1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NUMBER 1 TO FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 26, 1997
(OCTOBER 31, 1997)
CHIREX INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0 - 27698 04-3296309
(State or other Commission File number (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
300 ATLANTIC STREET
SUITE 402
STAMFORD, CONNECTICUT 06901
(Address of principle executive office) (Zip Code)
(203) 351-2300
(Registrant's telephone number, including area code)
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 31, 1997, ChiRex Inc. (the "Company" or "ChiRex") and Glaxo Wellcome
plc ("Glaxo Wellcome or Glaxo") announced that ChiRex completed its purchase of
Glaxo Wellcome's FDA cGMP pharmaceutical production facility at Annan, Scotland
("Annan"). Glaxo Wellcome has received approximately $66 million (40 million
pound sterling) for the facility plus an additional payment for certain working
capital of approximately $1.6 million (approximately 1 million pound sterling)
and ChiRex will initiate the manufacture of certain pharmaceutical intermediates
and active ingredients under a five-year contract with Glaxo valued at
approximately $450 million. The transaction will be accounted for as a purchase.
On July 7, 1997, ChiRex announced the signing of a letter of intent with Glaxo
Wellcome plc to acquire Glaxo Wellcome's FDA cGMP pharmaceutical production
facility at Annan, Scotland. As part of the proposed agreement, Glaxo Wellcome
would award the Company a five-year contract to supply certain pharmaceutical
intermediates and active ingredients worth approximately $450 million. A
definitive Asset Purchase Agreement and Supply Agreement were signed by the
Company and Glaxo Welcome on September 23, 1997, on essentially the same terms
contained in the letter of intent with the closing occurring no later than
November 15, 1997.
Under the Asset Purchase Agreement, ChiRex purchased all of the buildings, land
and equipment at the 154-acre Annan, Scotland property, encompassing three main
production facilities plus certain working capital. Under the Supply Agreement,
ChiRex will continue to manufacture most of the products currently made at Annan
and plans to invest 20 million pound sterling (approximately $34 million) over
five years to accommodate newly contracted products and to modify the facility
for general purpose pharmaceutical fine chemical manufacturing.
To finance the acquisition and provide for the general cash requirements of the
business, a subsidiary of the Company entered into a senior secured term-loan
and revolving credit agreement on October 29, 1997, with Bankers Trust Company
allowing it to borrow up to 62 million pound sterling (approximately $100
million) for a five-year period. The credit facility is comprised of a 40
million pound sterling (approximately $65 million) term loan and a 22 million
pound sterling (approximately $35 million) revolving credit facility each
bearing interest at LIBOR plus 1%. The term-loan facility is repayable in nine
equal semi-annual installments beginning in late 1998 and also provides for
annual mandatory pre-payments from excess cashflow as defined in the credit
agreement. Borrowings under the credit facility are secured by the real and
personal property of and guaranteed by the Company and its subsidiaries. The
credit agreement contains normal and customary financial covenants and
limitations on indebtedness, dividends, capital expenditures and certain other
transactions. The Company's existing bank revolving credit facility was repaid
and terminated upon signing of the new credit facility.
ChiRex is a Contract Manufacturing Organization serving the outsourcing needs of
the pharmaceutical industry through its extensive pharmaceutical fine chemical
manufacturing, process development capabilities and proprietary chiral
technologies. The Company supports and supplements the in-house development and
manufacturing capabilities of its pharmaceutical and biotechnology customers
with a broad range of fully-integrated services, accelerating the time from drug
discovery to commercialization. ChiRex currently produces over 50 products in
its two world-class, FDA cGMP manufacturing facilities in Dudley,
Northumberland, England and in Annan, Scotland. ChiRex holds over 50 patents and
patent applications in the field of chiral chemistry.
Any statements contained in this Current Report on Form 8-K that relate to
future plans, events or performance, are forward-looking statements that involve
risks and uncertainties, including, but not limited to, product development and
market acceptance risks, product manufacturing risks, the impact of competitive
products and pricing, the results of current and future licensing and other
collaborative relationships, the results of financing efforts, developments
regarding intellectual property rights and litigation, risks of product
non-approval or delays or post-approval reviews by the FDA or foreign regulatory
authorities, and other risks identified in the ChiRex Inc.'s Securities and
Exchange Commission filings. Actual results, events or performance may differ
materially. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as the date hereof. ChiRex
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undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Business Acquired.
