28th Jul 2005 11:00
AstraZeneca PLC28 July 2005 Consolidated Income Statement As restated 2005 2004For the six months ended 30 June $m $m Sales 11,875 10,362 Cost of sales (2,723) (2,409) Distribution costs (104) (86) Research and development (1,725) (1,745) Selling, general and administrative expenses (4,236) (4,165) Other operating income 84 147 Operating profit 3,171 2,104 Finance income 316 272 Finance expense (252) (246) Profit before tax 3,235 2,130 Taxation (968) (515) Profit for the period 2,267 1,615 Attributable to: Equity holders of the Company 2,259 1,608 Minority interests 8 7 2,267 1,615 Basic earnings per $0.25 Ordinary Share $1.38 $0.95 Diluted earnings per $0.25 Ordinary Share $1.38 $0.95 Weighted average number of Ordinary Shares in issue (millions) 1,634 1,684 Diluted average number of Ordinary Shares in issue (millions) 1,634 1,686 Dividends declared in the period 1,061 914 Consolidated Income Statement As restated 2005 2004For the quarter ended 30 June $m $m Sales 6,132 5,288 Cost of sales (1,313) (1,251) Distribution costs (54) (44) Research and development (860) (888) Selling, general and administrative expenses (2,229) (2,162) Other operating income 42 109 Operating profit 1,718 1,052 Finance income 197 143 Finance expense (166) (149) Profit before tax 1,749 1,046 Taxation (525) (230) Profit for the period 1,224 816 Attributable to: Equity holders of the Company 1,219 811 Minority interests 5 5 1,224 816 Basic earnings per $0.25 Ordinary Share $0.75 $0.48 Diluted earnings per $0.25 Ordinary Share $0.75 $0.48 Weighted average number of Ordinary Shares in issue (millions) 1,628 1,679 Diluted average number of Ordinary Shares in issue (millions) 1,628 1,681 Consolidated Balance Sheet As restated As restated 30 June 31 Dec 30 June 2005 2004 2004 $m $m $mASSETS Non-current assets Property, plant and equipment 7,355 8,097 7,537Goodwill and intangible assets 2,696 3,050 2,919Other investments 221 262 133Deferred tax assets 1,174 1,218 1,843 11,446 12,627 12,432Current assets Inventories 2,663 3,020 3,138Trade and other receivables 4,926 4,771 4,701Short term investments 398 1,167 2,573Cash and cash equivalents 5,451 4,067 1,499 13,438 13,025 11,911Total assets 24,884 25,652 24,343 LIABILITIESCurrent liabilities Short term borrowings and overdrafts (150) (142) (102)Other creditors (6,647) (6,445) (6,855) (6,797) (6,587) (6,957)Non-current liabilities Loans (1,163) (1,127) (1,097)Deferred tax liabilities (1,163) (1,328) (1,642)Retirement benefit obligations (1,803) (1,761) (1,508)Provisions (306) (266) (268) Other liabilities (82) (86) (68) (4,517) (4,568) (4,583)Total liabilities (11,314) (11,155) (11,540)Net assets 13,570 14,497 12,803 EQUITY Capital and reserves attributable to equity holders Share capital 404 411 419 Share premium account 584 550 521 Other reserves 1,892 1,851 1,875 Retained earnings 10,597 11,592 9,892 13,477 14,404 12,707 Minority equity interests 93 93 96 Total equity and reserves 13,570 14,497 12,803 Consolidated Cash Flow Statement As restatedFor the six months ended 30 June 2005 2004 $m $m Cash flows from operating activities Profit before tax 3,235 2,130Finance income and expense (64) (26)Depreciation and amortisation 630 605Decrease/(increase) in working capital 131 (378)Other non-cash movements 45 84Cash generated from operations 3,977 2,415 Interest paid (13) (19) Tax paid (810) (713) Net cash inflow from operating activities 3,154 1,683 Cash flows from investing activities Disposal of business operations - 68Movement in short term investments and fixed deposits 776 443Purchases of property, plant and equipment (411) (583)Disposals of property, plant and equipment 73 11Purchase of intangible assets (38) (95)Purchase of fixed asset investments (6) (7)Interest received 88 86Dividends paid by subsidiaries to minority interests (5) (5)Dividends received - 4Net cash inflow/(outflow) from investing activities 477 (78)Net cash inflow before financing activities 3,631 1,605Cash flows from financing activities Proceeds from issue