The merger will be accounted
for as a business combination using the acquisition method of accounting in accordance with IFRS under IFRS 3, Business Combinations
(“IFRS 3”). IFRS 3 requires that one of the two companies in the merger be designated as the acquirer for accounting
purposes based on the evidence available. AstraZeneca will be treated as the acquiring entity for accounting purposes, and accordingly,
the Alexion assets acquired and liabilities assumed have been adjusted based on preliminary estimates of fair value. Any excess of the
purchase price over the fair value of identified assets acquired and liabilities assumed will be recognized as goodwill. The actual fair
values will be determined following the closing of the transaction and may vary from these preliminary estimates.
Note 1. Basis of presentation
On December 12, 2020, Alexion,
AstraZeneca, AstraZeneca Rare Disease Holdings Inc. (formerly known as Delta Omega Sub Holdings Inc.), a wholly owned subsidiary of AstraZeneca
(“Bidco”), Delta Omega Sub Holdings Inc. 1, a direct, wholly owned subsidiary of Bidco (“Merger Sub I”),
and Delta Omega Sub Holdings LLC 2, a direct, wholly owned subsidiary of Bidco (“Merger Sub II”), entered into a merger agreement
that provides for the acquisition of Alexion by AstraZeneca. On the terms and subject to the conditions set forth in the merger agreement,
(1) Merger Sub I will merge with and into Alexion with Alexion surviving the first merger as a wholly owned subsidiary of Bidco,
and (2) immediately following the effective time of the first merger, Alexion will merge with and into Merger Sub II with Merger Sub II
surviving the second merger as a wholly owned subsidiary of Bidco and an indirect wholly owned subsidiary of AstraZeneca.
Upon the successful completion
of the transaction, each share of common stock, par value $0.0001 per share, of Alexion issued and outstanding (other than certain excluded
shares as described in the merger agreement) will be converted into the right to receive (1) 2.1243 AstraZeneca ADSs and (2) $60
in cash, without interest.
In connection with entry into
the merger agreement, on December 12, 2020, AstraZeneca and certain of its subsidiaries entered into a bridge facility agreement with
Morgan Stanley Bank International Limited, J.P. Morgan Securities plc and Goldman Sachs Bank USA, respectively, to finance up to $17.5
billion of the (i) cash consideration in connection with the transaction, (ii) repayment of certain existing indebtedness of Alexion or
its subsidiaries and (iii) fees and expenses in connection with the foregoing. On December 24, 2020, the bridge facility was successfully
syndicated to a number of large, well regarded international banks and $5 billion of the bridge facility was cancelled and refinanced
with new credit facilities made available by the bridge commitment parties.
AstraZeneca intends to refinance
the remaining $12.5 billion available under the bridge facility through a combination of debt-capital market issuances and business cash
flows.
In connection with the transaction,
Alexion equity awards will be treated as follows:
Alexion Stock Options:
Each stock option, whether or not vested, shall be cancelled in consideration for the right to receive the merger consideration, with
respect to each net option share subject to such Alexion Stock Option immediately prior to the closing of the transaction. The number
of net option shares with respect to each Alexion Stock Option will be determined by dividing the spread, or “in-the-money”
value of such option by the value of the merger consideration.
Alexion Restricted Stock
Units: If an Alexion RSU Award is held by a non-employee director of Alexion, it will automatically become fully vested and cancelled
and converted into the right to receive the merger consideration, with respect to each Alexion share subject to such Alexion RSU Award
(or portion thereof) immediately prior to the closing of the transaction. Each other Alexion RSU Award will be assumed by AstraZeneca
and will be converted into such number of equivalent AstraZeneca restricted stock unit awards as calculated under the merger agreement,
based on the exchange ratio in the transaction (factoring in the cash consideration payable in the transaction).