Following are the audited financial statements required by Item 7(a) of this
Current Report on Form 8-K for the Annan Manufacturing Site of Glaxo Operations
UK Limited for the years ended December 31, 1994, 1995 and 1996.
Annan Manufacturing Site of Glaxo Operations UK Limited Audited Financial
Statements (pages 7-23 of this document).
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ANNAN MANUFACTURING SITE OF
GLAXO OPERATIONS UK LIMITED
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
5
Annan Manufacturing Site of
Glaxo Operations UK Limited ("the Site")
Audited Financial Statements for the years ended
December 31 1994, 1995 and 1996
Page
----
Directors' Statement of Responsibility
in Relation to the Financial Statements 1
Report of Independent Accountants 2
Statement of Income 4
Balance Sheet 5
Statement of Cash Flows 6
Statement of Changes in Shareholders' Investment 7
Notes to Financial Statements 8
6
Annan Manufacturing Site of
Glaxo Operations UK Limited ("the Site")
DIRECTORS' STATEMENT OF RESPONSIBILITY IN RELATION TO THE FINANCIAL STATEMENTS
The directors of Glaxo Operations UK Limited have prepared financial statements
for each period which present fairly, in all material respects, the state of
affairs of the Site as at the end of the period and of the net income for that
period. The directors confirm that suitable accounting policies have been
applied consistently in the preparation of the financial statements, supported
by reasonable and prudent judgements and estimates as necessary; applicable
Accounting Standards in the United Kingdom have been followed, and the financial
statements have been prepared on the going concern basis.
The directors are responsible for ensuring the maintenance of proper accounting
records, which disclose with reasonable accuracy the financial position of the
Site at any time and from which financial statements can be prepared. They are
also responsible for ensuring the operation of systems of internal control for
safeguarding the assets of the Site and preventing and detecting fraud and other
irregularities.
On behalf of the Board of Glaxo Operations UK Limited.
Director: /s/ David Pulman Date: November 13, 1997
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REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF
GLAXO OPERATIONS UK LIMITED
We have audited the accompanying special purpose "carve-out" balance sheets of
the Annan Manufacturing Site of Glaxo Operations UK Limited, (the "Site"), as at
December 31 1995 and 1996 and the related statements of income, cash flows and
changes in shareholders' investment for each of the three years in the period
ended December 31 1996 expressed in pounds sterling set out on pages 4 to 15.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards generally accepted
in the United Kingdom which are substantially the same as those followed in the
United States. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Site'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 financial statements
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 financial statements.
OPINION
In our opinion the financial statements present fairly, in all material
respects, the financial position of the Site at December 31 1995 and 1996 and
the results of its operations and cash flows for the three years ended December
31 1996 in conformity with the basis of preparation set out in Note 1 and
accounting principles generally accepted in the United Kingdom as applied to
that basis.
2
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REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF
GLAXO OPERATIONS UK LIMITED - continued
Accounting principles generally accepted in the United Kingdom differ in certain
respects from those generally accepted in the United States. Application of the
latter would have affected the determination of net income and shareholders'
investment, expressed in pounds sterling, for the years ended December 31, 1995
and 1996 to the extent summarised in Note 9 to the financial statements.
/s/ Coopers & Lybrand
Chartered Accountants and Registered Auditors
London
November 13, 1997
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
STATEMENT OF INCOME
NOTES
-----
DEC 31 DEC 31 DEC 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
Revenues 3 18,525 13,282 18,466
----------------------------------------------------
Costs and Operating Expenses:
Cost of revenues 4 15,726 10,184 16,194
Selling, general and administrative
expenses 1 862 910 958
----------------------------------------------------
16,588 11,094 17,152
----------------------------------------------------
Operating Income before Provision for
Income Taxes 1,937 2,188 1,314
Provision for Income Taxes 5 361 634 551
----------------------------------------------------
Net Income 1,576 1,554 763
----------------------------------------------------
All the above transactions relate to continuing activities.
