The results for the years ended December 31, 2000, 1999 and 1998 have been
restated from prior periods to reflect the merger of Shire Pharmaceuticals Group
plc ("Shire") and BioChem Pharma, Inc. ("BioChem"), which became effective on
May 11, 2001, as if the merger had occurred on January 1, 1998.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes appearing elsewhere in this
report.
Results of Operations
Years Ended December 31, 2000 and 1999
Overview
On May 11, 2001, Shire and BioChem merged in a tax-free exchange of shares.
Shire exchanged 0.7585 ADR's (2.2757 ordinary shares) for each common share of
BioChem, plus cash in lieu of any resulting fractional ADR. This transaction was
accounted for as a pooling of interests. Merger transaction expenses and merger
related restructuring costs totalling $177.0 million are reflected in Shire's Q2
2001 results of operations.
For the year ended December 31, 2000, total revenue increased by 25% to
$671.1 million, compared to $537.3 million in fiscal 1999. This increase was
primarily the result of an increase in product sales. Product sales in the U.S.
represent a significant percentage of worldwide sales, increasing to 80% in 2000
from 78% in 1999. Net income for the year ended December 31, 2000 was $211.7
million as compared to a net loss in 1999 of $47.4 million. Net income for the
current year includes exceptional income of $93.0 million related primarily to
the gain realized on the disposal of the Company's non-strategic long-term
investment in North American Vaccine, Inc. The prior year results include $97.1
million in non-recurring asset impairment and restructuring charges and $32.3
million for merger transaction expenses, following Shire's merger with Roberts
Pharmaceutical Corporation.
The Company manages its business along two lines: research & development on
a global basis and sales and marketing operations on a geographic basis, each
being managed and monitored separately. The three reportable segments are
therefore the U.S. and International for the sales and marketing operations, and
Global R&D. Additional information regarding segments is provided in Note 23 to
the consolidated financial statements.
Total revenues
The Company's total revenues are derived from three sources: sales of
products by the Company's own sales and marketing operations, licensing and
development fees and royalties. The following table provides an analysis of the
Company's total revenues:
Total revenues 2000 Change 1999 Change 1998
-------------- ---- ------ ---- ------ ----
$m % $m % $m
-- - -- - --
Product sales 520 29.7 401 30.6 307
Licensing and development 14 (3.0) 14 (26.8) 20
Royalties 136 13.2 120 11.2 108
Other 1 (36.7) 2 18.7 1
1
----------- ---------------- ---------- --------------- ----------
Total 671 24.9 537 23.3 436
Product sales
For the year ended December 31, 2000, total product sales increased by
29.7% to $520.2 million, compared to $401.0 million in the prior year.
The following table presents the Company's net product sales by operating
segment:
Product sales by segment 2000 Change 1999 Change 1998
------------------------ ---- ------ ---- ------ ----
$m % $m % $m
-- - -- - --
U.S. 415 32.2 314 38.3 227
International 105 20.7 87 8.8 80
----------- ---------------- ---------- --------------- ----------
Total 520 29.7 401 30.6 307
Of the Company's total product sales in 2000, approximately 43% related to
Adderall and DextroStat, the Company's products marketed in the U.S. for the
treatment of Attention Deficit Hyperactivity Disorder ("ADHD") (1999: 37.6%).
Sales of Adderall and DextroStat were $224.1 million, representing growth of 49%
over 1999 sales of $150.8 million. On a combined basis, these products increased
their share of the total U.S. ADHD prescriptions written from 30.5% in December
1999 to 35.9% in December 2000.
Sales of Agrylin, the only U.S. product licensed for the treatment of
essential thrombocythemia, grew by 77% to $57.7 million. Shire achieved a
prescription share of 19.1% of the total U.S. Agyrlin market, including Hydrea
and generic hydroxyurea compared to 13.2% in December 1999.
Sales of Pentasa, licensed for the treatment of ulcerative colitis, at
$54.2 million, were 4% higher than in 1999. Pentasa had a 18.0% share of the
U.S. oral mesalamine/olsalazine market in December 2000, compared with 17.8% in
December 1999.
Sales of Carbatrol, one of the most widely used first line treatments for
epilepsy, recorded sales growth of 60% to $25.6 million (1999: $16.0 million).
In December 2000, Carbatrol gained 31.2% of the extended release carbamazepine
market, compared with 22.9% in December 1999.
Royalties
Development, manufacturing and marketing rights for 3TC and Zeffix are held
by GlaxoSmithKline. BioChem receives royalties on worldwide sales of these
products, with the exception of Canada, where a partnership has been established
between the two companies.
Royalty revenue increased 13% to $135.5 million in 2000 compared to $119.7
million in 1999. These increases are due to growing sales of Zeffix and a more
favourable geographic sales
2
mix for 3TC, on which the Company receives royalties from GlaxoSmithKline. In
2000, worldwide sales of 3TC amounted to $863.5 million, a decrease of 1%
compared to sales of $873.1 million in 1999. These amounts include the 3TC sales
portion in Combivir, a product that combines in a single tablet two
antiretroviral drugs, AZT and 3TC. In 2000, 3TC sales also include the 3TC
portion in Trizivir, a product that combines in a single table three
antiretroviral drugs, AZT, 3TC and Ziagen. The decrease in 2000 was attributable
to exchange losses resulting from the decline of Sterling and the Euro
currencies against the US dollar and to significant orders placed in Brazil in
1999 that did not recur in 2000. The financial impact on royalties received by
the Company of this decline in Brazilian sales is minimal due to the lower
royalty rates paid on these sales.
Rapidly growing sales of Zeffix, BioChem's discovery for the treatment of
chronic hepatitis B, also contributed to the increase in royalty revenue in
2000. Sales of Zeffix totalled $106.9 million in 2000 compared to $24.2 million
in 1999. More than 80% of Zeffix sales were in the Asia Pacific region for both
periods. The first sales of Zeffix were made in December 1998 for a total of
$2.9 million and were primarily in the United States.
Cost of revenues
For the year ended December 31, 2000 cost of revenues amounted to 19.5% of
product sales as compared to 25.7% in 1999. Overall, the higher margin products
such as Adderall, Pentasa, and Agrylin have continued to grow at a faster rate
than the lower margin products. These three products contributed $325.9 million
of sales in the year ended December 31, 2000 compared to $226.4 million in 1999,
representing 63% of total product sales in the year ended December 31, 2000
compared to 56% in 1999.
Research and development
Research and development expenditure increased from $141.1 million in 1999
to $155.1 million in 2000, representing an increase of 10.0%. This increase
reflects the significant portion of development projects at Phase II or later
where development costs are higher. In 2000, R&D expenditure as a proportion of
total revenues is 23.1% (1999: 26.3%)
Selling, general and administrative
Selling, general and administrative expenses, excluding the effects of a
stock option compensation charge of $21.9 million (1999: $11.9 million),
increased by $31.8 million from $182.6 million in 1999 to $214.4 million in
fiscal 2000.
A significant component of selling, general and administrative expenses are
depreciation and amortization charges, which increased from $34.2 million in
1999 to $38.0 million in 2000.
As a percentage of product sales, selling, general and administrative
expenses (excluding an APB25 stock option compensation charge and depreciation
and amortization charges) fell by 3.1% to 33.9%. Increases in sales and
marketing expenses in the U.S., including the recruitment of new sales
representatives in the fourth quarter of the year, have been reduced by merger
cost savings and a one off settlement of a development agreement contract
dispute.
In process research and development
As a result of the acquisition of CliniChem Development Inc., Shire
incurred a charge of $27.0 million in the year ended December 31, 2000,
representing the acquisition of in process research and development.
Interest income and expense
3
In the year ended December 31, 2000, the Company received interest income
of $19.2 million compared with $16.0 million in 1999. This increase reflects the
average cash balances held during the year. Interest expense increased from
$11.6 million in 1999 to $16.4 million in 2000, reflecting an increase in
underlying rates of interest of approximately 1% and a full year's interest
charge on the convertible loan notes issued in connection with the Arenol buy
back.
Other
Included within other income in the year ended December 31, 2000 is a $99
million gain on the sale of long term investments.
In March 1997, BioChem agreed to make an investment of CAN$30 million in
GeneChem Technologies Venture Fund L.P., a venture capital fund sponsored by
BioChem's subsidiary, GeneChem Financial Corporation. This CAN$100 million fund
invests in advanced academic research projects and early-stage private or public
companies in the area of genomics and related technologies for human
application. BioChem's partners in this fund are a select group of financial
investors. As of December 31, 2000, CAN$21 million have been invested in
GeneChem Technologies Venture Fund L.P., by BioChem.
In September 2000, BioChem entered into an agreement to invest CAN$15
million in GeneChem Therapeutics Venture Fund L.P., a new CAN$136.5 million
capital fund. GeneChem Therapeutics Venture Fund L.P. will invest in genomics
companies focusing on cancer and infectious diseases.
The manager and general partners of GeneChem Technologies Venture Fund
L.P., and GeneChem Therapeutic Venture Fund L.P., are subsidiaries of BioChem.
Income Taxes
For the year ended December 31, 2000, income taxes increased by $26.0
million from $21.7 million to $47.7 million. The Company's effective tax rate in
2000 (before APB 25 charge, gains on disposal of assets and loss from
discontinued operations) was 23.3 % (1999: 16.2% before APB 25 charge, gains on
disposal of assets and loss from discontinued operations). The Company has
recorded net deferred tax assets of approximately $33.5 million (1999: $37.3
million). Realization is dependent upon generating sufficient taxable income to
utilize such assets. Although realization of these tax assets is not assured,
management believes it is more likely than not that the deferred tax assets will
be realized. See note 26 for expiry dates of these tax losses.
Years Ended December 31, 1999 and 1998
Overview
On December 23, 1999, Shire and Roberts Pharmaceuticals Inc., merged in a
tax-free exchange of shares. Shire exchanged 1.0427 ADR's (3,1281 ordinary
shares) for each common share of Roberts. This transaction was accounted for as
a pooling of interests. Merger transaction expenses and merger related
restructuring costs totalling $75.9 million are reflected in the Company's 1999
results of operations.
4
The results for the years ended December 31, 1999 and 1998 have been
restated from prior periods to reflect the merger of Shire and Roberts as if the
merger had occurred on January 1, 1998.
Total revenues
For the year ended December 31, 1999, total revenue increased by 23.3% to
$537.3 million, compared to $435.9 million in fiscal 1998. This increase was
primarily the result of an increase in product sales.
Product sales
For the year ended December 31, 1999, total product sales increased by
30.7% to $401.0 million, compared to $306.7 million in the prior year. Of the
Company's total product sales in 1999, 37.6% related to Adderall and DextroStat
for the treatment of ADHD (1998:26.1%). On a combined basis, these products
increased their share of the total U.S. ADHD prescriptions written from 20.4% in
December 1998 to 30.5% in December 1999.
Other significant contributors to the increase in product sales in 1999
were the U.S. marketed products Pentasa, Carbatrol and Agrylin. The Company
acquired Pentasa, licensed for the treatment of ulcerative colitis, in the
second quarter of 1998, and recorded sales of $51.8 million in 1999 compared to
$33.3 million in 1998. Carbatrol increased its share of the total U.S. extended
release carbamazepine prescriptions written to 22.8% in December 31, 1999 from
8.5% in December 1998 and Agrylin sales grew 37% over 1998 to $32.6 million in
1999.
Royalties
Royalty revenue totalled $119.7 million in 1999 compared to $107.6 million
in 1998. This increase is due to royalties received from GlaxoSmithKline on
growing sales of 3TC and Zeffix worldwide. In 1999, worldwide sales of 3TC,
including the 3TC sales portion in Combivir, a product that combines in a single
tablet two antiretroviral drugs, AZT and 3TC, amounted to $873.1 million, an
increase of 8% compared to sales of $808.8 million in 1998. Sales of 3TC in the
United States represented approximately 52% of overall sales in 1999 and 1998.
In addition, sales of Zeffix, BioChem's discovery for the treatment of chronic
hepatitis B, also contributed to the increase in royalty revenue in 1999. Sales
of Zeffix totalled $24.2 million in 1999 of which more than 80% were in Asia.
The first sales of Zeffix were made in December 1998 for a total of $2.9 million
and were primarily in the United States.
Cost of revenues
For the year ended December 31, 1999 cost of revenues amounted to 25.7% of
product sales as compared to 33.6% in 1998. The decrease in cost of revenues
percentage and corresponding increase in gross margin is attributable to an
improved product mix and to the faster growth of products with a higher gross
margin.
Costs and expenses
In 1999 the Company recorded charges totalling $135.2 million pre-tax for
asset impairments ($48.5 million), merger-related transaction expenses ($32.3
million), restructuring ($43.6 million), loss on product dispositions ($5.8
million) and other charges ($5.0 million). These charges are disclosed
separately within operating expenses in the consolidated statements of income.
The Company recorded an impairment charge of $34.2 million to adjust
intangible asset values, primarily product rights, to their estimated fair
value. These charges are consistent with the Company's accounting policy to
review periodically the carrying value of the intangibles and evaluate
5
whether there has been any impairment in the carrying value of those
intangibles. The estimated fair value has been calculated using projected
discounted cash flows of the products. Other asset impairments included the
write off of inventory held for research and development work and duplicate
equipment ($3.2 million), adjustments to the carrying value of the RiboGene
investment to market value at the year end ($7.6 million), and write down of
receivables to their estimated realizable value ($3.5 million).
The components of the restructuring charge are as follows:
$m
--
Employee termination costs 37.9
Property 5.7
-----------
43.6
In December 1999, the decision was made to close the Roberts' office
facility in Eatontown, New Jersey and consolidate the sales and marketing
operations into the existing Company facility in Florence, Kentucky and transfer
the research and development activities to Shire's facility in Rockville,
Washington. Similarly, Roberts' sales and marketing operation in the U.K. was
combined with the Company's established operation in Andover, Hampshire. The
office facility in Eatontown was
closed as of April 28, 2000 while the U.K. duplicate facility was closed on
March 10, 2000. The Company completed the sale of the Eatontown facility during
the third quarter of 2000.
As a result of the restructuring and elimination of duplicate facilities,
the Company identified a number of sales and marketing, research and development
and administrative positions to be terminated. These employees were notified of
their termination prior to December 31, 1999. The employee termination costs
consisted of payments for severance, medical and other benefits, outplacement
counselling, acceleration of pension benefits and excise taxes. The Company
completed the restructuring program during the fourth quarter of 2000, and the
restructuring reserve of $43.6 million was fully utilized by December 31, 2000.