Alexion Performance Stock
Units: Each Alexion PSU Award will be assumed by AstraZeneca and will be converted into such number of AstraZeneca restricted stock
unit awards as calculated under the merger agreement, based on the exchange ratio in the transaction (factoring in the cash consideration
payable in the transaction). For these purposes, the applicable performance goals will be deemed to be achieved at the greater of the
target level and the actual level of achievement at closing, subject to a limit of 175% of target for Alexion PSU Awards granted in 2019
and 150% of target for Alexion PSU awards granted in 2020. The converted restricted stock unit awards held by any continuing employee
who remains employed through the first anniversary of the closing of the transaction that are otherwise scheduled to vest on or before
the second anniversary of the closing of the transaction will be accelerated so that they vest on the first anniversary of closing of
the transaction.
The Pro Forma Financial
Information set forth herein is based upon AstraZeneca’s consolidated financial statements and Alexion’s consolidated financial
statements. The Pro Forma Financial Information has been prepared to illustrate the effects of the transaction, including the financing
structure established to fund the transaction, as if it had occurred on January 1, 2020 in respect of the Pro Forma condensed combined
income statement for the year ended December 31, 2020 and the Pro Forma condensed combined income statement for the three months ended
March 31, 2021 (referred to in this section of this document as the Pro Forma Income Statement for the year ended December 31, 2020 and
the Pro Forma Income Statement for the three months ended March 31, 2021, respectively), and as if it had occurred on March 31,
2021 in respect of the unaudited pro forma condensed combined statement of financial position (referred to in this section of
this document as the Pro Forma Balance Sheet). The Pro Forma Financial Information is presented for informational purposes only and is
not necessarily indicative of the combined company’s financial position or results of operations that would have been realized
had the transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position
or future results of operations that the combined company will experience after the completion of the transaction.
The transaction will be accounted
for as a business combination using the acquisition method of accounting in accordance with IFRS under IFRS 3, which requires that one
of the two companies in the transaction be designated as the acquirer for accounting purposes based on the evidence available. AstraZeneca
will be treated as the accounting acquirer, and accordingly, the Alexion assets acquired and liabilities assumed have been adjusted based
on preliminary estimates of fair value. Any excess of the purchase price over the fair value of identified assets acquired and liabilities
assumed will be recognized as goodwill. The detailed valuation studies necessary to arrive at required estimates of fair values of the
assets acquired and liabilities assumed from Alexion in the transaction have not been completed. The actual fair values will be determined
upon the completion of the transaction and may vary materially from these preliminary estimates.
AstraZeneca’s consolidated
financial statements were prepared in accordance with IFRS. Alexion’s consolidated financial statements were prepared in accordance
with U.S. GAAP. The Pro Forma Financial Information includes adjustments to convert the financial information of Alexion from U.S. GAAP
to IFRS as well as reclassifications to conform Alexion’s historical accounting presentation to AstraZeneca’s accounting presentation.
The estimated income tax impacts
of the pre-tax adjustments that are reflected in the Pro Forma Financial Information are calculated using an estimated blended statutory
rate, which is based on preliminary assumptions related to the jurisdictions in which the income (expense) adjustments will be recorded.
The estimated blended statutory rate and the effective tax rate of the combined company could be significantly different depending on
the post-transaction activities and geographical mix of profit before taxes.
Note 2. Adjustments to Alexion’s consolidated
financial statements
The tables below illustrate
the impact of adjustments made to Alexion’s consolidated financial statements in order to present them on a basis consistent with
AstraZeneca’s accounting policies under IFRS. The adjustments have been prepared as if Alexion had always applied IFRS. These adjustments
reflect AstraZeneca’s best estimates based upon the information currently available to AstraZeneca and could be subject to change
once more detailed information is obtained.
