | |
| Employee benefits | | 1 | |
|
|
| |
| Financial instruments | | (163 | ) |
|
|
| |
| Share-based payments | | (147 | ) |
|
|
| |
| Goodwill | | 49 | |
|
|
| |
| Capitalised software and other intangibles | 21 | |
|
|
| |
| Other | | (2 | ) |
|
|
| |
| Deferred tax | – IFRS adjustments above | 26 | |
|
|
| |
| | – other | 67 | |
|
|
| |
| Profit for the period under IFRS | 3,683 | |
|
|
| |
Under IAS 7 ‘Cash Flow Statements’, movements on cash and cash equivalents are reconciled; under UK GAAP the statement reconciles cash only. The change in the presentation of the cash flow statement under IAS 7 makes no difference to the free cash generated by the Group.
IFRS TRANSITIONAL ARRANGEMENTS AND EARLY ADOPTION
When preparing the consolidated balance sheet under IFRS at 1 January 2003, the date of transition, the following optional exemptions from full retrospective application of IFRS accounting policies have been adopted:
| > | Business combinations – the provisions of IFRS 3 have been applied prospectively from 1 January 2003. Business combinations that occurred before 1 January 2003 have not been restated. |
| > | Employee benefits – the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full through reserves at 1 January 2003. |
| > | Cumulative exchange differences – cumulative translation differences on net investments have been set to zero at 1 January 2003. |
The following optional exemptions from full retrospective application of IFRS accounting policies have not been adopted:
| > | Fair value or revaluation – an entity may elect to use fair value or a previous GAAP revaluation at the opening balance sheet date. This exemption did not apply to AstraZeneca. |
| > | Compound financial instruments – If the compound financial instruments are no longer outstanding at the date of transition, then the entity is not required to split the instrument into the separate equity and liability components. |
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| | | |
| | 138 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
EXPLANATION OF TRANSITION TO IFRS CONTINUED
IFRS TRANSITIONAL ARRANGEMENTS AND EARLY ADOPTION CONTINUED
In addition the Group has chosen to restate comparative information with respect to IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 2 ‘Share-based Payments’ has been adopted with full retrospective application.
The Group has also adopted the amendment to IAS 19 ‘Employee Benefits’ early, allowing actuarial gains or losses to be recognised directly in the consolidated statement of income and expense in the period in which they arise. Comparative information has been prepared on this basis.
OTHER RECLASSIFICATIONS
Phase 4 (post-launch) trial costs of $388m in 2004 were reclassified to ‘selling, general and administrative costs’ from ‘research and development’ as part of the transition to IFRS. This is not shown in the above reconciliations as there was no profit or equity impact.
EFFECTS OF IFRS IN FINANCIAL STATEMENTS
Employee benefits
IAS 19 requires deficits and surpluses in company pension schemes to be recorded on the balance sheet. IAS 19 also requires separate recognition of the operating and financing costs of defined benefit pensions (and other post-retirement employee benefits) in the income statement. Actuarial gains and losses are recognised in full immediately in the statement of recognised income and expense and cumulative actuarial gains and losses at 1 January 2003 have been recognised in full as an adjustment to opening retained earnings.
Financial instruments
IAS 32 sets out the presentation and disclosure requirements in respect of financial instruments, whilst IAS 39 stipulates the measurement and recognition requirements. The general principle of IAS 39 is that financial assets and liabilities should be recognised at fair value. AstraZeneca has opted to apply the financial instruments standards, IAS 32 and IAS 39, retrospectively in order to give a more meaningful view of the Group’s results and financial position. Accounting for the movements in fair value is dependent on the designation of the relevant financial instrument, with movements going through either the income statement and or being taken directly to equity.
Share-based payments
IFRS 2 requires that a charge is recorded in respect of shares and share options that are granted to employees. AstraZeneca has recognised a charge to income representing the fair value of outstanding employee share options granted to approximately 9,000 employees and has followed the optional transitional arrangements which allow companies that have previously disclosed the fair value charge, to apply IFRS 2 fully retrospectively to all options granted but not fully vested at the relevant reporting date. This approach is encouraged in the standard and gives a better indication of how past results are affected by IFRS 2.
Business combinations
IFRS 3 prohibits merger accounting and the amortisation of goodwill. The standard requires goodwill to be carried at cost with impairment reviews both annually and also when there are indications that the carrying value may not be recoverable. Under the transitional arrangements of IFRS 1 a company has the option of applying IFRS 3 prospectively from the transition date to IFRS.
AstraZeneca has chosen this option rather than to restate all previous business combinations (including accounting for the merger of Astra and Zeneca). The impact of IFRS 3 and associated transitional arrangements on AstraZeneca are as follows:
| > | All prior business combination accounting is frozen at the transition date. |
| > | The value of goodwill is frozen at 1 January 2003 and amortisation previously reported under UK GAAP for 2003 and 2004 is removed. |
Dividends
IAS 10 requires dividends to be recognised as a liability when they are declared. For the final dividend this is usually after the accounting period to which it relates, when the dividend is approved by the Board. Consequently there is an adjustment to remove the liability for the final dividend declared post year end.
Capitalised software and other intangibles
IAS 38 requires all intangible assets that meet the capitalisation criteria to be capitalised. For AstraZeneca, this led to the following Group policies being applied:
| > | In respect of internal product development expenditure, it is management’s view that it is not possible to demonstrate with sufficient certainty that, prior to regulatory approval, these criteria are met. Consequently, AstraZeneca would not expect to capitalise internal development costs. |
| > | In respect of internal development expenditure on software, it is management’s view that some projects have met the criteria for capitalisation. Results have been adjusted to include both the capitalised costs and associated amortisation of these projects. |
| > | The standard requires all externally acquired intangibles to be capitalised and the results have been adjusted to recognise a small number of products in early phase development that had been expensed under UK GAAP. |
Deferred taxation
IAS 12 requires deferred tax to be calculated using the purchaser’s tax rate instead of the vendor’s tax rate under UK GAAP, changing the methodology used to calculate deferred tax on unrealised profit on intra-group sales. The standard further requires a deferred tax provision for all rolled over capital gains (rather than those expected to crystallise).
Back to Contents
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF ASTRAZENECA PLC
We have audited the Company Financial Statements of AstraZeneca PLC for the year ended 31 December 2005 which comprise the Balance Sheet and the related notes on pages 140 to 144. These Company Financial Statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.
We have reported separately on the Group Financial Statements of AstraZeneca PLC for the year ended 31 December 2005.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES
OF DIRECTORS AND AUDITORS
The Directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the Company Financial Statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 82.
Our responsibility is to audit the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Company Financial Statements give a true and fair view and whether the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the Company Financial Statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited Company Financial Statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Company Financial Statements. Our responsibilities do not extend to any other information.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the Company Financial Statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited.
OPINION
In our opinion:
| > | The Company Financial Statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the Company’s affairs as at31 December 2005. |
| | |
| > | The Company Financial Statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. |
2 February 2006
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London EC4Y 8BB
Back to Contents
| | | |
| | 140 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
ASTRAZENECA PLC
BALANCE SHEET
| | | | | | 2004 | |
| | | | 2005 | | restated | |
| At 31 December | Notes | | $m | | $m | |
|
|
|
|
|
| |
| Fixed assets | | | | | | |
| Fixed asset investments | 1 | | 24,856 | | 30,912 | |
|
|
|
|
|
| |
| Current assets | | | | | | |
| Debtors – other | 2 | | 27 | | 25 | |
|
|
|
|
|
| |
| Debtors – amounts owed by subsidiaries | | | 340 | | 61 | |
|
|
|
|
|
| |
| | | | 367 | | 86 | |
|
|
|
|
|
| |
| Total assets | | | 25,223 | | 30,998 | |
|
|
|
|
|
| |
| Creditors due within one year | | | | | | |
| Non-trade creditors | 3 | | (20 | ) | (2,529 | ) |
|
|
|
|
|
| |
| Net current assets/ (liabilities) | | | 347 | | (2,443 | ) |
|
|
|
|
|
| |
| Total assets less current liabilities | | | 25,203 | | 28,469 | |
|
|
|
|
|
| |
| | | | | | | |
| Creditors due after more than one year | | | | | | |
| Loans – owed to subsidiaries | 4 | | (283 | ) | (283 | ) |
|
|
|
|
|
| |
| Loans – external | 4 | | (747 | ) | (747 | ) |
|
|
|
|
|
| |
| | | | (1,030 | ) | (1,030 | ) |
|
|
|
|
|
| |
| Net assets | | | 24,173 | | 27,439 | |
|
|
|
|
|
| |
| Capital and reserves | | | | | | |
| Called-up share capital | 7 | | 395 | | 411 | |
|
|
|
|
|
| |
| Share premium account | 5 | | 692 | | 550 | |
|
|
|
|
|
| |
| Capital redemption reserve | 5 | | 53 | | 36 | |
|
|
|
|
|
| |
| Other reserves | 5 | | 1,841 | | 1,841 | |
|
|
|
|
|
| |
| Profit and loss account | 5 | | 21,192 | | 24,601 | |
|
|
|
|
|
| |
| Shareholders’ funds | | | 24,173 | | 27,439 | |
|
|
|
|
|
| |
The Financial Statements on pages 140 to 144 were approved by the Board of Directors on 2 February 2006 and were signed on its behalf by:
| DAVID R BRENNAN | JONATHAN SYMONDS |
| Director | Director |
| | |
Back to Contents
ACCOUNTING POLICIES
Basis of accounting
The Financial Statements are prepared under the historical cost convention, modified to include revaluation to fair value of certain financial instruments as described below, in accordance with the Companies Act 1985 and UK Generally Accepted Accounting Principles (UK GAAP). The following paragraphs describe the main accounting policies under UK GAAP, which have been applied consistently.
New Accounting Standards
The Company has adopted the following accounting standards in the year:
| > | Financial Reporting Standard No. 20‘Share-Based Payments’ (FRS 20). Under FRS 20, the Company is required to reflect share-based payments in the profit and loss account. In the Company’s case, share-based payments comprise primarily share options through the AstraZeneca Savings-Related Share Option Scheme and the AstraZeneca Share Option Plan. The provisions of FRS 20 have been applied to options granted after 7 November 2002. The adoption of FRS 20 had no effect on the Company’s profit or net assets. |
| | |
| > | Financial Reporting Standard No. 21‘Events after the Balance Sheet Date’ (FRS 21). The major effect of FRS 21 is to change the approach to dividends declared after the balance sheet date in respect of the year under review such that these dividends are no longer accrued for in the balance sheet. As a result of adopting FRS 21, the Company’s net assets at 31 December 2004 increased by $1,061m. |
| | |
| > | Financial Reporting Standard No. 23‘The Effects of Changes in Foreign Exchange Rates’ (FRS 23). FRS 23 sets out additional guidance on the translation method for transactions in foreign currencies and on determining the functional and presentation currencies. The adoption of FRS 23 had no effect on the Company’s profit or net assets. |
| | |
| > | Financial Reporting Standard No. 25‘Financial Instruments: Disclosure and Presentation’ (FRS 25). FRS 25 sets out the requirements for the presentation of, and disclosures relating to, financial instruments. The adoption of FRS 25 had no effect on the Company’s profit or net assets; disclosures complying with the requirements of FRS 25 are included in the Financial Statements. |
| | |
| > | Financial Reporting Standard No. 26‘Financial Instruments: Measurement’ (FRS 26). FRS 26 sets out requirements for measurement, recognition and derecognition of financial instruments. The adoption of FRS 26 had no effect on the Company’s profit or net assets. |
| | |
| > | Financial Reporting Standard No. 28 ‘Corresponding Amounts’ (FRS 28). FRS 28 sets out the requirements for the disclosure of corresponding amounts for items shown in an entity’s primary financial statements and the notes to the financial statements. The adoption of FRS 28 had no effect upon the Company’s profit or net assets. |
Foreign currencies
Profit and loss accounts in foreign currencies are translated into US dollars at average rates for the relevant accounting periods. Assets and liabilities are translated at exchange rates prevailing at the date of the Company balance sheet. Exchange gains and losses are included within net interest payable.