Research and development
Research and development expenditure increased from $98.0 million in 1998
to $141.1 million in 1999, representing an overall increase of 44.0 %. This
increase reflects the significant portion of development projects at Phase II or
later where development costs tend to be higher. In 1999, R&D expenditure as a
proportion of total revenues is 26.3% (1998: 22.5%)
Selling, general and administrative expenses
Selling, general and administrative expenses increased $37.0 million from
$157.5 million in 1998 to $194.5 million in fiscal 1999, primarily due to an
increase in size of the U.S. sales force and higher levels of marketing
expenditure.
A significant component of selling, general and administrative expenses are
depreciation and amortization charges, which increased from $29.8 million in
1998 to $34.2 million in 1999, mainly due to the addition of the Pentasa and
Agrylin product rights.
6
As a percentage of total revenues, selling, general and administrative
expenses were constant at approximately 36 % in 1998 and 1999.
Interest income and expense
In the year ended December 31, 1999 the Company received interest income of
$16.0 million compared with $15.7 million in 1998. The flat interest income is
due to the payment of $80 million with respect to the shares repurchased from
GlaxoSmithKline in 1999. Interest expense increased from $6.6 million in 1998 to
$11.6 million in 1999 as a result of a full year's interest expense from the
financing of the Pentasa acquisition.
Income Taxes
For the year ended December 31, 1999, income taxes increased $14.0 million
from $7.7 million to $21.7 million. The Company's effective tax rate in 1999
(before merger related transaction expenses, restructuring costs and asset
impairments) was 16.2 %. The Company has recorded net deferred tax assets of
approximately $37.3 million. Realization is dependent upon generating sufficient
taxable income to utilize such assets. Although realization on these tax assets
is not assured, management believes it is more likely than not that the deferred
tax assets will be realized.
Discontinued Operations
In March 2000 the diagnostics business of BioChem was divested following
the adoption of a formal plan on January 29, 1999.
Liquidity and Capital Resources
The Company has financed its operations since inception through private and
public offerings of equity securities, the issuance of loan notes, collaborative
licensing and development fees, product sales and investment income.
The Company's funding requirements depend on a number of factors, including
the Company's product development programs, business and product acquisitions,
the level of resources required for the expansion of marketing capabilities as
the product base expands, increased investment in accounts receivable and
inventory which may arise as sales levels increase, competitive and
technological developments, the timing and cost of obtaining required regulatory
approvals for new products, and the continuing revenues generated from sales of
its key products.
As of December 31, 2000 and 1999, the Company had cash, cash equivalents
and marketable securities of $463.7 million and $291.3 million, respectively,
which consisted of immediately available money market fund balances and
investment grade securities.
Debt
In 1998, the Company acquired the product rights to Pentasa. The majority
of the purchase price was financed through a credit agreement between Roberts,
Credit Suisse First Boston ("CSFB"), previously known as DLJ Capital Funding
Inc. and various other lenders. Under this credit agreement, the merger of Shire
and Roberts constituted a change of control which triggered the acceleration of
the repayment of the principal amounts outstanding. On November 19, 1999,
Roberts, Shire's U.S. subsidiaries and The Company entered into an agreement
with CSFB to replace the existing credit agreement with a $250 million credit
facility consisting of a $125 million five-year revolving credit facility and a
$125 million five-year term loan facility. In connection with the credit
facility, the Company is subject to certain affirmative and negative covenants
and maintenance tests that require the Company to maintain a net minimum worth,
a specified leverage ratio and a specific coverage
7
ratio. At December 31, 2000 the Company satisfied the aforementioned covenants
and maintenance tests.
Capital expenditure
Capital expenditure in the year ended December 31, 2000 of approximately
$44.2 million included the purchase of the Company's new head office facility in
Basingstoke, Hampshire, U.K. for approximately $17.4 million. Other expenditure
on tangible fixed assets included the purchase of research and development
equipment by BioChem and investment in computer equipment across all operational
areas.
Capital expenditures in fiscal 1999 of approximately $26.5 million were
principally for the upgrade and expansion of sales and administration functions.
Capital expenditure in 1998 of approximately $25.9 million primarily relates to
an upgrade of the manufacturing facility in Canada and significant investments
in new computer hardware and software.
Product acquisitions
In May 2000, the Company acquired certain European and Nordic rights to
balsalazide, a treatment for ulcerative colitis, from Salix Pharmaceuticals Ltd.
In the year ended December 31, 2000 the Company paid a total of $15.9 million
under the agreement which included $2.5 million by way of the issue of 160,546
new Shire ordinary shares.
In November 2000, the Company acquired extended distribution and other
ancillary rights for ProAmatine from Nycomed for approximately $21 million,
including the ending of royalty obligations to Nycomed which enhanced gross
margins of this product.
Business combinations and divestitures
On May 11, 2001, Shire and BioChem merged in a tax-free exchange of shares.
Shire exchanged 0.7585 ADR's for each common share of BioChem, plus cash in lieu
of any resulting fractional ADR. This transaction was accounted for as a pooling
of interests. On May 8, 2001 Shire received the approval of the Minister
responsible for the Investment Canada Act, that Shire's propsoed merger with
BioChem had been approved. In this connection undertakings were made by Shire
which were consistent with its plans for the enlarged Shire Group and with the
operating synergies outlined in the Circular and Listing Particulars issued for
the Shire BioChem merger.
During October and November 1999 the Company acquired the European sales
and marketing subsidiaries from Fuisz Technologies Ltd. The operations located
in France, Germany and Italy were acquired for $39.5 million in cash. A
substantial portion of the purchase price was allocated to intangible assets,
which are amortized over 20 years.
On December 23, 1999 Shire, and Roberts merged in a tax-free exchange of
shares. This transaction was accounted for as a pooling of interests. Shire
exchanged 1.0427 ADR's for each common share of Roberts. Merger transaction
expenses and merger-related restructuring costs totalled $75.9 million. These
charges are disclosed separately in operating expenses.
On January 13, 1999 Shire disposed of its Indianapolis manufacturing plant
for a net consideration after expenses of $1.5 million including a loan note of
$0.5 million. The net gain of $0.8 million is included in results of operations.
During November 1999, the Company sold the product Tigan for $6.4 million. The
Company incurred a loss on disposal of $5.8 million, which is included within
the results of operations.
Included in other income are net gains on sale of long-term investments of
$93.2 million in 2000 and $16.1 million in 1999. These represent gains realized
on non-strategic long-term investments. In 2000 it is mainly comprised of the
gain realized on the sale of the Company's investment in North American Vaccine,
Inc. In 1999 the investments sold included Antisoma plc, a United Kingdom based
public company, and a portion of the Company's investment in North American
Vaccine, Inc.
8
The loss from discontinued operations of $12.2 million in 1999 represents
losses related to the Company's diagnostic subsidiary, which was divested during
2000. This amount included a charge of $11.4 million to reflect the loss related
to the divestments. For accounting purposes, the transaction is not recorded as
a sale since certain risks of ownership were not transferred to the buyer.
Accordingly, the net assets transferred to the buyer are presented in the
non-current asset section of the Company's balance sheet as "Net assets of
business transferred under contractual agreements." See Note 2(b).
Other commitments
Information regarding other commitments is disclosed in Note 19 to the
consolidated financial statements.
Foreign currency fluctuations
The parent company and a number of subsidiary operations are located
outside the U.S. As such, the consolidated financial results are subject to
fluctuations in exchange rates, particularly those between the U.S. dollar,
British pound, Canadian dollar and Euro zone currencies. The accumulated foreign
currency translation differences are reported within accumulated other
comprehensive income.
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of short-term cash investments and trade
accounts receivable.
As revenues are mainly derived from agreements with major pharmaceutical
companies and relationships with drug distributors, and such clients typically
have significant cash resources, any credit risk associated with these
transactions is considered minimal. The Company operates credit evaluation
procedures.
Excess cash is invested in short-term money market instruments, including
bank and building society term deposits and commercial paper from a variety of
companies with strong credit ratings. These investments typically bear minimal
risk.
Inflation
Although at reduced levels in recent years, inflation continues to apply
upward pressure on the cost of goods and services used by the Company. However,
management believes that the net effect of inflation on the Company's operations
has been minimal during the past three years.
Year 2000
The Company experienced no significant Year 2000 compliance issues and Year
2000 issues did not have a material effect on its business, results of
operations, or financial condition.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union ("EMU")
introduced the Euro as the official currency of the 11 participating member
countries. On that date, the currency exchange rates of the participating
countries were fixed against the Euro. There is a three year transition to the
Euro. At the end of 2001 the currency will come into circulation and national
currencies will be withdrawn by July 2002.
9
The U.K. did not participate in the EMU at the commencement of the third
stage on January 1, 1999 and it is uncertain whether or on what terms the U.K.
would be permitted to join at a later date. There can be no prediction as to
whether the U.K. will participate in the EMU or as to the rate at which the
pound sterling would be converted into the Euro. Furthermore, there can be no
prediction as to the likely impact on the U.S. dollar/sterling exchange rate of
a decision by the U.K. to participate in the EMU.
It is anticipated that the pricing of goods and services will be more
transparent through the use of a single currency within the participating member
states. Competition is likely to increase with the greater price transparency
and removal of exchange rate risk. In the longer term more general price
convergence is likely, assuming the EMU leads to greater harmonization of
healthcare policies across the participating member states.
The Company has sales and marketing operations in the Republic of Ireland,
France, Germany, Spain and Italy and therefore there may be some impact on the
Company's business and competitive position as a result of the increased price
transparency.
The Company has reviewed its financial and operating systems and is
satisfied that the introduction of the Euro will not cause any disruption to the
business, and that the systems are in place to receive and make payments in
Euros. The Company will continue to monitor the U.K.'s stance in relation to
participation in the Euro and assess the impact of any significant changes in
policy.
10
Quantitative and Qualitative Disclosures About Market Risk
The Company's principal treasury operations are managed by its treasury function
based in the U.K. in accordance with its treasury policies and procedures which
are approved by The Company's Board. As a matter of policy, the Company does not
undertake speculative transactions which would increase its currency or interest
rate exposure.
The Company is subject to market risk exposure in the following areas:
o Interest rate market risk
The Company has cash and cash equivalents on which interest income is
earned at variable rates.
The Company also has a $250 million credit facility including a $125
million five-year revolving credit facility (including a $25 million
letter of credit facility) and a $125 million five-year term loan
facility. The applicable interest rate on the credit facility ranges
between 0.5% and 1.5% over the prime rate of Credit Suisse First
Boston or the Federal Funds Rate plus 0.5% or between 1.5% and 2.5%
over the London Interbank Overnight rate, in each case depending on
The Company's credit rating. The facility is secured by all material
property owned by The Company and its subsidiaries and the capital
stock of The Company's subsidiaries. If The Company's credit rating
reaches specified levels, the facility will not be secured. The
facility contains customary covenants and additional maintenance tests
that require The Company to maintain a minimum net worth, a specified
leverage ratio and a specified coverage ratio.
The Company has no amounts due in respect of debt denominated in
foreign currencies.
As at December 31, 2000 and 1999 the Company had utilized the $125
million five-year term loan facility but no other amounts were drawn
in respect of the remaining $125 million five-year revolving credit
facility. The $125 million five-year term loan was repaid in 2001.
o Foreign exchange market risk
The parent company and a number of subsidiary operations are located
outside the U.S. As such, the consolidated financial results are
subject to fluctuations in exchange rates, particularly between the
British pound, Euro zone currencies and Canadian dollar against the
U.S. dollar. The financial statements of foreign entities are
translated using the accounting policies described in Note 1 of the
Notes to the Consolidated Financial Statements. The exposure to
foreign exchange market risk is managed by the Company's treasury
function, using forecasts provided by the operating units.
There have been no significant changes to the Company's exposure to
market risks during the year ended December 31, 2000.
11
SHIRE PHARMACEUTICALS GROUP PLC
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Income for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Comprehensive Income / (Losses) for the years ended
December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000
Notes to the Consolidated Financial Statements
12
Report of Independent Public Accountants
To the shareholders of Shire Pharmaceuticals Group plc
We have audited the accompanying consolidated balance sheets of Shire
Pharmaceuticals Group plc and its subsidiaries as of 31 December 2000 and 1999,
and the related consolidated statements of income, comprehensive income,
shareholders' investment and cashflows for the years ended 31 December 2000,
1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements for the year ended 31 December
1998 of Roberts Pharmaceutical Corporation, a company acquired during 1999 in a
transaction accounted for as a pooling of interests. Such statements are
included in the consolidated financial statements of Shire Pharmaceuticals Group
plc and reflect total assets and total revenues of 40% and 40%, respectively, of
the related consolidated totals for the year ended 31 December 1998. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for Roberts
Pharmaceutical Corporation for the year ended 31 December 1998, is based solely
upon the report of the other auditors.
We did not audit the financial statements for the year ended 31 December
2000, 1999 and 1998 of BioChem Pharma Inc., a company acquired in 2001 in a
transaction accounted for as a pooling of interests. Such statements are
included in the consolidated financial statements of Shire Pharmaceuticals Group
plc and reflect total assets of 35%, 33% and 37% , and total revenues of 23%,
25% and 29%, respectively, of the related consolidated totals for the years
ended 31 December 1998, 1999 and 2000, after restatement to reflect certain
adjustments as set forth in note 3. The financial statements prior to those
adjustments were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for BioChem Pharma
Inc., for the years ended 31 December 2000, 1999 and 1998 is based solely upon
the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those 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 examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
13
In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Shire Pharmaceuticals Group plc and
subsidiaries as of 31 December 2000 and 1999, and the results of their
operations and their cash flows for the year ended 31 December 2000, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen
Chartered Accountants
1. Reading, UK
15 August 2001
14
Report of Independent Auditors
To the Board of Directors
Roberts Pharmaceutical Corporation
We have audited the consolidated balance sheet of Roberts Pharmaceutical
Corporation (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flow for
the year ended December 31, 1998, which are not separately presented herein. Our
audit also included the financial statement schedule of Roberts Pharmaceutical
Corporation, not separately presented herein, listed in the Index at Item 14(a)
of the Roberts Pharmaceutical Corporation Annual Report on Form 10-K/A. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1998 and the consolidated results of their
operations and their cash flow for the year ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole present fairly in
all material respects, the information set forth therein for 1998.
Ernst & Young LLP
MetroPark, New Jersey
February 16, 1999
15
Report of independent auditors
To the shareholders of BioChem Pharma Inc.