Unaudited adjusted Alexion consolidated statement
of operations for the year ended December 31, 2020
|
|
|
|
|
|
Reclassifications and US GAAP to IFRS adjustments
|
|
|
|
|
|
Note 2 references
|
|
Alexion (US GAAP)
|
|
|
Reclassifications
1
|
|
|
Capitalized
R&D
2
|
|
|
Leases
3
|
|
|
Financial
instruments
4
|
|
|
Other
5
|
|
|
Deferred
tax
6
|
|
|
Adjusted Alexion (IFRS)
|
|
|
For the year ended December 31, 2020
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
Product sales
|
|
|
6,069
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,069
|
|
|
Other revenue
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total revenue
|
|
|
6,070
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,069
|
|
|
Cost of sales
|
|
|
(554
|
)
|
|
|
(110
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(664
|
)
|
|
Gross profit
|
|
|
5,516
|
|
|
|
(111
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,405
|
|
|
Distribution costs
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36
|
)
|
|
Research and development expense
|
|
|
(1,003
|
)
|
|
|
93
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(951
|
)
|
|
Selling, general and administrative costs
|
|
|
(1,400
|
)
|
|
|
(2,430
|
)
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(3,829
|
)
|
|
Amortization of purchased intangible assets
|
|
|
(254
|
)
|
|
|
254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Change in fair value of contingent consideration
|
|
|
(61
|
)
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition-related costs
|
|
|
(118
|
)
|
|
|
118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Restructuring expenses
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Impairment of intangible assets
|
|
|
(2,053
|
)
|
|
|
2,053
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gain on sale of assets
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other operating income and expense
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
Operating profit
|
|
|
632
|
|
|
|
(12
|
)
|
|
|
(41
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
580
|
|
|
Investment income, net
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest expense
|
|
|
(105
|
)
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other income and (expense)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Finance income
|
|
|
-
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
Finance expense
|
|
|
-
|
|
|
|
(112
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(123
|
)
|
|
Profit before tax
|
|
|
569
|
|
|
|
5
|
|
|
|
(41
|
)
|
|
|
(2
|
)
|
|
|
(56
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
471
|
|
|
Taxation
|
|
|
34
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
1
|
|
|
|
13
|
|
|
|
3
|
|
|
|
15
|
|
|
|
70
|
|
|
Profit for the period
|
|
|
603
|
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
(1
|
)
|
|
|
(43
|
)
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
541
|
|
Unaudited adjusted Alexion consolidated statement
of operations for the three months ended March 31, 2021
|
|
|
|
|
|
Reclassifications and US GAAP to IFRS adjustments
|
|
|
|
|
|
|
|
Alexion (US GAAP)
|
|
|
Reclassifications
|
|
|
Capitalized R&D
|
|
|
Leases
|
|
|
Financial instruments
|
|
|
Other
|
|
|
Deferred tax
|
|
|
Adjusted Alexion (IFRS)
|
|
|
Note references
|
|
2a
|
|
|
2b
|
|
|
2c
|
|
|
2d
|
|
|
2e
|
|
|
2f
|
|
|
2g
|
|
|
|
|
|
For the three months ended March 31, 2021
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
|
$m
|
|
|
Product sales
|
|
|
1,636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,636
|
|
|
Other revenue
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Collaboration revenue
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
Total revenue
|
|
|
1,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,637
|
|
|
Cost of sales
|
|
|
(126
|
)
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(153
|
)
|
|
Gross profit
|
|
|
1,511
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,484
|
|
|
Distribution costs
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
Research and development expense
|
|
|
(289
|
)
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(302
|
)
|
|
Selling, general and administrative costs
|
|
|
(343
|
)
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
(412
|
)
|
|
