[page 33 AXCAN PHARMA]
EXHIBIT 3 - [CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[Table of Contents
- ----------------------------
Management's Report 34
Auditors' Report 35
Financial Statements
Consolidated Balance Sheets 36
Consolidated Earnings 37
Consolidated Retained Earnings 37
Consolidated Cash Flows 38
Notes to Consolidated Financial Statements 39
[page 34 AXCAN PHARMA]
Management's Report
The consolidated financial statements of Axcan Pharma Inc. and the other
financial information included in this annual report are the responsibility of
the Company's management.
These consolidated financial statements and the other financial information have
been prepared by management in accordance with generally accepted accounting
principles. This responsibility includes the selection of appropriate accounting
principles and methods in the circumstances and the use of careful judgment in
establishing reasonable accounting estimates.
Management maintains internal control systems designed among other things, to
provide reasonable assurance that the Company's assets are adequately
safeguarded and that the accounting records are a reasonable basis to prepare
relevant and reliable financial information.
The Audit Committee is composed solely of external directors. This committee
meets with the external auditors and management to discuss matters relating to
the audit, internal control and financial information. The Committee also
reviews the consolidated quarterly and annual financial statements.
These consolidated financial statements have been audited by Raymond Chabot
Grant Thornton, Chartered Accountants, whose report indicating the scope of
their audit and their opinion on the consolidated financial statements is
presented below.
The Board of Directors has approved the Company's financial statements on the
recommendation of the Audit Committee.
(signed)
LEON F. GOSSELIN
President and Chief Executive Officer
(signed)
DAVID W. MIMS
Executive Vice President and Chief Operating Officer
(signed)
JEAN VEZINA
Vice President, Finance and Chief Financial Officer
Mont Saint-Hilaire, Quebec, Canada
November 12, 2002
[page 35 AXCAN PHARMA]
Auditors' Report
To the Shareholders of Axcan Pharma Inc.
We have audited the consolidated balance sheets of Axcan Pharma Inc. as at
September 30, 2002 and 2001 and the consolidated statements of earnings,
retained earnings and cash flows for each of the years in the three-year period
ended September 30, 2002. 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 and with auditing standards generally accepted in the United States of
America. 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 financial position of the Company as at September 30,
2002, and 2001, and the results of its operations and its cash flows for each of
the years in the three-year period ended September 30, 2002, in accordance with
generally accepted accounting principles in Canada.
(signed)
RAYMOND CHABOT GRANT THORNTON
General Partnership Chartered Accountants
Montreal, Quebec, Canada
November 12, 2002
[page 36 AXCAN PHARMA]
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 2002 2001
-------------------------------------------------------------------------------------
IN THOUSANDS OF U.S.DOLLARS $ $
ASSETS
Current assets
Cash and cash equivalents 20,005 16,541
Short-term investments, at cost (NOTE 6) 60,740 -
Accounts receivable (NOTE 7) 24,521 22,178
Income taxes receivable 805 417
Inventories (NOTE 8) 19,747 16,735
Prepaid expenses and deposits 1,895 1,803
Future income taxes (NOTE 9) 6,335 3,335
-------------------------------------------------------------------------------------
Total current assets 134,048 61,009
Investments (NOTE 10) 2,348 2,579
Property, plant and equipment (NOTE 11) 20,105 8,241
Intangible assets (NOTE 12) 180,553 154,343
Goodwill (NOTE 13) 29,342 19,710
Deferred financial expenses, at amortized cost 290 -
Future income taxes (NOTE 9) 2,456 3,221
-------------------------------------------------------------------------------------
369,142 249,103
=====================================================================================
LIABILITIES
Current liabilities
Accounts payable (NOTE 15) 27,499 16,113
Income taxes payable 1,577 782
Instalments on long-term debt 1,336 103
Future income taxes (NOTE 9) 269 453
-------------------------------------------------------------------------------------
Total current liabilities 30,681 17,451
Long-term debt (NOTE 16) 4,563 112
Future income taxes (NOTE 9) 34,389 25,704
Non-controlling interest 332 695
-------------------------------------------------------------------------------------
69,965 43,962
-------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Equity component of purchase price (NOTE 17) 2,704 2,704
Capital stock (NOTE 18) 261,285 186,650
Retained earnings 34,594 16,914
Accumulated foreign currency translation adjustments 594 (1,127)
-------------------------------------------------------------------------------------
299,177 205,141
-------------------------------------------------------------------------------------
369,142 249,103
=====================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
(signed) (signed)
Leon F. Gosselin Dr. Claude Sauriol
Director Director
[page 37 AXCAN PHARMA]
CONSOLIDATED EARNINGS
YEARS ENDED SEPTEMBER 30 2002 2001 2000
- ---------------------------------------------------------------------------------------------
IN THOUSANDS OF U.S.DOLLARS, EXCEPT PER SHARE AMOUNTS $ $ $
Revenue 133,175 104,549 87,486
- ---------------------------------------------------------------------------------------------
Cost of goods sold 34,145 26,540 22,313
Selling and administrative expenses 50,522 39,101 32,127
Research and development expenses 8,025 6,129 6,174
- ---------------------------------------------------------------------------------------------
92,692 71,770 60,614
- ---------------------------------------------------------------------------------------------
40,483 32,779 26,872
- ---------------------------------------------------------------------------------------------
Financial expenses 1,172 3,528 9,095
Interest income (912) (981) (1,072)
Amortization 7,613 12,032 10,522
- ---------------------------------------------------------------------------------------------
7,873 14,579 18,545
- ---------------------------------------------------------------------------------------------
Earnings before income taxes 32,610 18,200 8,327
Income taxes (NOTE 9) 11,742 6,728 3,387
- ---------------------------------------------------------------------------------------------
Earnings from continuing operations 20,868 11,472 4,940
Earnings from discontinued operations,
including a net gain on divestiture of $1,442 (NOTE 5) - - 1,796
- ---------------------------------------------------------------------------------------------
NET EARNINGS 20,868 11,472 6,736
=============================================================================================
Earnings per common share
Basic
Continuing operations 0.50 0.31 0.18
Discontinued operations - - 0.07
Net earnings 0.50 0.31 0.25
Diluted
Continuing operations 0.49 0.31 0.18
Discontinued operations - - 0.07
Net earnings 0.49 0.31 0.25
Weighted average number of common shares
Basic 41,664,510 35,832,198 26,575,475
Diluted 42,527,500 36,531,052 26,791,510
CONSOLIDATED RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30 2002 2001 2000
- --------------------------------------------------------------------------------------------
IN THOUSANDS OF U.S.DOLLARS $ $ $
Balance, beginning of year 16,914 7,195 4,166
Net earnings 20,868 11,472 6,736
Common share issue expenses, net of future
income taxes in the amount of $1,649 for 2002
($881 for 2001 and $1,853 for 2000) (3,188) (1,452) (3,565)
Cumulative dividends on preferred shares - (301) (142)
- --------------------------------------------------------------------------------------------
Balance, end of year 34,594 16,914 7,195
============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
[page 38 AXCAN PHARMA ]
CONSOLIDATED CASH FLOWS
YEARS ENDED SEPTEMBER 30 2002 2001 2000
---------------------------------------------------------------------------------------------------------
IN THOUSANDS OF U.S.DOLLARS $ $ $
OPERATIONS
Earnings from continuing operations 20,868 11,472 4,940
Dividends from a company subject to significant influence - - 12
Non-cash items
Non-controlling interest (363) (249) -
Amortization of deferred financial expenses 247 - -
Other amortization 7,613 12,032 10,995
Gain on disposal of assets - (141) (37)
Foreign currency fluctuation 507 102 320
Future income taxes 2,187 2,515 1,934
Investment tax credits - (746) (627)
Share in net loss of companies subject to
significant influence - - 125
Changes in working capital items from
continuing operations (NOTE 20) 4,266 (8,580) (5,674)
---------------------------------------------------------------------------------------------------------
Cash flows from continuing operations 35,325 16,405 11,988
Cash flows from discontinued operations - - 396
---------------------------------------------------------------------------------------------------------
Cash flows from operating activities 35,325 16,405 12,384
---------------------------------------------------------------------------------------------------------
FINANCING
Repayment of notes payable - - (92,017)
Long-term debt 1,506 - -
Repayment of long-term debt (3,267) (47,075) (13,620)
Non-controlling interest - 388 -
Issues of shares 69,876 33,302 88,342
Share issue expenses (4,837) (2,333) (4,876)
Cash flows from discontinued operations - - (12)
---------------------------------------------------------------------------------------------------------
Cash flows from financing activities 63,278 (15,718) (22,183)
---------------------------------------------------------------------------------------------------------
INVESTMENT
Acquisition of short-term investments (60,740) (48,552) (9,787)
Disposal of short-term investments - 58,339 19,300
Net proceeds from discontinued operations - - 4,587
Acquisition of investments (16) (961) (99)
Disposal of investments 385 186 1,982
Acquisition of property, plant and equipment (2,873) (2,391) (941)
Acquisition of intangible assets (1,561) (1,892) (19,886)
Deferred financial expenses (537) - -
Other 1,363 - -
Net cash used for business acquisitions (NOTE 4) (31,302) - (1,798)
Cash flows from discontinued operations - - 17
---------------------------------------------------------------------------------------------------------
Cash flows from investment activities (95,281) 4,729 (6,625)
---------------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held
in foreign currency 142 (10) -
---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,464 5,406 (16,424)
Cash and cash equivalents, beginning of year 16,541 11,135 27,559
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 20,005 16,541 11,135
=========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
[page 39 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
1- GOVERNING STATUTES AND NATURE OF OPERATIONS
The Company, incorporated under the Canada Business Corporations Act, is
involved in the research, development, production and distribution of
pharmaceutical products, mainly in the field of gastroenterology.