We have audited the consolidated balance sheets of BioChem Pharma Inc. as at
December 31, 2000 and 1999 and the consolidated statements of earnings, changes
in shareholders' equity and comprehensive income and cash flows for the years
ended December 31, 2000, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada for the years ended December 31, 2000, 1999 and 1998 and in accordance
with auditing standards generally accepted in the United States of America for
the year ended December 31, 2000. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as at
December 31, 2000 and 1999 and the consolidated results of its operations and
its cash flows for the years ended December 31, 2000, 1999 and 1998 in
accordance with generally accepted accounting principles in the United States of
America.
On January 25, 2001, we also reported separately to the shareholders of BioChem
Pharma Inc. on consolidated financial statements for the same period, expressed
in Canadian dollars, prepared in accordance with generally accepted accounting
principles in Canada.
Raymond Chabot Grant Thornton
General partnership
Chartered Accountants
Montreal, Quebec
January 25, 2001
16
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
December 31, December 31,
2000 1999
$'000 $'000
ASSETS
Current assets:
Cash and cash equivalents 93,266 102,502
Marketable securities and other current asset investments 370,425 188,765
Accounts receivable, net 144,175 104,994
Inventories, net 49,612 41,780
Deferred tax asset 26,990 5,520
Prepaid expenses and other current assets 11,385 14,368
Current assets of discontinued operations - 62,094
------------ ------------
Total current assets 695,853 520,023
Investments 74,314 58,643
Marketable securities, long-term - 15,444
Property, plant and equipment, net 131,224 116,713
Intangible assets, net 578,436 578,419
Deferred tax asset 6,543 31,799
Net assets of business transferred under contractual arrangements
35,850 -
Other assets 26,275 7,194
Non-current assets of discontinued operations - 23,556
------------ ------------
Total assets 1,548,495 1,351,791
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt 81,811 10,024
Accounts and notes payable 113,446 133,607
Other current liabilities 32,593 60,700
Current liabilities of discontinued operations - 29,487
------------ ------------
Total current liabilities 227,850 233,818
Long-term debt, excluding current instalments 132,063 212,654
Other non-current liabilities 14,196 1,345
Non-current liabilities of discontinued operations - 24,088
------------ ------------
Total liabilities 374,109 471,905
------------ ------------
Shareholders' equity:
Common stock, 5p par value; 800,000,000 shares authorized; and 488,015,304
shares issued and outstanding (1999:474,400,202) 40,292 39,241
Additional paid-in capital 1,209,448 1,097,567
17
Accumulated other comprehensive losses (60,550) (30,391)
Accumulated deficit (14,804) (226,531)
------------ ------------
Total shareholders' equity 1,174,386 879,886
------------ ------------
Total liabilities and shareholders' equity 1,548,495 1,351,791
------------ ------------
The results for the years ended December 31, 2000 and 1999 have been restated to
include the results of BioChem Pharma Inc. which was accounted for as a pooling
of interests in accordance with APB 16, Accounting for Business Combinations.
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
------------ ------------ ------------
Revenues:
Product sales 520,231 400,959 306,683
Licensing and development 14,147 14,585 19,920
Royalties 135,470 119,714 107,621
Other revenues 1,262 1,995 1,681
------------ ------------ ------------
Total revenues 671,110 537,253 435,905
Costs and expenses:
Cost of revenues 101,371 103,047 102,978
Research and development 155,145 141,112 97,966
Selling, general and administrative (inclusive of stock option
compensation charge of $21,914, $11,933 and $5,459
respectively) 236,289 194,513 157,462
Other charges:
In process research and development 26,947 - -
Restructuring charges - 97,132 -
Merger transaction expenses - 32,279 4,383
Loss/(profit) on sale of product rights - 5,824 (220)
------------ ------------ ------------
Total operating expenses 519,752 573,907 362,569
------------ ------------ ------------
Operating income/(loss) 147,549 (36,654) 73,336
Interest income 19,232 15,957 15,725
Interest expense (16,413) (11,644) (6,648)
Other income 105,214 18,751 9,399
------------ ------------ ------------
Total other income, net 108,033 23,064 18,476
------------ ------------ ------------
18
Income/(loss) before income taxes 259,391 (13,590) 91,812
Income taxes (47,664) (21,663) (7,665)
------------ ------------ ------------
Net income/(loss) from continuing operations 211,727 (35,253) 84,147
Discontinued operations (net of taxes) - (12,179) (2,107)
------------ ------------ ------------
Net income/(loss) 211,727 (47,432) 82,040
------------ ------------ ------------
Net income/(loss) per share:
Basic
- Continuing operations 43.8c (7.3)c 17.5c
- Discontinued operations - (2.5)c (0.4)c
- Net income 43.8c (9.8)c 17.1c
Diluted
- Continuing operations 42.8c (7.3)c 17.0c
- Discontinued operations - (2.5)c (0.4)c
- Net income 42.8c (9.8)c 16.6c
Weighted average number of shares:
Basic 482,890,070 484,358,876 480,827,784
Diluted 494,691,805 488,138,499 494,149,715
The results for the years ended December 31, 2000 and 1999 have been restated to
include the results of BioChem Pharma, Inc. which was accounted for as a pooling
of interests in accordance with APB 16, Accounting for Business Combinations.
The results for the year ended December 31, 1998 have been restated to include
the results of BioChem Pharma, Inc. and Roberts Pharmaceutical Corporation,
which were both accounted for as a pooling of interests in accordance with
APB16, Accounting for Business Combinations.
The accompanying notes are an integral part of these consolidated financial
statements.
19
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars except share data)
Accumulated
Common stock Additional Accumu-lated other comp- Total
Common No. shares paid-in deficit prehensive shareholders'
stock `000 capital $'000 losses equity
$'000 $'000 $'000 $'000
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1997 30,853 370,888 1,017,463 (121,723) (13,947) 912,646
Net income - - - 82,040 - 82,040
Dividends paid by pooled entity - - - (34) - (34)
Foreign currency translation - - - - (17,317) (17,317)
Issuance of common stock 905 10,861 57,110 - - 58,015
Issuance of common stock by pooled
entity - - 9,220 - - 9,220
Issuance costs - - (2,124) - - (2,124)
Options exercised 566 6,793 6,169 - - 6,735
Stock option compensation - - 5,497 - - 5,497
Tax benefit associated with
exercise of stock options - - 3,006 - - 3,006
Unrealized loss on available for
sale investments - - - - (2,047) (2,047)
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1998 32,324 388,542 1,096,341 (39,717) (33,311) 1,055,637
Net loss - - - (47,432) - (47,432)
Foreign currency translation - - - - 1,048 1,048
Issuance of common stock for
acquisitions 8,123 100,767 (8,123) - - -
Issuance of common stock by pooled
entity - - 8,615 - - 8,615
Options exercised 266 3,297 5,983 - - 6,249
Repurchase of common stock (1,472) (18,206) (19,146) (139,382) - (160,000)
Stock option compensation - - 11,933 - - 11,933
Tax benefit associated with
exercise of stock options - - 1,964 - - 1,964
Unrealized gain on available for
sale investments - - - - 1,872 1,872
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 1999 39,241 474,400 1,097,567 (226,531) (30,391) 879,886
20
Net income - - - 211,727 - 211,727
Reclassification adjustment for
realized loss included in net
earnings - - - - 1,356 1,356
Unrealized holding loss on
available for sale investments - - - - (48) (48)
Foreign currency translation - - - - (31,467) (31,467)
Issuance of common stock 137 1,843 11,720 - - 11,857
Issue costs - - (3,385) - - (3,385)
Options exercised 914 11,772 50,850 - - 51,764
Stock option compensation - - 21,914 - - 21,914
Tax benefit associated with
exercise of stock options - - 30,782 - - 30,782
----------- ------------ ------------- ------------- -------------- ---------------
Balances as of
December 31, 2000 40,292 488,015 1,209,448 (14,804) (60,550) 1,174,386
----------- ------------ ------------- ------------- -------------- ---------------
The results for the years ended December 31, 2000 and 1999 have been restated to
include the results of BioChem Pharma, Inc. which was accounted for as a pooling
of interests in accordance with APB 16, Accounting for Business Combinations.
The results for the year ended December 31, 1998 have been restated to include
the results of BioChem Pharma, Inc. and Roberts Pharmaceutical Corporation,
which were both accounted for as a pooling of interests in accordance with
APB16, Accounting for Business Combinations.
The accompanying notes are an integral part of these consolidated financial
statements.
21
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSSES)
(In thousands of U.S. dollars)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
------------- ------------- -------------
Net income/(loss) 211,727 (47,432) 82,040
Foreign currency translation adjustments (31,467) 1,048 (17,317)
Reclassification adjustments for realized loss included in net 1,356 - -
earnings
Unrealized holding (loss)/gain on marketable securities and
non-current investments (48) 1,872 (2,047)
------------- ------------- -------------
Comprehensive income/(loss) 181,568 (44,512) 62,676
------------- ------------- -------------
There are no material tax effects related to the items included above.
The results for the years ended December 31, 2000 and 1999 have been restated to
include the results of BioChem Pharma, Inc. which was accounted for as a pooling
of interests in accordance with APB 16, Accounting for Business Combinations.
The results for the year ended December 31, 1998 have been restated to include
the results of BioChem Pharma, Inc and Roberts Pharmaceutical Corporation which
were accounted for in a pooling of interest in accordance with APB16, Accounting
for Business Combinations.
The accompanying notes are an integral part of these consolidated financial
statements
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Cash flows from operating activities:
Net income/ (loss) 211,727 (47,432) 82,040
Loss from discontinued operations - 12,179 2,107
Adjustments to reconcile net income/(loss) to net cash provided by operating
activities:
Acquired in process research and development 26,947 - -
Depreciation and amortization 37,987 34,172 29,929
Stock option compensation 21,914 11,933 5,459
Tax benefit of stock option compensation, charged directly to equity 30,782 1,967 3,046
Non-cash exchange gains and losses (1,676) (664) (1,816)
(Gain)/loss on sale of fixed assets - (828) 16
Loss on sale of intangible assets 1,514 5,825 -
Gain on sale of long term investments (98,627) (16,142) -
Write-down of investment - 7,546 -
Share of loss in equity method investees 3,809 3,670 -
Acquisition of non-controlling interest - - (962)
Other elements 1,102 1,563 607
(Increase)/decrease in accounts receivable (52,570) 1,898 (32,443)
Increase in inventory (7,916) (7,165) (5,755)
Decrease/(increase) in deferred tax asset 3,782 535 (4,420)
Increase in accounts payable 37,727 49,868 23,329
Prepaid expenses 1,215 (2,491) (1,773)
Reserve for restructuring charges (83,608) 83,608 -
---------- ---------- ----------
Net cash provided by operating activities 134,109 140,042 99,364
---------- ---------- ----------
Cash flows from investing activities:
(Investment in)/redemption of marketable securities (249,149) (125,661) (189,176)
Increase in cash placed on short term deposit (53,404) (4,677) (35,664)
Maturity of temporary investments 116,534 174,241 80,282
Purchase of long-term investment (16,995) (10,960) (35,631)
Purchase of subsidiary undertakings - (32,000) (101,346)
Expenses of acquisition (1,461) - (551)
Additional investment in existing subsidiary (32,302) - -
Net cash acquired with subsidiary undertakings - 1,979 -
Purchase of intangible assets (38,379) (57,848) (142,258)
Purchase of fixed assets (44,243) (26,459) (25,913)
Purchase of other assets (6,658) (5,077) (2,793)
Proceeds from sale of intangible fixed assets - 6,575 1,033
23
Proceeds from sale of fixed assets 12,007 2,118 60
Collection on notes receivable 766 7,195 1,751
Proceeds from sale of long term investments 123,327 21,407 -
Acquisition of equity method investments - - (10,932)
Other (1,427) (1,400) (901)
---------- ---------- ----------
Net cash used in investing activities (191,384) (50,567) (462,039)
---------- ---------- ----------
Cash flows from financing activities:
Net increase/(decrease) in bank indebtedness - (1,487) 1,305
Long-term debt issued - - 126,010
Payments on long-term debt, capital leases and notes (8,514) (13,962) (17,162)
Payment of debt issuance costs - - (2,528)
Proceeds from issue of common stock, net 14,589 11,342 136,411
Repurchase of common stock - (81,544) -
Proceeds from exercise of options 45,647 3,523 4,082
Proceeds from issue of preferred stock - - 4,494
Cash dividends paid - - (150)
---------- ---------- ----------
Net cash provided by (used in) financing activities 51,722 (82,128) 252,462
---------- ---------- ----------
Effect of foreign exchange rate changes on cash and cash equivalents (1,975) 934 (5,009)
Cash flows provided by (used in) discontinued operations (1,708) (6,945) 1,599
---------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (9,236) 1,336 (113,623)
Cash and cash equivalents at beginning of period 102,502 101,166 214,789
---------- ---------- ----------
Cash and cash equivalents at end of period 93,266 102,502 101,166
---------- ---------- ----------
Supplemental cash flow information:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Interest paid 12,264 11,927 4,395
Income taxes paid 14,095 18,074 8,621
Non cash activities:
Notes issued for product acquisitions - 11,800 -
Notes received for sale of product rights - - 218
Common stock issued for product acquisitions 3,085 - 11,572
Common stock issued on conversion of zero-coupon note
8,772 - 14,042
Debt assumed on acquisition of subsidiaries - 3,300 -
Capitalized leases - - 131
24
The results for the years ended December 31, 2000 and 1999 have been restated to
include the results of BioChem Pharma, Inc. which was accounted for as a pooling
of interests in accordance with APB 16, Accounting for Business Combinations.
The results for the year ended December 31, 1998 have been restated to include
the results of BioChem Pharma, Inc and Roberts Pharmaceutical Corporation which
were accounted for in a pooling of interests in accordance with APB16,
Accounting for Business Combinations.
The accompanying notes are an integral part of these consolidated financial
statements.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
a) Description of Operations and Principles of Consolidation
Shire is an international specialty pharmaceutical company with a strategic
focus on three therapeutic areas, central nervous system disorders, oncology and
antivirals, and on vaccines.
The Company has a global sales and marketing infastructure with its own
direct marketing capability in the U.S., Canada, the U.K. and the Republic of
Ireland, France, Germany, Italy and Spain. Shire also covers the other
significant pharmaceutical markets indirectly through distributors. The business
is managed within three operating segments: U.S., International and Global
Research and Development. Within these segments, revenues are derived from three
sources: sales of products by the Company's own sales and marketing operations,
licensing and development fees, and royalties.