Taxation
The charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and for accounting purposes. Full provision is made for the effects of these differences. Deferred tax asset valuation allowances are made where it is more likely than not that the asset will not be realised in the future. These valuations require judgements to be made including the forecast of future taxable income. Deferred tax balances are not discounted.
Accruals for tax contingencies require management to make judgements and estimates in relation to tax audit issues. Tax benefits are not recognised unless the tax positions will probably be sustained. Once considered to be probable, management reviews each material tax benefit to assess whether a provision should be taken against full recognition of that benefit on the basis of potential settlement through negotiation and/or litigation.
Any recorded exposure to interest on tax liabilities is provided for in the tax charge. All provisions are included in creditors due within one year.
Investments
Fixed asset investments, including investments in subsidiaries, are stated at cost and reviewed for impairment if there are indications that the carrying value may not be recoverable.
Financial instruments
Loans and receivables are held at amortised cost. Long term loans payable are held at amortised cost. Other financial instruments, including derivatives, are held at fair value; changes in fair value are reflected in the income statement.
Contingent liabilities
Through the normal course of business, AstraZeneca is involved in legal disputes, the settlement of which may involve cost to the Company. Provision is made where an adverse outcome is probable and associated costs can be estimated reliably.
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| | | |
| | 142 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
NOTES TO THE FINANCIAL STATEMENTS
1 FIXED ASSET INVESTMENTS
| | | Investments in subsidiaries | |
| |
|
| |
| | Shares | | Loans | | Total | |
| | $m | | m | | m | |
|
|
|
|
|
| |
| Cost at beginning of year | 6,715 | | 24,197 | | 30,912 | |
|
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|
|
|
| |
| Additions | – | | – | | – | |
|
|
|
|
|
| |
| Repayment of loan | – | | (6,056 | ) | (6,056 | ) |
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|
| |
| Net book value at 31 December 2005 | 6,715 | | 18,141 | | 24,856 | |
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| Net book value at 31 December 2004 | 6,715 | | 24,197 | | 30,912 | |
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| |
| | | | | | | |
| | | | | |
| | 2005 | | 2004 | |
| | $m | | $m | |
|
|
|
| |
| Other debtors | 10 | | – | |
|
|
|
| |
| Deferred tax asset | 17 | | 25 | |
|
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|
| |
| | 27 | | 25 | |
|
|
|
| |
| | | | | |
| | | | 2004 | |
| | 2005 | | restated | |
| | $m | | $m | |
|
|
|
| |
| Amounts due within one year | | | | |
| Short term borrowings (unsecured) | 5 | | 4 | |
|
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|
| |
| Other creditors | 5 | | 116 | |
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|
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| Amounts owed to subsidiaries | 10 | | 2,409 | |
|
|
|
| |
| | 20 | | 2,529 | |
|
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| |
| | | | | |
| | Repayment | | 2005 | | 2004 | |
| | dates | | $m | | $m | |
|
|
|
|
|
| |
| Loans – owed to subsidiaries (unsecured) | | | | | | |
| US dollars | | | | | | |
| 7.2% loan | 2023 | | 283 | | 283 | |
|
|
|
|
|
| |
| Loans – external (unsecured) | | | | | | |
| US dollars | | | | | | |
| 5.4% callable bond | 2014 | | 747 | | 747 | |
|
|
|
|
|
| |
| | | | 1,030 | | 1,030 | |
|
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| |
| Loans or instalments thereof are repayable: | | | | | | |
| After five years from balance sheet date | | | 1,030 | | 1,030 | |
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| |
| From two to five years | | | – | | – | |
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|
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| From one to two years | | | – | | – | |
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|
|
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|
| |
| Total unsecured | | | 1,030 | | 1,030 | |
|
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| Total due within one year | | | – | | – | |
|
|
|
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|
| |
| | | | 1,030 | | 1,030 | |
|
|
|
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| The fair values of the external loans and the loans owed to subsidiaries are as follows: | | | | |
| | 2005 | | 2004 | |
| | $m | | $m | |
|
|
|
| |
| 7.2% loan | 341 | | 338 | |
|
|
|
| |
| 5.4% callable bond | 770 | | 789 | |
|
|
|
| |
| | 1,111 | | 1,127 | |
|
|
|
| |
Both loans are at fixed interest rates. Accordingly the fair values of the loans will change as market rates change. However, since the loans are held at amortised cost, changes in interest rates and the credit rating of the Company will not have an effect on the Company’s net assets.
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| | Share | | Capital | | | | Profit | | | | 2004 | |
| | premium | | redemption | | Other | | and loss | | 2005 | | Total | |
| | account | | reserve | | reserves | | account | | Total | | restated | |
| | $m | | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| As previously reported | 550 | | 36 | | 1,841 | | 23,540 | | 25,967 | | 28,448 | |
|
|
|
|
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|
|
|
|
|
|
| |
| On adoption of FRS 21 | – | | – | | – | | 1,061 | | 1,061 | | 914 | |
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| At beginning of year – revised | 550 | | 36 | | 1,841 | | 24,601 | | 27,028 | | 29,362 | |
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|
|
|
|
| |
| Net gains for the year | – | | – | | – | | 1,268 | | 1,268 | | 1,172 | |
|
|
|
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|
|
|
|
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|
| |
| Dividends | – | | – | | – | | (1,676 | ) | (1,676 | ) | (1,408 | ) |
|
|
|
|
|
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|
|
|
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| Share re-purchases | – | | 17 | | – | | (3,001 | ) | (2,984 | ) | (2,199 | ) |
|
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| Share premiums | 142 | | – | | – | | – | | 142 | | 101 | |
|
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|
| |
| At end of year | 692 | | 53 | | 1,841 | | 21,192 | | 23,778 | | 27,028 | |
|
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|
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|
|
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| |
| Distributable reserves at end of year | – | | – | | 733 | | 4,325 | | 5,058 | | 2,269 | |
|
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| |
As permitted by section 230 of the Companies Act 1985, the Company has not presented its profit and loss account.
At 31 December 2005 $16,867m (31 December 2004 $22,923m) of the profit and loss account reserve was not available for distribution. The majority of this non-distributable amount relates to profit arising on the sale of Astra AB to a subsidiary in 1999, which becomes distributable as the underlying receivable is settled. During 2005, $6,056m of the profit was realised by repayment. Subsequent to the year end, a further $587m was repaid on 26 January 2006, resulting in additional distributable reserves not included in the figures above. Included in other reserves is a special reserve of $157m, arising on the redenomination of share capital in 1999.
| 6 | RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS |
| | | | 2004 | |
| | 2005 | | restated | |
| | $m | | $m | |
|
|
|
| |
| Shareholders’ funds at beginning of year | 27,439 | | 29,785 | |
|
|
|
| |
| Net gains for the financial year | 1,268 | | 1,172 | |
|
|
|
| |
| Dividends | (1,676 | ) | (1,408 | ) |
|
|
|
| |
| Issues of AstraZeneca PLC Ordinary Shares | 143 | | 102 | |
|
|
|
| |
| Re-purchase of AstraZeneca PLC Ordinary Shares | (3,001 | ) | (2,212 | ) |
|
|
|
| |
| Net reduction in shareholders’ funds | (3,266 | ) | (2,346 | ) |
|
|
|
| |
| Shareholders’ funds at end of year | 24,173 | | 27,439 | |
|
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|
| |
Back to Contents
| | | |
| | 144 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
| | | | | | Allotted, called-up | |
| | Authorised | | | | and fully paid | |
| |
| |
|
|
| |
| | 2005 | | 2005 | | 2004 | |
| | $m | | $m | | $m | |
|
|
|
|
|
| |
| Issued Ordinary Shares ($0.25 each) | 395 | | 395 | | 411 | |
|
|
|
|
|
| |
| Unissued Ordinary Shares ($0.25 each) | 205 | | – | | – | |
|
|
|
|
|
| |
| Redeemable Preference Shares (£1 each – £50,000) | – | | – | | – | |
|
|
|
|
|
| |
| | 600 | | 395 | | 411 | |
|
|
|
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|
| |
The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
The movements in share capital during the year can be summarised as follows:
| | No. of shares | | | |
| | (million) | | $m | |
|
|
|
| |
| At beginning of year | 1,645 | | 411 | |
|
|
|
| |
| Issues of shares | 4 | | 1 | |
|
|
|
| |
| Re-purchase of shares | (68 | ) | (17 | ) |
|
|
|
| |
| At 31 December 2005 | 1,581 | | 395 | |
|
|
|
| |
Share re-purchases
During the year the Company re-purchased, and subsequently cancelled, 67,650,000 Ordinary Shares at an average price of 2445 pence per share. The total consideration, including expenses, was $3,001m. The excess of the consideration over the nominal value has been charged against the profit and loss account reserve.
Share schemes
A total of 3,500,109 Ordinary Shares were issued during the year in respect of share schemes. Details of movements in the number of Ordinary Shares under option are shown in Note 24; details of options granted to Directors are shown in the Directors’ Remuneration Report.
Shares held by subsidiaries
No shares in the Company are held by subsidiaries.
| 8 | STATUTORY AND OTHER INFORMATION |
| There are no employees of the Company (2004 nil). The directors of the Company were paid by another Group company in 2005 and 2004. |
The fee for the audit of the Company is $1,600 (2004 $1,600).
The Company has guaranteed the external borrowing of a subsidiary, in the amount of $285m.