2- CHANGES IN ACCOUNTING POLICIES
BUSINESS COMBINATION, INTANGIBLE ASSETS AND GOODWILL
In 2001, the Canadian Institute of Chartered Accountants ("CICA") approved new
standards modifying the method of accounting for business combinations entered
into after June 30, 2001, and addressed the accounting for goodwill and other
intangible assets. The new standards on goodwill and other intangible assets
should be applied for fiscal years beginning on or after January 1, 2002. The
Company elected to adopt these standards early and, since October 1, 2001, it no
longer amortizes its goodwill and trademarks with infinite life. However,
management evaluates goodwill and trademarks with infinite life for impairment
annually. Intangible assets with finite life will continue to be amortized over
their estimated useful lives. As required by the standards, the Company
completed the impairment tests and did not record any impairments. These
standards are essentially the same as the new Statements of Financial Accounting
Standards ("SFAS") No. 141 and 142 in the United States.
The following table presents the matching of net earnings and basic earnings per
share as reported for prior years and corresponding information recalculated as
a result of applying the new standards on intangible assets and goodwill:
2002 2001 2000
- ----------------------------------------------------------------------------------------------
$ $ $
Net earnings 20,868 11,472 6,736
Add: amortization of intangible assets
with infinite life and goodwill - 4,448 4,453
- ----------------------------------------------------------------------------------------------
Adjusted net earnings 20,868 15,920 11,189
==============================================================================================
Basic earnings per share
Net earnings 0.50 0.31 0.25
Add: amortization of intangible assets
with infinite life and goodwill - 0.13 0.17
- ----------------------------------------------------------------------------------------------
Adjusted net earnings 0.50 0.44 0.42
==============================================================================================
SCIENTIFIC SYMPOSIUM COSTS
In 2002, the Company elected to expense its scientific symposium costs in the
fiscal year they are incurred. In the previous years, these costs were deferred
and amortized over a two-year period. This change in accounting policy has led
to an increase in selling and administrative expenses of $457,000 during the
year 2002.
EARNINGS PER SHARE
In 2001, the Company adopted on a retroactive basis, the new recommendations
issued by the CICA modifying the calculation of earnings per share. Under the
new recommendations, the treasury stock method is to be used, instead of the
current imputed earnings approach, for determining the dilution effect of
convertible debt, convertible preferred shares and options. This change in
accounting policy has no impact on the Company's reported diluted earnings per
share for the year ended September 30, 2000.
[page 40 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
2- CHANGES IN ACCOUNTING POLICIES (CONTINUED)
STANDARDS APPLICABLE FOR THE YEAR 2003
The CICA approved a new standard on STOCK-BASED COMPENSATION AND OTHER
STOCK-BASED PAYMENTS. The new Standard, which sets out a fair value-based
method of accounting, is based on U.S. Standard SFAS 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. As a result, Canadian and U.S. standards in this
area will now be harmonized. The Company already discloses in its financial
statements the pro forma net income and pro forma earnings per share, as if
the stock-based compensation cost had been accounted for.
SFAS 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS was
published in the United States. The new standard provides guidance on how assets
are grouped when testing for and measuring impairment and proposes a two-step
process for first determining when an impairment loss is recognized and then
measuring that loss.
In July 2002, the FASB issued SFAS 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at its fair market
value when the liability is incurred, rather than at the date of an entity's
commitment to an exit plan. The provisions of SFAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The
adoption of SFAS 146 is not expected to have a material effect on the Company's
financial statements.
3- ACCOUNTING POLICIES
The financial statements are expressed in U.S. dollars and were prepared in
accordance with generally accepted accounting principles in Canada, which in the
case of Axcan Pharma Inc. ("Axcan"), can differ from generally accepted
accounting principles in the United States, as shown in Note 25.
ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles in Canada requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and recognized amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
These financial statements include the accounts of the Company and its
subsidiaries, the most important being Axcan Scandipharm Inc. ("Axcan
Scandipharm"), Axcan Pharma U.S. Inc. ("Axcan Pharma U.S."), Laboratoires
Enteris S.A.S. ("Enteris") and Laboratoire du Lacteol du Docteur Boucard S.A.
("Lacteol"). The Company's interest in the joint ventures is accounted for by
the proportionate consolidation method.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped to the Company's customers,
provided the Company has not retained any significant risks of ownership or
future obligations with respect to the product shipped. Revenue from product
sales is recognized net of sales discounts and allowances. In certain
circumstances, returns or exchange of products are allowed under the Company's
policy and provisions are maintained accordingly. Amounts received from
customers as prepayments for products to be shipped in the future are reported
as deferred revenue.
CASH AND CASH EQUIVALENTS
The Company includes in cash and cash equivalents cash and all highly liquid
short-term investments with initial maturities of three months or less.
INVENTORY VALUATION
Inventories of raw materials and packaging material are valued at the lower of
cost and replacement cost. Inventories of work in progress and finished goods
are valued at the lower of cost and net realizable value. Cost is determined by
the first-in, first-out method.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to earnings in the year they are
incurred, net of related tax credits.
[page 41 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
AMORTIZATION
Property, plant and equipment and intangible assets with a finite life are
amortized over their estimated useful lives according to the following methods
and annual rates:
Methods Rates
- --------------------------------------------------------------------------------------------------
Buildings Diminishing balance and straight-line 4 to 10%
Furniture and equipment Diminishing balance and straight-line 10 to 20%
Computer equipment Diminishing balance and straight-line 20 to 50%
Automotive Diminishing balance and straight-line 20 to 25%
Leasehold and building improvements Straight-line 10 to 20%
Trademarks, trademark licenses and
manufacturing rights Straight-line 4 and 6.67%
- --------------------------------------------------------------------------------------------------
Bond discount was amortized on a straight-line basis over a five-year period
until 2000.
Beginning October 1, 2001, goodwill is no longer amortized, but instead tested
for impairment at least annually. Prior to October 1, 2001, goodwill was
amortized on a straight-line basis over periods of 15 or 20 years.
Beginning October 1, 2001, intangible assets with infinite life are no longer
amortized, but instead tested for impairment at least annually. Prior to
October 1, 2001, intangible assets with infinite life were amortized on a
straight-line basis over periods of 15 to 25 years.
Management evaluates the value of the unamortized portion of goodwill and
intangible assets annually by comparing the carrying value to the fair value.
Should there be a permanent impairment in value or if the unamortized balance
exceeds recoverable amounts, a write-down will be recognized for the current
year. To date, the Company has not recognized any permanent impairment in value.
Deferred financial expenses are amortized on a straight-line basis over a
four-year period.