In the U.S., the Company's principal products include Adderall for the treatment
of Attention Deficit Hyperactivity Disorder, Agrylin for the treatment of
elevated blood platelets, Pentasa for the treatment of ulcerative colitis,
Carbatrol for the treatment of epilepsy and ProAmatine for the treatment of
orthostatic hypotension. In addition, the Company receives royalties on sales of
Reminyl for the treatment of Alzheimer's disease marketed by Johnson & Johnson,
and Epivir, Combivir and Trizivir for the treatment of HIV/AIDS and Epivir-HBV
for the treatment of hepatitis B marketed by GlaxoSmithKline.
Within the International segment, the Company's principal products include:
in the U.K., the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis and Reminyl.
in Canada, 3TC, Combivir and Heptovir marketed in partnership with
GlaxoSmithKline.
The accompanying consolidated financial statements include the accounts of
Shire Pharmaceuticals Group plc and all its subsidiary undertakings after
elimination of intercompany accounts and transactions.
b) Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c) Revenue Recognition
The Company's principal revenue streams and their respective accounting
treatments are discussed below. This is in accordance with SAB 101, under which
revenue is recognized when:
26
o there is persuasive evidence of an arrangement;
o delivery of products has occurred or services have been rendered;
o the seller's price to the buyer is fixed or determinable; and
o collectibility is reasonably assured.
(i) Product sales
Revenue for the sales of products is recognized as net revenue upon
shipment to customers. Provisions for certain rebates, product returns
and discounts to customers are provided for as reductions to net
revenue in the same period as the related sales are recorded.
(ii) Licensing and development fees
Licensing and development fees represent revenues derived from license
agreements and from collaborative research and development
arrangements.
Initial license fees are not considered to be separable from the
associated research and development activities, even where such fees
are non-refundable and not creditable against research and development
services to be rendered. Initial license fees are thus deferred and
recognized over the period of the license term or the period of the
associated research and development agreement. In circumstances where
initial license fees are not for a defined period, revenues are
deferred and recognized over the period to the expiration of the
relevant patent to which the license relates.
During the term of certain research and development agreements, the
Company receives non-refundable milestones as certain technical
targets are achieved. Revenues are recognized on achievement of
milestones.
The Company also receives non-refundable clinical milestones payments
when certain targets are achieved during the clinical phases of
development, such as the submission of clinical data to a regulatory
authority. These clinical milestones are recognized when received. If
milestone payments are creditable against future royalty payments, the
milestones are deferred and released over the period in which the
royalties are anticipated to be received.
(iii) Royalty income
Royalty income relating to licensed technology is recognized when
receivable.
Where applicable, all revenues are stated net of value added tax and
similar taxes, trade discounts and intercompany transactions.
No revenue is recognized for consideration, the value or receipt of which
is dependent on future events, future performance, or refund obligations.
The SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," which reemphasizes existing guidance
related to revenue recognition, including criteria specified in the Financial
Accounting Standard's Board (FASB) conceptual framework on timing of revenue
recognition, and presentation and disclosure of revenue in the financial
statements. SAB No.
27
101 was effective for the fourth quarter of 2000. The implementation of SAB No.
101 did not have a material impact on the Company's results of operations, cash
flows or financial position.
d) Research and Development
Research and development expenditures include funded and unfunded
expenditures and are charged to operations in the period in which the expense is
incurred. Milestones payable in respect of research and development work are
charged to the income statement on achievement of those milestones.
e) Leased Assets
The costs of operating leases are charged to operations on a straight-line
basis over the lease term, even if rental payments are not made on such a basis.
Assets acquired under capital leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the income
statement over the period of the leases to produce a level yield on the balance
of the capital lease obligation.
f) Pensions
The Company contributes to personal defined contribution pension plans of
employees. Contributions are charged to the income statement as they become
payable. These contributions are detailed in Note 25. Details of the
supplemental Executive Retirement Plan operated by the Company are given in Note
25.
g) Finance Costs of Debt
Finance costs of debt are recorded as a deferred asset and then amortized
to the income statement over the term of the debt using the level yield method.
Deferred financing costs relating to debt terminated early are written off to
the income statement in that period.
h) Income Taxes
The Company provides for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes". Deferred tax assets and liabilities are provided
for differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts. The
deferred tax assets and liabilities are measured using the enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is computed as the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
28
i) Advertising Expense
The Company expenses the cost of advertising as incurred. Advertising costs
amounted to $6,810,000, $6,646,000 and $6,715,000 for the years ended December
31, 2000, 1999 and 1998 respectively.
j) Foreign Currency
Monetary assets and liabilities in foreign currencies are translated into
U.S. dollars at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into U.S. dollars at the rate
of exchange ruling at the date of the transaction. Transaction gains and losses
are recognized in other expenses within the income statement.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date. The cumulative effect of exchange rate movements is included
in a separate component of other comprehensive income.
The consolidated financial statements are prepared from records maintained
in the country in which the subsidiary is located and are translated into U.S.
dollars according to the above policy.
Foreign currency exchange transaction gains and losses on an after-tax
basis included in consolidated net income in the years ended December 31, 2000,
1999, and 1998, pursuant to Statement of Financial Accounting Standards (SFAS)
No. 52, "Foreign Currency Translation", amounted to $2,082,000 gain, $1,257,000
gain and $587,000 gain, respectively.
k) Employee Stock Plans
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations.
l) Cash Equivalents
Cash and cash equivalents include cash in banks and bank short-term
investments with original maturities of less than ninety days.
m) Marketable Securities and Other Current Asset Investments
Marketable securities and other current asset investments classified as
available for sale consist primarily of debt instruments with maturities of more
than three months. They are marked to market at each balance sheet date, with
gains and losses recorded in a separate component of other comprehensive income.
Impairments other than temporary impairments in value are recorded through the
income statement.
n) Inventories
Inventories, consisting primarily of finished goods, are stated at the
lower of cost and net realizable value. Cost incurred in bringing each product
to its present location and condition is based on purchase costs calculated on a
first-in, first-out basis, including transport. Net realizable value is
29
based on estimated normal selling price less further costs expected to be
incurred to completion and disposal. Provision is made for obsolete, slow moving
or defective items where appropriate.
o) Investments
Investments which are accounted for under the cost method are stated at
cost, less provisions for other than temporary impairment in value. Impairment
is assessed by reference to the fair value of the securities as determined using
established financial methodologies. Investments in equities with readily
determinable market values are marked to market. The fair value of debt
investments in private entities and non-traded securities of public entities are
measured by valuation methodologies including discounted cash flows.
Where licensing arrangements are accompanied by an equity subscription
agreement, the series of transactions are accounted for separately. Accordingly,
the aggregate consideration is allocated to the two elements of the arrangement
as described below.
The fair value of the equity subscription is calculated as being the
aggregate number of shares issued at the average of the opening and closing
share prices on the date of issue.
p) Intangible Assets
Intangible assets comprise goodwill and intellectual property rights.
Goodwill arising on the acquisition of subsidiary undertakings and
businesses, representing any excess of the fair value of the consideration given
over the fair value of the identifiable assets and liabilities acquired, is
capitalized and written off on a straight-line basis over its useful economic
life.
Goodwill recognized in each significant business combination is being
amortized over a period of five to 30 years on a straight line basis depending
on the nature of the goodwill, and is evaluated periodically for realizability
based on expectations of undiscounted cash flows and earnings from operations
for each subsidiary having a material goodwill balance.
The following factors are considered in estimating the useful lives. Where
an intangible asset is a composite of a number of factors, the period of
amortization is determined from considering these factors together:
o regulatory and legal provisions, including the regulatory approval and
review process, patent issues and actions by government agencies;
o the effects of obsolescence, changes in demand, competing products and
other economic factors, including the development of competing drugs
that are more effective clinically or economically; and
o actions of competitors, suppliers, regulatory agencies or others that
may eliminate current competitive advantages.
Impairments to goodwill are recognized if expected undiscounted cash flows
are not sufficient to recover the goodwill. If a material impairment is
identified, goodwill is written down to its fair value. Fair value is determined
based on the present value of expected net cash flows to be generated by the
business, discounted using a rate commensurate with the risks involved.
30
Intellectual property, including trademarks for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortized in equal annual instalments over the estimated useful life of
the related product which range from five to 40 years. Intellectual property
with no defined revenue stream or where the related product has not yet
completed the necessary approval process is written off on acquisition. Amounts
recorded as intangible assets are reviewed for impairment on a periodic basis
using expected undiscounted cash flows.
Continuing milestone payments on intellectual property with no defined
revenue stream are charged to operations. Royalty payments due on sales of
products are charged to operations when a liability has been incurred.
q) Property, Plant and Equipment
Property, plant and equipment is shown at cost less accumulated
depreciation and any provision for impairment. Depreciation is provided on a
straight line or declining balance basis at rates calculated to write off the
cost less estimated residual value of each asset over its estimated useful life
as follows:
Land and buildings 20 - 50 years
Office furniture, fittings and equipment 4 to 10 years
Warehouse, laboratory and manufacturing equipment 4 to 10 years
Leasehold improvements over the term of
the lease
Expenditures for maintenance and repairs are charged to expense as
incurred; costs of major renewals and improvements are capitalized. At the time
property, plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the asset and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
income.
r) Concentration of Credit Risk
Revenues are mainly derived from agreements with major pharmaceutical
companies and relationships with drug distributors. Significant customers are
disclosed in Note 23(d). Such clients have significant cash resources and
therefore any credit risk associated with these transactions is considered
minimal.
Excess cash is invested in bank and building society term deposits and
commercial paper from a variety of companies with strong credit ratings. These
investments typically bear minimal risk.
s) Related Parties
Transactions with related parties are conducted on the same basis as they
would have been with unrelated parties.
t) New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that all
derivatives be recorded in the balance sheet
31
as either an asset or liability measured at its fair value and that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133". This Statement defers for one year
the effective date of SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000.
In June 2000, the FASB issued Statement No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133". SFAS 138 amends SFAS 133 to (a) exclude from the scope of
SFAS No. 133 non-financial assets that will be delivered in quantities expected
to be used or sold by the company over a reasonable period in the normal course
of business and for which physical delivery is probable, (b) permit hedging of a
benchmark interest rate, (c) allow hedging of foreign-currency-denominated
assets and liabilities and (d) allow for limited hedging of net foreign currency
exposures.
The Company has reviewed its existing contracts and has put procedures in
place to monitor and evaluate transactions in accordance with FASB Statement No.
133. The Company does not believe the adoption of this statement will have a
material impact on the results of operations or its financial position going
forward. There is no material impact on the financial position as at December
31, 2000.
In June 2001, the Financial Accounting Standards Board authorized the
issuance of Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001. SFAS No. 141 requires
intangible assets to be recognised if they arise from contractual or legal
rights or are "separable", i.e., it is feasible that they may be sold,
transferred, licensed, rented, exchanged or pledged. As a result, it is likely
that more intangible assets will be recognized under SFAS No. 141 than its
predecessor, APB Opinion No.16 although in some instances previously recognized
intangibles will be subsumed into goodwill.
Under SFAS No. 142, goodwill will no longer be amortized on a straight-line
basis over its estimated useful life, but will be tested for impairment on an
annual basis and whenever indicators of impairment arise. The goodwill
impairment test, which is based on fair value, is to be performed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill will no longer be allocated to other long-lived assets
for impairment testing under SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. Additionally,
goodwill on equity method investments will no longer be amortized; however, it
will continue to be tested for impairment in accordance with Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investments
in Common Stock. Under SFAS No. 142 intangible assets with indefinite lives will
not be amortized. Instead they will be carried at the lower cost or market value
and tested for impairment at least annually. All other recognized intangible
assets will continue to be amortized over their estimated useful lives.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 although goodwill on business combinations consummated after July 1, 2001
will not be amortized. On adoption the Company may need to record a cumulative
effect adjustment to reflect the impairment of previously recognized intangible
assets. In addition, goodwill on prior business combinations will cease to be
amortized. Had the Company adopted SFAS No. 142 at January 1, 2000 the Company
32
would not have recorded a goodwill amortization charge of $11,324,000. The
Company has not determined the impact that these statements will have on
intangible assets or whether a cumulative effect adjustment will be required
upon adoption.
u) Statutory accounts
The financial statements for the years ended December 31, 2000, 1999 and
1998 do not comprise statutory accounts within the meaning of Section 240 of the
UK Companies Act 1985.
Statutory accounts for the year ended December 31, 2000 have been delivered
to the Registrar of Companies for England and Wales. The auditors' report on
those accounts was unqualified.
(2) Business Combinations and Reorganizations
Year ended December 31, 2000:
(a) Merger with BioChem Pharma Inc.
On December 11, 2000 the Company announced that it had entered into an
agreement to merge with BioChem Pharma Inc. ("BioChem"), an international
speciality pharmaceutical company based in Laval, Canada. The merger was
subsequently completed on May 11, 2001 through an exchange of shares, and has
been accounted for as a pooling of interests in accordance with APB 16,
Accounting for Business Combinations. Consequently the consolidated financial
statements give retroactive effect to the merger.
The revenues and earnings previously reported by Shire can be reconciled to
the combined amounts presented herein as follows:
2000 1999 1998
Revenue Net Income Revenue Net Income Revenue Net Income
$'000 $'000 $'000 $'000 $'000 $'000
------------ --------------- ------------ --------------- ------------ ---------------
As previously reported 517,608 76,171 401,532 (94,998) 308,984 20,572
BioChem pooled results 198,478 174,346 185,694 93,098 141,493 77,293
Accounting policy (44,976) (38,790) (49,973) (45,532) (14,572) (15,825)
alignment (see note 3)
------------ --------------- ------------ --------------- ------------ ---------------
As restated 671,110 211,727 537,253 (47,432) 435,905 82,040
------------ --------------- ------------ --------------- ------------ ---------------
(b) Divestiture of a subsidiary
33
In March 2000, BioChem concluded the divestiture of its diagnostics
operations to a management-led group of this subsidiary. The diagnostic
operations were previously accounted for as discontinued operations following
the adoption of a formal plan of disposal on January 29, 1999. As consideration,
BioChem received a debenture in the amount of $35,846,000 to be paid out of
future cash flows. For accounting purposes, the transaction is not recorded as a
sale since certain significant risks of ownership were not transferred to the
buyer. Accordingly, the net assets transferred to the buyer are presented in the
non-current asset section of the balance sheet as "Net assets of business
transferred under contractual arrangements". The Company has guaranteed the
reimbursement of a long-term debt of this company in the amount of 37.3 billion
Italian lira (US$18,053,000 as at December 31, 2000 and US$19,368,000 as at
December 31, 1999).