of share capital 34 72Repurchase of shares (1,182) (968)Increase in loans - 731Dividends paid (1,079) (897)Movement in short term borrowings 10 (2)Net cash outflow from financing activities (2,217) (1,064)Net increase in cash and cash equivalents in the period 1,414 541 Cash and cash equivalents at beginning of the period 3,927 872Exchange rate effects (28) (16)Cash and cash equivalents at the end of the period 5,313 1,397Cash and cash equivalents consists of:Cash and cash equivalents 5,451 1,499Overdrafts (138) (102) 5,313 1,397 Statement of Recognised Income and Expense As restated 2005 2004For the six months ended 30 June $m $m Net profit for the period (excluding minority interests) 2,259 1,608 Foreign exchange adjustments on consolidation (920) (221) Tax on foreign exchange adjustments (45) (16) Valuation gains taken to equity, net of tax 10 1 Actuarial losses, net of tax (86) (6) Recognised income and expense for the period 1,218 1,366 Independent review report to AstraZeneca PLC Introduction We have been engaged by the Company to review the financial information set outon pages 10,12 to 14 and 16 to 19 and we have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the Companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the Directors. The Directors areresponsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the Directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe Directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those International Financial Reporting Standards adopted foruse by the European Union. This is because, as disclosed in note 1, theDirectors have anticipated that certain standards, which have yet to be formallyadopted for use in the European Union, will be so adopted in time to beapplicable to the next annual financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. KPMG Audit Plc Chartered Accountants 8 Salisbury Square London 28 July 2005 Notes to the Interim Financial Statements 1 BASIS OF PREPARATION AND ACCOUNTING POLICIES The unaudited financial statements for the six months ended 30 June 2005 havebeen prepared in accordance with International Accounting Standards andInternational Financial Reporting Standards (collectively "IFRS") expected to beendorsed by the European Union (EU) and available for use by European companiesat 31 December 2005. These IFRSs are subject to ongoing review and possibleamendment or interpretive guidance and are therefore still subject to change.Details of the accounting policies applied are set out in the IFRS Restatementinformation in AstraZeneca PLC's Annual Report and Form 20-F Information 2004except that, in the period under review, the amendment to IAS 39 'FinancialInstruments: Recognition and Measurement - The Fair Value Option' has beenadopted. As a result, the accounting for long term loans has been changed; suchloans are categorised as fair value through profit and loss with changes invalue recognised in the income statement. Previously these loans had beenrecognised at cost except where hedge accounted. The comparative informationhas been restated accordingly. The effect of adoption on results was notsignificant; net assets at 31 December 2004 and 30 June 2004 were reduced by$21m and $31m respectively. The policies assume that this amendment, togetherwith the amendments to IAS 19 'Employee Benefits' published in December 2004 bythe International Accounting Standards Board, allowing actuarial gains andlosses to be recognised in full through reserves, will be endorsed by the EU. The new information contained in Note 3 below updates the disclosures concerninglegal proceedings in the Company's Annual Report and Form 20-F Information 2004. These interim financial statements do not constitute statutory accounts of theGroup within the meaning of Section 240 of the Companies Act 1985. Statutoryaccounts for the year ended 31 December 2004, which were prepared underaccounting practices generally accepted in the UK, have been filed with theRegistrar of Companies. The auditor's report on those accounts was unqualifiedand did not contain any statement under Section 237 of the Companies Act 1985. 