INCOME TAXES
Income taxes are calculated based on the liability method. Under this method,
future income tax assets and liabilities are recognized as estimated taxes for
recovery or settlement arising from the recovery or settlement of assets and
liabilities recorded at their financial statement carrying amounts. Future
income tax assets and liabilities are measured based on enacted or substantively
enacted tax rates and laws at the date of the financial statements for the years
in which the temporary differences are expected to reverse. Adjustments to the
future income tax asset and liability balances are recognized in earnings as
they occur.
STOCK OPTIONS
The Company has granted stock options as described in Note 18. No compensation
expense is recognized when stock options are issued to employees. Any
consideration paid by employees on the exercise of stock options is credited to
capital stock.
FOREIGN CURRENCY TRANSLATION
The current rate method of translation of foreign currencies is followed for
subsidiaries, or joint ventures considered financially and operationally
self-sustaining. Therefore, all gains and losses arising from the translation of
the financial statements of subsidiaries or joint ventures are deferred in an
"Accumulated foreign currency translation adjustments" account under
"Shareholders' equity".
Monetary assets and liabilities in currency other than U.S. dollars of Canadian
companies and integrated foreign operations are translated into U.S. dollars at
the exchange rates in effect at the balance sheet date whereas other assets and
liabilities are translated at exchange rates in effect at transaction dates.
Revenue and operating expenses in foreign currency are translated at the average
rates in effect during the year. Gains and losses are included in earnings for
the year.
BASIC EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the year. The treasury stock method is to be
used for determining the dilution effect of options. The dilutive effect of
balance of purchase price payable in shares and convertible preferred shares is
determined using the "if-converted" method.
[page 42 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
4- BUSINESS ACQUISITIONS
a) SEPTEMBER 30, 2002
On November 7, 2001, the Company acquired all the outstanding shares of Enteris,
a company specializing in the distribution of gastrointestinal products in
France. The acquisition cost, including transaction expenses, amounting to
$23,000,840, was paid in cash.
On April 17, 2002, the Company acquired all the outstanding shares of Lacteol
and certain related assets. This company is specialized in the manufacturing and
distribution of gastrointestinal products in France.
The acquisition cost, including transaction expenses, amounting to $13,137,613,
was paid with the issuance of 365,532 common shares of the Company and
$8,378,728 in cash. The price of the common shares issued was determined on the
basis of a twenty-day trading average closing price.
These two acquisitions will allow the Company to establish operations in France
for the development of markets in all of Western Europe and add two products to
the Company's product line.
The following table shows the breakdown of these acquisitions:
$
- ---------------------------------------------------------
Net assets acquired at the attributed values
ASSETS
Cash and cash equivalents 77
Other working capital items 7,323
Property, plant and equipment 9,433
Intangible assets 29,175
Goodwill 9,632
Future income taxes 656
Other assets 1,363
- ---------------------------------------------------------
57,659
- ---------------------------------------------------------
LIABILITIES
Accounts payable 8,215
Long-term debt 6,922
Future income taxes 6,384
- ---------------------------------------------------------
21,521
- ---------------------------------------------------------
36,138
=========================================================
CONSIDERATION
Cash 31,379
Common shares issued 4,759
- ---------------------------------------------------------
36,138
=========================================================
Net cash used for the acquisitions 31,302
=========================================================
[page 43 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
The acquisition cost has been allocated to the assets and liabilities according
to their estimated fair value at the acquisition dates. The operating results
relating to these acquisitions have been included in the consolidated financial
statements from the acquisition dates.
Using the assumption that the effective date of the business acquisitions is
October 1, 2000, the consolidated pro-forma results of operations of the Company
would have been as follows for the years ended September 30:
2002 2001
(unaudited) (unaudited)
- ------------------------------------------------------------------------
$ $
Revenue 140,983 125,524
========================================================================
Net earnings 20,802 11,136
========================================================================
Net earnings per share 0.50 0.30
========================================================================
b) SEPTEMBER 30, 2000
On November 19, 1999, Axcan redeemed Schwarz Pharma Inc. ("Schwarz")'s
50% interest in the Axcan URSO LLC joint venture. The purchase price amounting
to $52,000,000 was paid in cash by a loan from Schwarz. This acquisition was
accounted for using the purchase method. The purchase price allocated to
intangible assets will be amortized using the straight-line method over a period
of 25 years.
On December 22, 1999, the Company reimbursed the note payable with a par value
of CDN$40,000,000 to a subsidiary of Caisse de depot et placement du Quebec
("CDPQ") by the issuance of shares of Axcan Scandipharm representing a
40.4% interest in Axcan Scandipharm. The same day, the Company acquired this
40.4% interest for cash. The excess of the cost of the purchase over the book
value of the note payable amounting to $1,495,774 was accounted for as goodwill.
On May 25, 2000, the Company acquired additional shares of a company subject to
significant influence, Biozymes Inc. ("Biozymes"), a company specializing in the
development and production of enzymes by extraction processes. This additional
acquisition of shares increased the interest of the Company in Biozymes from
26.78% to 54.58%. The acquisition cost amounted to $574,324, of which $302,322
was paid in cash and the balance was paid in cash during year 2001.
[page 44 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
4- BUSINESS ACQUISITIONS (CONTINUED)
The following table shows the breakdown of these acquisitions:
$
- ----------------------------------------------------------
Net assets acquired at the attributed values
ASSETS
Cash and cash equivalents 9
Inventories 119
Other working capital items 91
Property, plant and equipment 1,609
Intangible assets 52,000
Goodwill 1,496
- ----------------------------------------------------------
55,324
- ----------------------------------------------------------
LIABILITIES
Accounts payable 311
Long-term debt 387
Non-controlling interest 556
- ----------------------------------------------------------
1,254
- ----------------------------------------------------------
54,070
==========================================================
CONSIDERATION
Cash 1,798
Loan payable 52,000
Purchase price balance payable 272
- ----------------------------------------------------------
54,070
==========================================================
The acquisition cost has been allocated to the assets and liabilities according
to their estimated fair value at the acquisition dates. The operating results
relating to these acquisitions have been included in the consolidated financial
statements from the acquisition dates.
Using the assumption that the effective date of the business acquisitions is
October 1, 1999, the consolidated pro-forma results of operations of the Company
would have been as follows for the year ended September 30, 2000 :
(unaudited)
- -------------------------------------------------
$
Revenue 89,668
=================================================
Net earnings 7,441
=================================================
Net earnings per share 0.27
=================================================
[page 45 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
5- DISCONTINUED OPERATIONS
During the third quarter of the year ended September 30, 2000, the Company
decided to discontinue the operations related to Althin Biopharm Inc., a joint
venture operating in the dialysis products field. The shares of the joint
venture have been sold to the other joint venturer for a cash consideration
of $5,067,568.
The operating results of the above joint venture to the effective divestiture
date, together with the net gain on divestiture were disclosed separately as
"Earnings from discontinued operations" in the financial statements and the
notes. The results of the discontinued operations disclosed in the statement of
earnings of the year ended September 30, 2000 are as follows:
$
- ------------------------------------------------------------------
Revenue 3,701
- ------------------------------------------------------------------
Expenses
Cost of goods sold 2,473
Selling and administrative expenses 540
Research and development expenses 7
Financial expenses 7
Amortization 68
Income taxes 252
- ------------------------------------------------------------------
3,347
- ------------------------------------------------------------------
Contribution to the Company's earnings 354
Net gain on divestiture 1,442
- ------------------------------------------------------------------
Earnings from discontinued operations 1,796
==================================================================
The net gain on divestiture is as follows:
$
- ------------------------------------------------------------------
Net proceeds 5,055
- ------------------------------------------------------------------
Net assets sold
Investments 463
Property, plant and equipment 827
Goodwill 227
Working capital items (including $468 of cash) 1,691
Long-term debt (465)
- ------------------------------------------------------------------
2,743
- ------------------------------------------------------------------
Gain on divestiture 2,312
Recognized gain resulting from the disposal of
the building to a joint venture 243
Income taxes (1,113)
- ------------------------------------------------------------------
Net gain on divestiture 1,442
==================================================================
[page 46 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
6- SHORT-TERM INVESTMENTS
As at September 30, 2002, short-term investments include short-term notes of
five public companies maturing in the coming year, two of which represent
approximately 47% of the Company's total short-term investments. Interest rates
vary between 1.52% and 1.66% (6.61% and 6.65% in 2000).