The Site has no recognised gains or losses other than the income above, and
therefore no separate statement of total recognised gains and losses has been
presented.
There is no difference between operating income before income taxes and the
retained income for the year and their historical cost equivalents.
The accompanying notes are an integral part of these financial statements
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
BALANCE SHEET
NOTES DEC 31 DEC 31
ASSETS 1995 1996
POUND STERLING '000 POUND STERLING '000
Current Assets:
Cash 17 71
Accounts receivable from
Glaxo Operations UK Limited -- 57
Inventories 6 8,377 6,196
Prepaid expenses and other debtors 595 459
-----------------------------
8,989 6,783
Property, Plant and Equipment, Net 7 26,852 25,314
-----------------------------
35,841 32,097
-----------------------------
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Current Liabilities:
Accounts payable 257 91
Accounts payable to Glaxo
Operations UK Limited 2,827 --
Distributions payable to
Glaxo Operations UK Limited 1,554 763
Accrued payroll and employee
benefits 247 264
Accrued Corporation tax 451 516
Other accrued expenses 273 196
-----------------------------
5,609 1,830
Deferred Corporation Tax 5 232 267
Shareholders' Investment:
Parent company investment 1 30,000 30,000
-----------------------------
35,841 32,097
-----------------------------
The accompanying notes are an integral part of these financial statements
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
STATEMENT OF CASH FLOWS
NOTES
-----
DEC 31 DEC 31 DEC 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
OPERATING INCOME BEFORE INTEREST 1,937 2,188 1,314
Depreciation 2,160 2,403 2,589
(Profit)/loss on sale of fixed assets -- (5) --
Decrease/(increase) in inventories 2,351 (4,460) 2,181
(Increase)/decrease in accounts receivable
from Glaxo Operations UK Limited (2,601) 3,771 (2,884)
(Increase)/decrease in prepaid expenses and
other debtors (8) (383) 136
Increase/(decrease) in accounts payable and
accrued expenses 165 184 (226)
--------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 4,004 3,698 3,110
TAXATION PAID (264) (364) (451)
CAPITAL EXPENDITURE (3,199) (1,753) (1,051)
Payments to acquire property plant
and equipment (3,199) (1,769) (1,051)
Proceeds from sale of property plant
and equipment -- 16 --
Distributions paid to Glaxo Operations
UK Limited (537) (1,576) (1,554)
--------------------------------------------------
INCREASE IN CASH 10 4 5 54
--------------------------------------------------
The accompanying notes are an integral part of these financial statements
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
PARENT
COMPANY
INVESTMENT
POUND STERLING '000
BALANCE JANUARY 1, 1994 30,000
Net Income 1,576
Distribution payable to Glaxo Operations UK Limited (1,576)
------
BALANCE DECEMBER 31, 1994 30,000
Net Income 1,554
Distribution payable to Glaxo Operations UK Limited (1,554)
------
BALANCE DECEMBER 31, 1995 30,000
Net Income 763
Distribution payable to Glaxo Operations UK Limited (763)
------
BALANCE DECEMBER 31, 1996 30,000
------
The accompanying notes are an integral part of these financial statements.
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements of the Annan Manufacturing Site of
Glaxo Operations UK Limited ("the Site") have been "carved-out" from
historical books and records of Glaxo Operations UK Limited as if the Site
was a stand-alone entity, in accordance with the sale agreement dated
October 31 1997 between Glaxo Operations UK Limited and ChiRex
Incorporated. The financial statements have been prepared in conformity
with Generally Accepted Accounting Principles in the United Kingdom ("UK
GAAP") and are presented under the historical cost convention.
The accompanying financial statements do not represent UK statutory
financial statements as the Site is part of Glaxo Operations UK Limited.
Certain reclassifications and changes in presentation have been made in
order to conform more closely with presentation and disclosure
requirements applicable in the United States.