Back to Contents
| | | |
| Group Financial Record | 145 | |
| |
| | | |
GROUP FINANCIAL RECORD – IFRS
| | | 2003 | | | 2004 | | | 2005 | |
| For the year ended 31 December | | $m | | | $m | | | $m | |
|
|
|
|
|
|
|
|
| |
| Turnover and profits | | | | | | | | | |
| Sales | | 18,849 | | | 21,426 | | | 23,950 | |
|
|
|
|
|
| |
| Cost of sales | (4,463 | ) | (5,193 | ) | (5,356 | ) |
|
|
|
|
|
| |
| Distribution costs | | (162 | ) | | (177 | ) | | (211 | ) |
|
|
|
|
|
|
|
|
| |
| Research and development | (3,012 | ) | (3,467 | ) | (3,379 | ) |
|
|
|
|
|
| |
| Selling, general and administrative costs | (7,393 | ) | (8,268 | ) | (8,695 | ) |
|
|
|
|
|
| |
| Other operating income | | 188 | | | 226 | | | 193 | |
|
|
|
|
|
|
|
|
| |
| Operating profit | 4,007 | | 4,547 | | 6,502 | |
|
|
|
|
|
| |
| Profit on sale of interest in joint venture | | – | | | 219 | | | – | |
|
|
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|
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|
| |
| Finance income | | 381 | | | 532 | | | 665 | |
|
|
|
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|
| |
| Finance expense | | (311 | ) | | (454 | ) | | (500 | ) |
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|
|
|
|
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|
| |
| Profit before tax | 4,077 | | 4,844 | | 6,667 | |
|
|
|
|
|
| |
| Taxation | (1,033 | ) | (1,161 | ) | (1,943 | ) |
|
|
|
|
|
| |
| Profit for the period | 3,044 | | 3,683 | | 4,724 | |
|
|
|
|
|
| |
| Attributable to: | | | | | | | | | |
| Equity holders of the Company | 3,022 | | 3,664 | | 4,706 | |
|
|
|
|
|
| |
| Minority interests | | 22 | | | 19 | | | 18 | |
|
|
|
|
|
|
|
|
| |
| Earnings per share | | | | | | | | | |
| Earnings per $0.25 Ordinary Share before exceptional items | $ | 1.77 | | $ | 2.01 | | $ | 2.91 | |
|
|
|
|
|
|
|
|
| |
| Earnings per $0.25 Ordinary Share (basic) | $ | 1.77 | | $ | 2.18 | | $ | 2.91 | |
|
|
|
|
|
|
|
|
| |
| Earnings per $0.25 Ordinary Share (diluted) | $ | 1.77 | | $ | 2.18 | | $ | 2.91 | |
|
|
|
|
|
|
|
|
| |
| Dividends | $ | 0.725 | | $ | 0.835 | | $ | 1.025 | |
|
|
|
|
|
| |
| Return on sales | | | | | | | | | |
| Operating profit as a percentage of sales | 21.3 | % | 21.2 | % | 27.2 | % |
|
|
|
|
|
| |
| Ratio of earnings to fixed charges (IFRS) | 100.4 | | | 93.6 | | | 85.6 | |
|
|
|
|
|
|
|
| |
| |
| | 2003 | | 2004 | | 2005 | |
| At 31 December | | $m | | $m | | $m | |
|
|
|
|
|
|
| |
| Balance sheet | | | | | | | |
| Property, plant and equipment and intangible assets | | 10,574 | | 11,147 | | 9,697 | |
|
|
|
|
|
| |
| Other investments | 133 | | 262 | | 256 | |
|
|
|
|
|
| |
| Deferred tax assets | 1,261 | | 1,218 | | 1,117 | |
|
|
|
|
|
| |
| Current assets | 11,593 | | 13,025 | | 13,770 | |
|
|
|
|
|
| |
| Total assets | 23,561 | | 25,652 | | 24,840 | |
|
|
|
|
|
| |
| Current liabilities | (6,558 | ) | (6,587 | ) | (6,839 | ) |
|
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|
|
|
| |
| Non-current liabilities | (3,828 | ) | (4,568 | ) | (4,310 | ) |
|
|
|
|
|
| |
| Net assets | 13,175 | | 14,497 | | 13,691 | |
|
|
|
|
|
| |
| Capital and reserves attributable to equity holders | 13,086 | | 14,404 | | 13,597 | |
|
|
|
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|
| |
| Minority equity interests | 89 | | 93 | | 94 | |
|
|
|
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|
| |
| Total equity and reserves | 13,175 | | 14,497 | | 13,691 | |
|
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|
|
| |
| | | | | | | | |
| | 2003 | | 2004 | | 2005 | |
| For the year ended 31 December | | $m | | $m | | $m | |
|
|
|
|
|
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| |
| Cash flows | | | | | | | |
| Net cash inflow/(outflow) from: | | | | | | | |
| Operating activities | | 3,368 | | 4,817 | | 6,743 | |
|
|
|
|
|
| |
| Investing activities | (852 | ) | 970 | | (1,182 | ) |
|
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| |
| Financing activities | (2,674 | ) | (2,761 | ) | (4,572 | ) |
|
|
|
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| |
| | (158 | ) | 3,026 | | 989 | |
|
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|
|
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| |
Back to Contents
| | | |
| | 146 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
GROUP FINANCIAL RECORD – US GAAP
GROUP FINANCIAL RECORD – US GAAP
The selected financial data set out below, for each of the years in the five year period ended 31 December 2005, have been extracted or derived from the audited Financial Statements.
The selected financial data should be read in conjunction with, and are qualified in their entirety by reference to, the Financial Statements of AstraZeneca and the notes thereto, which are included elsewhere in this document.
| Consolidated income statement data | | | | | | | | | | |
| For the years ended 31 December | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | |
|
|
|
|
|
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|
|
|
| |
| Net income from operations ($m) | 1,397 | | 2,307 | | 2,149 | | 2,951 | | 3,884 | |
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|
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|
| |
| Net income from operations per $0.25 Ordinary Share | $0.79 | | $1.33 | | $1.26 | | $1.76 | | $2.40 | |
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| |
| Diluted income from operations per $0.25 Ordinary Share | $0.79 | | $1.33 | | $1.26 | | $1.76 | | $2.40 | |
|
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|
|
|
|
|
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|
| |
| Net income from operations (had SFAS No. 142 been adopted) ($m) | 2,125 | | | | | | | | | |
|
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|
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|
|
|
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|
| |
| Net and diluted income per $0.25 Ordinary Share | | | | | | | | | | |
| from operations (had SFAS No. 142 been adopted) | $1.21 | | | | | | | | | |
|
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| |
| | | | | | | | | | | |
| Ratio of earnings to fixed charges | | | | | | | | | | |
| For the Group, with adjustments to accord with US GAAP | 25.0 | | 36.7 | | 77.0 | | 73.5 | | 70.7 | |
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| |
| | | | | | | | | | | |
| Consolidated balance sheet data | | | | | | | | | | |
| | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | |
| At 31 December | $m | | $m | | $m | | $m | | $m | |
|
|
|
|
|
|
|
|
|
| |
| Total assets | 38,163 | | 42,660 | | 45,483 | | 47,690 | | 43,757 | |
|
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| |
| Shareholders’ equity | 27,484 | | 30,265 | | 33,759 | | 35,477 | | 31,894 | |
|
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|
| |
Merger accounting
For the purpose of US GAAP, the merger has been regarded as a purchase accounting acquisition of Astra by Zeneca.
Ratio of earnings to fixed charges (IFRS and US GAAP)
For the purpose of computing these ratios, earnings consist of the income from continuing ordinary activities before taxation of Group companies and income received from companies owned 50% or less, plus fixed charges (excluding capitalised interest). Fixed charges consist of interest (including capitalised interest) on all indebtedness, amortisation of debt discount and expense and that portion of rental expense representative of the interest factor.
Back to Contents
| | | |
| Shareholder Information | 147 | |
| |
| | | |
SHAREHOLDER INFORMATION
| AstraZeneca | | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | |
|
|
|
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|
|
|
|
|
|
| |
| Ordinary Shares in issue – millions | | | | | | | | | | | |
| At year end | | 1,745 | | 1,719 | | 1,693 | | 1,645 | | 1,581 | |
|
|
|
|
|
|
|
|
|
|
| |
| Weighted average for year | | 1,758 | | 1,733 | | 1,709 | | 1,673 | | 1,617 | |
|
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| |
| Stock market price – per $0.25 Ordinary Share | | | | | | | | | | | |
| Highest (pence) | | 3555 | | 3625 | | 2868 | | 2749 | | 2837 | |
|
|
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|
| |
| Lowest (pence) | | 2880 | | 1799 | | 1820 | | 1863 | | 1861 | |
|
|
|
|
|
|
|
|
|
|
| |
| At year end (pence) | | 3098 | | 2220 | | 2680 | | 1889 | | 2829 | |
|
|
|
|
|
|
|
|
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| |
| | | | | | | | | | | | |
| Percentage analysis at 31 December 2005 of issued share capital | | |
| By size of account | 2005 | |
| No. of shares | % | |
|
| |
| 1 – 250 | 0.6 | |
|
| |
| 251 – 500 | 0.7 | |
|
| |
| 501 – 1,000 | 1.0 | |
|
| |
| 1,001 – 5,000 | 1.4 | |
|
| |
| 5,001 – 10,000 | 0.2 | |
|
| |
| 10,001 – 50,000 | 1.0 | |
|
| |
| 50,001 – 1,000,000 | 11.9 | |
|
| |
| over 1,000,000† | 83.2 | |
|
| |
| Issued share capital | 100.0 | |
|
| |
| † Includes VPC and ADR holdings | | |
At 31 December 2005, AstraZeneca PLC had 148,243 registered holders of 1,580,902,000 Ordinary Shares of $0.25 each. At 31 December 2005, there were approximately 68,000 holders of American Depositary Receipts (ADRs) representing 9.93% of the issued share capital and 162,000 holders of shares held under the VPC Services Agreement representing 22.87% of the issued share capital. The ADRs, each of which is equivalent to one Ordinary Share, are issued by JPMorgan Chase Bank.