7- ACCOUNTS RECEIVABLE
2002 2001
- -------------------------------------------------------------------------------------------
$ $
Trade accounts, net of allowance for doubtful accounts
of $403,000 ($221,000 in 2001) (a) 23,859 19,319
Investments receivable within one year 142 278
Taxes receivable 329 289
Other 191 2,292
- -------------------------------------------------------------------------------------------
24,521 22,178
===========================================================================================
(a) AS AT SEPTEMBER 30, 2002, THE ACCOUNTS RECEIVABLE INCLUDE AMOUNTS RECEIVABLE
FROM FOUR CUSTOMERS WHICH REPRESENT APPROXIMATELY 60% (72% IN 2001) OF THE
COMPANY'S TOTAL ACCOUNTS RECEIVABLE.
8- INVENTORIES
2002 2001
- -------------------------------------------------------------------------------------------
$ $
Raw materials and packaging material 3,841 3,628
Work in progress 4,516 3,225
Finished goods 11,390 9,882
- -------------------------------------------------------------------------------------------
19,747 16,735
===========================================================================================
[page 47 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
9- INCOME TAXES
Income taxes from continuing operations included in the statement of earnings
are as follows:
2002 2001 2000
- -------------------------------------------------------------------------------------------
$ $ $
Current 9,555 4,213 1,453
- -------------------------------------------------------------------------------------------
Future
Creation and reversal of temporary differences 2,043 746 541
Capital gains - - 62
Operating losses - 1,724 1,331
Change in promulgated rates 144 45 -
- -------------------------------------------------------------------------------------------
2,187 2,515 1,934
- -------------------------------------------------------------------------------------------
11,742 6,728 3,387
===========================================================================================
Domestic 4,483 3,537 1,661
Foreign 7,259 3,191 1,726
- -------------------------------------------------------------------------------------------
11,742 6,728 3,387
===========================================================================================
The future income tax assets and liabilities result from differences between the
tax value and book value of the following items:
2002 2001
- ------------------------------------------------------------------------------
$ $
Short-term future income tax assets
Inventories 2,590 551
Accounts payable 2,586 1,625
Contingency provisions 1,159 1,159
- ------------------------------------------------------------------------------
6,335 3,335
==============================================================================
Long-term future income tax assets
Investments 14 14
Property, plant and equipment 51 -
Share issue expenses 2,380 1,732
Unused operating losses 11 8
Research and development expenses - 94
Investment tax credits - 1,373
- ------------------------------------------------------------------------------
2,456 3,221
==============================================================================
[page 48 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
9- INCOME TAXES (CONTINUED)
2002 2001
- -----------------------------------------------------------------------
$ $
Short-term future income tax liabilities
Prepaid expenses 135 315
Investments 12 16
Deferred gain 122 122
- -----------------------------------------------------------------------
269 453
=======================================================================
Long-term future income tax liabilities
Investments 13 31
Property, plant and equipment 1,625 91
Intangible assets 31,452 24,774
Goodwill 682 682
Research and development expenses 617 126
- -----------------------------------------------------------------------
34,389 25,704
=======================================================================
The Company's effective income tax rate differs from the combined statutory
federal and provincial income tax rate in Canada. This difference arises from
the following:
2002 2001 2000
- ----------------------------------------------------------------------------------------
$ $ $
Combined basic rate applied to pre-tax income 11,629 6,828 3,211
Increase (decrease) in taxes resulting from:
Large corporations tax - 59 35
Change in promulgated rates 144 45 -
Difference with foreign tax rates 1,189 (548) (131)
Amortization of goodwill and other
non-deductible items 228 569 1,175
Use of unrecorded prior years' losses (231) - -
Non-taxable items and other (2,008) (896) (1,602)
Foreign withholding taxes 791 671 699
- ----------------------------------------------------------------------------------------
11,742 6,728 3,387
========================================================================================
[page 49 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
10- INVESTMENTS
2002 2001
- ------------------------------------------------------------------------------------------
$ $
Investments in preferred shares of a private company, at cost 1,156 1,156
Note receivable, 8.5% beginning on January 1, 2002,
maturing on January 1, 2004 936 936
Other 398 765
- ------------------------------------------------------------------------------------------
2,490 2,857
Investments receivable within one year 142 278
- ------------------------------------------------------------------------------------------
2,348 2,579
==========================================================================================
11- PROPERTY, PLANT AND EQUIPMENT
2002
- ------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ------------------------------------------------------------------------------------------
$ $ $
Land 848 - 848
Buildings 10,679 1,334 9,345
Furniture and equipment 12,566 4,280 8,286
Automotive equipment 82 35 47
Computer equipment 2,253 1,573 680
Leasehold and building improvements 1,139 240 899
- ------------------------------------------------------------------------------------------
27,567 7,462 20,105
==========================================================================================
2001
- ------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ------------------------------------------------------------------------------------------
$ $ $
Land 468 - 468
Buildings 3,733 742 2,991
Furniture and equipment 5,931 2,576 3,355
Automotive equipment 113 32 81
Computer equipment 1,664 1,027 637
Leasehold and building improvements 832 123 709
- ------------------------------------------------------------------------------------------
12,741 4,500 8,241
==========================================================================================
Acquisitions of property, plant and equipment amount to $14,071,633
($2,415,136 in 2001 and $1,463,670 in 2000).
The cost and accumulated amortization of equipment under capital leases amount
to $3,154,207 and $204,000 ($101,075 and $18,065 in 2001).
[page 50 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
12- INTANGIBLE ASSETS
2002
- -----------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- -----------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 106,375 15,679 90,696
Infinite life 102,275 12,418 89,857
- -----------------------------------------------------------------------------------------
208,650 28,097 180,553
=========================================================================================
2001
- -----------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- -----------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 104,334 10,678 93,656
Infinite life 73,105 12,418 60,687
- -----------------------------------------------------------------------------------------
177,439 23,096 154,343
=========================================================================================
Acquisitions of intangible assets amount to $30,036,118 ($2,592,054 in 2001
and $83,709,380 in 2000).
The annual amortization expenses expected for the years 2003 through 2007 are as
follows:
- ---------------------------------
$
2003 4,914
2004 5,048
2005 5,179
2006 5,179
2007 5,179
[page 51 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
13- GOODWILL
2002 2001
- ------------------------------------------------------------------
$ $
Cost 33,200 23,568
Accumulated amortization 3,858 3,858
- ------------------------------------------------------------------
Net 29,342 19,710
==================================================================
14- AUTHORIZED LINE OF CREDIT
On November 20, 2001, the Company signed a credit agreement with two Canadian
chartered banks relative to a $55,000,000 financing. The financing comprises a
$15,000,000 revolving operating facility renewable annually and a
$40,000,000 364-days, extendible revolving facility with a three-year term-out
option maturing on October 15, 2005.
The credit facilities are secured by a first security interest on all present
and future acquired assets of the Company and its material subsidiaries, and
provide for the maintenance of certain financial ratios.
The interest rate varies depending on the Company's leverage between 25 basis
points to 125 basis points over prime rate and between 125 basis points and
225 basis points over the LIBOR rate or bankers acceptances. The credit
facilities may be drawn in U.S. dollars or in Canadian dollars equivalent. As at
Sep-tember 30, 2002, there was no amount outstanding under this line of credit.