Acquired in-process research and development
|
|
|
(193
|
)
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Amortization of purchased intangible assets
|
|
|
(54
|
)
|
|
|
54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Change in fair value of contingent consideration
|
|
|
(9
|
)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition-related costs
|
|
|
(13
|
)
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Restructuring expenses
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gain on sale of assets
|
|
|
24
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other operating income and expense
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
Operating profit
|
|
|
635
|
|
|
|
162
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
788
|
|
|
Investment income, net
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest expense
|
|
|
(27
|
)
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other income and (expense)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Finance income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
Finance expense
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(51
|
)
|
|
Profit before tax
|
|
|
602
|
|
|
|
147
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
747
|
|
|
Taxation
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(19
|
)
|
|
|
(132
|
)
|
|
Profit for the period
|
|
|
489
|
|
|
|
147
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
(19
|
)
|
|
|
615
|
|
|
Net loss attributable to non-controlling interest
|
|
|
147
|
|
|
|
(147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net income attributable to Alexion
|
|
|
636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
(19
|
)
|
|
|
615
|
|
Note 2. Adjustments to Alexion’s consolidated
financial statements (continued)
Unaudited adjusted Alexion consolidated balance
sheet as at March 31, 2021
|
|
|
|
|
|
Reclassifications and US GAAP to IFRS adjustments
|
|
|
|
|
|
|
|
Alexion (US GAAP)
|
|
|
Reclassifications
|
|
|
Capitalized R&D
|
|
|
Leases
|
|
|
Financial instruments
|
|
|
Other
|
|
|
Deferred Tax
|
|
|
Adjusted Alexion (IFRS)
|
|
|
Note 2 references
|
|
2a
|
|
|
2b
|
|
|
2c
|
|
|
2d
|
|
|
2e
|
|
|
2f
|
|
|
2g
|
|
|
|
|
|
As at March, 31 2021
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
1,245
|
|
|
|
(156
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,089
|
|
|
Intangible assets
|
|
|
3,048
|
|
|
|
53
|
|
|
|
926
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,027
|
|
|
Right-of-use assets
|
|
|
217
|
|
|
|
103
|
|
|
|
-
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
297
|
|
|
Other assets
|
|
|
447
|
|
|
|
(447
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Goodwill
|
|
|
5,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
5,111
|
|
|
Investments in associates and joint ventures
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
Other investments
|
|
|
-
|
|
|
|
137
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
|
|
Other receivables
|
|
|
-
|
|
|
|
201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
201
|
|
|
Deferred tax assets
|
|
|
2,141
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,141
|
|
|
|
|
|
12,198
|
|
|
|
(108
|
)
|
|
|
926
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
13,004
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
40
|
|
|
|
(40
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Trade accounts receivable, net
|
|
|
1,473
|
|
|
|
(1,473
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Prepaid expenses and other current assets
|
|
|
706
|
|
|
|
(706
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Inventories
|
|
|
804
|
|
|
|
108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
912
|
|
|
Trade and other receivables
|
|
|
-
|
|
|
|
2,081
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
1,976
|
|
|
Other investments
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
Income tax receivable
|
|
|
-
|
|
|
|
57
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57
|
|
|
Cash and cash equivalents
|
|
|
3,429
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,429
|
|
|
|
|
|
6,452
|
|
|
|
108
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
6,455
|
|
|
Total assets
|
|
|
18,650
|
|
|
|
-
|
|
|
|
929
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
11
|
|
|
|
(108