ASTRAZENECA PLC
Since April 1999, following the AstraZeneca merger, the principal markets for trading in the shares of AstraZeneca PLC are the London, Stockholm and New York Stock Exchanges. The table on page 148 sets out, for the four quarters of 2004 and for the first two quarters and last six months of 2005 the reported high and low share prices of AstraZeneca PLC, on the following bases:
| > | For shares listed on the London Stock Exchange (‘LSE’) the reported high and low middle market closing quotations are derived from The Daily Official List. |
| > | For shares listed on the Stockholm Stock Exchange (‘SSE’) the high and low closing sales prices are as stated in the Official List. |
| > | For American Depositary Shares (‘ADS’) listed on the New York Stock Exchange the reported high and low sales prices are as reported by Dow Jones (ADR quotations). |
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| | | |
| | 148 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
SHAREHOLDER INFORMATION CONTINUED
| | | | | | | AstraZeneca | |
| | | Ordinary LSE | | ADS | | Ordinary SSE* | |
| | |
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| |
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|
| |
|
|
| |
| | | High | | Low | | High | | Low | | High | | Low | |
| | | (pence) | | (pence) | | (US$) | | (US$) | | (SEK) | | (SEK) | |
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| 2004 | – Quarter 1 | 2749 | | 2507 | | 50.85 | | 46.29 | | 374 | | 336.5 | |
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| | – Quarter 2 | 2709 | | 2474 | | 49.29 | | 45.64 | | 373 | | 342 | |
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| |
| | – Quarter 3 | 2665 | | 2265 | | 47.13 | | 41.13 | | 359.5 | | 301 | |
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| | – Quarter 4 | 2369 | | 1863 | | 44.14 | | 35.88 | | 305 | | 237.5 | |
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| 2005 | – Quarter 1 | 2201 | | 1861 | | 42.12 | | 34.72 | | 288.5 | | 243 | |
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| | – Quarter 2 | 2363 | | 2081 | | 45.06 | | 39.29 | | 324.5 | | 279.5 | |
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| | – July | 2558 | | 2311 | | 45.44 | | 40.68 | | 351.5 | | 319 | |
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| | – August | 2609 | | 2479 | | 47.50 | | 44.93 | | 359 | | 340 | |
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| | – September | 2668 | | 2560 | | 49.10 | | 46.52 | | 370.5 | | 351 | |
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| | – October | 2767 | | 2485 | | 48.90 | | 44.43 | | 379 | | 349 | |
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| | – November | 2681 | | 2534 | | 46.33 | | 44.52 | | 374 | | 358 | |
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| | – December | 2837 | | 2685 | | 49.50 | | 46.65 | | 392 | | 374 | |
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| * Principally held in bearer form | | | | | | | | | | | | |
During 2005, AstraZeneca’s share re-purchase programme, which was introduced in 1999, continued with the re-purchase and subsequent cancellation of 67.65 million shares at a total cost of $2,985m, representing 4.3% of the total issued share capital of the Company. The average price paid per share in 2005 was 2445 pence. Between 1999 and 2004, a total of 142.9 million Ordinary Shares were re-purchased, and subsequently cancelled, at an average price of 2627 pence per share for a consideration, including expenses, of $6,134m. The excess of the consideration over the nominal value was charged against the profit and loss account reserve. Shares issued in respect of share schemes totalled 3.5 million.
In 1999, in connection with the merger, AstraZeneca’s share capital was redenominated in US dollars. On 6 April 1999, Zeneca shares were cancelled and US dollar shares issued, credited as fully paid on the basis of one dollar share for each Zeneca share then held. This was achieved by a reduction of capital under section 135 of the Companies Act 1985. Upon the reduction of capital becoming effective, all issued and unissued Zeneca shares were cancelled and the sum arising as a result thereof credited to a special reserve, which was converted into US dollars at the rate of exchange prevailing on the record date. This US dollar reserve was then applied in paying up, at par, newly created US dollar shares.
At the same time as the US dollar shares were issued, the Company issued 50,000 Redeemable Preference Shares with a nominal value of £1.00 each for cash at par. The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is also capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
A total of 826 million AstraZeneca shares were issued to Astra shareholders who accepted the merger offer before the final closing date, 21 May 1999. AstraZeneca received acceptances from Astra shareholders representing 99.6% of Astra’s shares and the remaining 0.4% was acquired in 2000 for cash.
MAJOR SHAREHOLDINGS
At 31 January 2006, the following had disclosed an interest in the issued Ordinary Share capital of the Company in accordance with the requirements of sections 198-208 of the Companies Act 1985:
| | | | Date of | | Percentage | |
| | | | disclosure | | of issued | |
| Shareholder | Number of shares | | to Company* | | share capital | |
|
|
|
|
|
| |
| The Capital Group Companies, Inc. | 198,942,168 | | 30 Nov 2005 | | 12.57% | |
|
|
|
|
|
| |
| Investor AB | 63,465,810 | | 11 Feb 2004 | | 4.01% | |
|
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|
|
|
| |
| Wellington Management Co., LLP | 78,671,049 | | 20 Dec 2005 | | 4.97% | |
|
|
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| |
| Legal & General Investment Management Limited | 52,518,020 | | 13 Jun 2002 | | 3.32% | |
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|
| |
| Barclays PLC | 50,634,731 | | 1 Oct 2004 | | 3.20% | |
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| |
| * | Since the date of disclosure to the Company, the interest of any person listed above in the Ordinary Shares of the Company may have increased or decreased. No requirement to notify the Company of any increase or decrease would have arisen unless the holding moved up or down through a whole number percentage level. The percentage level may increase (on the cancellation of shares following a re-purchase of shares under the Company’s share re-purchase programme) or decrease (on the issue of new shares under any of the Company’s share plans). |
No other person held a notifiable interest in shares, comprising 3% or more of the issued Ordinary Share capital of the Company, appearing in the register of interests in shares maintained under the provisions of section 211 of the Companies Act 1985.
Changes in the percentage ownership held by major shareholders during the past three years are set out on page 149. Major shareholders do not have different voting rights.
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| | | |
| Shareholder Information | 149 | |
| |
| | | |
| | | | | | Percentage of issued share capital | |
| |
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|
| |
| Shareholder | 31 Jan 2006 | | 26 Jan 2005 | | 28 Jan 2004 | | 29 Jan 2003 | |
|
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|
| |
| The Capital Group Companies, Inc. | 12.57% | | 13.39% | | 15.01% | | 11.92% | |
|
|
|
|
|
|
|
| |
| Investor AB | 4.01% | | 3.86% | | 5.41% | | 5.33% | |
|
|
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|
|
|
|
| |
| Wellington Management Co., LLP | 4.97% | | 3.25% | | <3.00% | | <3.00% | |
|
|
|
|
|
|
|
| |
| Legal & General Investment Management Limited | 3.32% | | 3.19% | | 3.10% | | 3.06% | |
|
|
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|
|
|
|
| |
| Barclays PLC | 3.20% | | 3.08% | | <3.00% | | <3.00% | |
|
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|
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|
| |
AstraZeneca PLC American Depositary Shares (each representing one Ordinary Share) evidenced by American Depositary Receipts issued by JPMorgan Chase Bank, as depositary, are listed on the New York Stock Exchange. At 31 January 2006, the proportion of Ordinary Shares represented by American Depositary Shares was 10.03% of the Ordinary Shares outstanding.
Number of registered holders of Ordinary Shares at 31 January 2006:
| > In the US | 830 | |
| > Total | 147,094 | |
Number of record holders of American Depositary Receipts at 31 January 2006:
| > In the US | 2,691 | |
| > Total | 2,731 | |
So far as the Company is aware, it is neither directly nor indirectly owned nor controlled by one or more corporations or by any government.
At 31 January 2006, the total amount of the Company’s voting securities owned by Directors and Officers of the Company was:
| Title of class | Amount owned | | Percentage of class | |
|
|
|
| |
| Ordinary Shares | 260,612 | | 0.02% | |
|
|
|
| |
The Company does not know of any arrangements, the operation of which might result in a change in the control of the Company.
RELATED PARTY TRANSACTIONS
During the period 1 January 2006 to 31 January 2006, there were no transactions, loans, or proposed transactions between the Company and any related parties which were material to either the Company or the related party, or which were unusual in their nature or conditions (see also Note 27).
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
(a) At 31 January 2006, options outstanding to subscribe for Ordinary Shares of $0.25 of the Company were:
| Number of shares | Subscription price | Normal expiry date | |
|
|
| |
| 57,415,486 | 1337p – 3487p | 2006 – 2015 | |
|
|
| |
The weighted average subscription price of options outstanding at 31 January 2006 was 2625p. All options were granted under Company employee share schemes.
(b) Included in paragraph (a) are options granted to Directors and Officers of AstraZeneca as follows:
| Number of shares | Subscription price | Normal expiry date | |
|
|
| |
| 2,213,213 | 1337p – 3487p | 2006 – 2015 | |
|
|
| |
| (c) | Included in paragraph (b) are options granted to individually named Directors. Details of these option holdings at 31 December 2005 are shown in the Directors’ Remuneration Report. |
| | |
| | During the period 1 January 2006 to 31 January 2006, no Director exercised any options. On 23 January 2006, Håkan Mogren ceased to have an interest in an option over 9,826 Ordinary Shares on the expiry of the option. |
DIVIDEND PAYMENTS
The record date for the second interim dividend for 2005, payable on 20 March 2006 (in the UK, the US and Sweden), is 10 February 2006. Shares trade ex-dividend on the London and Stockholm Stock Exchanges from 8 February 2006 and ADRs trade ex-dividend on the New York Stock Exchange from the same date. Dividends will normally be paid as follows:
| First interim: | Announced in July and paid in September. |
| Second interim: | Announced in January/February and paid in March. |
The record date for the first interim dividend for 2006, payable on 18 September 2006 (in the UK, the US and Sweden), is 11 August 2006.
Back to Contents
| | | |
| | 150 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
SHAREHOLDER INFORMATION CONTINUED
SHAREVIEW
AstraZeneca’s shareholders with internet access may visit shareview.co.uk and register their details to create a portfolio. Shareview is a free and secure online service from Lloyds TSB Registrars that gives access to shareholdings including balance movements, indicative share prices and information about recent dividends.
SHAREGIFT
AstraZeneca welcomes and values all its shareholders, no matter how many or how few shares they own. However, shareholders who have only a small number of shares whose value makes it uneconomic to sell them, either now or at some stage in the future, may wish to consider donating them to charity through ShareGift, an independent charity share donation scheme. One feature of the scheme is that there is no gain or loss for capital gains tax purposes on gifts of shares through ShareGift and it may now also be possible to obtain income tax relief on the donation. Further information about ShareGift can be found on its website, sharegift.org, or by contacting ShareGift on 020 7337 0501 or at 46 Grosvenor Street, London W1K 3HN. More information about the tax position on gifts of shares to ShareGift can be obtained from HM Revenue & Customs whose website address is hmrc.gov.uk. The share transfer form needed to make a donation may be obtained from the AstraZeneca Registrar, Lloyds TSB Registrars, whose address can be found on the back cover of this document. ShareGift is administered by The Orr Mackintosh Foundation, registered charity number 1052686.
THE UNCLAIMED ASSETS REGISTER
AstraZeneca supplies unclaimed dividend data to the Unclaimed Assets Register (UAR), which provides investors who have lost track of shareholdings with an opportunity to search the UAR’s database of unclaimed financial assets on payment of a small, fixed fee. The UAR donates part of the search fee to charity. The UAR can be contacted at Bain House, 16 Connaught Place, London W2 2ES and at uar.co.uk.
RESULTS
Unaudited trading results of AstraZeneca in respect of the first three months of 2006 will be published on 27 April 2006 and results in respect of the first six months of 2006 will be published on 27 July 2006.
DOCUMENTS ON DISPLAY
The Memorandum and Articles of Association of the Company and other documents concerning the Company which are referred to in this document may be inspected at the Company’s registered office at 15 Stanhope Gate, London W1K 1LN.