15- ACCOUNTS PAYABLE
2002 2001
- ------------------------------------------------------------------------------------------
$ $
Accounts payable 5,674 1,386
Contract rebates, product returns and accrued chargebacks 4,828 4,459
Accrued royalty fees 2,881 1,611
Accrued bonuses 1,670 1,330
Other accrued liabilities 9,546 4,427
Contingency provisions 2,900 2,900
- ------------------------------------------------------------------------------------------
27,499 16,113
==========================================================================================
[page 52 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
16- LONG-TERM DEBT
2002 2001
- -------------------------------------------------------------------------------------------
$ $
Bank loans, prime rate plus 1.50% and 2.50% (6.00%
and 7.00% as at September 30, 2002, and 7.5%
and 7.75% as at September 30, 2001), secured
by movable hypothecs on assets of a subsidiary
having a net book value of $1,989,318 in 2002,
payable in monthly instalments of $13,086,
maturing in 2005 and 2007. 482 169
Bank loans, 5.2% and 7.15%, secured by immovable
hypothecs on land and buildings having a net
book value of $6,732,149 in 2002, payable in
monthly instalments of $46,331, principal and
interest, maturing in 2005 and 2013. 2,565 -
Obligations under capital leases, interest rates
varying between 2.70% and 19.84%, payable in
monthly instalments, principal and interest,
maturing on different dates until 2008. 2,852 46
- -------------------------------------------------------------------------------------------
5,899 215
Instalments due within one year 1,336 103
- -------------------------------------------------------------------------------------------
4,563 112
===========================================================================================
As at September 30, 2002, minimum instalments on long-term debt for the next
years are as follows:
Obligations under Other long
capital leases term loans
- -------------------------------------------------------------------------------------------
$ $
2003 901 584
2004 800 591
2005 668 552
2006 478 56
2007 250 359
2008 and thereafter 77 905
- ---------------------------------------------------------------
3,174
Interest included in the minimum lease payments 322
- ---------------------------------------------------------------
2,852
===========================================================================================
[page 53 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
17- EQUITY COMPONENT OF PURCHASE PRICE
In April 2000, Axcan entered into a series of agreements with QLT
PhotoTherapeutics Inc. ("QLT"). These agreements provided for the purchase by
Axcan of PHOTOFRIN, a light sensitive compound administered to patients and
activated by a laser, and the purchase by QLT of 1,283,333 common shares of
Axcan for a total cash consideration of CDN$19,250,000 (U.S.$13,007,000). These
transactions closed on June 8, 2000.
The purchase price of CDN$39,250,000 (U.S.$26,622,000) was paid by
CDN$21,750,000 (U.S.$14,800,000) in cash and by CDN$13,500,000 (U.S.$9,118,000)
with the issuance of 13,500,000 Series A preferred shares of the capital stock.
The balance of CDN$4,000,000 (U.S.$2,704,000) will be payable, at the earliest
of four years after the closing or upon the receipt of a specific approval from
a regulatory authority, in cash or in common shares, at Axcan's sole discretion.
The balance of the purchase price of $2,704,000 has been presented as an equity
component.
18- CAPITAL STOCK
AUTHORIZED
Unlimited number of shares without par value
Common shares
Preferred shares, issuable in series, rights, privileges and restrictions
determined at the creation date
During the year 2000, the Company created two series of preferred shares as
follows:
14,175,000 Series A, non-voting, annual preferential cumulative dividend of
5%, redeemable on or prior to June 8, 2001 at CDN$1.00 per share
payable at the option of the Company in cash or by the issuance of
common shares or in any combination of cash and common shares.
12,000,000 Series B, non-voting, redeemable on the fifth anniversary of
their issuance at CDN$1.00 per share payable in cash or by the issuance
of common shares at the option of the Company, convertible into common
shares at the holder's option on the basis of one common share for each
15 Series B preferred shares.
[page 54 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
18- CAPITAL STOCK (CONTINUED)
The issued and fully paid capital stock is as follows:
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Number Amount Number Amount Number Amount
- -------------------------------------------------------------------------------------------------------------
$ $ $
COMMON SHARES
Balance, beginning of year 38,412,133 186,650 34,506,254 143,787 17,951,553 55,445
Shares issued following
public offerings (A) 5,000,000 57,500 3,000,000 32,967 14,331,668 71,314
Shares issued following
private investors'
subscription (A) 208,044 3,000 - - 1,383,333 13,443
Shares issued following
the exercise of the
underwriters' option (A) 750,000 8,625 - - 787,500 3,295
Shares issued pursuant to
the stock option plan (A) 127,489 751 69,597 335 52,200 290
Shares issued for the
acquisition of assets 365,532 4,759 - - - -
Shares issued for the
redemption of preferred
shares and cumulative
dividends - - 836,282 9,561 - -
- -------------------------------------------------------------------------------------------------------------
Balance, end of year 44,863,198 261,285 38,412,133 186,650 34,506,254 143,787
========== ------- ========== ------- ========== -------
SERIES A PREFERRED SHARES
Balance, beginning of year - - 13,500,000 9,118 - -
Shares issued for the
acquisition of assets - - - - 13,500,000 9,118
Shares redeemed by the
issuance of common
shares - - (13,500,000) (9,118) - -
- -------------------------------------------------------------------------------------------------------------
Balance, end of year - - - - 13,500,000 9,118
========== ------- ========== ------- ========== -------
Total 261,285 186,650 152,905
======= ======= =======
(A) ISSUED FOR CASH
COMMON STOCK OPTION PLAN
The common stock option plan is intended for eligible directors, principal
senior executives and employees. The number of stock options that can be granted
under this plan cannot exceed 4,500,000, 2,590,000 and 1,900,000 as at September
30, 2002, 2001 and 2000 respectively.
Granted stock options are for 2,429,078, 1,956,441 and 1,364,348 common shares
as at September 30, 2002, 2001 and 2000 respectively and may be exercised at
prices between $3.75 and $14.03. These options may be exercised at a rate of 20%
per year and expire ten years after the granting date except for the annual
options granted to outside directors which may be exercised one year after the
granting date.
[page 55 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
The changes to the number of stock options outstanding are as follows:
2002 2001 2000
- -----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
options Price options Price options Price
- -----------------------------------------------------------------------------------------------------
$ $ $
Balance, beginning of year 1,956,441 7.75 1,364,348 6.56 353,600 5.80
Granted 684,050 13.38 772,433 10.30 1,246,063 7.11
Exercised (127,489) 5.89 (69,597) 4.77 (52,200) 5.59
Cancelled (83,924) 9.58 (110,743) 7.54 (183,115) 7.26
- -----------------------------------------------------------------------------------------------------
Balance, end of year 2,429,078 9.67 1,956,441 7.75 1,364,348 6.56
=====================================================================================================
Options exercisable at end of year 614,716 7.79 337,708 6.11 125,400 4.99
=====================================================================================================
Stock options outstanding at September 30, 2002 are as follows:
Options outstanding Options exercisable
- ----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
remaining exercise exercise
Exercise price Number contractual life price Number price
- ----------------------------------------------------------------------------------------------
$ $
$3.75 - $5.05 129,100 5.9 4.29 78,100 4.34
$5.06 - $6.35 19,400 7.5 6.81 6,800 6.81
$6.36 - $7.65 876,895 7.5 7.22 331,628 7.21
$7.66 - $8.95 10,700 6.7 8.26 6,200 8.08
$8.96 - $10.25 532,883 8.2 9.93 151,938 9.92
$10.26 - $11.55 129,500 8.4 10.93 22,400 11.00
$11.56 - $13.05 177,250 8.9 11.88 17,650 11.75
$13.06 - $14.03 553,350 9.2 13.68 - -
- ----------------------------------------------------------------------------------------------
2,429,078 8.1 9.67 614,716 7.79
==============================================================================================
EQUITY LINE AGREEMENT
On July 4, 2002, the Solidarity Fund QFL (the "Solidarity Fund") committed to
invest up to $14,100,000 in the Company's capital stock and could invest up to
an additional $15,000,000. The Solidarity Fund has initially purchased
208,044 common shares for total proceeds of $3,000,000. Additional shares for
the remaining $11,100,000 of the commitment may be issued at the sole option of
the Company subject to certain conditions specified in the Equity Line
Agreement. This option can be exercised from time to time by July 3, 2003. The
agreement also contemplates that the Solidarity Fund may, until July 3, 2003,
purchase up to an additional $15,000,000 of the Company's shares to finance
potential future acquisition projects.
[page 56 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
19- FINANCIAL INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENT OF EARNINGS
a) FINANCIAL EXPENSES
2002 2001 2000
- -----------------------------------------------------------------------------------------
$ $ $
Interest on long-term debt 159 2,820 6,961
Interest on short-term debt and bank charges 218 55 215
Financing fees 282 - 1,278
Foreign exchange losses 266 653 158
Amortization of deferred debt issue expenses - - 483
Amortization of deferred financial expenses 247 - -
- -----------------------------------------------------------------------------------------
1,172 3,528 9,095
=========================================================================================
b) OTHER INFORMATION
2002 2001 2000
- -------------------------------------------------------------------------------------------
$ $ $
Share in net loss of companies subject to
significant influence - - 125
Non-controlling interest (363) (249) -
Amortization of property, plant and equipment 2,499 774 722
Amortization of intangible assets 5,114 9,728 8,402
Amortization of goodwill - 1,530 1,991
Amortization of bond discount - - (52)
Investment tax credits applied against research
and development expenses 830 1,114 892
During 2000, the Company increased its estimated accrual for contract rebates,
chargebacks and for product returns by a total amount of $2,288,531.