2 NET CASH FUNDS The table below provides an analysis of net cash funds and a reconciliation ofnet cash flow to the movement in net cash funds. As restated 1 Jan Cash Other Exchange 30 June 2005 flow non-cash* movements 2005 $m $m $m $m $m Loans due after 1 year (1,127) - (36) - (1,163) Current instalments of loans - - - - - Total loans (1,127) - (36) - (1,163)Short-term investments 1,167 (776) 9 (2) 398Cash 4,067 1,414 - (30) 5,451Overdrafts (140) - - 2 (138)Short-term borrowings (2) (10) - - (12) 5,092 628 9 (30) 5,699Net cash funds 3,965 628 (27) (30) 4,536 * Other non-cash adjustments in the period consist of fair value adjustments to Financial Instruments under IAS 39. 3 LEGAL PROCEEDINGS AND COMMITMENTS AstraZeneca is involved in various legal proceedings considered typical to itsbusiness, including litigation relating to employment matters, productliability, commercial disputes, infringement of intellectual property rights andthe validity of certain patents. The matters discussed below constitute themore significant developments since publication of the disclosures concerninglegal proceedings in the Company's Annual Report and Form 20-F Information 2004. Matters previously disclosed in respect of the first quarter of 2005 CrestorTM (rosuvastatin) Of the two individual lawsuits served on AstraZeneca Pharmaceuticals LP and/orAstraZeneca LP in the US during 2004, involving alleged injury in associationwith the use of CrestorTM, one has now been dismissed. AstraZeneca has recentlybeen served with a complaint filed in the Federal District Court in Puerto Ricoand a complaint filed in Ohio making similar allegations. AstraZeneca isvigorously defending the pending CrestorTM litigation. ExantaTM (ximelagatran) As previously disclosed, on or about 27 January 2005, a putative class actionwas filed in the US District Court for the District of Massachusetts on behalfof purchasers of AstraZeneca publicly traded securities during the period 2April 2003 to 11 October 2004 against AstraZeneca PLC, Percy Barnevik, HakanMogren, Sir Tom McKillop and Jonathan Symonds. The lawsuit asserted claimsunder sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SECRule 10b-5, alleging that the defendants made false and misleading statementsregarding ExantaTM clinical trials and the status of the New Drug Applicationfor ExantaTM in the US. Since then, three additional, but essentially similar, lawsuits have been filedin US District Courts in Delaware and the Southern District of New York. Thelitigation may ultimately be consolidated in one forum. The defendants deny theallegations made in the lawsuits and are vigorously defending the actions. SeroquelTM (quetiapine fumarate) The putative class action suit filed in August 2003 in the US District Court forthe Middle District of Florida naming AstraZeneca PLC and AstraZenecaPharmaceuticals LP as defendants and seeking damages and injunctive relief onbehalf of a purported class "consisting of all persons in the United States whopurchased and/or used SeroquelTM" has been dismissed with prejudice. Matters disclosed in respect of the second quarter of 2005 CrestorTM (rosuvastatin) Another complaint involving alleged injury in association with the use ofCrestorTM, filed in Tennessee, was recently served on AstraZenecaPharmaceuticals LP and AstraZeneca LP. AstraZeneca is vigorously defending allfour pending CrestorTM lawsuits in the US. DiprivanTM (propofol) The trial, post-trial briefing and closing arguments have taken place in the USDistrict Court for the Southern District of New York in AstraZeneca's patentinfringement action against Mayne Pharma (USA) Inc. that followed receipt ofnotice of Mayne's intention to market a generic version of DiprivanTM prior tothe expiry of AstraZeneca's patents covering the current formulation. Thecourt's decision is awaited. ExantaTM (ximelagatran) As noted above, four putative class actions have been filed