TAXATION FOR US RESIDENTS
The following summary of the material UK and US federal income tax consequences of ownership of Ordinary Shares or ADRs held as capital assets by US resident shareholders is based on current UK and US federal income tax law, including the US/UK double taxation convention relating to income and capital gains, which entered into force on 31 March 2003 (the “Convention”) and practice. This discussion is also based in part on representations of JPMorgan Chase Bank as Depositary for ADRs and assumes that each obligation in the deposit agreement among the Company, the Depositary and the holders from time to time of ADRs and any related agreements will be performed in accordance with its terms. The US Treasury has expressed concerns that parties to whom ADRs are pre-released may be taking actions that are inconsistent with the claiming, by US holders of ADRs, of foreign tax credits for US federal income tax purposes. Such actions would also be inconsistent with the claiming of the reduced tax rate, described below, applicable to dividends received by certain non-corporate US resident shareholders. Accordingly, the availability of the reduced tax rate for dividends received by certain non-corporate US resident shareholders could be affected by actions that may be taken by parties to whom ADRs are pre-released.
UK AND US INCOME TAXATION OF DIVIDENDS
The UK does not currently impose a withholding tax on dividends paid by a UK company, such as the Company.
For US federal income tax purposes, distributions paid by the Company to a US resident shareholder are includible in gross income as foreign source ordinary dividend income to the extent of the Company’s current or accumulated earnings and profits for US federal income tax purposes. The amount of the dividend will be the US dollar value of the pounds sterling received on the date the dividend is received by the Depositary for US resident holders of ADRs (or in the case of Ordinary Shares, received by the US resident shareholders) regardless of whether the dividend is converted into US dollars.
Subject to applicable limitations, dividends received by certain non-corporate US resident holders of Ordinary Shares or ADRs in taxable years beginning before 1 January 2009 may be subject to US federal income tax at a maximum rate of 15%. US resident shareholders should consult their own tax advisers to determine whether they are subject to any special rules which may limit their ability to be taxed at this favourable rate.
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| | | |
| Shareholder Information | 151 | |
| |
| | | |
TAXATION ON CAPITAL GAINS
Under the Convention, each contracting state may in general tax capital gains in accordance with the provisions of its domestic law. Under present UK law, individuals who are neither resident nor ordinarily resident in the UK, and companies which are not resident in the UK, will not be liable to UK tax on capital gains made on the disposal of their Ordinary Shares or ADRs, unless such Ordinary Shares or ADRs are held in connection with a trade, profession or vocation carried on in the UK through a branch or agency.
A US resident shareholder will generally recognise US source capital gain or loss for US federal income tax purposes on the sale or exchange of Ordinary Shares or ADRs in an amount equal to the difference between the amount realised and such holder’s adjusted tax basis in the Ordinary Shares or ADRs. US resident shareholders should consult their own tax advisers about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate US resident shareholders and capital losses, the deductibility of which may be limited.
UK INHERITANCE TAX
Under the current Double Taxation (Estates) Convention (the “Estate Tax Convention”) between the US and the UK, Ordinary Shares or ADRs held by an individual shareholder who is domiciled for the purposes of the Estate Tax Convention in the US, and is not for the purposes of the Estate Tax Convention a national of the UK, will generally not be subject to UK inheritance tax on the individual’s death or on a chargeable gift of the Ordinary Shares or ADRs during the individual’s lifetime, provided that any applicable US federal gift or estate tax liability is paid, unless the Ordinary Shares or ADRs are part of the business property of a permanent establishment of the individual in the UK or, in the case of a shareholder who performs independent personal services, pertain to a fixed base situated in the UK. Where the ADRs or Ordinary Shares have been placed in trust by a settlor who, at the time of settlement, was a US resident shareholder, the ADRs or Ordinary Shares will generally not be subject to UK inheritance tax unless the settlor, at the time of settlement, was not domiciled in the US and was a UK national. In the exceptional case where the Ordinary Shares or ADRs are subject to both UK inheritance tax and US federal gift or estate tax, the Estate Tax Convention generally provides for double taxation to be relieved by means of credit relief.
UK STAMP DUTY RESERVE TAX AND STAMP DUTY
A 1.5% stamp duty reserve tax is payable upon the deposit of Ordinary Shares in connection with the creation of, but not subsequent dealing in, ADRs. A 0.5% stamp duty is payable on all purchases of Ordinary Shares.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in the UK restricting the import or export of capital or affecting the remittance of dividends, interest or other payments to non-resident holders of Ordinary Shares or ADRs.
There are no limitations under English law or the Company’s Memorandum and Articles of Association on the right of non-resident or foreign owners to be the registered holders of and to vote Ordinary Shares or ADRs or to be registered holders of notes or debentures of Zeneca Wilmington Inc. or AstraZeneca PLC.
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| | | |
| | 152 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
SHAREHOLDER INFORMATION CONTINUED
EXCHANGE RATES
For the periods up to April 1999, Astra accounted for and reported its results in Swedish kronor, whereas Zeneca accounted for and reported its results in sterling. Consistent with AstraZeneca’s decision to publish its Financial Statements in US dollars, the financial information in this document has been translated from kronor and sterling into US dollars at the following applicable exchange rates:
| | SEK/USD | | USD/GBP | |
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| |
| Average rates (profit and loss account, cash flow) | | | | |
| 1995 | 7.1100 | | 1.5796 | |
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| 1996 | 6.7000 | | 1.5525 | |
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| 1997 | 7.6225 | | 1.6386 | |
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| 1998 | 7.9384 | | 1.6603 | |
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| 1999 | 8.2189 | | 1.6247 | |
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| | | | | |
| End of year spot rates (balance sheet) | | | | |
| 1995 | 6.6500 | | 1.5500 | |
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| 1996 | 6.8400 | | 1.6900 | |
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| 1997 | 7.8500 | | 1.6600 | |
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| 1998 | 8.0400 | | 1.6600 | |
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| 1999 | 8.5130 | | 1.6185 | |
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The following information relating to average and spot exchange rates used by AstraZeneca is provided for convenience:
| | SEK/USD | | USD/GBP | |
|
|
|
| |
| Average rates (income statement, cash flow) | | | | |
| 2003 | 8.3013 | | 1.6233 | |
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| 2004 | 7.4613 | | 1.8031 | |
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| 2005 | 7.3878 | | 1.8306 | |
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| | | | | |
| End of year spot rates (balance sheet) | | | | |
| 2003 | 7.1932 | | 1.7815 | |
|
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| 2004 | 6.6144 | | 1.9264 | |
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| 2005 | 7.9464 | | 1.7239 | |
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DEFINITIONS
In this Annual Report and Form 20-F Information the following words and expressions shall, unless the context otherwise requires, have the following meanings:
| ADR | American Depositary Receipt evidencing title to an ADS |
|
| ADS | American Depositary Share representing one underlying Ordinary Share |
|
| Depositary | JPMorgan Chase Bank, as depositary under the deposit agreement pursuant |
| | to which the ADRs are issued |
|
| Directors | The Directors of the Company |
|
| Company | AstraZeneca PLC |
|
| AstraZeneca, AstraZeneca Group | |
| or the Group | The Company and its subsidiaries |
|
| Ordinary Shares | Ordinary Shares of $0.25 each in the capital of the Company |
|
| LSE | London Stock Exchange Limited |
|
| NYSE | New York Stock Exchange, Inc. |
|
| SSE | Stockholm Stock Exchange |
|
| Sterling, £, GBP, pence or p | References to UK currency |
|
| SEK, kronor, krona | References to Swedish currency |
|
| UK | United Kingdom of Great Britain and Northern Ireland |
|
| US dollar, US$, USD or $ | References to US currency |
|
| US | United States of America |
|
| FDA | Food and Drug Administration of the US |
|
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| | | |
| DShareholder Information | 153 | |
| |
| | | |
DEFINITIONS CONTINUED
Figures in parentheses in tables and in the Financial Statements are used to represent negative numbers.
Except where otherwise indicated, figures included in this report relating to pharmaceutical product market sizes and market shares are obtained from syndicated industry sources, primarily IMS Health (IMS), a market research firm internationally recognised by the pharmaceutical industry. The 2005 market share figures included in this report are based primarily on data obtained from an online IMS database.
IMS data may differ from that compiled by the Group with respect to its own products. Of particular significance in this regard are the following: (1) AstraZeneca publishes its financial results on a financial year and quarterly interim basis, whereas IMS issues its data on a monthly and quarterly basis; (2) the online IMS database is updated quarterly and uses the average exchange rates for the relevant quarter; (3) IMS data from the US is not adjusted for Medicaid and similar state rebates; and (4) IMS sales data are compiled using actual wholesaler data and data from statistically representative panels of retail and hospital pharmacies, which data are then projected by IMS to give figures for national markets.
References to prevalence of disease have been derived from a variety of sources and are not intended to be indicative of the current market or any potential market for AstraZeneca’s pharmaceutical products since, among other things, there may be no correlation between the prevalence of a disease and the number of individuals who are treated for such a disease.
| Terms used in the Annual Report | |
| and Form 20-F Information | US equivalent or brief description |
| Accruals | Accrued expenses |
|
| Allotted | Issued |
|
| Bank borrowings | Payable to banks |
|
| Called-up share capital | Issued share capital |
|
| Capital allowances | Tax term equivalent to US tax depreciation allowances |
|
| Creditors | Liabilities/payables |
|
| Current instalments of loans | Long term debt due within one year |
|
| Debtors | Receivables and prepaid expenses |
|
| Earnings | Net income |
|
| Finance lease | Capital lease |
|
| Fixed asset investments | Non-current investments |
|
| Freehold | Ownership with absolute rights in perpetuity |
|
| Interest receivable | Interest income |
|
| Interest payable | Interest expense |
|
| Loans | Long term debt |
|
| Prepayments | Prepaid expenses |
|
| Profit | Income |
|
| Profit and loss account | Income statement/consolidated statement of income |
|
| Reserves | Retained earnings |
|
| Short term investments | Redeemable securities and short term deposits |
|
| Share premium account | Premiums paid in excess of par value of Ordinary Shares |
|
| Statement of recognised | |
| income and expense | Statement of comprehensive income |
|
| Tangible fixed assets | Property, plant and equipment |
|
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| | | |
| | 154 | AstraZeneca Annual Report and |
| Form 20-F Information 2005 |
| | | |
RISK FACTORS
RISKS ASSOCIATED WITH
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements about AstraZeneca. Although we believe our expectations are based on reasonable assumptions, any forward-looking statements may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted. Forward-looking statements are identified in this report, by using the words ‘anticipates’, ‘believes’, ‘expects’, ‘intends’ and similar expressions. These forward-looking statements are subject to numerous risks and uncertainties. Important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control, include, among other things: the loss or expiration of patents, marketing exclusivity or trade marks; exchange rate fluctuations; the risk that R&D will not yield new products that achieve commercial success; the impact of competition, price controls and price reductions; taxation risks; the risk of substantial product liability claims; the impact of any failure by third parties to supply materials or services; the risk of delay to new product launches; the difficulties of obtaining and maintaining governmental approvals for products; the risk of failure to observe ongoing regulatory oversight; the risk that the new products do not perform as we expect; and the risk of environmental liabilities.