The Company incurred professional fees with a law firm, in which a Company's
director is a partner, totaling $466,056 for the year ended September 30, 2002
($468,124 in 2001 and $478,112 in 2000). These transactions were concluded in
the normal course of operations, at the exchange amount.
[page 57 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
c) EARNINGS FROM CONTINUING OPERATIONS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations.
2002 2001 2000
- -------------------------------------------------------------------------------------------
$ $ $
Basic
Earnings from continuing operations $20,868 $11,472 $4,940
Dividends on preferred shares - (301) (142)
- -------------------------------------------------------------------------------------------
Earnings available to common shareholders $20,868 $11,171 $4,798
===========================================================================================
Weighted average number of common
shares outstanding 41,664,510 35,832,198 26,575,475
===========================================================================================
Basic earnings per share $0.50 $0.31 $0.18
===========================================================================================
Diluted
Earnings available to common shareholders
on a diluted basis $20,868 $11,171 $4,798
===========================================================================================
Weighted average number of common
shares outstanding 41,664,510 35,832,198 26,575,475
Effect of dilutive stock options 660,970 449,478 77,602
Effect of dilutive equity component
of purchase price 202,020 249,376 138,433
- -------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 42,527,500 36,531,052 26,791,510
===========================================================================================
Diluted earnings per share $0.49 $0.31 $0.18
===========================================================================================
Options to purchase 553,350, 206,250 and 1,132,948 common shares were
outstanding in 2002, 2001 and 2000 respectively but were not included in the
computation of diluted earnings per share as the exercise price of the options
was greater than the average market price of the common shares. In 2000, the
convertible preferred shares also had no effect on the diluted earnings
per share.
[page 58 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
20- FINANCIAL INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENT OF CASH FLOWS
a) CHANGES IN WORKING CAPITAL ITEMS FROM CONTINUING OPERATIONS:
2002 2001 2000
- -------------------------------------------------------------------------------
$ $ $
Accounts receivable 2,120 (7,270) (1,739)
Income taxes receivable (388) 2,884 (237)
Inventories (2,532) (3,400) (1,837)
Prepaid expenses 401 211 (850)
Payable to a joint venturer - - (955)
Accounts payable 3,870 (65) (667)
Income taxes payable 795 (940) 611
- -------------------------------------------------------------------------------
4,266 (8,580) (5,674)
===============================================================================
b) CASH FLOWS RELATING TO INTEREST AND INCOME TAXES OF OPERATING ACTIVITIES ARE
AS FOLLOWS:
2002 2001 2000
- ---------------------------------------------------------------------------------
$ $ $
Interest received 787 1,010 1,399
Interest paid 242 2,875 8,945
Income taxes paid 7,672 2,028 1,027
21- JOINT VENTURES
The following accounts represent the shares of the Company in the joint
ventures:
2002 2001 2000
- ------------------------------------------------------------------------------------
$ $ $
Current assets 190 186 112
Total assets 606 623 619
Current liabilities 248 220 177
Total liabilities 273 245 177
Revenue 725 696 536
Expenses 771 735 617
Earnings from discontinued operations - - 1,796
Net earnings (loss) (46) (39) 1,715
Cash flows from:
Operations (8) (10) 385
Financing - 25 (12)
Investment 10 - 4,588
[page 59 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
22- SEGMENTED INFORMATION
The Company considers that it operates in a single field of activity, the
pharmaceutical industry, since its other activities do not account for a
significant portion of segment assets.
No customer represents more than 10% of the Company's revenue except for three
customers (four customers in 2001, one U.S. distributor and one customer in
2000) for which the sales represented 52.3% of revenue for the year ended
September 30, 2002 (66.3% and 36.8% in 2001 and 2000).
Purchases from one supplier represent approximately 30% of the cost of goods
sold for the year ended Sep-tember 30, 2002 (38% in 2001 and 39% in 2000).
The Company operates in the following geographic segments:
2002 2001 2000
- --------------------------------------------------------------------------------------------
$ $ $
Revenue
Canada
Domestic sales 17,413 18,485 16,001
Foreign sales, mainly in the United States 22,623 11,950 7,039
United States
Domestic sales 100,088 79,289 64,446
Foreign sales 520 481 463
Europe 16,170 4,423 -
Other 560 2,686 -
Inter-segment (24,199) (12,765) (463)
- --------------------------------------------------------------------------------------------
133,175 104,549 87,486
============================================================================================
Earnings before financial expenses, interest income,
amortization, income taxes and discontinued operations
Canada 7,302 5,211 3,009
United States 31,640 25,861 23,863
Europe 1,845 502 -
Other (304) 1,205 -
- --------------------------------------------------------------------------------------------
40,483 32,779 26,872
============================================================================================
Amortization
Canada 1,570 1,092 998
United States 3,890 9,479 9,524
Europe 1,052 360 -
Other 1,101 1,101 -
- --------------------------------------------------------------------------------------------
7,613 12,032 10,522
============================================================================================
Property, plant, equipment, intangible assets and goodwill
Canada 15,645 16,154 13,938
United States 135,839 136,920 145,304
Europe 54,190 3,793 3,608
Other 24,326 25,427 26,528
- --------------------------------------------------------------------------------------------
230,000 182,294 189,378
============================================================================================
Total assets
Canada 298,733 207,840 140,324
United States 184,573 181,849 195,929
Europe 64,395 6,551 3,995
Other 26,947 27,072 26,824
Inter-segment (205,506) (174,209) (113,020)
- --------------------------------------------------------------------------------------------
369,142 249,103 254,052
============================================================================================
[page 60 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
23- FINANCIAL INSTRUMENTS
FAIR VALUE OF THE FINANCIAL INSTRUMENTS ON THE BALANCE SHEET:
The estimated fair value of the financial instruments is as follows:
2002 2001
- -------------------------------------------------------------------------------------------------
Fair Carrying Fair Carrying
value amount value amount
- -------------------------------------------------------------------------------------------------
$ $ $ $
Assets
Cash and cash equivalents 20,005 20,005 16,541 16,541
Short-term investments 60,740 60,740 - -
Accounts receivable 24,050 24,050 21,611 21,611
Investments in a private company b) 1,156 b) 1,156
Note receivable b) 936 b) 936
Other investments 398 398 765 765
Liabilities
Accounts payable 27,499 27,499 16,113 16,113
Long-term debt 5,838 5,899 215 215
The following methods and assumptions were used to calculate the estimated fair
value of the financial instruments on the balance sheet.
a) FINANCIAL INSTRUMENTS VALUED AT CARRYING AMOUNT
The estimated fair value of certain financial instruments shown on the balance
sheet is equivalent to their carrying amount because they are realizable in the
short-term or because their carrying amount approximates the fair value. These
financial instruments include cash and cash equivalents, short-term investments,
accounts receivable, other investments and accounts payable.
b) INVESTMENTS IN A PRIVATE COMPANY AND NOTE RECEIVABLE
The fair value of investments in a private company and note receivable was not
readily determinable.
c) LONG-TERM DEBT
In 2002, the fair value of long-term debt has been established by discounting
the future cash flows at interest rates corresponding to those the Company would
currently obtain for loans with similar maturity dates and terms. In 2001, the
fair value of long-term debt is equivalent to the carrying amount because most
of it bears interest at a variable rate.
[page 61 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
24- COMMITMENTS AND CONTINGENCIES
A) COMMITMENTS
The Company has entered into non-cancellable operating leases expiring on
different dates until December 31, 2005, for the rental of office space,
automotive equipment and equipment. One of the office space leases contains an
escalation clause providing for additional rent.