The statutory accounts of Glaxo Operations UK Limited for the period ended
December 31 1996, on which the auditors' report was unqualified, are the
latest accounts to have been delivered to the Registrar of Companies in
England and Wales.
The ultimate parent company of Glaxo Operations UK Limited was Glaxo
Wellcome plc, a company incorporated under the laws of England, throughout
the period of these financial statements.
The accounting adjustments necessary to prepare the financial statements
include:-
Revenue Recognition
The Site recognises revenues upon shipment of its products. For the
purpose of these financial statements, shipments to other Glaxo Wellcome
entities, including shipments to other sites owned by Glaxo Operations UK
Limited, have been priced at standard cost plus a mark up of ten per cent.
Corporate Services
For the purpose of these financial statements the costs of corporate
services provided by Glaxo Operations UK limited have been included. The
services include administration, information technology, technical
support, centralised cash handling and management. The Directors believe
that the corporate service fee allocated to the Site is representative of
the services it has consumed.
YEAR ENDED
DECEMBER 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
Management Fees 862 910 958
--- --- ---
8
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
Parent Company Investment
The Parent Company Investment of pound sterling 30 million represents the
portion of the net amount advanced by Glaxo Operations UK Limited which
the Directors regard as being their long term investment in the Site.
Corporation Tax
The Directors have calculated the tax charge on bases that would not be
materially different from calculating such balances as if the Site filed a
separate tax return. In assessing the potential liability to deferred
taxation, the tax written down value of Property, Plant and Equipment at
January 1 1994 has been determined on a pro rata basis.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Site manufactures products used by Glaxo Wellcome in the production of
medicines. It forms part of Glaxo Operations UK Limited, a subsidiary
undertaking of Glaxo Wellcome plc.
Inventories
Inventories are stated at the lower of cost (on an average cost basis) or
market value and include materials, labour and manufacturing overhead.
Property, Plant and Equipment
The costs of additions and improvements are capitalised, while maintenance
and repairs are charged to expense as incurred. Depreciation is calculated
to write off the cost of property, plant and equipment, excluding freehold
land, in equal annual instalments over its expected useful life. The
normal expected lives of the major categories of property, plant and
equipment are:
Freehold Buildings 25 to 50 years
Plant and Machinery 10 to 20 years
Fixtures and Equipment 3 to 10 years
9
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
On disposal of property, plant and equipment, the cost and related
accumulated depreciation is removed from the accounts and the net amount,
less any proceeds, is taken to the statement of income as realised
gains/(losses).
Foreign Currency
Foreign currency transactions are booked at the exchange rate ruling on
the date of the transaction. Exchange gains/losses which arise are
included in the accompanying statement of income. They are not material
for all periods presented.
Retirement Benefits
The cost of providing pension benefits is charged to the income and
expenditure statement on a systematic and rational basis over the period
during which benefit is derived from employees' services.
Deferred Taxation
Deferred taxation, calculated using the liability method, is accounted for
taxation deferred or accelerated by reason of timing differences. Taxation
deferred or accelerated by reason of short term and other timing
differences is accounted for to the extent that it is possible that a
liability or asset will crystallise.
3. REVENUES
The Company is engaged in one business segment, the manufacture of ethical
pharmaceuticals. All sales are to Glaxo Wellcome entities in the United
Kingdom.
4. COSTS AND OPERATING EXPENSES
YEAR ENDED
DECEMBER 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
STAFF COSTS
Wages and Salaries 4,427 4,385 4,290
Social Security Costs 454 447 438
Pensions 595 182 184
-------------------------------------------------
5,476 5,014 4,912
-------------------------------------------------
Depreciation 2,160 2,403 2,589
-------------------------------------------------
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
Pension Costs
The employees at the Site are members of the Glaxo Wellcome Pension
Scheme. The pension expense reflects the Site's share of the pension cost
incurred for all participants in the Glaxo Wellcome Pension Scheme.
Contributions are made to funded defined benefit schemes and to funded
defined contribution schemes. The funds of these schemes are administered
by Trustees and are kept separate from those of the Group.