RISK OF LOSS OR EXPIRATION OF PATENTS, MARKETING EXCLUSIVITY OR TRADEMARKS
Scientific development and technological innovation are crucial if AstraZeneca is to deliver long term market success. In the pharmaceutical market, a drug, diagnostic or medical device is normally only subject to competition from alternative products, for the same use, during the period of patent protection or other types of marketing exclusivity. Once patent protection or other types of marketing exclusivity have expired the product is generally open to competition from generic copy products. Products under patent protection or other types of marketing exclusivity usually generate significantly higher revenues than those not protected by patents or other types of marketing exclusivity. We believe that we have patent protection for many of our most important products.
For example, during 2004 compared to 2003 and, to a lesser extent, during 2005 compared to 2004, sales in the US of Losec/Prilosec, Plendil, Zestril and Nolvadex fell significantly following anticipated patent expiries or the end of marketing exclusivity.
Increasingly, manufacturers of generic pharmaceutical products, whether based in developing countries, such as those in Asia, or elsewhere in the world, seek to challenge our patents or other types of marketing exclusivity in order to gain access to the market for their own generic products.
For example, AstraZeneca was involved in litigation in the US and elsewhere during 2005 relating to omeprazole, the active ingredient in Losec/Prilosec, and in the US, relating to metoprolol succinate, the active ingredient in Toprol–XL, concerning the infringement of certain patents, including formulation patents, by generic manufacturers. In January 2006, the US District Court for the Eastern District of Missouri issued a decision holding that certain of our US compound and composition patents relating to metoprolol succinate were invalid and unenforceable. We disagree with and will appeal this decision. During 2005, certain generic manufacturers filed Abbreviated New Drug Applications with the FDA containing paragraph IV certifications alleging invalidity and non-infringement in respect of certain of our patents relating to Nexium, Pulmicort Respules and Seroquel. Following filing of the ANDAs, we commenced patent infringement proceedings against such manufacturers. The more significant patent litigation relating to our products is described in Note 25 to the Financial Statements.
In addition to challenges to our patented products from manufacturers of generic pharmaceutical products, there is a risk that some countries, particularly those in the developing world, may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protection may be obtained, within their jurisdictions.
Trademark protection for our products is also an important element of our overall product marketing programmes. Combined with patent protection or other types of marketing exclusivity, products protected by a valid trademark usually generate higher revenues than those not protected by a trade mark.
We believe that we have trademark protection for many of our most important products. However, trade mark protection may expire or be challenged by third parties.
Limitations on the availability of patent protection in developing countries or the expiration or loss of certain patents, marketing exclusivity or trade marks would have an adverse effect on pricing and sales with
respect to these products and, consequently, could result in a material adverse effect on AstraZeneca’s financial condition and results of operations.
IMPACT OF FLUCTUATIONS IN EXCHANGE RATES
The results of AstraZeneca’s operations are accounted for in US dollars. Approximately 49% of our 2005 sales were in North America (comprised of the US and Canada) with a significant proportion of that figure being in respect of US sales. The US is, and is expected to remain, our largest market. Sales in certain other countries are also in US dollars, or in currencies whose exchange rates are linked to the US dollar. Major components of our cost base are, however, located in Europe, where an aggregate of approximately 58% of our employees are based. Movements in the exchange rates used to translate foreign currencies into US dollars may therefore have a material adverse effect on AstraZeneca’s financial condition and results of operations.
Certain subsidiaries of AstraZeneca import and export goods and services in currencies other than their own functional currency, although we minimise this practice. The results of such subsidiaries could, therefore, be affected by currency fluctuations arising between the transaction dates and the settlement dates for those transactions. We hedge these exposures through financial instruments. The notional principal amount of financial instruments used to hedge these exposures, principally forward foreign exchange contracts and purchased currency options, at 31 December 2005 was $10m. We have policies that seek to mitigate the effect of exchange rate fluctuations on the value of foreign currency cash flows and in turn their effects on the results of the various subsidiaries, but we do not seek to remove all such risks. In general, a unilateral strengthening of the US dollar adversely affects our reported results whereas a weakening of the US dollar is generally favourable. We cannot ensure that exchange rate fluctuations will not have a material adverse effect on AstraZeneca’s financial condition and results of operations in the future.
RISK THAT R&D WILL NOT YIELD NEW PRODUCTS THAT ACHIEVE COMMERCIAL SUCCESS
As a result of the complexities and uncertainties associated with pharmaceutical research, it cannot be ensured that compounds currently under development will achieve success in laboratory, animal or clinical testing and ultimately be granted the regulatory approvals
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needed to market such products. For example, in 2005, development of a number of our products was discontinued due to failure to meet our target profile: these included AZD7009 for atrial fibrillation maintenance; AZD0865 for the treatment of acid-related gastrointestinal disease; AZD7371 for the treatment of overactive bladder; AZD3841, a potential oncology drug, being investigated in the area of solid tumours and AZD3778 for the treatment of asthma. There can be no absolute assurances regarding the development and commercial success of any of the products in our current pipeline. The commercial success of pipeline products is of ongoing importance to us in view of the cycle of expiry of patent protection in major markets.
COMPETITION, PRICE CONTROLS
AND PRICE REDUCTIONS
The principal markets for our pharmaceutical products are the Americas, the countries of the European Union, Asia Pacific and Japan. These markets are highly competitive. We compete in all of them, and elsewhere in the world, against major prescription pharmaceutical companies which, in many cases, are able to match or exceed the resources which we have available to us, particularly in the areas of R&D and marketing investment. Industry consolidation has resulted in the formation of a small number of very large companies. Some of our most important products for future growth, such as Crestor, compete directly with similar products marketed by some of these companies. Increasingly, we also compete directly with biotechnology companies and companies that manufacture generic versions of our products following the expiry or loss of patent protection or other marketing exclusivity.
In most of the principal markets in which we sell our products, there is continued economic, regulatory and political pressure to limit the cost of pharmaceutical products. Certain groups have been involved in exerting price pressure on pharmaceutical companies to ensure medicines are affordable to those who need them.
Currently there is no direct government control of prices for non-government sales in the US. In 1990, however, federal legislation was enacted which required drug manufacturers to agree to substantial rebates in order for the manufacturer’s drugs to be reimbursed by state Medicaid programmes, and an additional rebate if manufacturer price increases after 1990 exceed the increase in inflation. In addition,
certain states have taken action to require further manufacturer rebates on Medicaid drug utilisation and for other state pharmaceutical assistance programmes. Congress has also enacted statutes that place a ceiling on the price manufacturers may charge US government agencies, thereby causing a substantial discount, as well as establishing a minimum discount (comparable to the Medicaid rebate) on manufacturers’ sales to certain clinics and hospitals that serve the poor and other populations with special needs. These government initiatives, together with competitive market pressures, have contributed to restraints on realised prices.
Recently introduced and future US legislation concerning the Medicaid and Medicare programmes is likely to significantly affect our US business. It is difficult to predict with certainty the overall effect on our business of such changes to the legislation.
In addition, realised prices are being depressed by pressure from managed care and institutional purchasers, who use cost considerations to restrict the sale of preferred drugs that their physicians may prescribe, as well as other competitive activity. Such limited lists or formularies may force manufacturers either to reduce prices or be excluded from the list, thereby losing all the sales revenue from patients covered by that formulary. The use of strict formularies by institutional customers is increasing rapidly in response to the current cost-containment environment, resulting in lower margins on such sales.
Some governments in Europe, notably Italy and Spain, set price controls having regard to the medical, economic and social impact of the product. In other European countries, primarily Germany, the UK, the Netherlands and, more recently, France, governments are exerting a strong downward pressure on prices by incentives and sanctions to encourage doctors to prescribe cost-effectively. Efforts by the European Commission to harmonise the disparate national systems have met with little immediate success. The industry is, therefore, exposed to ad hoc national cost-containment measures on prices and the consequent parallel trading of products from markets with prices depressed by governments into those where higher prices prevail.
The importation of pharmaceutical products from European countries where prices are low to those where prices for those products are higher may increase. The accession of additional countries from central and eastern
Europe to the European Union could result in significant increases in the parallel trading of pharmaceutical products. Movements of pharmaceutical products into North America, in particular the movement of products from Canada into the US, may increase despite the need to meet current or future safety requirements imposed by regulatory authorities. The effects of any increase in the volume of this parallel trade could result in a material adverse effect on AstraZeneca’s financial condition and results of operations.
There is formal central government control of prices in Japan. New product prices are determined primarily by comparison with existing products for the same medical condition. All existing products are subject to a price review at least every two years. Regulations introduced in 2000 included provisions allowing a drug’s price to be set according to the average price of the product in four major countries (the US, the UK, Germany and France).
TAXATION
The UK is party to various double tax treaties with foreign jurisdictions, which enable AstraZeneca’s revenues and capital gains to escape a double tax charge to both UK and foreign jurisdiction tax. If any of these double tax treaties should be withdrawn or amended, or should any member of the AstraZeneca Group become involved in taxation disputes with any tax authority, such withdrawal, amendment or a negative outcome of such disputes could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
RISK OF SUBSTANTIAL PRODUCT
LIABILITY CLAIMS
Given the widespread impact prescription drugs may have on the health of large patient populations, pharmaceutical and medical device companies have, historically, been subject to large product liability damages claims, settlements and awards for injuries allegedly caused by the use of their products. Adverse publicity relating to a product’s safety may increase the risk of product liability claims. Substantial product liability claims that are not covered by insurance could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
RISK OF RELIANCE ON THIRD PARTIES FOR SUPPLIES OF MATERIALS AND SERVICES
Like most, if not all, major prescription pharmaceutical companies, in some of its key business operations, such as the manufacture, formulation and packaging of products,
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RISK FACTORS CONTINUED
AstraZeneca relies on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services and maintenance services. Although we actively manage these third party relationships to ensure continuity of supplies on time and to our required specifications, some events beyond our control could result in the complete or partial failure of supplies or in supplies not being delivered on time. Any such failure could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
RISK OF DELAY TO NEW PRODUCT LAUNCHES
AstraZeneca’s continued success depends on the development and successful launch of innovative new drugs. The anticipated launch dates of major new products have a significant impact on a number of areas of our business, including investment in large clinical trials, the manufacture of pre-launch stocks of the products and the timing of anticipated future revenue streams from commercial sales of the products. Any delay to the anticipated launch dates may therefore impact AstraZeneca’s business and operations in a number of ways. For example, we had expected Crestor to be launched in the US in the second half of 2002. However, the approval of products in the same class as Crestor was subject to additional regulatory scrutiny partly as a result of the previous withdrawal from the market of cerivastatin. Crestor was launched in the US in September 2003. Significant delay to the anticipated launch dates of new products could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
DIFFICULTIES OF OBTAINING GOVERNMENT REGULATORY APPROVALS FOR NEW PRODUCTS
AstraZeneca is subject to strict controls on the manufacture, labelling, distribution and marketing of pharmaceutical products. The requirement to obtain regulatory approval based on safety, efficacy and quality before such products may be marketed in a particular country, and to maintain and to comply with licences and other regulations relating to their manufacture, are particularly important. The submission of an application to a regulatory authority does not guarantee that approval to market the products will be granted. The countries that constitute material markets for our pharmaceutical products include the US, the countries of the European Union and Japan. Approval of such products is required by the relevant regulatory authority in each country, although in Europe, single marketing authorisation can govern the approval of
products throughout the European Union through a centralised procedure. In addition, each jurisdiction has very high standards of regulatory approval and, consequently, in most cases, a lengthy approval process. Furthermore, each regulatory authority may impose its own requirements and may refuse to grant, or may require additional data before granting, an approval, even though the relevant product has been approved in another country. For example, in 2004 the FDA did not approve Exanta for any of the indications sought and although the Japanese regulatory authority granted approval for Crestor, this was conditional on a post-marketing surveillance programme being carried out.