Summarized data relating to the discontinued operations of the diagnostics
operations of BioChem for the years ended December 31, 2000, 1999 and 1998 and
net asset data for 2000, 1999 and 1998 are as follows:
2000 1999 1998
$'000 $'000 $'000
------------ ------------ ------------
Loss from operations of diagnostics segment
(less applicable income taxes of
$948 in 1999 and $(357) in 1998) - (738) (2,107)
Loss on disposal of diagnostics segment,
including provision of $11,441 for operating
losses during phase-out period (less applicable
income taxes of nil) - (11,441) -
------------ ------------ ------------
Net loss - (12,179) (2,107)
------------ ------------ ------------
Net assets of discontinued operations
Current assets - 62,094
Property, plant and equipment - 10,174
Other assets - 13,382
Current liabilities - (29,487)
Long term liabilities - (24,088)
------------ ------------
- 32,075
------------ ------------
(c) CliniChem Development Inc.
CliniChem Development Inc. ("CliniChem") was formed by BioChem to conduct
research and development of certain of BioChem's human therapeutic and
vaccine product candidates.
On June 8, 1998, BioChem made a $101.3 million cash contribution to
CliniChem's capital. Simultaneously, BioChem concluded a series of
agreements with CliniChem. BioChem granted to CliniChem an exclusive
perpetual license to use BioChem technology to conduct the CliniChem
programs and related activities and to manufacture and commercialize the
CliniChem products world-wide. CliniChem paid a fee to BioChem in exchange
for the technology licences. The technology fee was payable monthly at a
rate of $237,000 per month
34
over a period of 48 months.
During 1998 BioChem spun-off to its shareholders its investment in
CliniChem. In connection with this spin off, BioChem retained rights in
CliniChem including that BioChem had an option to reacquire all shares in
CliniChem at any time. As a result, CliniChem was fully consolidated into
the Company's accounts even though the investment had been spun off to its
shareholders, with the inter company transactions eliminated, as BioChem
still retained control of this company.
On December 15, 2000, BioChem reacquired the shares in CliniChem for
$32,507,000. This additional consideration was allocated to the net assets at
that date as follows:
$'000
------------
Other assets 5,560
Acquired in-process research and development charged to
earnings 26,947
------------
32,507
------------
As a result of the transaction, Shire incurred a charge for the year ended
December 31, 2000 representing the acquisition of in-process research and
development in accordance with SFAS No. 2. The acquired in-process research and
development charge of $26,947,000 represents the value of CliniChem's products
in development at the date of the additional investment in CliniChem.
Technological feasibility of these products was not established at this date.
These products were considered to have no alternative future use other than the
therapeutic indications for which they were in development. The work remaining
to complete the development involved continuing formulation activity, clinical
studies and the submission of regulatory filings to seek marketing approval. As
pharmaceutical products cannot be marketed without regulatory approvals, Shire
will not receive any benefit unless it receives such regulatory approvals.
See note 3 for a discussion of the realignment of BioChem's accounting
policies in respect of CliniChem to conform with those of Shire.
Year ended December 31, 1999:
(a) Acquisition of Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and
Istoria Farmaceutici S.p.A.
On October 22, 1999, the Company completed the acquisition of all the
assets and liabilities of Laboratoires Murat S.A., Fuisz Pharma GmbH and the
Cebutid trademark for $33.0 million, including the costs of acquisition. The
purchase price consisted of $29.7 million in cash and the assumption of a $3.3
million liability due to Knoll AG.
On November 17, 1999, the Company completed the acquisition of all the
assets and liabilities of Istoria Farmaceutici S.p.A. for $6.5 million,
including the costs of acquisition. The purchase
35
consideration was $6.5 million in cash. The above transactions provided the
Company with marketing and distribution operations in France, Germany and Italy.
These acquisitions were accounted for using purchase accounting. Total goodwill
of $22.4 million was recorded and is being amortized on a straight-line basis
over a period of 20 years, the expected economic life of the underlying assets
acquired. The results of operations of the acquired subsidiaries have been
included in the consolidated results of the Company since their respective dates
of acquisition.
The purchase price of $3.3 million for Laboratoires Murat S.A. was
allocated as follows:
$'000
-------
Property, plant and equipment 19
Intangible assets 1,073
Current assets 1,614
Accounts payable (1,292)
-------
Net assets acquired 1,414
Goodwill 1,886
-------
Purchase consideration 3,300
-------
$7.5 million was in respect of the Cebutid trademark.
The purchase price of $22.2 million for Fuisz Pharma GmbH was allocated as
follows:
$'000
-------
Property, plant and equipment 23
Intangible assets 3,331
Current assets 1,891
Accounts payable (1,108)
-------
Net assets acquired 4,137
Goodwill 18,063
-------
Purchase consideration 22,200
-------
The purchase price of $6.5 million for Istoria Farmaceutici S.p.A. was
allocated as follows:
$'000
-------
Property, plant and equipment 166
Intangible assets 3,268
Current assets 1,515
Accounts payable (897)
-------
Net assets acquired 4,052
36
Goodwill 2,448
-------
Purchase consideration 6,500
-------
(b) Merger with Roberts Pharmaceutical Corporation
On December 23, 1999, the Company acquired 100% of the outstanding stock of
Roberts Pharmaceutical Corporation ("Roberts") in exchange for 100,767,482
ordinary shares.
This transaction was accounted for by the pooling of interests method.
Following consummation of the transaction, the Company decided to restructure
the enlarged business and accordingly recorded approximately $97.1 million in
non-recurring asset impairment and restructuring charges. The accompanying
consolidated financial statements have been retroactively restated to reflect
the combined operations of Roberts and Shire as if the merger was consummated on
January 1, 1998.
(c) Dispositions
On January 13, 1999, the Company disposed of its Indianapolis manufacturing
plant for a net consideration after expenses of $1.5 million including a loan
note of $0.5 million. A net gain of $0.8 million was recorded in the
consolidated statement of income.
During November 1999, the Company sold the product Tigan for $6.4 million.
The Company recorded a loss on disposal of $5.8 million.
(d) Pro forma information
Year ended December 31, 2000
There were no significant acquisitions or dispositions of businesses during
the year ended December 31, 2000.
Year ended December 31, 1999
The pro forma effect in 1999 and 1998 of the significant acquisitions if
acquired on January 1, 1999 and January 1, 1998 respectively would have resulted
in revenues, income before extraordinary items, net income and per share data as
follows:
1999 1998
$'000 $'000
---------- ------------
Revenues 553,669 457,266
(Loss)/income before extraordinary items (47,897) 80,507
Net (loss)/income (47,897) 80,507
37
Net (loss)/income per share - basic (9.8)c 16.7c
Net (loss)/income per share - diluted (9.8)c 16.3c
Year ended December 31, 1998
There were no significant acquisitions or dispositions of businesses during the
year ended December 31, 1998.
(3) Accounting policy alignment - Consolidation of CliniChem
In 1998, BioChem spun-off to its shareholders its investment in CliniChem. In
connection with this spin-off, BioChem retained rights in CliniChem, including
the option to reacquire all shares in CliniChem at any time. Under EITF 99-16,
this transaction would result in CliniChem continuing to be consolidated by
BioChem, as BioChem would have significant continuing involvement in the
operation of CliniChem. However, at the time that CliniChem was spun-off, EITF
99-16 had not been issued and BioChem elected to de-consolidate CliniChem, an
acceptable accounting principle at that time. The management of Shire believe
that their accounting policies would have required Shire to continue to
consolidate CliniChem, also an acceptable accounting alternative at the date of
spin-off and a policy that conforms with the later guidance issued under EITF
99-16. The effect of this accounting policy alignment is to reduce the net
income from continuing operations previously reported by BioChem now included in
the pooled financial statements for 2000, 1999 and 1998 by $38,790,000,
$45,532,000 and $15,825,000 respectively.
On December 15, 2000 BioChem reacquired CliniChem. This acquisition has
been reflected in the accompanying financial statements using purchase
accounting. The allocation of purchase price to the acquired assets and
liabilities is discussed in Note 2(c) above.
(4) Cash and Cash Equivalents
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Cash at bank and in hand 93,266 102,502
------------ ------------
(5) Marketable Securities and Other Current Asset Investments
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Marketable securities 276,680 148,424
Commercial paper 28,000 39,200
Institutional cash fund 65,745 1,141
38
------------ ------------
370,425 188,765
------------ ------------
There are no restrictions on the sale of marketable securities and no
amounts have been pledged as collateral.
There have been no significant changes in market value subsequent to
December 31, 2000.
The Company recorded realized gains on sales of marketable securities
during the years ended December 31, 2000 and 1999 of $2,614,000 and $11,070,000.
Unrealized holding gains and losses on available for sale marketable
securities, as disclosed in the Consolidated Statements of Comprehensive Income,
amounted to $nil, $1,872,000 gain and $2,047,000 loss at December 31, 2000, 1999
and 1998 respectively.
Maturity dates of marketable securities held as current assets at December
31, 2000 ranged from one to three months (December 31, 1999: one to six months).
Marketable securities - long term
Marketable securities in 1999, include convertible notes of $9,000,000 of
North American Vaccine, Inc. (NAVA), a company subject to significant influence,
bearing interest at a rate of 4.5% payable semi-annually and maturing in
November 2003. The notes are secured by equipment and patents of NAVA and are
convertible at all times into common shares of NAVA at the rate of 117.0864
shares per $1,000 of capital. The carrying amount of the notes approximates the
fair value.
Gross Realised
Cost loss Fair value
$'000 $'000 $'000
--------- --------- ---------
Marketable securities 16,800 (1,356) 15,444
--------- --------- ---------
(6) Accounts Receivable
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Trade receivables 95,130 47,062
Royalties receivable from shareholder 35,663 33,410
Notes receivable 334 678
Other receivables 8,582 10,530
Research and development contracts 4,466 13,314
------------ ------------
144,175 104,994
------------ ------------
39
Trade receivables included above are stated net of a provision for doubtful
debts of $819,000 (December 31, 1999: $565,000). At December 31, 2000 other
receivables were in respect of accrued royalty income. At December 31, 1999
other receivables included $1,144,000 of accrued royalty income. Notes
receivable are in respect of the divestment of certain products.
(7) Inventory
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Finished goods 24,118 26,676
Work-in-process 12,544 7,912
Raw materials 12,950 7,192
------------ ------------
49,612 41,780
------------ ------------
(8) Prepaid Expenses and Other Current Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Prepaid expenses 5,456 11,116
Deferred financing costs 500 1,098
Tooling costs 1,000 -
Other current assets 4,429 2,154
------------ ------------
11,385 14,368
------------ ------------
The deferred financing costs are in respect of the $125 million long-term
loan (see Note 16- "Long-term Debt") and are being amortized over the five-year
term of the loan.
Tooling costs are not currently being amortized as the manufacturing
equipment to which they relate is not yet in use. It is anticipated that
production will commence during 2001 and, based on expected production volumes,
approximately $1,000,000 of the costs are classified as current at December 31,
2000. The Company does not own the tools but has a non-cancellable right to use
the tools during the contract period.
Included within other current assets at December 31, 2000 is valued added
tax recoverable of $1,899,000.
(9) Investments
40
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
RiboGene Inc. 2,604 2,604
Cortex Pharmaceuticals Inc. 836 -
D-Pharm Ltd 2,000 -
CeNeS Pharmaceuticals plc 699 -
Investments in private companies at cost 68,175 56,039
Investment in North American Vaccines. Inc
Common shares , at equity value - -
Preferred shares, at cost - -
------------ ------------
74,314 58,643
------------ ------------
The Company has an investment in the convertible preferred stock of
RiboGene, Inc., a drug discovery company targeting infectious diseases. The
shares have no voting rights. One-third of the preferred stock is convertible at
the option of the Company to common stock of RiboGene at each of the first three
anniversary dates of the investment. The investment is classified as held to
maturity.
In April 2000, the Company entered into an option agreement with Cortex
Pharmaceuticals Inc. under which Shire will evaluate the use of Cortex's
Ampakine CX516 for the treatment of ADHD. Under the terms of the agreement, the
Company will undertake a double-blind, placebo-controlled evaluation of CX516 in
ADHD patients. If the study proves effective, Shire has the right to convert its
option into an exclusive world-wide license for the Ampakines for ADHD under a
development and licensing agreement. In exchange for the option, Cortex received
approximately $0.8 million and issued common stock to Shire.
In March 2000, the Company entered into a license agreement with D-Pharm
Ltd, under which Shire has undertaken to develop and market DP-VPA for the
treatment of epilepsy. DP-VPA, which Shire has designated SPD 421, is a unique
new chemical analogue of valproic acid which has successfully completed Phase I
studies. The terms of the agreement included an upfront fee payable to D-Pharm
comprising cash and an equity investment, as well as clinical and commercial
milestone payments. The cash payment was expensed as incurred in accordance with
the Company's accounting policies. The equity investment has been recorded at
cost.
In December 2000, the Company signed a research, development and licensing
agreement with CeNeS Pharmaceuticals plc for the development of CeNeS' dopamine
D1 agonist program for the treatment of Parkinson's disease. Shire will make
milestone payments and pay CeNeS royalties on products developed under the
agreement. Shire has made an equity investment in CeNeS of approximately $0.7
million and will fund all development work.
During the year, BioChem completed the divestiture of its investment in
North American Vaccine, Inc. (NAVA), a public corporation listed on the American
Stock Exchange. BioChem received a consideration composed of cash and shares of
a publicly traded corporation, which shares were
41
subsequently sold. The total proceeds amounted to $112.4 million, and the
transaction generated a net gain of $92.4 million.
As at December 31, 1999 BioChem held 32.0% of NAVA's outstanding common
shares, or 10,522,640 shares. As at that date the market value of the investment
in common shares based on the closing market price amounted to $47,352,000.
In 1999, BioChem exercised all 57,812 options held to acquire common shares
of NAVA at a price of $2.92 per share for a total of $169,000. In addition,
BioChem sold 714,286 common shares of NAVA for proceeds of $5,000,000.
As at December 31, 1999, BioChem's share of cumulative losses in the common
shares of NAVA in excess of its equity value of nil amounted to $43,837,000.
As at December 31, 1999, BioChem held 50% of NAVA's preferred shares, or
1,000,000 shares. The market value of the investment in preferred shares, based
on the closing market price of the common shares was $9,000,000.
The Company recorded an unrealized holding loss of $48,000 in respect of
non-current investments marked to market at December 31, 2000. This is shown in
the Consolidated Statements of Comprehensive income. There were no unrealized
holding gains or losses at December 31, 1999 in respect of non-current
investments.