The excess of payment of contributions to the pension fund, over
accumulated pension costs is included in "Prepaid expenses and other
debtors" in the balance sheet. At December 31 1996, the Pension Prepayment
was pound sterling 372k, (1995 pound sterling 556k, 1994 pound sterling
152k).
An actuarial valuation for funding purposes was carried out as at March 31
1995. Following this valuation, contributions to the scheme by the Site
have been suspended.
Pension costs for accounting purposes have been derived using the
projected unit method and by spreading the surpluses in the schemes over
the average expected remaining service lives of their respective
memberships. The pension cost calculations have been carried out on the
basis of an assumed investment return of 8.5 per cent per annum, increases
in pensions of 4 per cent per annum, increases in salaries of 6 per cent
per annum (plus an allowance for promotion) and UK equity dividend growth
of 4 per cent per annum.
By reference to these assumptions, the actuarial value of the schemes'
total assets as at March 31 1995 represented 135 per cent of the actuarial
value of all benefits accrued to members as at that date, after allowing
for future salary and pension increases. The total market value of the
assets at that date was pound sterling 1,892 million.
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
5. CORPORATION TAXES
The components of Corporation taxes are as follows:
YEAR ENDED
DECEMBER 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
UK Corporation tax payable 364 451 516
UK Corporation tax deferred
- on results for period (3) 183 35
-----------------------------------------------
361 634 551
-----------------------------------------------
The Corporation tax rate in the three years to December 31 1996 was 33%.
Deferred Corporation taxes in the accompanying balance sheet consist of
the following:
DEC 31 DEC 31
1995 1996
POUND STERLING '000 POUND STERLING '000
Amount Provided
Accelerated Capital Allowances 49 144
Pensions 183 123
232 267
Full Potential Liability
Accelerated Capital Allowances 4,019 3,997
Pensions 183 123
4,202 4,120
Prima facie tax reconciliation
YEAR ENDED
DECEMBER 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
Actual tax charge 361 634 551
The actual tax charge differs from the prima facie
tax charge as follows:
Deferred tax not provided on fixed assets 278 90 (118)
------------------------------------------------
639 724 433
------------------------------------------------
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
6. INVENTORIES
DEC 31 DEC 31
1995 1996
POUND STERLING '000 POUND STERLING '000
Raw materials and supplies 1,820 1,455
Work in process 4,614 1,632
Finished goods 1,943 3,109
----------------------------
8,377 6,196
----------------------------
7. PROPERTY, PLANT AND EQUIPMENT
DEC 31 DEC 31
1995 1996
POUND STERLING '000 POUND STERLING '000
Property, plant and equipment at cost 61,096 61,976
Less: Accumulated depreciation 34,244 36,662
----------------------------
26,852 25,314
----------------------------
8. SUBSEQUENT EVENT
On October 31 1997, Glaxo Operations UK limited sold the Annan
Manufacturing Site to ChiRex (Annan) Limited. Under the sale agreement,
the only assets and liabilities being transferred to ChiRex (Annan)
Limited comprise Property, Plant and Equipment and stocks of raw materials
and work in process.
Employees of the Site retain their pension rights accrued up to the date
of the sale The benefit of any pension surplus will remain within the
Glaxo Wellcome Pension Scheme.
Glaxo Operations UK Limited has entered into a supply agreement with
ChiRex (Annan) Limited and ChiRex (Holdings) Limited for the supply of
intermediate products from the Site for a five year period commencing from
October 30 1997.
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
9. RECONCILIATION TO "US GAAP"
The financial statements are prepared in accordance with UK GAAP which
differs in certain significant respects from Generally Accepted Accounting
Principles in the United States ("US GAAP").
The approximate effect of applying US GAAP principles to net income and
shareholders' investment is set out below.