against AstraZenecaPLC and certain individual defendants, asserting claims under sections 10(b) and20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, alleging thatthe defendants made false and misleading statements regarding ExantaTM clinicaltrials and the status of the New Drug Application for ExantaTM in the US. Ofthese suits, the Delaware case has been dismissed and the Massachusetts case isbeing transferred to the US District Court for the Southern District of NewYork. The defendants deny the allegations made and are vigorously defending theactions. IressaTM (gefitinib) In addition to the two claims disclosed in the Annual Report and Form 20-FInformation 2004, two further claims have been filed against AstraZeneca KK inthe Osaka District Court alleging that IressaTM caused fatal incidences ofinterstitial lung disease (ILD) in Japanese patients. AstraZeneca believes theclaims are without merit and is defending all four cases. ILD is a knowncomplication of lung disease, including advanced lung cancer, regardless oftreatment. LosecTM (omeprazole) As previously disclosed, in June 2005, the European Commission notifiedAstraZeneca PLC and AstraZeneca AB of its Decision to impose fines totaling €60mon the companies for infringements of European competition law (Article 82 ofthe EC Treaty and Article 54 of the EEA Agreement). The Commission alleges thatthe companies abused their dominant position in periods between 1993 and 2000 bymaking a pattern of misleading representations before patent offices and/orcourts in Belgium, Denmark, Germany, the Netherlands, Norway and the UK inregard to obtaining supplementary protection certificates for LosecTM; and byrequesting the surrender of market authorisations for LosecTM capsules inDenmark, Norway and Sweden, combined with withdrawal from these countries ofLosecTM capsules and the launch of LosecTM MUPS tablets. AstraZeneca does not accept the Commission's Decision and will appeal it to theCourt of First Instance. AstraZeneca denies that it had a dominant position orthat it engaged in the behaviours as characterised by the Commission. In themeantime, the fine has been fully provided for in the half year results througha charge to operating profit of $75m. It is alleged by the Commission thatthese activities had the effect of hindering the entry of the generic version ofLosecTM and of parallel trade. It is possible that third parties could seekdamages for alleged losses arising from this. Any such claims would bevigorously resisted. In the judicial review proceedings taking place in Canada following Apotex'slaunch of a generic omeprazole capsule product there in January 2004, theCanadian Federal Court of Appeal quashed Apotex's notice of compliance(marketing approval) for the omeprazole capsule product in May 2005. Thisoverruled the first instance decision in September 2004 which, as disclosed inthe Annual Report and Form 20-F Information 2004, went against AstraZeneca. InJune 2005, the Canadian Federal Court of Appeal granted Apotex's motion for astay of the court's decision to quash the notice of compliance, pending anapplication by Apotex for leave to appeal to the Supreme Court of Canada. NexiumTM (esomeprazole) As disclosed in the Annual Report and Form 20-F Information 2004, AstraZenecaentities have been sued in state courts in the US in purported representativeand class actions involving the marketing of NexiumTM (esomeprazole). Theseactions generally allege that AstraZeneca's promotion and advertising of NexiumTM to physicians and consumers is unfair, unlawful and deceptive conduct,particularly as the promotion relates to comparisons of NexiumTM with PrilosecTM. They also allege that AstraZeneca's conduct relating to the pricing ofNexiumTM was unfair, unlawful and deceptive. The plaintiffs allege claims undervarious state consumer protection, unfair practices and false advertising laws.The plaintiffs in these cases seek remedies that include restitution,disgorgement of profits, damages, punitive damages, injunctive