(10) Property, Plant and Equipment
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Land and buildings 108,805 96,442
Office furniture, fittings and equipment 40,318 37,875
Warehouse, laboratory and manufacturing
equipment 13,272 10,595
------------ ------------
162,395 144,912
Less: Accumulated depreciation (31,171) (28,199)
------------ ------------
131,224 116,713
------------ ------------
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $10,677,000, $9,192,000 and $7,237,000 respectively.
Included within land and buildings at December 31, 2000 is a new office
facility purchased for $17.4 million, which became the Company's new worldwide
headquarters effective from March 2001. The building, purchased in October 2000,
has not been depreciated as it did not become operational until March 2001.
42
Also included within land and buildings at December 31, 2000 is $17,293,000
for items considered construction in progress and have therefore not been
depreciated (1999, $16,906,000)
Included within land and buildings at December 31, 1999 is approximately
$12 million relating to the Company's Eatontown, New Jersey office facility that
was classified as available for sale. The Company completed the sale of the
Eatontown facility during the year ended December 31, 2000.
(11) Intangible Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Intellectual property rights acquired 453,559 412,192
Goodwill arising on businesses acquired 227,105 243,542
------------ ------------
680,664 655,734
Less: Accumulated amortization (102,228) (77,315)
------------ ------------
578,436 578,419
------------ ------------
Amortization expense for the years ended December 31, 2000, 1999 and 1998
was $27,310,000, $24,980,000 and $22,603,000 respectively.
Included in intellectual property above is $15.9 million for the purchase
from Salix Pharmaceuticals Ltd ("Salix") of the exclusive rights to balsalazide,
a treatment for ulcerative colitis. The exclusive rights apply to certain
European and Nordic countries. Under the terms of the agreement, the Company has
undertaken to pay Salix up to a total of $24.0 million, including approximately
$12.0 million in up-front fees and up to $12.0 million upon the achievement of
certain milestones.
In November 2000, the Company entered into an agreement with Nycomed
Austria GmbH ("Nycomed") under which Shire extended the term of its exclusive
distributor rights to the product ProAmatine in North America, the U.K. and the
Republic of Ireland, for approximately $21.1 million. Shire had previously
marketed the product and paid Nycomed royalties on sales of ProAmatine. Under
the terms of the agreement, Nycomed repaid all royalties received from Shire in
respect of the year ended December 31, 2000 and has waived all rights to future
royalties. The net cost to Shire of approximately $17.5 million is included as
an addition to intangible assets in the year ended December 31, 2000.
Other significant additions to intellectual property during the year ended
December 31, 2000 included a gastrointestinal product purchased for marketing
and distribution in Spain for approximately $4.8 million.
43
(12) Other Non-current Assets
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Notes receivable - 422
Deferred financing costs 2,341 4,393
Tooling costs 3,218 -
SERP investment 16,115 -
Other assets 4,601 2,379
------------ ------------
26,275 7,194
------------ ------------
The deferred financing costs and tooling costs represent the non-current
portion of the total assets respectively. For further details see Note 8
"Prepaid Expenses and Other Current Assets" above.
For further details of the SERP investment, see Note 25 "Retirement
Benefits". The amount shown above is the gross asset represented by non-current
marketable securities. A liability of approximately $13.6 million is included
within Note 17 "Other Non-current Liabilities".
(13) Current Portion of Long-term Debt
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Current portion of notes payable
(see note 16) 81,811 9,989
Current portion of capital leases - 35
------------ ------------
81,811 10,024
------------ ------------
(14) Accounts and Notes Payable
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Trade accounts payable 53,604 46,021
Accrued expenses 59,842 84,137
Notes payable - 3,449
------------ ------------
113,446 133,607
44
----------- -----------
The notes payable at December 31, 1999 were in respect of the purchase of
certain products and were repaid in full during the year ended December 31,
2000.The weighted average interest rate for these notes payable at December 31,
1999 was 6%.
(15) Other Current Liabilities
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Income taxes payable 13,746 14,550
Payable for termination of license agreement 747 806
Bonus payable 6,666 2,366
Interest on long term debt 5,916 1,808
Other accrued liabilities 5,518 41,170
------------ ------------
32,593 60,700
------------ ------------
Included within other accrued liabilities at December 31, 2000 is
$1,024,000 for value added taxes, $818,000 for social security liabilities, and
$930,000 payable to Knoll AG related to the acquisition of the Fuisz
subsidiaries (see Note 2 "Business Combinations and Reorganizations"). At
December 31, 1999 other accrued liabilities primarily related to restructuring
costs incurred as a result of the merger with Roberts Pharmaceutical
Corporation.
(16) Long-term Debt
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Notes payable 213,874 222,643
Less: current instalments (81,811) (9,989)
------------ ------------
132,063 212,654
------------ ------------
Capital leases payable - 35
Less: current instalments - (35)
------------ ------------
- -
------------ ------------
45
Total, less current liabilities 132,063 212,654
------------ ------------
Principal payments in each of the next five years and thereafter on
long-term debt outstanding at December 31, 2000 amount to:
December 31,
2000
$'000
------------
2001 81,811
2002 4,423
2003 660
2004 125,660
2005 660
Thereafter 660
------------
213,874
------------
$125 million five year term loan
The Company entered into a $125 million five year term loan with Credit
Suisse First Boston ("CSFB"), previously known as DLJ Capital Funding, Inc., on
November 19, 1999. This loan replaced an existing $125 million loan facility in
the name of Roberts Pharmaceutical Corporation that had been taken out to
finance the acquisition of Pentasa in 1998. The new loan is in the name of the
parent company, Shire Pharmaceuticals Group plc. The applicable interest rate
ranges between 0.5 per cent and 1.5 per cent over the higher of the prime rate
of CFSB or the Federal Funds Rate plus 0.5 per cent or between 1.5 per cent and
2.5 per cent over the London Interbank Overnight Rate (as adjusted in accordance
with the loan agreement), in each case depending on Company's credit rating.
All obligations under the facility are jointly and severally guaranteed by
the Company and by its subsidiaries and are initially secured by all material
property owned by the Company and its subsidiaries and the capital stock of the
subsidiaries. If the Company's credit rating reaches specified
levels, the facility will not be secured. The facility contains covenants and
maintenance tests that require the Company to maintain a minimum net worth, a
specified leverage ratio and a specified coverage ratio. At December 31, 2000,
the Company satisfied the aforementioned covenants and maintenance tests.
In May 2001 the Company repaid the term loan in full.
$11.8 million Unsecured Convertible Zero Coupon Loan Note
The Company financed the purchase of intellectual property relating to the
manufacture of Adderall from Arenol Corporation by a total of $11.8 million in
loan notes. On March 5, 1999, the Company issued a $5.8 million principal amount
Unsecured Convertible Zero Coupon Loan note due July 30, 2001 (the "First Loan
Note") and a $6.0 million principal amount Unsecured Convertible Zero
46
Coupon Loan Note due July 30, 2004 (the "Second Loan Note"). Both loan notes are
in the name of the parent company, Shire Pharmaceuticals Group plc. The
agreement provides for the cancellation of certain specified amounts of the
aggregate principal amount of the First Loan Note and of such amounts of the
Second Loan Note on certain dates to the extent of certain indemnified losses
or, to the extent that such amounts of the First Loan Note or the Second Loan
Note (together "the Loan Notes") are not so cancelled, for their conversion into
Ordinary Shares. The number of Ordinary Shares is calculated by dividing the
amount not cancelled by the lower of (pound)3.565 (approximately $5.75) and the
midweek closing price of the Ordinary Shares on the London Stock Exchange on the
relevant date. Translation from pounds sterling to U.S. dollars is made using
the exchange rate on the relevant date. The Company issued 533,279, 560,076 and
541,478 Ordinary Shares on March 13, 2000, August 3, 2000 and November 6, 2000,
respectively to Arenol Corporation (or its nominee broker) in consideration of
the conversion of part of each of the Loan Notes in the Company.
$80 million promissory note
Included in the current portion of long term debt at December 31, 2000 is a
promissory note to a shareholder, bearing interest at 5% per annum. This note
was repaid in 2001.
$3,262,000 Canadian federal and provincial government loan.
BioChem has Canadian federal and provincial government loans with a maximum
available amount of $3,666,000. This facility is non-interest bearing and is
repayable in maximum annual instalments of $733,000 commencing in 2002.
$2.8 million bank loans.
The Company has bank loans of $2.8 million at December 31, 2000, bearing
interest at the lender's prime rate. The loans are secured by a charge on land
and buildings, and are repayable in annual instalments of $400,000 with a final
payment of $2,400,000 in 2002. These loans are renegotiable for an additional
five-year period.
(17) Other Non-current Liabilities
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Payable for termination of license agreement 373 1,209
Other accrued liabilities 13,823 136
------------ ------------
14,196 1,345
------------ ------------
Other accrued liabilities at December 31, 2000 include $13,609,000 in
relation to the SERP (see Note 25 "Retirement Benefits").
(18) Financial Instruments
47
The following methods and assumptions were used to estimate the fair value
of each material class of financial instrument:
o Cash and cash equivalents - carrying amount approximates fair value
due to the short-term nature of these instruments.
o Marketable securities and other current asset investments - the fair
value of marketable securities is estimated based on quotes obtained
from brokers.
o Investments - non-current investments with readily determinable market
values are marked to market. The fair value of investments in private
entities and non-traded securities are measured by valuation
methodologies including discounted cash flows.
o Accounts receivable - carrying amount approximates fair value due to
the short-term nature of these instruments.
o Accounts and notes payable - carrying amount approximates fair value
due to the short-term nature of these instruments.
o Long term debt - the fair value of long term debt is estimated based
on the discounted future cash flows using currently available interest
rates. There is no material difference between the carrying value and
the fair value of the long-term debt.
o Long term investments in private companies - the fair value of the
investments in private companies is not readily determinable because
these investments are not publicly traded.
The carrying amounts and corresponding fair values of financial instruments
at December 31, 2000 and 1999 were as follows:
December 31, 2000
Carrying
Amount Fair Value
$'000 $'000
----------- ------------
Financial assets:
Cash and cash equivalents 93,266 93,266
Marketable securities and other current asset
investments 370,425 370,425
Investments 74,314 74,314
Financial liabilities:
Accounts and notes payable 113,446 113,446
Long-term debt 213,874 213,874
----------- ------------
48
December 31, 1999
Carrying
Amount Fair Value
$'000 $'000
----------- ------------
Financial assets:
Cash and cash equivalents 102,502 102,502
Marketable securities and other current asset
investments 188,765 188,765
Marketable securities - long term (see Note 5) 16,800 15,444
Investments 58,643 58,643
Financial liabilities:
Accounts and notes payable 133,607 133,607
Long-term debt 222,678 222,678
----------- ------------
The carrying amounts in the table are included in the consolidated balance
sheet under the indicated captions.
The Company has entered into a forward exchange contract which acts as a
hedge to effectively fix the amount of Canadian dollars required to repay the
$80,000,000 promissory note from a shareholder, which is repayable on January
19, 2001, at an exchange rate of 1.4630. Any unrealized
gains or losses on the forward exchange contract are offset by unrealized gains
and losses on the US dollar denominated promissory note. As at December 31,
2000, the amount of unrealized gain on this forward exchange contract was
$1,946,000 (unrealized loss of $1,092,000 as at December 31, 1999).
(19) Leases and Other Commitments
(a) Leases
The Company leases facilities, motor vehicles and certain office equipment
under operating leases. The Company's commitments under the non-cancelable
portion of all operating leases for the next five years and thereafter as of
December 31, 2000 are as follows:
December 31,
2000
$'000
------------
2001 4,027
2002 3,437
2003 2,267
2004 1,154
2005 689
49
Thereafter 2,299
------------
13,873
------------
Lease and rental expense included in selling, general and administrative
expenses in the accompanying statements of operations amounts to approximately
$4,250,000, $3,155,000 and $1,555,000 for the fiscal years ended December 31,
2000, 1999 and 1998 respectively.
(b) Contingent liabilities
(i) Phentermine
Until April 1998, Shire Richwood Inc. ("SRI") distributed products
containing phentermine, a prescription drug approved in the U.S. as a
single agent for short-term use in obesity. Contrary to the approved
labeling of these products, physicians in the U.S. co-prescribed
phentermine with fenfluramine or dexfenfluramine for management of obesity.
This combination was popularly known as the "fen/phen" diet. In mid 1997,
following concerns raised about cardiac valvular side effects alleged to be
associated with this diet regime, the fenfluramine and dexfenfluramine
elements of the "fen/phen" diet were withdrawn from the U.S. market.
Although SRI has ceased to distribute phentermine, the drug remains both
approved and available in the U.S. SRI and a number of other pharmaceutical
companies are being sued for damages for personal injury and medical
monitoring arising from phentermine used either alone or in combination. As
of December 31, 2000, SRI was named as a defendant in approximately 3,729
lawsuits and had been dismissed from approximately 2,178 of these cases.
There were approximately 1,120 additional cases pending dismissal as of
December 31, 2000. In only 171 cases has it been alleged in the complaint
or subsequent discovery that the plaintiff had used SRI's particular
product and SRI has been dismissed from 105 of these cases as well.
Although there have been reports of substantial jury awards and settlements
in respect of fenfluramine and/or dexfenfluramine, to date Shire is not
aware of any jury awards made against, or any settlements made by, any
phentermine defendant. Shire denies liability on a number of grounds,
including lack of scientific evidence that phentermine, properly
prescribed, causes the alleged side effects and that SRI did not promote
phentermine for long term combined use as the "fen/phen" diet. Accordingly,
Shire intends to defend vigorously any and all claims made against the
Company in respect of phentermine and believes that a liability is neither
probable nor quantifiable at this stage of litigation.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
suppliers to SRI or Eon's insurance carriers, but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated November 30, 2000 between Eon and SRI.
On August 31, 2000 Shire entered into an agreement (the "Termination
Agreement") with the former shareholders of SRI, pursuant to which the
ordinary shares placed in escrow at the time of the purchase of SRI by
Shire were released and the escrow agreement and the escrow fund were
terminated. The escrow agreement with the SRI shareholders was initially
established by Shire in 1997 in anticipation of possible phentermine
related claims against the Company.
50
Under the terms of the termination Agreement, monies in the approximate
amount of $7 million were received by Shire, and the escrow fund was
terminated. The remaining shares were distributed to the former SRI
shareholders.
At the present stage of litigation, Shire is unable to estimate the level
of future legal costs after taking into account any available product
liability insurance and enforceable indemnities. To the extent that any
legal costs are not covered by insurance or available indemnities, these
will be expensed as incurred.