Minimum future lease payments under these operating leases are as follows:
$
- -------------------------------------
2003 1,039
2004 665
2005 429
2006 106
- -------------------------------------
2,239
=====================================
B) CONTINGENCIES
The subsidiary Axcan Scandipharm is a party to several legal proceedings related
to the product line it markets under the name ULTRASE. Lawsuits have been filed
and claims have been asserted against Axcan Scandipharm and certain other
companies, including the enzyme manufacturer, stemming from allegations that,
among other things, Axcan Scandipharm's enzyme products caused colonic
strictures. Axcan Scandipharm has been named as a defendant in 12 product
liability lawsuits. Of the 12 lawsuits to date, Axcan Scandipharm was dismissed
from one, nonsuited in another, settled nine and has one pending. At this time,
it is difficult to predict the number of potential cases and because of the
young age of the patients involved, Axcan Scandipharm's product liability
exposure for this issue in the United States will remain for a number of years.
Axcan Scandipharm's insurance carriers have defended the lawsuits to date and
Axcan expects them to continue to defend Axcan Scandipharm (to the extent of its
product liability insurance) should lawsuits be filed in the future.
In addition, the enzyme manufacturer and certain other companies have claimed a
right to recover amounts paid defending and settling these claims as well as a
declaration that Axcan Scandipharm must provide indemnification against future
claims. This lawsuit is based on contractual and common law indemnity issues and
the parties have agreed to settle their dispute through binding arbitration. The
arbitration has commenced and the plaintiffs alleged that the amount at issue
may be in excess of $34,000,000. Axcan Scandipharm denies that such
reimbursement is owed and has also responded with counterclaims against the
plaintiffs. The majority of the $34,000,000 alleged relates to a patent dispute
settlement agreement between the plaintiffs and others.
As at September 30, 2002 and 2001, the Company has recorded reserves in the
amount of approximately $2,900,000 to cover any future liabilities in connection
with the indemnification claims and the lawsuits discussed above that may not be
covered by, or exceed, applicable insurance proceeds. While the Company believes
that the insurance coverage and provisions taken to date are adequate, an
adverse determination of any such claims or of any future claims could exceed
insurance coverage and amounts currently accrued.
C) MILESTONE PAYMENTS
The agreements with QLT relating to the purchase of PHOTOFRIN provided for
milestone payments to be made by Axcan to QLT that could reach a maximum of
CDN$20,000,000 upon receipt of certain regulatory approvals for specific or an
additional indication for PHOTOFRIN or other conditions. Each milestone payment
shall be made at the option of the Company either in cash or in Series B
preferred shares or in a combination of cash and preferred shares provided that
at least one-half of the milestone payable shall be paid in cash. During the
year 2000 CDN$5,000,000 (U.S.$3,378,378) was paid by Axcan in cash upon
receipt of regulatory approval to market a new laser for use in conjunction
with PHOTOFRIN.
[page 62 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
24- COMMITMENTS AND CONTINGENCIES (CONTINUED)
D) ROYALTIES
Net sales of certain products of the Company are subject to royalties payable to
unrelated third parties.
In particular, the Company must pay to CR Associates a 5% royalty on net sales
of products covered under two agreements for the exclusive rights to market
ULTRASE and ADEKs for a ten-year term ended December 2001.
Axcan also has to pay 5% of worldwide sales of PHOTOFRIN with a maximum of
$500,000 per year and a maximum total aggregate of $3,108,245 until
December 2007. Until September 30, 2002, an amount of $983,448 has been
accounted for ($522,820 in 2001 and $92,244 in 2000).
Royalties amounting to $3,731,113, $3,711,561 and $3,022,414 respectively for
years ended September 30, 2002, 2001 and 2000 were charged to earnings.
E) LICENSING
During the year 2000, Axcan entered into a new licensing agreement to market a
new generation of pancrelipase minitablets. Axcan will pay fees totaling
$3,500,000 over a period of three years from the date of the agreement,
contingent on the attainment of certain milestones in connection with
development of new formulations of minitablets. As at September 30, 2002, the
Company paid $2,250,000 of these fees. Axcan will pay royalties of 6% on the
first $30,000,000 of annual sales and 5% on annual sales in excess of
$30,000,000 subject to minimum royalty payments of $750,000, $1,000,000 and
$1,500,000 in the first three years of the agreement, respectively.
Axcan also entered into a licensing agreement with the Children's Hospital
Research Foundation ("CHRF") for a series of sulfated derivatives of
ursodeoxycholic acid compounds" ("SUDCA"). Axcan had paid $589,000 in cash; the
Company will also pay milestones for a maximum amount of $425,000 when SUDCA is
validated and a bonus when certain conditions are met; finally, Axcan will pay
royalties based on sales.
In May 2002, the Company signed a co-development and licensing agreement with
NicOx S.A. ("NicOx") for NCX-1000, a nitric oxide-donating ursodiol derivative,
for the treatment of chronic liver diseases including portal hypertension and
Hepatitis "C". Under the terms of this agreement, the Company has obtained from
NicOx an exclusive license to commercialize NCX-1000 in Canada and Poland as
well as an option to acquire the same exclusive rights for the United States
market. The Company and NicOx will share the cost of the future development of
NCX-1000 jointly through the completion of Phase II clinical studies. The
Company will thereafter conduct the required Phase III clinical studies and be
responsible for regulatory filings in the exclusively licensed territories. The
Company will pay NicOx the sum of $500,000 on or before December 31, 2002, as
well as other options or milestone payments totaling $18,500,000 at various
stages of development. The Company also agreed to pay royalties of up to 12% on
net sales of the product.
F) EMPLOYEE BENEFIT PLAN
A subsidiary of the Company has a defined contribution plan (the "Plan") for its
U.S. employees. Participation is available to substantially all U.S. employees.
Employees may contribute up to 15% of their gross pay and up to limits set by
the U.S. Internal Revenue Service. During the year, the Board of Directors
approved and the Company charged to earnings a contribution to the Plan totaling
$224,277 ($231,629 in 2001 and $150,514 in 2000).
[page 63 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
25- SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN CANADA AND IN THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (Canadian GAAP) which, in the
case of Axcan Pharma, conform in all material respects with GAAP in the United
States (U.S. GAAP), except as set forth below: a) Earnings and balance sheet
adjustments
2002 2001 2000
- ----------------------------------------------------------------------------------------------
$ $ $
Earnings adjustments:
Net earnings in accordance with Canadian GAAP 20,868 11,472 6,736
Prepaid advertising costs (1) 457 404 (211)
Amortization of goodwill (2) - 100 -
Financial expenses (2) - - (701)
Amortization of new product acquisition costs (3) 54 54 50
Income tax impact of the above adjustments (191) (205) 62
- ----------------------------------------------------------------------------------------------
Net earnings in accordance with U.S. GAAP 21,188 11,825 5,936
==============================================================================================
Earnings per share in accordance with U.S. GAAP
Basic
Continuing operations 0.51 0.32 0.15
Discontinued operations - - 0.07
Net earnings 0.51 0.32 0.22
Diluted
Continuing operations 0.50 0.32 0.15
Discontinued operations - - 0.07
Net earnings 0.50 0.32 0.22
2002 2001
- ------------------------------------------------------------------------------------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
- ------------------------------------------------------------------------------------------------------
$ $ $ $
Balance sheet adjustments:
Current assets (1) (5) 134,048 133,858 61,009 60,366
Investments (5) 2,348 2,681 2,579 2,957
Property, plant and equipment (5) 20,105 20,086 8,241 8,201
Intangible assets (3) 180,553 180,085 154,343 153,821
Goodwill (2) (5) 29,342 27,550 19,710 17,918
Deferred financial expenses 290 290 - -
Future income tax asset 2,456 2,456 3,221 3,221
Current liabilities (5) 30,681 30,408 17,451 17,034
Long-term debt (6) 4,563 7,267 112 2,816
Future income tax liability (3) 34,389 34,212 25,704 25,508
Non-controlling interest 332 332 695 695
Shareholders' equity
Equity component of purchase price (6) 2,704 - 2,704 -
Capital stock (4) 261,285 254,640 186,650 183,193
Retained earnings (1) (2) (3) (4) (5) (7) 34,594 43,709 16,914 22,521
Accumulated foreign currency
translation adjustments (7) 594 (3,562) (1,127) (5,283)
[page 64 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
25- SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN CANADA AND IN THE UNITED STATES (CONTINUED)
a) EARNINGS AND BALANCE SHEET ADJUSTMENTS (CONTINUED)
(1) UNTIL SEPTEMBER 30, 2001, PREPAID ADVERTISING COSTS WERE DEFERRED AND
AMORTIZED OVER A TWO-YEAR PERIOD. IN 2002, THE COMPANY ELECTED TO INCLUDE
IN EARNINGS ITS SCIENTIFIC SYMPOSIUM COSTS IN THE FISCAL YEAR WHEN THEY
WERE INCURRED. UNDER U.S. GAAP, THESE COSTS ARE INCLUDED IN EARNINGS.