relief,attorneys' fees and costs of suit. During 2005, other suits which make substantially similar allegations in respectof AstraZeneca's marketing and promotion of NexiumTM have been brought byputative classes of consumers, third party payers, purchasers and alabour-management trust fund in various state and federal courts inMassachusetts, Florida and Delaware. AstraZeneca denies the allegations and is vigorously defending each of theseactions. SymbicortTM (budesonide/formoterol) In May 2005, the European Patent Office (EPO) ruled that the European patent forSymbicortTM in the treatment of chronic obstructive pulmonary disease (COPD) isstill valid, despite a challenge by generic manufacturers. The patent, whichexpires in 2018, was challenged by the generic manufacturers, ChiesiFarmaceutici SpA, Norton Healthcare Ltd and Generics (UK) Limited. Earlier in 2005, the EPO ruled that another European patent covering thecombination of formoterol and budesonide in SymbicortTM is still valid, despitea separate challenge by several generic manufacturers. Drug importation anti-trust litigation As disclosed in the Annual Report and Form 20-F Information 2004, AstraZenecaPharmaceuticals LP and eight other pharmaceutical manufacturers are defending apurported class action filed in the US District Court for Minnesota whichalleges that the defendants conspired to prevent American consumers frompurchasing prescription drugs from Canada, "depriving consumers of the abilityto purchase" drugs at competitive prices. In 2005, the chief magistrate judgeassigned to the case issued a report on the defendants' motion to dismiss thecase, making certain recommendations to the presiding district court judge. Thereport recommended dismissal of the plaintiffs' federal anti-trust claims, butnot dismissal of the state statutory and common law claims. A final decisionfrom the district court judge on the motion to dismiss is awaited. In July 2005, in the similar case in the Superior Court of California, the courtoverruled in part and sustained, without leave to amend, in part the defendants'motion to dismiss the plaintiffs' third amended complaint in these proceedings.The court overruled the defendants' motion in respect of the conspiracy claimsbut sustained the motion in respect of the California Unfair Competition Lawclaims. General With respect to each of the legal proceedings described above, we are unable tomake estimates of the loss or range of losses at this stage other than wherenoted in the case of the European Commission fine. We also do not believe thatdisclosure of the amount sought by plaintiffs, if that is known, would bemeaningful with respect to those legal proceedings. Arrangements with Merck As described in more detail in the Annual Report and Form 20-F Information 2004,AstraZeneca has significant arrangements with Merck & Co., Inc. relating tocertain of our products and development compounds (the agreement products).These arrangements include exit provisions from 2008 onwards and we regularlymonitor the value of the benefits we expect to receive. The exit provisions are subject to a minimum overall payment of $3.3 billion andwill offer AstraZeneca unencumbered discretion in its operations in the USmarket without the restrictions of various contractual obligations that arecurrently imposed as a result of Merck's interests, together with relief fromcontingent payment obligations. The projected value of the benefits obtained in2008 depends on a number of factors including the future contributions fromproducts that have already been launched, those that are due to be launched inthe US and those that are in development together with the further valueAstraZeneca can extract from greater freedom to operate in the US. 4 HALF YEAR TERRITORIAL SALES ANALYSIS 1st Half 1st Half % Growth 2005 2004 Constant $m $m Actual Currency US 5,243 4,567 15 15 Canada 488 449 9 1 North America 5,731 5,016 14 13 France 874 847 3 (3) UK 380 281 35 28 Germany 621 467 33 25 Italy 609 543 12 5 Sweden 162 153 