(ii) Emory
Emory University filed oppositions to two of BioChem's granted patent
applications in Europe which cover oxathiolane nucleosides, including
lamivudine, and dioxolane nucleosides, including troxacitabine, related
nucleoside analogues and use of these analogues for treating viral
infections. In oral hearings held in 1999, both of these oppositions were
dismissed by the Opposition Division of the European Patent Office. Emory
University has filed an appeal against the dioxolane-related decision of
the Opposition Division. Emory University is not pursuing its appeal of the
decision relating to oxathiolanes. Emory University has not to date filed
revocation actions with respect to any BioChem patents in issue in
individual European countries.
In Japan, Emory University filed an opposition to BioChem's granted patent
which covers lamivudine, related analogues and use of the analogues for
treating viral infections. The Trial Board of the Japanese Patent Office
dismissed Emory University's opposition to BioChem's patent covering
lamivudine. Emory University has not to date filed a revocation action
against this patent. Emory University has filed revocation actions in
Australia and South Korea against BioChem's granted patents covering
lamivudine. The Company is aggressively defending these patents.
On July 23, 1996, Emory University filed a complaint in the U.S. alleging
infringement from the commercialisation of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licensee in the U.S., of an Emory
University U.S. patent granted that same day. The Company considers this
patent infringement suit to be without merit and has successfully
challenged the validity of Emory University's patent.
On May 19, 1998, the United States Patent and Trademark Office (the
"USPTO") declared an interference between the Emory University patent that
is the subject of a lawsuit and a pending patent application of BioChem.
The USPTO accorded BioChem the earlier priority date and then accorded
BioChem senior party status in the interference. BioChem has vigorously
challenged the Emory University patent in the interference, through to a
final hearing on November 10, 1999. The Board of Patent Appeals and
Interferences issued a decision on December 21, 2000 invalidating Emory's
patent. Emory University has appealed the decision. There can be no
assurance that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in Europe
relating to oxathiolane nucleosides, including lamivudine. BioChem and
GlaxoSmithKline filed an opposition to this grant and are vigorously
opposing the grant. An examined patent application, filed by Emory
University claiming lamivudine, was successfully opposed by BioChem in
Australia and Norway. Emory University has filed an appeal from that
decision in the Federal Court of Australia.
51
BioChem also filed an appeal from certain portions of the decision. An
examined patent application filed by Emory University claiming lamivudine
was also opposed by BioChem in Japan. The opposition was dismissed in April
1999 because it was improperly filed by a representative who had previously
represented Emory. Notwithstanding the dismissal, the Japanese Patent
Office issued an ex-officio action rejecting all of Emory University's
claims. An examined patent application filed by Emory claiming lamivudine
has also been opposed by BioChem and GlaxoSmithKline in South Korea. The
Company is aware that Emory University has filed patent applications in
other countries, which it believes may claim similar subject matter. The
Company intends to challenge vigorously such patent applications.
(iii) Yale
On November 23, 1999, the USPTO declared an interference between BioChem's
hepatitis B patent for lamivudine and a patent application filed by Yale
University ("Yale") claiming methods of treating hepatitis B using
lamivudine. The Company believes that this application is licensed to Vion
Pharmaceuticals, Inc. ("Vion"), formerly known as OncoRx, Inc., a New
Haven, Connecticut-based company. The Company believes that its patent is
valid and intends to vigorously defend the patent. The Company is not aware
of corresponding patent applications by Yale University or Vion in
countries other than the U.S. On April 14, 2000, the USPTO declared a
further interference between BioChem's hepatitis B patent for lamivudine
and a patent application by GlaxoSmithKline claiming methods of treating
hepatitis B using lamivudine.
(iv) Adderall
On September 22, 2000, a lawsuit was filed against Shire in the United
States District Court for the District of North Dakota. The suit involves
an incident in 1999 in which a young North Dakota man, Ryan Ehlis, shot and
killed his infant daughter and wounded himself, allegedly as a result of a
psychotic reaction to Adderall. Mr Ehlis' physician had prescribed Adderall
for the treatment of ADHD. Shire filed its answer to the complaint on
November 24, 2000 and, discovery related to the litigation is ongoing.
(v) Interests in companies and partnerships
BioChem has undertaken to subscribe to an interest in companies and
partnerships for amounts totaling $32,108,000. As at December 31, 2000, an
amount of $25,709,000 has been subscribed. In addition, BioChem has
undertaken to subscribe to additional amounts and pay royalties on certain
future sales upon realization of certain conditions.
(vi) In addition, the Company is involved in other claims and lawsuits in the
normal course of business. It is not possible at this time to determine
the ultimate outcome of any of these claims.
(20) Related Party Transactions
BioChem incurred professional fees with law firms, in which certain
BioChem's directors were partners, totaling $448,000 for the year ended December
31, 2000 ($222,000 for the year ended December 31, 1999 and $666,000 for the
year ended December 31, 1998).
Transactions with a shareholder are as follows:
52
Year Year Year
ended ended ended
December 31, December 31, December 31,
1998 1999 2000
$'000 $'000 $'000
Royalty revenue 131,363 116,145 103,847
Interest expense on promissory note 4,116 1,756 -
------------- ------------- -------------
These transactions were concluded in the normal course of operations.
(21) Capital Stock
(a) Share Repurchase
On July 19, 1999, the Company completed its purchase for cancellation of
eight million of BioChem common shares held by GlaxoSmithKline Inc. at a price
of $20 per share. Payment of these shares is to be made in two stages:
$80,000,000 was paid on July 19, 1999, and the balance is presented in the
current portion of long-term debt and payable on January 19, 2001. The above
mentioned transaction was recorded in 1999 as follows: $20,120,000 as a
reduction to capital stock, $498,000 as a reduction to capital in excess of par
value and $139,382,000 as a charge to retained earnings.
(b) Investissement Quebec
In consideration for the guarantee of a subsidiary's loan relating to a
building and reimbursement of interest on this loan, the Company granted
Investissement Quebec an option to purchase 123,476 common shares in BioChem at
an exercise price of $3.38 per share. This option was exercised in 2000.
(22) Net Income/(Loss) per Share
Basic net income/(loss) per share is based upon the income available to
common stockholders divided by the weighted-average number of common shares
outstanding during the period for Shire and BioChem, which have been adjusted
for the exchange ratio. Diluted net income/(loss) per share is based upon income
available to common stockholders divided by the weighted-average number of
common shares outstanding during the period and adjusted for the effect of all
dilutive potential common shares that were outstanding during the period for
Shire and BioChem, which have been adjusted for the exchange ratio.
The following table sets forth the computation for basic and diluted net
income/(loss) per share:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
----------------- ----------------- -----------------
53
Numerator for basic and diluted net income/(loss) per
share 211,727 (47,432) 82,040
----------------- ----------------- -----------------
No. of shares No. of shares No. of shares
----------------- ----------------- -----------------
Weighted average number of shares
Basic 482,890,070 484,358,876 480,827,784
Effect of dilutive stock options 11,801,735 3,779,623 13,321,931
----------------- ----------------- -----------------
Diluted 494,691,805 488,138,499 494,149,715
----------------- ----------------- -----------------
Basic net income/(loss) per share 43.8c (9.8)c 17.1c
Diluted net income/(loss) per share 42.8c (9.8)c 16.6c
----------------- ----------------- -----------------
The calculation of weighted average number of shares for the year ended
December 31, 2000 does not include convertible debt because, after eliminating
interest charged in the income statement from the numerator, the inclusion would
be anti-dilutive.
The calculation of weighted average number of shares for the year ended
December 31, 1999 does not include potentially dilutive stock options and
convertible debt because their inclusion would be anti-dilutive in a loss-making
year.
(23) Analysis of Revenue, Operating Income/(Loss), Assets and Reportable
Segments
The Company has disclosed segment information for the individual operating
areas of the business, based on the way in which the business is managed and
controlled. Shire's principal reporting segments are geographic, each being
managed and monitored separately and serving different markets. The Company
evaluates performance based on operating income or loss before interest and
income taxes. All inter-company items are eliminated. The accounting policies of
each reportable segment are the same as those of the Company.
Year ended December 31, 2000
U.S. International R&D Total
$'000 $'000 $'000 $'000
----- ----- ----- -----
Product sales 414,624 105,607 - 520,231
Licensing and development 1,326 12,821 14,147
Royalties 266 135,204 - 135,470
Other revenues 20 1,242 - 1,262
------- ------- ------- -------
Total revenues 416,236 254,874 671,110
Cost of revenues 53,393 47,978 - 101,371
Research and development 155,145 155,145
Selling, general and administrative 122,834 113,455 - 236,289
54
Asset impairment and restructuring - 26,947 - 26,947
------- ------- ------- -------
Total operating expenses 176,227 188,380 155,145 519,752
------- ------- ------- -------
Operating income/(loss) 240,009 66,494 (155,145) 151,358
------- ------- ------- -------
Total assets 560,864 943,687 43,944 1,548,495
Long-lived assets 7,895 75,249 48,080 131,224
------- ------- ------- -------
Capital expenditure on long-lived assets 3,636 15,517 28,000 47,153
------- ------- ------- -------
Year ended December 31, 1999
U.S. International R&D Total
$'000 $'000 $'000 $'000
------- ------- ------- -------
Product sales 313,582 87,377 - 400,959
Licensing and development 1,097 13,488 - 14,585
Royalties 0 119,714 - 119,714
Other revenues 517 1,478 - 1,995
------- ------- ------- -------
Total revenues 315,196 222,057 - 537,253
Cost of revenues 62,375 40,672 - 103,047
Research and development 141,112 141,112
Selling, general and administrative 109,327 85,186 - 194,513
Costs of restructuring 93,603 3,529 - 97,132
Merger transaction expenses 9,312 22,967 - 32,279
Loss on sale of product rights 5,824 - - 5,824
------- ------- ------- -------
Total operating expenses 280,441 152,354 141,112 573,907
------- ------- ------- -------
Operating (loss)/income 34,755 69,703 (141,112) (36,654)
------- ------- ------- -------
Total assets 542,111 730,232 25,873 1,351,791
Long-lived assets 17,033 77,083 22,597 116,713
------- ------- ------- -------
Capital expenditure on long-lived assets 1,738 5,226 20,721 27,685
------- ------- ------- -------
Year ended December 31, 1998 U.S. International R&D Total
$'000 $'000 $'000 $'000
------- ------- ------- -------
Product sales 226,988 79,695 - 306,683
55
Licensing and development 622 19,298 - 19,920
Royalties 0 107,621 - 107,621
Other revenues 306 1,375 - 1,681
------- ------- ------- -------
Total revenues 227,916 207,989 - 435,905
Cost of revenues 67,889 35,089 - 102,978
Research and development 97,966 97,966
Selling, general and administrative 80,854 76,608 - 157,462
Merger transaction expenses - 4,383 - 4,383
Profit on sale of product rights (220) - - (220)
------- ------- ------- -------
Total operating expenses 148,523 116,080 97,966 362,569
------- ------- ------- -------
Operating income/(loss) 79,393 91,909 (97,966) 73,336
------- ------- ------- -------
Total assets 539,626 749,199 6,446 1,295,271
Long-lived assets 23,827 68,664 3,501 95,992
------- ------- ------- -------
Capital expenditure on long-lived assets 3,860 20,656 2,207 26,723
------- ------- ------- -------
(d) Material customers
In the periods set out below, certain customers accounted for greater than
10% of total revenues:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
------------ ------------ ------------
Customer A 132,913 100,267 53,359
Customer B 80,293 54,498 -
(24) Other Charges
Year ended December 31, 2000
As a result of the acquisition of BioChem, Shire incurred a charge of
$26,947,000 representing the acquisition of in process research and development
in accordance with SFAS No. 2.
Year ended December 31, 1999
As a result of the acquisition of Roberts Pharmaceutical Corporation on
December 23, 1999, which was accounted for as a pooling of interests, the
Company recorded charges totaling $135.2 million pre-tax for asset impairments
($48.5 million), merger-related transaction expenses ($32.3 million),
restructuring costs ($43.6 million), loss on product dispositions ($5.8 million)
and other
56
charges ($5.0 million). These charges are disclosed separately within operating
expenses in the consolidated statements of income.
The Company recorded an impairment charge of $34.2 million to adjust
intangible asset values, primarily product rights, to their estimated fair
value. These charges are consistent with the Company's accounting policy to
review periodically the carrying value of the intangibles and evaluate whether
there has been any impairment in the value of those intangibles as compared with
estimated undiscounted future cash flows of the products. Other asset
impairments consisted of the write off of inventory held for research and
development work and duplicate equipment ($3.2 million), adjustments to the
carrying value of the RiboGene investment to market value at December 31, 1999
($ 7.6 million), and write down of receivables to their estimated realizable
value ($ 3.5 million).
The components of the restructuring charge were as follows:
$m
Employee termination costs 37.9
Property 5.7
-----------
43.6
-----------
In December 1999, the decision was made to close the office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing facility in Florence, Kentucky and to transfer the research &
development activities to Shire's facility in Rockville, Washington. Similarly,
Roberts' sales and marketing operation in the U.K. was combined with Shire's
established operation in Andover, Hampshire. The property at Eatontown was
written down to its estimated fair value.
As a result of the restructuring and elimination of duplicate facilities,
the Company identified a number of sales and marketing, research and development
and administrative positions to be terminated. These employees were notified of
their termination prior to December 31, 1999. The employee termination costs
consisted of payments for severance, medical and other benefits, outplacement
counseling, acceleration of pension benefits and excise taxes. The Company
completed the restructuring program during the fourth quarter of 2000, and the
restructuring reserve of $43.6 million was fully utilized by December 31, 2000.
Year ended December 31, 1998
During the year ended December 31, 1998 a gain of $220,000 was credited to the
income statement in respect of the disposition of certain products.
(25) Retirement Benefits
(a) Personal defined contribution pension plans
The Company makes contributions to defined contribution retirement plans
that together cover substantially all employees within the Company. For the
defined contribution retirement plans, the level of company contribution is
fixed at a set percentage of employee's pay.
57
Company contributions to personal defined contribution pension plans
totalled $2,580,000, $1,558,000 and $1,124,000 for the years ended December 31,
2000, 1999 and 1998 respectively, and were charged to operations as they became
payable.
(b) Defined benefit pension plan
Roberts Pharmaceutical Corporation, a company with whom Shire merged in
December 1999, operated a defined Supplemental Executive Retirement Plan (the
"SERP") for certain U.S. employees, which was established in 1998. This plan was
available to former employees of Roberts who met certain age and service
requirements.