(2) UNDER CANADIAN GAAP, THE SHARE OF THE 40.4% INTEREST OF CDPQ IN AXCAN
SCANDIPHARM EARNINGS HAS BEEN RECORDED AS FINANCIAL EXPENSES FOR THE YEARS
ENDED SEPTEMBER 30, 2000 AND 1999. UNDER U.S. GAAP, ADDITIONAL FINANCIAL
EXPENSES SHOULD BE RECORDED. THE ADDITIONAL FINANCIAL EXPENSES CHARGED IN
EARNINGS IN 2000 AND 1999 HAVE BROUGHT A DECREASE IN GOODWILL. IN
ACCORDANCE WITH THE NEW STANDARDS, THE COMPANY NO LONGER AMORTIZES ITS
GOODWILL SINCE OCTOBER 1, 2001.
(3) UNDER CANADIAN GAAP, THE NEW PRODUCT DEVELOPMENT COSTS IDENTIFIED UPON THE
ACQUISITION OF SUBSIDIARIES ARE DEFERRED AND AMORTIZED FROM THE DATE OF
COMMENCEMENT OF COMMERCIAL PRODUCTION. UNDER U.S. GAAP, THESE COSTS THAT
REPRESENT IN PROCESS RESEARCH AND DEVELOPMENT ARE INCLUDED IN EARNINGS AS
AT THE DATE OF ACQUISITION AS NO ALTERNATIVE FUTURE USE HAS BEEN
ESTABLISHED.
(4) UNDER CANADIAN GAAP, SHARE ISSUANCE EXPENSES ARE CHARGED DIRECTLY TO
RETAINED EARNINGS. UNDER U.S. GAAP, THE EXPENSES ARE DEDUCTED FROM THE
CONSIDERATION RECEIVED. THE NET AMOUNT IS APPLIED AGAINST THE CAPITAL STOCK
ACCOUNT.
(5) AS REQUIRED BY CANADIAN GAAP, THE COMPANY ACCOUNTS FOR ITS INVESTMENT IN
JOINT VENTURES BY THE PROPORTIONATE CONSOLIDATION METHOD (NOTE 21). UNDER
U.S. GAAP, THESE INVESTMENTS WOULD BE ACCOUNTED FOR BY THE EQUITY METHOD.
THIS DIFFERENCE DOES NOT IMPACT EARNINGS OR SHAREHOLDERS' EQUITY.
(6) UNDER CANADIAN GAAP, THE PURCHASE PRICE PAYABLE IN CASH OR IN COMMON
SHARES, AT AXCAN'S SOLE DISCRETION, IS PRESENTED IN THE SHAREHOLDERS'
EQUITY. UNDER U.S. GAAP, THIS AMOUNT IS RECORDED AS A LONG-TERM DEBT.
(7) EFFECTIVE OCTOBER 1, 1999, THE COMPANY CHANGED ITS MEASUREMENT AND
REPORTING CURRENCY FROM THE CANADIAN DOLLAR TO THE U.S. DOLLAR. UNDER
CANADIAN GAAP, COMPARATIVE FIGURES ARE PRESENTED USING THE TRANSLATION OF
CONVENIENCE METHOD. UNDER U.S. GAAP, COMPARATIVE FIGURES MUST BE RESTATED
AS IF THE CHANGE IN MEASUREMENT AND REPORTING CURRENCY HAD BEEN APPLIED
RETROACTIVELY. AT OCTOBER 1, 1999, THE CHANGE IN MEASUREMENT AND REPORTING
CURRENCY PRESENTED IN ACCORDANCE WITH U.S. GAAP RESULTED IN A DECREASE IN
CUMULATIVE TRANSLATION ADJUSTMENT BALANCE OF $4,156,000 AND AN INCREASE IN
CAPITAL STOCK BALANCE OF $3,584,000 AND RETAINED EARNINGS BALANCE
OF $572,000.
(8) UNDER CANADIAN GAAP, THE RESEARCH AND DEVELOPMENT TAX CREDITS ARE APPLIED
AGAINST RESEARCH AND DEVELOPMENT EXPENSES. UNDER U.S. GAAP, THESE TAX
CREDITS WOULD BE APPLIED AGAINST INCOME TAXES.
(9) UNDER CANADIAN GAAP, SHORT-TERM INVESTMENTS ARE RECORDED AT COST. UNDER
U.S. GAAP, SECURITIES AVAILABLE FOR SALE ARE RECORDED AT THEIR FAIR MARKET
VALUE, UNREALIZED GAINS OR LOSSES ARE RECORDED SEPARATELY IN SHAREHOLDERS'
EQUITY. AS AT SEPTEMBER 30, 2002, THERE IS NO MATERIAL UNREALIZED GAIN OR
LOSS.
[page 65 AXCAN PHARMA]
Notes to CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30
- -------------------------------------------------------------------------------
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S.DOLLARS,
EXCEPT PER SHARE AMOUNTS.
b) SUPPLEMENTARY DISCLOSURES
(1) Accounting for stock-based compensation
Under U.S. GAAP, the Company has elected to continue to measure compensation
costs related to awards of stock options using the intrinsic value based method
of accounting. Under SFAS No. 123, the Company is also required to make
pro-forma disclosures of net earnings and basic earnings per share and diluted
earnings per share as if the fair-value-based method of accounting had been
applied.
The fair value of granted stock options was estimated with the Black-Scholes
model of evaluation of the price of options using an expected life of six years,
an interest rate without risk of 4.93%, 5.64% and 6.2% for the years ended
September 30, 2002, 2001 and 2000 and a volatility of 47% in 2002 and 50% in
2001 and 2000.
Accordingly, the Company's net earnings, basic earnings per share and diluted
earnings per share would have been reduced for the years ended September 30,
2002, 2001 and 2000 on a pro-forma basis, as follows:
2002 2001 2000
- -------------------------------------------------------------------------------------------------
Actual Pro-forma Actual Pro-forma Actual Pro-forma
- -------------------------------------------------------------------------------------------------
$ $ $ $ $ $
Net earnings 21,188 18,699 11,825 10,410 5,936 5,227
Basic earnings per share 0.51 0.45 0.32 0.28 0.22 0.19
Diluted earnings per share 0.50 0.44 0.32 0.28 0.22 0.19
The average weighted fair value of granted stock options was $6.96, $5.69 and
$4.04 as at September 30, 2002, 2001 and 2000 respectively.
(2) Consolidated cash flows
Under U.S. GAAP, the cash flows from the dividends from a company subject to
significant influence would be classified as an investing activity rather than
as an operating activity, as it is under Canadian GAAP.
(3) Consolidated comprehensive income
2002 2001 2000
- -------------------------------------------------------------------------------------------
$ $ $
Net earnings in accordance with U.S. GAAP 21,188 11,825 5,936
Foreign currency translation adjustments 1,721 (53) -
- -------------------------------------------------------------------------------------------
Consolidated comprehensive income 22,909 11,772 5,936
===========================================================================================
(4) Consolidated statement of earnings
U.S. GAAP do not recognize the disclosure of a subtotal of the earnings before
financial expenses, interest income, amortization and income taxes in the
consolidated statements of earnings.
26- SUBSEQUENT EVENT
On October 10, 2002, the Company acquired from Gentium S.p.A., an Italian
company, exclusive rights to develop and market in North America, a patented 4
gram rectal gel formulation of mesalamine (5-ASA) for the treatment of active
distal ulcerative colitis. In return the Company will make milestone payments
totaling approximately $1,500,000, the majority of which will be paid upon
approval in the United States. The Company will also pay a royalty of 4% on net
sales for a 10-year period from product's launch.