DEC 31 DEC 31 DEC 31
1994 1995 1996
POUND STERLING '000 POUND STERLING '000 POUND STERLING '000
NET INCOME UNDER UK GAAP 1,576 1,554 763
Deferred taxation (278) (90) 118
------------------------------------------------
NET INCOME UNDER US GAAP 1,298 1,464 881
----- ----- ---
DEC 31 DEC 31
1995 1996
POUND STERLING '000 POUND STERLING '000
SHAREHOLDERS' INVESTMENT UNDER UK GAAP 30,000 30,000
Deferred taxation (3,970) (3,852)
------ ------
SHAREHOLDERS' INVESTMENT UNDER US GAAP 26,030 26,148
------ ------
DEFERRED TAXATION
Under UK GAAP, deferred taxation is only accounted for to the extent that
it is probable that taxation liabilities or benefits will crystallise.
Under US GAAP, deferred taxation is accounted for in full on all timing
differences.
STATEMENT OF CASHFLOWS
Under US GAAP, tax paid would form part of operating cash flow. Under UK
GAAP, cash for the purposes of the statement of cash flows is defined as
cash in hand and deposits repayable on demand, less overdrafts repayable
on demand.
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ANNAN MANUFACTURING SITE OF GLAXO OPERATIONS UK LIMITED
NOTES TO FINANCIAL STATEMENTS - continued
10. CASH
POUND STERLING '000
BALANCE - JANUARY 1, 1994 8
Cash flow during year 4
-----
BALANCE - DECEMBER 31, 1994 12
Cash flow during year 5
-----
BALANCE - DECEMBER 31, 1995 17
Cash flow during year 54
-----
BALANCE - DECEMBER 31, 1996 71
-----
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(b) Pro Forma Financial Statements.
The following unaudited pro forma combined balance sheets and statements of
operations of the Company and the Annan Manufacturing Site of Glaxo Operations
UK Limited required by Item 7(b) of this Current Report on Form 8-K are based
on the historical balance sheet and statements of operations of the Company as
of and for the nine-months ended September 30, 1997 and for the year ended
December 31, 1996, adjusted to give effect to (i) the acquisition of the Annan,
Scotland facility (the "Acquisition"), (ii) the disposition of the
acetaminophen business (the "Disposition"), (iii) the merger of a subsidiary
of the Company with and into ChiRex America Inc. (formerly SepraChem Inc.) (the
"Merger") and (iv) the acquisition of ChiRex (Holdings) Limited, the corporate
parent of ChiRex Limited (formerly Sterling Organics Limited) (the
"Contribution"), as if all events had occurred as of September 30, 1997, for
the Pro Forma Combined Balance Sheet (to the extent such transactions have not
already been reflected), and as of January 1, 1996 for the Pro Forma Combined
Statements of Operations. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable.
The Annan facility will undergo a major reconditioning program during 1998
which will reconfigure this location into a general purpose pharmaceutical fine
chemical manufacturing plant. Also, the voluntary disposition of the
acetaminophen business was timed to take advantage of increased core production
activity within the Company's manufacturing facilities, and the associated
benefit of additional overhead absorption. The Company has also announced and
implemented a 4% cost reduction program. The following combined pro forma
statements of operations do not show the effect of these facts.
The combined pro forma statements of operations are not necessarily indicative
of future operating results or what the Company's results of operations would
actually have been had the Acquisition, Disposition, Merger and Contribution
occurred on January 1, 1996. The pro forma combined balance sheet and statement
of operations should be read in conjunction with the historical financial
statements of the Company.
22
CHIREX INC.