6 (1) Europe others 1,716 1,512 13 6 Total Europe 4,362 3,803 15 8 Japan 736 666 11 9 Rest of World 1,046 877 19 15Total 11,875 10,362 15 12 5 SECOND QUARTER TERRITORIAL SALES ANALYSIS 2nd 2nd % Growth Quarter Quarter 2005 2004 Constant $m $m Actual Currency US 2,743 2,288 20 20 Canada 240 231 4 (3) North America 2,983 2,519 18 17 France 423 405 4 (2) UK 192 149 29 25 Germany 306 241 27 20 Italy 324 288 13 6 Sweden 82 74 11 3 Europe others 870 771 13 6 Total Europe 2,197 1,928 14 8 Japan 399 376 6 6 Rest of World 553 465 19 14Total 6,132 5,288 16 13 6 HALF YEAR PRODUCT SALES ANALYSIS World US Constant 1st 1st Actual Currency 1st Actual Half Half Half 2005 2004 Growth Growth 2005 Growth $m $m % % $m %Gastrointestinal: Losec 865 1,071 (19) (22) 132 (37)Nexium 2,259 1,826 24 22 1,514 18Others 36 38 (5) (8) 6 (45)Total Gastrointestinal 3,160 2,935 8 5 1,652 10Cardiovascular: Zestril 165 222 (26) (30) (5) (116)Seloken 843 653 29 27 611 35Atacand 489 425 15 10 122 (2)Plendil 205 259 (21) (23) 62 (42)Tenormin 175 178 (2) (5) 10 (33)Crestor 590 336 76 72 338 83Others 160 175 (9) (14) 2 (78)Total Cardiovascular 2,627 2,248 17 14 1,140 23Respiratory:Pulmicort 590 526 12 9 336 20Rhinocort 204 181 13 11 148 17Symbicort 502 393 28 21 - -Accolate 41 53 (23) (25) 27 (25)Oxis 46 51 (10) (16) - -Others 81 83 (2) (8) - -Total Respiratory 1,464 1,287 14 10 511 15Oncology:Zoladex 494 439 13 8 61 (34)Casodex 564 478 18 14 118 10Nolvadex 60 69 (13) (16) 3 -Arimidex 553 357 55 50 223 72Iressa 140 196 (29) (31) 37 (63)Faslodex 64 49 31 29 44 2Others 6 8 (25) (25) - -Total Oncology 1,881 1,596 18 14 486 2Neuroscience:Seroquel 1,300 936 39 37 933 34Zomig 172 186 (8) (11) 55 (34)Diprivan 205 248 (17) (19) 86 (33)Local anaesthetics 262 270 (3) (7) 31 (48)Others 35 38 (8) (13) 10 -Total Neuroscience 1,974 1,678 18 15 1,115 14Infection and Other:Merrem 258 209 23 18 48 33Other Products 189 136 39 33 112 90Total Infection and Other 447 345 30 24 160 68Aptium Oncology 165 148 11 11 165 11Astra Tech 157 125 26 20 14 75Total 11,875 10,362 15 12 5,243 15 7 SECOND QUARTER PRODUCT SALES ANALYSIS World US 2nd 2nd Constant 2nd Quarter Quarter Actual Currency Quarter Actual 2005 2004 Growth Growth 2005 Growth $m $m % % $m %Gastrointestinal: Losec 438 531 (18) (21) 72 (38)Nexium 1,204 891 35 33 823 35Others 19 17 12 12 3 (25)Total Gastrointestinal 1,661 1,439 15 13 898 23Cardiovascular: Zestril 78 117 (33) (36) (7) (137)Seloken 435 320 36 34 318 47Atacand 254 216 18 13 66 16Plendil 112 148 (24) (26) 40 (45)Tenormin 92 93 (1) (3) 7 75Crestor 317 207 53 50 184 63Others 82 92 (11) (14) - (100)Total Cardiovascular 1,370 1,193 15 12 608 24Respiratory:Pulmicort 276 244 13 11 162 32Rhinocort 112 100 12 10 81 14Symbicort 255 205 24 17 - -Accolate 13 23 (43) (47) 6 (57)Oxis 23 26 (12) (16) - -Others 39 41 (5) (12) - -Total Respiratory 718 639 12 8 249 20Oncology:Zoladex 263 226 16 12 29 (36)Casodex 287 249 15 12 56 10Nolvadex 32 38 (16) (19) 3 50Arimidex 297 191 55 51 122 79Iressa 59 103 (43) (44) 7 (86)Faslodex 35 23 52 52 24 26Others 3 4 (25) (25) - -Total Oncology 976 834 17 14 241 3Neuroscience:Seroquel 667 488 37 35 477 34Zomig 104 91 14 12 46 24Diprivan 98 126 (22) (24) 41 (37)Local anaesthetics 135 140 (4) (8) 14 (53)Others 18 21 (14) (19) 5 (29)Total Neuroscience 1,022 866 18 16 583 18Infection and Other:Merrem 127 112 13 9 19 6Other Products 92 64 44 38 55 72Total Infection and Other 219 176 24 19 74 48Aptium Oncology 82 77 6 6 82 6Astra Tech 84 64 31 25 8 100Total 6,132 5,288 16 13 2,743 20 8 Transition from accounting practices generally accepted in the UK to International Financial Reporting Standards Set out below, in accordance with the provisions of IFRS No.1 'First-timeAdoption of International Financial Reporting Standards' are the reconciliationsof total equity and reserves and income from UK GAAP to IFRS. Total equity and reserves 31 Dec 2004 30 June 1 Jan 2003 2004 $m $m $m Total equity and reserves under UK GAAP 14,519 13,281 11,226 Adjustments to conform to IFRS Employee benefits (2,010) (1,745) (1,380)Financial instruments 11 39 153Share-based payments - - - Goodwill 108 86 - Dividends 1,061 494 808Capitalised software and other intangibles 106 94 80Other 12 (2) -Deferred tax - IFRS adjustments above 562 499 362- other 128 57 (82) Total equity and reserves under IFRS 14,497 12,803 11,167 Profit for the period Six months Year ended ended 31 Dec 2004 30 June 2004 $m $m Profit for the period under UK GAAP 3,831 1,641 Adjustments to conform to IFRS Employee benefits 1 7Financial instruments (163) (97) Share-based payments (147) (64)Goodwill 49 27 Capitalised software and intangibles 21 9 Other (2) -Deferred tax - IFRS adjustments above 26 23- other 67 69Profit for the period under IFRS 3,683 1,615 Under IAS 7 'Cash Flow Statements', movements on cash and cash equivalents arereconciled; under UK GAAP the statement reconciles cash only. The change to theIAS 7 approach makes no difference to the levels of free cash generated by theGroup. This information differs from that presented in January 2005 in that certainbalance sheet items have been reclassified. In addition, as noted in the basisof preparation and accounting policies on page 16, the comparative informationhas also been restated to reflect the adoption of IAS 39, 'FinancialInstruments: Recognition and Measurement - the Fair Value Option'. INFORMATION FOR US INVESTORS RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES The consolidated income statement and balance sheet set out on pages 10 and 12are prepared in accordance with IASs and IFRSs (collectively "IFRS") expected tobe endorsed by the European Union and available for use by European companies at31 December 2005. The following is a summary of the differences between IFRSand accounting principles generally accepted in the United States (US GAAP) asthey apply to AstraZeneca PLC. Purchase accounting adjustments Under IFRS, the merger of Astra and Zeneca is accounted for as a 'merger ofequals' (pooling-of-interests) as a result of the business combinationsexemption permitted by IFRS 1 'First-time Adoption of International FinancialReporting Standards'. Under US GAAP the merger was accounted for as theacquisition of Astra by Zeneca using 'purchase accounting'. Under purchaseaccounting, the assets and liabilities of the acquired entity are recorded atfair value. As a result of the fair value exercise, increases in the values ofAstra's tangible fixed assets and inventory were recognised and valuesattributed to its in-process research and development and existing products,together with appropriate deferred taxation effects. The difference between thecost of investment and the fair value of the assets and liabilities of Astra wasrecorded as goodwill. The amount allocated to in-process research anddevelopment was, as required by US GAAP, expensed immediately in the firstreporting period after the business combination. Fair value adjustments to therecorded amount of inventory were expensed in the period the inventory wasutilised. Additional amortisation and depreciation have also been recorded inrespect of the fair value adjustments to tangible and intangible assets. Under IFRS, up until 31 December 2002, goodwill was required to be capitalisedand amortised. From 1 January 2003 goodwill is tested annually for impairmentbut not amortised. Under US GAAP, there is an equivalent requirement, but theeffective date was 1 January 2002. Capitalisation of interest AstraZeneca does not capitalise interest under IFRS. US GAAP requires interestincurred as part of the cost of constructing fixed assets to be capitalised andamortised over the life of the asset. Deferred taxation Deferred taxation is provided on a full liability basis under US GAAP, whichpermits deferred tax assets to be recognised if their realisation is consideredto be more likely than not. Under current IFRS, full provision is also madealthough there are a number of different bases on which this calculation ismade, for example, the elimination of intra-group profit on inventories andshare-based