RISK OF FAILURE TO OBSERVE ONGOING REGULATORY OVERSIGHT
AstraZeneca’s products are only licensed following exhaustive regulatory approval processes. Once a product is licensed it is subject to ongoing control and regulation, such as the manner of its manufacture, distribution and marketing. Regulatory authorities have wide-ranging administrative powers to deal with any failure to comply with their ongoing regulatory oversight. These powers include withdrawal of a licence approval previously granted, product recalls, seizure of products and other sanctions for non-compliance. Regulatory sanction, following a failure to comply with such ongoing regulatory oversight, could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
PERFORMANCE OF NEW PRODUCTS
Although we carry out numerous and extensive clinical trials on all our products before they are launched, for a new, recently launched product, it can be difficult, for a period following its launch, to establish from available data a meaningful and reliable assessment of its eventual efficacy and/or safety in clinical use on the market. Due to the relatively short time that a product has been marketed and the relatively small number of patients who have taken the product, the available data may be immature. Simple extrapolation of the data may not be accurate and could lead to a misleading interpretation of a new product’s likely future commercial performance.
The successful launch of a new pharmaceutical product involves a substantial investment in sales and marketing costs, launch stocks and other items. If a new product does not succeed as anticipated or its rate of sales growth is slower than anticipated, there is a risk that the
costs incurred in launching it could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
ENVIRONMENTAL LIABILITIES
AstraZeneca has environmental liabilities at some currently or formerly owned, leased and third party sites in the US, as described in more detail on pages 118 and 119. There is no reason for us to believe that associated current and expected expenditure and risks are likely to have a material adverse effect on AstraZeneca’s financial condition and results of operations although they could, to the extent that they exceed applicable provisions, have a material adverse effect on AstraZeneca’s financial condition and results of operations for the relevant period. In addition, a change in circumstances (including a change in applicable laws or regulations) may result in such a material adverse effect. Although we take great care to ensure that we operate our business at all of our sites within all applicable environmental laws, regulations, licences and permits, a significant environmental incident for which we were responsible could result in AstraZeneca being liable to pay compensation, fines or remediation costs. In some circumstances, such liability could have a material adverse effect on AstraZeneca’s financial condition and results of operations.
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| AstraZeneca Code of Conduct | 157 | |
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ASTRAZENECA CODE OF CONDUCT
INTRODUCTION
We are committed to dealing with all our stakeholders with the highest ethical standards, integrity and as responsible corporate citizens. The trust and confidence of all our stakeholders, together with our reputation, are among the most valuable assets of the Group. Along with our commitment to competitiveness and performance, we will continue to be led by our values to achieve sustainable success.
Every AstraZeneca employee is required to make a personal commitment to follow the Company’s Code of Conduct, as well as the detailed standards issued in support of it, and uphold our commitment to our values, integrity and corporate responsibility.
We are all privileged to work for one of the best companies in the world and must ensure we leave a lasting legacy. Nothing – not the need to meet targets, or direct orders from a superior – should ever compromise our commitment to honesty and integrity.
SIR TOM MCKILLOP
Chief Executive
July 2003
POLICY
AstraZeneca requires its companies, and their employees, to observe the highest standards of integrity and honesty and act with due skill, care, diligence and fairness in the conduct of business. To this end all AstraZeneca Companies, and their employees, are required to comply with the laws of all countries in which they operate and with the high ethical standards detailed by AstraZeneca in support of this policy.
COMPLIANCE
It is the responsibility of management to ensure that the AstraZeneca Code of Conduct and standards are communicated, understood and acted upon. They are required to positively promote them by personal example and are not entitled to permit any exceptions to the required behaviour.
All employees should familiarise themselves with the Code of Conduct and must comply with it. Failure to act in compliance with the Code will result in appropriate disciplinary action against both the employee committing the breach and others who condone it.
The Standards set out in the Code are general and do not address each and every situation that may confront employees in markets around the world. In appropriate cases, guidance on the application of the Code to particular
situations should be sought from management. In addition, Legal Department and Group Internal Audit are available on a confidential basis as independent sources of advice.
It is the responsibility of each employee to report promptly any violations of the Code of Conduct of which they become aware. AstraZeneca assures individual employees who raise issues that they will be protected from any adverse impact on their employment as a result. AstraZeneca actively encourages employees to raise issues of concern.
STANDARDS OF CONDUCT
Business practices
AstraZeneca Companies, and their employees, must comply with the laws of all countries in which they operate, with appropriate international and national industry codes of practice and with the high ethical standards specified by AstraZeneca.
It is the responsibility of all employees to ensure, by taking advice where appropriate, that they are fully aware of all relevant laws, regulations, practices and codes of practice, particularly as they relate to their job.
Employees should ensure that, within their sphere of business activity, AstraZeneca Companies carry out their contractual obligations in a proper and timely manner and are not in breach of contract.
Business practice, and what amounts to improper conduct, varies from country to country and from industry to industry. All employees will comply with (a) the high ethical standards specified by AstraZeneca (b) any published overall AstraZeneca Code relating to business practices and (c) any international and national codes of practice applicable to the conduct of business in each environment.
Gifts, entertainment and personal favours may only be offered to a third party if modest in value and if they are consistent with customary business practice. No gifts, entertainment or personal favour may be offered in contravention of any applicable law or code of practice.
No employee should seek or accept a gift, entertainment or personal favour which might reasonably be believed to have any influence on business transactions. An offer of entertainment should not be accepted unless the offer is within the bounds of accepted business hospitality. Gifts which do not meet the above criteria should be reported to management who shall determine how they shall be dealt with.
AstraZeneca funds will not be used in payments, direct or indirect, to government officials, people participating in government bodies, employees of state organisations or representatives of political parties, for unlawful or improper purposes.
Equal opportunities
All employees shall be treated with equal respect and dignity and shall be provided with equality of opportunity to develop themselves and their careers.
AstraZeneca is striving to achieve diversity at all levels of the organisation and values the individuality, diversity and creative potential that every employee brings to its business –and supports the continuous development of their skills and abilities.
Judgements about people for the purpose of recruitment, development or promotion shall be made solely on the basis of a person’s ability and potential in relation to the needs of the job and shall only take account of matters relevant to the performance of that job. Overall, success and advancement within AstraZeneca shall depend solely on personal ability, behaviour and work performance.
In some countries these principles may be modified by national legal requirements for affirmative action.
Personal harassment
Personal harassment, such as verbal abuse or sexual harassment, of any employee of AstraZeneca, its suppliers or customers is unacceptable in any form whatsoever.
Any person who believes they have been personally harassed should report the incident and circumstances to their immediate manager or HR manager or other senior manager who will arrange for it to be investigated impartially and confidentially.
AstraZeneca is fully supportive of the principles set forth in the UN Declaration of Human Rights. These include freedom from torture and arbitrary arrest, the right to a fair trial and equality before the law.
Political contributions
Any political contributions by AstraZeneca Companies must be lawful and approved under procedures laid down by the board or governing body of the Company concerned.
Approval should not be given to any political contributions by AstraZeneca Companies which, by their scale or affiliation, might
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ASTRAZENECA CODE OF CONDUCT CONTINUED
be seen as excessive or inappropriate. AstraZeneca’s accounting procedures require any political contribution to be reported to AstraZeneca headquarters as part of the annual consolidation of results.
Conflicts of interest
Employees dealing with AstraZeneca’s business must act in the best interests of AstraZeneca and must disregard any personal preference or advantage.
Employees should avoid entering into situations in which their personal, family or financial interests may conflict with those of AstraZeneca. Where any potential conflict of interest may arise, the employee shall declare that interest and seek advice from senior management.
Examples of conflict to be declared and resolved include:
| > | Having a family interest in a transaction with AstraZeneca or one of its subsidiaries (the Company) or any supplier or customer. |
| > | Hiring of a family member in any capacity. |
| > | Having an interest, directly or through family, in a competitor, supplier or customer of the Company. |
| > | Having an interest, directly or through family, in an organisation that has, or seeks to do business with the Company. |
| > | Acquiring an interest in property (such as real estate, patent rights or securities) where the Company has, or might have, an interest. |
These examples do not extend to normal and proper financial investments in publicly quoted companies.
Insider information
Employees must not use confidential information obtained through their employment for personal gain.
It is AstraZeneca policy, and in certain countries a legal requirement carrying criminal sanctions, that employees in possession of confidential ‘price sensitive’ information (in relation to securities) do not make use of such information to deal in securities of AstraZeneca or provide such information to third parties for that purpose. The same considerations apply in relation to confidential ‘price sensitive’ information relating to other companies and dealing in their securities.
Property and resources
AstraZeneca resources should be kept securely and should only be used for the proper advancement of its business and not for personal gain.
Individuals expending AstraZeneca resources should recognise that they owe a duty of care to the shareholders of AstraZeneca, who are its ultimate owners. Commitments and expenditure should only be such as could be justified to shareholders if the facts were known. This includes any expenses claimed and purchases made for which reimbursement is sought.
AstraZeneca resources include not only tangible assets such as materials, equipment and cash, but also intangible assets such as computer systems, trade secrets and confidential information. Employees should observe global and local guidelines concerning the classifying and handling of documents and electronic data. The storage of personal data in an electronic medium may be governed by laws with which relevant employees should familiarise themselves and comply.
Information generated within AstraZeneca, including research and development and manufacturing data, costs, prices, sales, profits, markets, customers and methods of doing business, is the property of AstraZeneca and must not, unless legally required, be disclosed outside AstraZeneca without proper authority.
Policies, delegated authorities and reserved powers
AstraZeneca employees are expected to make themselves aware of and comply with the letter and spirit of all AstraZeneca policies and with the reserved powers and delegated authorities established by the Board from time to time. Copies of these are available on the Company’s intranet site(s).
The freedoms which individuals have to carry out their jobs must be exercised within both the letter and spirit of AstraZeneca policies and procedures, reserved powers and delegated authorities. These are designed to empower people to carry out their responsibilities within a necessary framework of corporate control and legal responsibility but are not so voluminous as to prescribe appropriate action in every circumstance.
Records, disclosures and communications
AstraZeneca PLC and all AstraZeneca Companies and their employees are required to keep proper accounting and other records which give a true and fair view of the financial position, results of operations, transactions, assets and liabilities so as to enable the Company to make full, fair, accurate, timely and understandable disclosures in all reports it is required to publish, file or submit to shareholders and regulators and in all other communications which it publishes.