PRO FORMA COMBINED BALANCE SHEET AND
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (13)
(IN THOUSANDS)
PRO FORMA COMBINED BALANCE SHEET ANNAN
AS OF SEPTEMBER 30, 1997 MAN. SITE
GLAXO OPER. PRO FORMA
CHIREX INC. UK LIMITED ADJUSTMENTS PRO FORMA
--------- --------- --------- ---------
ASSETS
Current Assets:
Cash $ 1,945 $ 11 $ (11)(1) $ 1,945
Trade and other receivables 14,007 4,821 (4,743)(1) 14,085
Inventories 24,613 10,198 (6,949)(1)(2) 27,862
Other current assets 6,291 137 (16)(1) 6,412
--------- --------- --------- ---------
Total current assets 46,856 15,167 (11,720) 50,304
Property, plant and equipment, net 51,817 36,845 27,779(2) 116,441
Other non-current assets 2,004 -- 969(3) 2,973
Intangible assets, net 27,730 -- -- 27,730
--------- --------- --------- ---------
TOTAL ASSETS $ 128,407 $ 52,013 $ 17,028 $ 197,448
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,742 $ 1,301 $ (1,301)(1) $ 7,742
Accrued expenses 7,395 987 (740)(1) 7,642
Income taxes payable 4,388 1,165 (1,165)(1) 4,388
Deferred income taxes 2,227 -- -- 2,227
--------- --------- --------- ---------
Total current liabilities 21,752 3,453 (3,205) 21,999
Long-term debt 2,916 -- 68,794(3) 71,710
Deferred income taxes 7,593 6,315 (6,315)(1) 7,593
Deferred income 3,488 -- -- 3,488
--------- --------- --------- ---------
Total liabilities 35,749 9,768 59,273 104,790
--------- --------- --------- ---------
Stockholders' equity:
Common stock 118 -- -- 118
Additional paid-in capital 100,562 42,245 (42,245)(1)(4) 100,562
Retained earnings (10,672) -- -- (10,672)
Cumulative translation adjustment 2,650 -- -- 2,650
--------- --------- --------- ---------
Total stockholders' equity 92,658 42,245 (42,245) 92,658
========= ========= ========= =========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 128,407 $ 52,013 $ 17,028 $ 197,448
========= ========= ========= =========
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
CHIREX INC. ANNAN
NINE MONTHS MAN. SITE
ENDED GLAXO OPER. PRO FORMA
SEPTEMBER 30, 1997 UK LIMITED ADJUSTMENTS PRO FORMA
--------- --------- --------- ---------
Revenues:
Product sales $ 67,691 $ 17,545 $ (6,987)(5) $ 78,249
License fee and royalty income 577 -- -- 577
--------- --------- --------- ---------
Total revenues 68,268 17,545 (6,987) 78,826
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 50,276 14,249 (4,678)(6)(7)(8) 59,847
Research and development 3,814 -- (33)(9) 3,781
Selling, general and administrative 7,324 1,176 (116)(10) 8,384
Proceeds from disposition of acetaminophen business (6,308) -- -- (6,308)
Restructuring and other costs 12,901 -- -- 12,901
--------- --------- --------- ---------
Total operating expenses 68,007 15,425 (4,827) 78,605
--------- --------- --------- ---------
Operating income (loss) 261 2,120 (2,160) 220
Interest expense 64 -- 4,334(11) 4,398
--------- --------- --------- ---------
Income (loss) before income taxes 197 2,120 (6,494) (4,177)
Provision for income taxes 93 668 (2,058)(12) (1,297)
--------- --------- --------- ---------
Net income (loss) $ 104 $ 1,452 $ (4,436) $ (2,880)
========= ========= ========= =========
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
CHIREX INC. ANNAN
CHIREX INC. JANUARY 1, 1996 MAN. SITE
YEAR ENDED THROUGH GLAXO OPER. PRO FORMA
DECEMBER 31, 1996 MARCH 11, 1996 UK LIMITED ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- ---------
Revenues:
Product sales $ 73,440 $ 15,212 $ 29,037 $ (27,885)(5) $ 89,804
License fee and royalty income 1,175 -- -- -- 1,175
--------- --------- --------- --------- ---------
Total revenues 74,615 15,212 29,037 (27,885) 90,979
--------- --------- --------- --------- ---------
Costs and expenses :
Cost of goods sold 56,508 12,564 25,464 (22,049)(6)(7)(8) 72,487
Research and development 3,517 558 -- (130)(9) 3,945
Selling , general and administrative 8,876 1,300 1,506 (239)(10) 11,443
Write-off of in-process research
and development 5,790 -- -- -- 5,790
Compensation related to stock plans 5,611 -- -- -- 5,611
--------- --------- --------- --------- ---------
Total operating expenses 80,302 14,422 26,971 (22,418) 99,277
--------- --------- --------- --------- ---------
Operating income (loss) (5,687) 790 2,066 (5,467) (8,298)
Interest expense 755 690 -- 5,106(11) 6,551
--------- --------- --------- --------- ---------
Income (loss) before income taxes (6,442) 100 2,066 (10,573) (14,849)
Provision for income taxes 1,867 33 681 (3,415)(12) (834)
--------- --------- --------- --------- ---------
Net income (loss) $ (8,309) $ 67 $ 1,385 $ (7,158) $ (14,015)
========= ========= ========= ========= =========
23
Pro Forma Adjustments to the Pro Forma Combined Balance Sheet and Statements of
Operations as of and for the nine-month period ended September 30, 1997 and for
the year ended December 31, 1996 consist of:
(1) Eliminate assets not purchased and liabilities not assumed from Glaxo
wellcome related to the Annan facility.