|
)
|
|
|
19,459
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(125
|
)
|
|
|
125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Accrued expenses
|
|
|
(911
|
)
|
|
|
911
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Current portion of long term debt
|
|
|
(143
|
)
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Current portion of contingent consideration
|
|
|
(120
|
)
|
|
|
120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other current liabilities
|
|
|
(127
|
)
|
|
|
127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest-bearing loans and borrowings
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(143
|
)
|
|
Lease liabilities
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34
|
)
|
|
Trade and other payables
|
|
|
-
|
|
|
|
(1,024
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,021
|
)
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(67
|
)
|
|
Provisions
|
|
|
-
|
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(71
|
)
|
|
Income tax payable
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
|
|
(1,426
|
)
|
|
|
(98
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,521
|
)
|
|
|
|
|
|
|
Reclassifications and US GAAP to IFRS adjustments
|
|
|
|
|
|
|
|
Alexion (US GAAP)
|
|
|
Reclassifications
|
|
|
Capitalized R&D
|
|
|
Leases
|
|
|
Financial instruments
|
|
|
Other
|
|
|
Deferred Tax
|
|
|
Adjusted Alexion (IFRS)
|
|
|
Note 2 references
|
|
2a
|
|
|
2b
|
|
|
2c
|
|
|
2d
|
|
|
2e
|
|
|
2f
|
|
|
2g
|
|
|
|
|
|
As at March 31, 2021
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
$m
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt, less current portion
|
|
|
(2,389
|
)
|
|
|
2,389
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Contingent consideration
|
|
|
(304
|
)
|
|
|
304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Non-current operating lease liabilities
|
|
|
(171
|
)
|
|
|
171
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other liabilities
|
|
|
(290
|
)
|
|
|
290
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest bearing loans and borrowings
|
|
|
-
|
|
|
|
(2,389
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,378
|
)
|
|
Lease liabilities
|
|
|
-
|
|
|
|
(237
|
)
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(221
|
)
|
|
Deferred tax liabilities
|
|
|
(1,639
|
)
|
|
|
-
|
|
|
|
(126
|
)
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
143
|
|
|
|
(1,620
|
)
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
(33
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(33
|
)
|
|
Retirement benefit obligations
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34
|
)
|
|
Other payables
|
|
|
-
|
|
|
|
(363
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(363
|
)
|
|
|
|
|
(4,793
|
)
|
|
|
98
|
|
|
|
(126
|
)
|
|
|
18
|
|
|
|
9
|
|
|
|
2
|
|
|
|
143
|
|
|
|
(4,649
|
)
|
|
Total liabilities
|
|
|
(6,219
|
)
|
|
|
-
|
|
|
|
(123
|
)
|
|
|
18
|
|
|
|
9
|
|
|
|
2
|
|
|
|
143
|
|
|
|
(6,170
|
)
|
|
Net assets
|
|
|
12,431
|
|
|
|
-
|
|
|
|
806
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
13
|
|
|
|
35
|
|
|
|
13,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
9,243
|
|
|
|
(9,243
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Treasury stock, at cost
|
|
|
(2,621
|
)
|
|
|
2,621
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Accumulated other comprehensive loss
|
|
|
(85
|
)
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Share premium account
|
|
|
-
|
|
|
|
6,172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,172
|
|
|
Non-controlling interests
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
Retained earnings
|
|
|
5,880
|
|
|
|
365
|
|
|
|
806
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
13
|
|
|
|
35
|
|
|
|
7,103
|
|
|
Total equity
|
|
|
12,431
|
|
|
|
-
|
|
|
|
806
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
13
|
|
|
|
35
|
|
|
|
13,289
|
|
Note 2. Adjustments to Alexion’s consolidated
financial statements (continued)
|
|
1)
|
The classification of certain items presented by Alexion under U.S. GAAP has been modified in order to
align with the presentation used by AstraZeneca under IFRS. All amounts are rounded to the nearest million, which explains any immaterial
difference which arises between the pre- and post-reclassified amounts.