As part of the restructuring of the Company following the merger, the SERP
was closed to new members and contributions have ceased being paid into the plan
for existing members. As part of this arrangement, the Company paid a lump sum
contribution into the plan of $18 million, the result of which is that the
Company has no future liabilities under the plan.
In accordance with EITF 97-14, the asset and liability of $16.1 million and
$13.6 million respectively are shown on the balance sheet within the categories
investments and other non-current liabilities. See Notes 12 and 17 above.
(26) Income Taxes
The (provision)/benefit for income taxes consists of:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Current
US federal (26,534) (14,007) (7,375)
State and foreign (17,348) (7,365) (4,556)
---------- ---------- ----------
Total current (43,882) (21,372) (11,931)
---------- ---------- ----------
Deferred
US federal (4,268) (622) 3,808
State and foreign 486 331 458
---------- ---------- ----------
Total deferred (3,782) (291) 4,266
---------- ---------- ----------
Total attributable to continuing operations (47,664) (21,663) (7,665)
---------- ---------- ----------
Total related to discontinued operations - (948) 357
---------- ---------- ----------
(47,664) (22,611) (7,308)
---------- ---------- ----------
58
Year ended December 31, 2000
$'000
----------
Approximate net operating loss
Carry-forwards against future US federal tax
liabilities 60,451
----------
Approximate net operating loss carry-forwards against
future state and foreign tax liabilities 224,256
----------
Approximate research and development expenses carry
forwards against future state and foreign tax
liabilities 79,549
----------
Approximate investment tax credits available for
carry forward 6,399
----------
The tax losses shown above have the following expiration dates:
December 31,
2000
$'000
------------
2002 1,885
2003 1,327
2004 3,100
2005 - 2007 157,696
2007 - 2010 6,399
Available indefinitely 200,248
------------
370,655
------------
The losses stated above include approximately $78 million of state tax
losses for which relief is available at state tax rates of approximately 3%.
A comparison of the (provision)/benefit for income taxes as reported to a
provision based on US and Canadian federal statutory rates and consolidated
income before income taxes is as follows:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
(Provision)/benefit at statutory rates (78,725) 17,345 (14,589)
Adjusted for:
59
Permanent differences (963) (6,783) (33)
Difference in taxation rates 9,100 (1,200) 1,300
Adjustment to prior year liabilities (1,950) 4,004 -
Goodwill amortization (3,783) (9,758) (4,232)
Other (2,652) (532) (752)
Research and development tax credits 1,736 2,538 1,771
Movement in valuation allowances 29,573 (28,225) 9,227
---------- ---------- ----------
Provision for income taxes (47,664) (22,611) (7,308)
---------- ---------- ----------
An analysis of the deferred tax asset is as follows:
December 31, December 31,
2000 1999
$'000 $'000
------------ ------------
Research development and operating losses carried forward
104,759 65,757
Investment tax credits 6,400 8,592
Temporary difference on investments (185) 38,349
Amounts deductible when paid 34,307 28,835
Valuation reserves and provisions 7,100 3,259
Other 1,446 1,568
------------ ------------
153,827 146,360
Valuation allowance (100,128) (109,041)
------------ ------------
Deferred tax assets 53,699 37,319
Excess of tax value over book value of assets (20,166) -
------------ ------------
Net deferred tax assets 33,533 37,319
------------ ------------
Valuation allowances against deferred tax assets have not been provided to
the extent that it is more likely than not that future income and tax planning
strategies will enable losses brought forward to be utilized.
The income (loss) before taxes by tax jurisdiction is as follows:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
----------- ----------- -----------
U.S. 77,974 (33,924) 30,972
U.K. (37,577) (33,996) 5,763
60
Canada 143,203 65,346 68,249
Other 75,791 (11,016) (13,172)
----------- ----------- -----------
259,391 (13,590) 91,812
----------- ----------- -----------
(27) Stock Incentive Plans
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 ("APB 25") and related interpretations in accounting for
its plans. In the years ended December 31, 2000, 1999 and 1998 the company
recognized a charge under APB 25 of $21,914,000, $11,933,000 and $5,497,000
respectively. Had compensation for stock options awarded under the plans been
determined in accordance with SFAS 123, the Company's net income/(loss) and per
share data would have been changed to the pro forma amounts indicated below:
Years ended December 31, 2000 1999 1998
$'000 $'000 $'000
---------- ---------- ----------
Net income/(loss)
As reported 211,727 (47,432) 82,040
Pro forma 227,018 (37,919) 83,952
Income/(loss) per share
As reported - basic 43.8c (9.8)c 17.1c
As reported - diluted 42.8c (9.8)c 16.6c
Pro forma - basic 47.0c (7.8)c 17.5c
Pro forma - diluted 45.9c (7.8)c 17.0c
The fair value of stock options used to compute pro forma net income/(loss)
and per share disclosures is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
Years ended December 31, 2000 1999 1998
---------- ---------- ----------
Risk free interest rate 5.68%-6.58% 4.76%-6.25% 4.55%-5.51%
Expected dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
Expected volatility 64.2% 53.4% 53.2%
Directors and employees have been granted options over ordinary shares
under the following stock option plans: the Shire Pharmaceuticals Group plc 2000
Executive Share Option Scheme ("2000 Executive Scheme"), the Shire Holdings Ltd.
Share Options Scheme ("SHL Scheme"), the Imperial Pharmaceutical Services Ltd.
Employee Share Option Scheme (Number One) ("SPC Scheme"), the Pharmavene 1991
Stock Option Plan ("SLI Plan"), the Shire Pharmaceuticals Executive Share Option
Scheme (Parts A and B) ("Executive Scheme"), the Shire Pharmaceuticals Sharesave
Scheme ("Sharesave Scheme"), the Shire Pharmaceuticals Group plc Employee Stock
61
Purchase Plan ("Stock Purchase Plan"), the Richwood Stock Options Plan
("Richwood Plan"), the Roberts Stock Option Plans ("Roberts Plan"), and the
BioChem stock option plan ("BioChem Plan").
On February 28, 2000, the Remuneration Committee of the Board exercised its
powers to amend the terms of the Executive Share Option Scheme so as to include
a cliff vesting provision.
No further options will be granted under the SHL Scheme, SPC Scheme, SLI
Plan, Richwood Plan, Roberts Plan or BioChem Plan. In a period of five years,
not more than five per cent of the issued share capital of the Company may be
placed under option under any employee share scheme. In a period of ten years,
not more than ten per cent of the issued share capital of the Company may be
placed under option under any employee share scheme. In addition, the following
terms apply to options that may be granted under the various plans:
Executive Scheme: up to 5% of the issued ordinary share capital of the Company,
in any period of ten years, subject to a limit of 2.5% in the period of four
years following adoption of the Scheme and a limit of three per cent in any
period of three calendar years.
Stock Purchase Plan: up to 2,000,000 ordinary shares.
The Company has granted options through December 31, 2000 under the various
plans as follows:
Expiry period from date of
Scheme Number of options issue Vesting period
- --------------- ------------------------ ---------------------------- -------------------
SHL Scheme 572,160 7 years, or 3 months after 1 - 3 years
end of employment
SPC Scheme 48,000 7 years, or 6 months after 2 years
end of employment
Executive Scheme 6,080,083 10 years 3 years, subject to
performance criteria
2000 Executive Scheme 484,248 10 years 3 years, subject to
performance criteria
Sharesave Scheme 210,999 6 months after vesting 3 or 5 years
Stock Purchase Plan 50,294 Automatic exercise 27 months
Richwood Plan 747,067 5 years Immediate on acquisition by
Shire
Roberts Plan 1,047,809 6 years Immediate on
merger with Shire
BioChem Stock Option Plan 15,549,662 10 years Immediate on acquisition by
Shire
------------------------
24,790,322
62
------------------------
2000 Executive Scheme : the maximum number of shares over which incentive
options may be granted under Part 3 of the scheme is 25,000,000.
A summary of the status of the Company's stock option plans as of December
31, 2000, 1999 and 1998 and the related transactions during the periods then
ended is presented below:
Year ended December 31, 2000 Weighted
average
exercise Number of
price $ shares
-------------- ---------------------
Outstanding at beginning of period 5.99 32,540,132
Granted 14.53 4,386,258
Exercised 4.30 (11,491,088)
Forfeited/expired 10.95 (644,980)
---------------------
Outstanding at end of period 7.83 24,790,322
---------------------
Exercisable at end of period 13,385,095
---------------------
All options granted under the Executive, 2000 Executive schemes and BioChem
stock options were issued with exercise prices equivalent to the fair market
value of the Company's common stock on the date of grant as these options were
granted at market prices. 79,424 options were granted under the Sharesave Scheme
at a price of (pound)8.56 (approximately $12.79). These options were granted
with an exercise price equal to 80% of the mid-market price on the day before
invitations were issued to employees.
The average fair value of options granted in the year ended December 31,
2000 is $8.80. For the years ended December 31, 1999 and 1998, the weighted
average fair value equates to the weighted average exercise prices of $4.43 and
$3.31 respectively as all options were granted at market prices.
Year ended December 31, 1999 Weighted
Average
Exercise Number of
price $ Shares
-------------- --------------
Outstanding at beginning of period 4.88 35,623,241
Granted 7.99 3,960,869
Exercised 2.60 (5,189,359)
Forfeited/expired 5.54 (1,854,619)
-------------- --------------
Outstanding at end of period 5.99 32,540,132
-------------- --------------
Exercisable at end of period 21,662,275
--------------
63
Year ended December 31, 1998 Weighted
Average
Exercise Number of
price $ Shares
-------------- --------------
Outstanding at beginning of period 3.85 35,072,629
Granted 6.44 9,386,081
Exercised 1.48 (7,721,561)
Forfeited/expired 4.97 (1,113,907)
-------------- --------------
Outstanding at end of period 4.88 35,623,241
-------------- --------------
Exercisable at end of period 16,727,805
--------------
Options outstanding at December 31, 2000 have the following
characteristics:
Weighted
Weighted Weighted average
Number of options average average exercise Number of exercise price
outstanding remaining price of options options of options
Exercise prices life outstanding exercisable exercisable
----------------- ------------------- ------------- ------------------- ----------------- -----------------
436,852 $0.45 - $0.46 0.3 $0.45 436,852 $0.45
980,669 $1.23 - $1.73 1.8 $1.49 980,669 $1.49
326,791 $1.81 - $2.20 3.3 $4.34 326,791 $4.34
1,221,320 $2.21 - $2.93 2.41 $4.04 1,113,726 $4.18
4,576,180 $2.94 - $4.39 1.53 $6.67 4,559,717 $6.68
17,248,510 $4.40 - $19.72 6.27 $18.32 5,967,340 $19.55
----------------- --------- ------------ ---------------- -----------------
24,790,322 4.89 $14.30 13,385,095 $11.57
----------------- --------- ------------ ---------------- -----------------
Restricted Share Unit Plan
During the year, the Company introduced a long-term incentive plan as
retirement compensation for certain senior executives. Under the plan, the
participants are awarded Restricted Share Units (RSUs) of which 50% vest after
two years and the remainder after five years. The value of one RSU is equivalent
to value of one common share of BioChem, is priced at market on the dates of the
grants and is redeemable only upon the participant's retirement, death,
resignation or termination. Compensation expense in respect of the RSUs is
charged to income at the date of grant and totalled $345,000 in 2000.
Shareholder Rights Plan
During 1995, the shareholders of the Company approved a Shareholder Rights
Plan ("Rights Plan"). Under the Rights Plan, one common share purchase right was
issued on April 28,1995, in respect of each outstanding common share and a share
purchase right for each common share
64
issued thereafter. These rights are exercisable in a situation of public
offering where certain conditions are not respected. Each right entitles the
holder to purchase, from the Company, one common share at a specific price,
subject to certain anti-dilution adjustments. The Rights Plan expires on June
30, 2003, or unless terminated earlier by the Company's Board of Directors. The
purpose of the Rights Plan is to require anyone, who seeks to acquire 20% or
more of the Company's voting shares, to present a bid complying with specific
provisions. The application of the Rights Plan was waived on December 10, 2000
with respect to the proposed merger transaction with Shire.
Stock Options
BioChem maintained a stock option plan intended for directors, officers,
employees and consultants of BioChem. The total number of options that could be
granted under the terms of the plan could not exceed 19,250,000. The exercise
price of options granted under the plan was determined by the Board of Directors
of BioChem and could not be lower than the market value on the date the options
were granted. These options expire no later than ten years after the date they
were granted, and vested immediately on the acquisition by Shire.
Deferred share unit plan
In 1998, BioChem introduced a long-term incentive plan for directors and
certain executives. Under the plan, the participants may elect to be allocated,
in lieu of a cash payment, a portion or all of the annual bonus or fees in the
form of Deferred Share Units ("DSU's"). The number of DSUs to be credited is
based on the amount of the annual bonus in the case of executives, or director's
fees in the case of directors, divided by the market value of BioChem's common
shares at a predetermined date. The DSUs are redeemable (either in cash or
common shares or a combination of cash and common shares) only upon the
participant's retirement, death, resignation or termination. Compensation
expense in respect of the DSUs is charged to income during the year incurred and
amounted to $2,305,000 in 2000, $512,000 in 1999 and $641,000 in 1998.
Quarterly Results of Operations (Unaudited)
The following table presents summarized unaudited quarterly results for the
years ended December 31, 2000 and 1999 which have been restated from prior
periods to reflect the merger of Shire Pharmaceuticals Group plc and BioChem
Pharma, Inc., which became effective on May 11, 2001, as if the merger had
occurred on January 1, 1998.
First Second Third Fourth
Year ended December 31, 2000 $'000 $'000 $'000 $'000
-------- -------- -------- --------
Revenues 151,095 159,563 179,323 181,129
Gross profit 128,638 136,923 147,189 156,989
Net income 12,960 128,266 43,176 27,325
Basic net income per share 2.7c 26.6c 8.9c 5.6c
-------- -------- -------- --------
Diluted net income per share 2.6c 25.9c 8.8c 5.5c
65
-------- -------- -------- --------
Year ended December 31, 1999 First Second Third Fourth
$'000 $'000 $'000 $'000
-------- -------- -------- --------
Revenues 125,295 129,772 138,918 143,268
Gross profit 99,946 109,393 108,823 116,044
Net income/(loss) 16,047 23,832 19,635 (106,946)
Basic net income/(loss) per share 3.3c 4.8c 4.1c (22.0)c
-------- -------- -------- --------
Diluted net income/(loss) per share 3.2c 4.8c 4.0c (22.0)c
-------- -------- -------- --------
66