(2) Adjust book value of inventory, engineering stores and property, plant and
equipment to fair market value of approximately $68 million.
(3) Borrowings under term loan and revolving credit facility to finance the
purchase of the Annan facility and capitalization of related financing costs.
(4) Eliminate Glaxo Wellcome's remaining net equity in the Annan facility.
(5) Reduction in revenues related to the sale of acetaminophen based on actual
sales of such product prior to the Disposition in each period.
(6) Reduction of costs of goods sold includes costs associated with the
production of acetaminophen based on actual costs of such product prior to the
Disposition of $6.020 million for the nine-month period ended September 30,
1997 and $23.879 million for the year ended December 31, 1996.
(7) Increase in depreciation expense of $1.077 million for the nine months ended
September 30, 1997 and $1.378 million for the year ended December 31, 1996
reflecting the increased property, plant and equipment valuation of Annan, and
increase in depreciation expense of ChiRex (Holdings) Limited related to the
period prior to the Contribution of $112 thousand.
(8) Increased pension costs of $265 thousand for the nine months ended September
30, 1997 and $340 thousand for the year ended December 31, 1996 resulting from
the purchase of Annan due to the Company's inability to share in the benefit of
the overfunded status of the Glaxo Wellcome pension plan.
(9) Reduction of research and development costs associated with the production
of acetaminophen based on actual costs.
(10) Reduction of selling, general and administrative costs associated with
acetaminophen based on actual costs of such product prior to the Disposition in
each period offset by an increase in amortization of goodwill of $225 thousand
related to the period prior to the Contribution in the year ended
December 31, 1996.
(11) Additional interest expense and amortization of deferred financing costs on
borrowings to finance the purchase of the Annan facility offset by a reduction
in interest expense of $440 thousand related to debt retired in connection with
the Contribution in the year ended December 31, 1996.
(12) Income tax effect of pro forma adjustments, excluding amortization of
goodwill in the year ended December 31, 1996, which is not deductible for tax
purposes.
(13) Exchange rates used in the preparation of the pro forma financial
statements were $1.6156 to 1 pound sterling for the balance sheet as of
September 30, 1997, $1.6382 to 1 pound sterling for the statement of operations
for the nine months ended September 30, 1997 and $1.5725 to 1 pound sterling for
the year ended December 31, 1996.
24
(e) Exhibits
The exhibits listed in the accompanying Exhibit Index have been filed pursuant
to Item 7(c) or Current Report on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHIREX INC.
Date: November 26, 1997 By: /s/ Michael A. Griffith
---------------------------
Michael A. Griffith
Chief Financial Officer
and Secretary
25
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.1(*)(t) Asset Purchase Agreement between ChiRex Inc. and
Glaxo Wellcome plc
4.1(t) Facilities Agreement between ChiRex (Holdings)
Limited and Bankers Trust Company
4.2(t) Pledge Agreement between ChiRex Inc. and Bankers
Trust Company
10.1(*)(t) Supply Agreement between ChiRex Inc. and Glaxo
Wellcome plc
99.1(t) ChiRex Inc. press release dated October 31, 1997
- ----------
* Certain portions of this exhibit have been omitted and are subject to a
confidential treatment request. The omitted portions have been filed separately
with the Securities and Exchange Commission.
t Previously filed.