payment transactions. Pension and post-retirement benefits IFRS requires that in respect of defined benefit plans, obligations are measuredat discounted fair value whilst plan assets are recorded at fair value. Theoperating and financing costs of such plans are recognised separately in theincome statement; service costs are spread systematically over the lives ofemployees and financing costs are recognised in the periods in which they arise. US GAAP adopts a similar approach. Under IFRS, actuarial gains and losses arepermitted to be recognised immediately in the statement of recognised income andexpense. Under US GAAP, such actuarial gains and losses are required to beamortised on a straight-line basis over the average remaining service period ofemployees. A minimum pension liability is also recognised through othercomprehensive income in certain circumstances when there is a deficit of planassets relative to the accumulated benefits obligation. Intangible assets Under IFRS certain payments for rights to compounds in development arecapitalised. Under US GAAP these payments are expensed. Financial instruments and hedging activities Under IFRS, financial assets and certain financial liabilities (includingderivatives) are recognised at fair value; movements in the fair value may berecorded in equity or through income, depending upon their categorisation.Under US GAAP, marketable securities are recognised at fair value, withmovements in fair value taken to a separate component of equity. Derivativesare also measured at fair value with movements taken through income. However,financial liabilities are recorded at amortised cost, unless hedge accounting isadopted. New accounting standards adopted AstraZeneca has adopted the provisions of SFAS No. 123 (R) 'Share-Based Payment'in the period under review. SFAS No. 123 (R) requires compensation cost relatedto share based payments to be recognised in the financial statements.AstraZeneca has used the transitional arrangements for modified retrospectiveapplication in adopting SFAS No. 123 (R). As a consequence, the comparative USGAAP income has been reduced by $53m and the shareholders' equity at 30 June2004 increased by $151m. RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) The approximate effects on income and shareholders' equity of the GAAPdifferences are shown in the following tables. As restated 1st Half 1st HalfIncome attributable to Shareholders 2005 2004 $m $mNet income for the period under IFRS from continuingoperations 2,259 1,608 Adjustments to conform to US GAAP Purchase accounting adjustments (amortisation and depreciation) (530) (508)Capitalisation less disposals and amortisation of interest (7) 10Deferred taxation - on purchase accounting adjustments 147 142 - others 71 (58) Pension expense and other post-retirement benefits expense (39) (23)Financial instruments 40 32In-licensed development intangibles (5) (12)Net income in accordance with US GAAP 1,936 1,191 Net income per Ordinary Share under US GAAP - basic and diluted $1.19 $0.71 RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED) As restatedShareholders' equity 30 June 30 June 2005 2004 $m $m Shareholders' equity under IFRS 13,477 12,707 Adjustments to conform to US GAAPPurchase accounting adjustments:- goodwill 13,676 13,973- tangible and intangible fixed assets 5,790 6,926Capitalisation, less disposals and amortisation of interest 247 265Deferred taxation- on purchase accounting adjustments (1,781) (2,103)- others (575) (569)Pension expense and other post-retirement benefits expense 1,528 1,196Financial instruments 69 56In-licensed development intangibles (92) (52)Other (1) (2)Shareholders' equity in accordance with US GAAP 32,338 32,397 Shareholder Information THIRD QUARTER ANNOUNCEMENT Announcement of third quarter and nine months 2005 results 27 October 2005 DIVIDENDS The record date for the first interim dividend payable on 19 September 2005 (inthe UK, Sweden and the US) is 12 August 2005. Ordinary shares will tradeRelated Shares:
Astrazeneca