All accounting and other records will be maintained in a manner that describes and documents accurately the Company’s true financial position and results of operations and the true nature of its business transactions, assets and liabilities. Accounting records will be kept in accordance with AstraZeneca policies, relevant accounting standards and appropriate generally accepted accounting principles.
Employees must ensure that all reports published, filed or submitted to shareholders and regulators and all other communications which are published by the Company are full, fair, accurate, timely and understandable; they must not mislead the reader in any way or omit anything necessary to make them full, fair and accurate. The Chief Executive and the Company’s senior financial officers have a particular responsibility in this regard.
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| Additional Information | 159 | |
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ADDITIONAL INFORMATION
HISTORY AND DEVELOPMENT OF THE COMPANY
AstraZeneca PLC was incorporated in England and Wales on 17 June 1992 under the Companies Act 1985. It is a public limited company domiciled in the UK. The Company’s registered number is 2723534 and its registered office is at 15 Stanhope Gate, London W1K 1LN (telephone + 44 (0)20 7304 5000). From February 1993 until April 1999, the Company was called Zeneca Group PLC. On 6 April 1999, the Company changed its name to AstraZeneca PLC.
The Company was formed when the pharmaceutical, agrochemical and specialty chemical businesses of Imperial Chemical Industries PLC were demerged in 1993. In 1999, the Company sold the specialty chemical business. Also in 1999, the Company merged with Astra AB of Sweden. In 2000, it demerged the agrochemical business and merged it with the similar agribusiness of Novartis AG to form a new company called Syngenta AG.
The Company owns and operates numerous R&D, production and marketing facilities worldwide. Its corporate headquarters are at 15 Stanhope Gate, London W1K 1LN and its R&D headquarters are at SE-151 85 Södertälje, Sweden.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Objects
As is typical of companies registered in England and Wales, the Company’s objects, which are detailed in the Memorandum of Association, are broad and wide-ranging and include manufacturing, distributing and trading pharmaceutical products.
Directors
Subject to certain exceptions, Directors do not have power to vote at Board meetings on matters in which they have a material interest.
The quorum for meetings of the Board of Directors is a majority of the full Board, of whom at least four must be Non-Executive Directors. In the absence of a quorum, the Directors do not have power to determine compensation arrangements for themselves or any member of the Board.
The Board of Directors may exercise all the powers of the Company to borrow money. Variation of these borrowing powers would require the passing of a special resolution of the Company’s shareholders.
Directors are not required to retire at a particular age.
Directors are required to beneficially own Ordinary Shares in the Company of an aggregate nominal amount of $125. At present, this means they must own at least 500 shares.
Rights, preferences and restrictions attaching to shares
The share capital of the Company is divided into 2,400,000,000 Ordinary Shares with a nominal value of $0.25 each and 50,000 Redeemable Preference Shares with a nominal value of £1.00 each. The rights and restrictions attaching to the Redeemable Preference Shares differ from those attaching to Ordinary Shares as follows:
| > | The Redeemable Preference Shares carry no rights to receive dividends. |
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| > | The holders of Redeemable Preference Shares have no rights to receive notices of, attend or vote at general meetings except in certain limited circumstances. They have one vote for every 50,000 Redeemable Preference Shares held. |
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| > | On a distribution of assets of the Company, on a winding-up or other return of capital (subject to certain exceptions), the holders of Redeemable Preference Shares have priority over the holders of Ordinary Shares to receive the capital paid up on those shares. |
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| > | Subject to the provisions of the Companies Act 1985, the Company has the right to redeem the Redeemable Preference Shares at any time on giving not less than seven days’ written notice. |
Action necessary to change the rights of shareholders
In order to vary the rights attached to any class of shares, the consent in writing of the holders of three quarters in nominal value of the issued shares of that class or the sanction of an extraordinary resolution passed at a general meeting of such holders is required.
Annual general meetings and extraordinary general meetings
Annual general meetings and extraordinary general meetings where a special resolution is to be passed or a Director is to be appointed require 21 clear days’ notice to shareholders. All other extraordinary general meetings require 14 clear days’ notice.
For all general meetings, a quorum of two shareholders present in person or by proxy is required.
Shareholders and their duly appointed proxies and corporate representatives are entitled to be admitted to general meetings.
Limitations on the rights to own shares
There are no limitations on the rights to own shares.
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CROSS-REFERENCE TO FORM 20-F
The information in this document that is referenced on this page is included in AstraZeneca’s Form 20-F for 2005 (2005 Form 20-F) and is filed with the Securities and Exchange Commission (SEC). The 2005 Form 20-F is the only document intended to be incorporated by reference into any filings by AstraZeneca under the Securities Act of 1933, as amended. References to major headings include all information under such major headings, including subheadings. References to subheadings include only the information contained under such subheadings. Graphs are not included unless specifically identified. The 2005 Form 20-F has not been approved or disapproved by the SEC, nor has the SEC passed comment upon the accuracy or adequacy of the 2005 Form 20-F. The 2005 Form 20-F filed with the SEC may contain modified information and may be updated from time to time.
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| | A. | Selected financial data | |
| | | Financial Highlights | 5 |
| | | Group Financial Record – IFRS | 145 |
| | | Shareholder Information | 147 |
| | D. | Risk factors | 154 |
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| | A. | History and development of the Company | 159 |
| | | Financial Review – Investments, divestments | |
| | | and capital expenditure | 48, 58 |
| | | Note 7 – Property, plant and equipment | 96 |
| | | Note 22 – Disposal of business operations | 106 |
| | B. | Business overview | |
| | | Business Review | 6 |
| | C. | Organisational structure | |
| | | Directors’ Report | 62 |
| | | Principal Subsidiaries | 129 |
| | D. | Property, plant and equipment | |
| | | Business Review – Main Facilities | 43 |
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| | A-F. | Business Review | 6 |
| | A-F. | Financial Review | 45 |
| | | Note 15 – Financial instruments | 100 |
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| 6 | Directors, Senior Management and Employees | |
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| | A. | Directors and senior management | |
| | | Board of Directors | 60 |
| | B. | Compensation | |
| | | Directors’ Remuneration Report | 70 |
| | | Note 23 – Post-retirement benefits | 107 |
| | C. | Board practices | |
| | | Board of Directors | 60 |
| | | Directors’ Remuneration Report | 70 |
| | | Directors’ Report | 62 |
| | | Audit Committee’s Report | 68 |
| | D. | Employees | |
| | | Note 24 – Employee costs and share option | |
| | | plans for employees | 111 |
| | | Directors’ Report – Employees | 66 |
| | E. | Share ownership | |
| | | Directors’ Remuneration Report – | |
| | | Directors’ Interests in Shares | 77 |
| | | Note 24 – Employee costs and | |
| | | share option plans for employees | 111 |
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| 7 | Major Shareholders and Related Party Transactions | |
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| | A. | Major shareholders | |
| | | Shareholder Information – Major shareholdings | 148 |
| | B. | Related party transactions | |
| | | Shareholder Information – Related party | |
| | | transactions | 149 |
| | | Note 27 – Statutory and other information | 127 |
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| 8 | Financial Information | |
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| | A. | Consolidated statements and other | |
| | | financial information | |
| | | Financial Statements (excluding Directors’ | |
| | | responsibilities on page 82 and Auditors’ | |
| | | opinion on page 83) | 84 |
| | B. | Significant changes | |
| | | Note 27 – Statutory and other information | 127 |
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| 9 | The Offer and Listing | |
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| | A4. | Price history of listed stock | |
| | | Shareholder Information | 147 |
| | C. | Markets | |
| | | Shareholder Information | 147 |
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| 10 | Additional Information | |
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| | B. | Memorandum and Articles of Association | 159 |
| | C. | Material contracts | n/a |
| | D. | Exchange controls and other limitations | |
| | | affecting security holders | 151 |
| | E. | Taxation | 150 |
| | H. | Documents on display | 150 |
| | I. | Subsidiary information | |
| | | Principal Subsidiaries | 129 |
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| 11 | Quantitative and Qualitative Disclosures about Market Risk | |
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| | Financial Risk Management Policies – Treasury | 50 |
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| 12 | Description of Securities other than Equity Securities | n/a |
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| 13 | Defaults, Dividend Arrearages and Delinquencies | n/a |
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| 14 | Material Modifications to the Rights of Security | |
| | Holders and Use of Proceeds | n/a |
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| 15 | Controls and Procedures | |
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| | Directors’ Report – Internal controls and | |
| | management of risk | 64 |
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| 16 | [Reserved] | |
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| | A. | Audit committee financial expert | |
| | | Audit Committee’s Report | 68 |
| | B. | Code of ethics | |
| | | Directors’ Report – Code of Conduct | 65 |
| | C. | Principal accountant fees and services | |
| | | Note 27 – Statutory and other information | 127 |
| | D. | Exemptions from the listing standards | |
| | | for audit committees | n/a |
| | E. | Purchases of equity securities by the issuer | |
| | | and affiliated purchasers | |
| | | Note 28 – Share capital of parent company | 128 |
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| 18 | Financial Statements | |
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| | Financial Statements (excluding Directors’ responsibilities | |
| | on page 82 and Auditors’ opinion on page 83) | 84 |
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| | The paper used in this Report is sourced from sawmill residues, forest thinning and sustainable forests. All mill broke is recycled and accounts for up to 30% of the total fibre content. The pulp is bleached using a chlorine-free (ECF) process. This product meets ISO 9706 requirements. Designed by Addison Corporate Marketing Ltd. |
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| | | | CONTACT INFORMATION |
| | | | |
| | | | Registered office
and corporate headquarters address
AstraZeneca PLC
15 Stanhope Gate
London W1K 1LN
UK
Tel: +44 (0)20 7304 5000
Fax: +44 (0)20 7304 5151 |
| | | | |
| | | | R&D headquarters address
AstraZeneca AB
R&D Headquarters
SE-151 85 Södertälje
Sweden
Tel: +46 (0)8 553 260 00
Fax: +46 (0)8 553 290 00 |
| | | | |
| | | | Investor relations contacts
UK and Sweden: as above or e-mail
IR@astrazeneca.com
US:
Investor Relations
AstraZeneca Pharmaceuticals LP
1800 Concord Pike
PO Box 15438
Wilmington
DE 19850-5438
US
Tel: +1 (302) 886 3000
Fax: +1 (302) 886 2972 |
| | | | |
| | | | Registrar and transfer office
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 6DA
UK
Tel (freephone in the UK): 0800 389 1580
Tel (outside the UK): +44 121 415 7033 |
| | | | |
| | | | Swedish securities registration centre
VPC AB
PO Box 7822
SE-103 97 Stockholm
Sweden
Tel: +46 (0)8 402 9000 |
| | | | |
| | | | US depositary
JPMorgan Chase Bank
JPMorgan Service Center
PO Box 3408
South Hackensack
NJ 07606-3408
US
Tel (toll free in the US): 888 697 8018
Tel (outside the US): +1 (201) 680 6630 |
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| | | ASTRAZENECA.COM |
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