|
Modifications to
Alexion’s historical consolidated statement of operations presentation include:
|
|
·
|
Separate presentation of components of “other revenue” in “collaboration
revenue” ($1 million) in the three months ended March 31, 2021;
|
|
|
·
|
Separate presentation of components of “research and development” ($1,003 million in the year
ended December 31, 2020 and $289 million in the three months ended March 31, 2021) in “research and development expense” ($898
million in the year ended December 31, 2020 and $256 million in the three months ended March 31, 2021), “distribution costs”
($10 million in the year ended December 31, 2020 and $3 million in the three months ended March 31, 2021) and “cost of sales”
($95 million in the year ended December 31, 2020 and $30 million in the three months ended March 31, 2021);
|
|
|
·
|
Separate presentation of components of “selling, general and administrative” ($1,400 million in the year ended December 31, 2020 and $343 million in the three months ended March 31, 2021) in “selling, general and administrative costs” ($1,368 million in the year ended December 31, 2020 and $337 million in the three months ended March 31, 2021), “distribution costs” ($26 million in the year ended December 31, 2020 and $6 million in the three months ended March 31, 2021), “cost of sales” ($1 million in the year ended December 31, 2020) and “taxation” ($5 million in the year ended December 31, 2020);
|
|
|
·
|
Presentation of components of “Acquired in-process research and development” ($193 million)
and “Net loss attributable to non-controlling interests” ($147 million) in “Research and development expense”
($46 million) in the three months ended March 31, 2021;
|
|
|
·
|
Presentation of “amortization of purchased intangible assets” ($254 million in the year ended
December 31, 2020 and $54 million in the three months ended March 31, 2021) in “selling, general and administrative costs”
($254 million in the year ended December 31, 2020 and $54 million in the three months ended March 31, 2021);
|
|
|
·
|
Separate presentation of components of “change in fair value of contingent consideration”
($61 million in the year ended December 31, 2020 and $9 million in the three months ended March 31, 2021) in “selling, general and
administrative costs” ($40 million in the year ended December 31, 2020) and “finance expense” ($21 million in the year
ended December 31, 2020 and $9 million in the three months ended March 31, 2021);
|
|
|
·
|
Presentation of “acquisition-related costs” ($118 million in the year ended December 31, 2020
and $13 million in the three months ended March 31, 2021) in “selling, general and administrative costs” ($118 million in
the year ended December 31, 2020 and $13 million in the three months ended March 31, 2021);
|
|
|
·
|
Separate presentation of components of “restructuring expenses” ($10 million in the year ended
December 31, 2020 and $1 million in the three months ended March 31, 2021) in “research and development expense” ($1 million
in the year ended December 31, 2020) and “selling, general and administrative costs” ($9 million in the year ended December
31, 2020 and $1 million in the three months ended March 31, 2021);
|
|
|
·
|
Separate presentation of components of “impairment of intangible assets” ($2,053 million in
the year ended December 31, 2020) in “selling, general and administrative costs” ($2,042 million in the year ended December
31, 2020) and “research and development expense” ($11 million in the year ended December 31, 2020);
|
|
|
·
|
Presentation of “gain on sale of asset” ($15 million in the year ended December 31, 2020 and
$24 million in the three months ended March 31, 2021) in “other operating income and expense” ($15 million in the year ended
December 31, 2020 and $24 million in the three months ended March 31, 2021);
|
|
|
·
|
Presentation
of “investment income, net” ($45 million in the year ended December 31, 2020 and $(7) million in the three months ended
March 31, 2021) in “finance income” ($66 million in the year ended December 31, 2020), “finance expense” ($(8) million in
the three months ended March 31, 2021) and “other operating income and expense” ($(21) million in the year ended
December 31, 2020 and $1 million in the three months ended March 31, 2021);
|
|
|
·
|
Separate presentation of components of “other income and (expense)” ($(3) million in the year
ended December 31, 2020 and $1 million in the three months ended March 31, 2021) in “finance expense” ($14 million in the
year ended December 31, 2020 and $(4) million in the three months ended March 31, 2021), “other operating income and expense”
($(3) million in the year ended December 31, 2020 and $1 million in the three months ended March 31, 2021) and “cost of sales”
($(14) million in the year ended December 31, 2020 and $4 million in the three months ended March 31, 2021); and
|
|
|
·
|
Presentation of “interest expense” ($105 million in the year ended December 31, 2020 and $27
million in the three months ended March 31, 2021) in “finance expense” ($105 million in the year ended December 31, 2020 and
$27 million in the three months ended March 31, 2021).
|
Modifications to
Alexion’s historical consolidated balance sheet presentation include:
|
|
·
|
Presentation of “marketable securities” ($40 million) in “other investments” (current) ($40 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “property, plant and equipment” ($1,245 million) within “right-of-use
assets” ($103 million), “intangible assets” ($53 million) and “property, plant and equipment” ($1,089 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “other assets” (non-current) ($447 million) within “other investments” (non-current) ($137 million), “inventories” ($108 million), “other receivables” ($201 million) and “investments in associates and joint ventures” ($1 million);
|
|
|
|
|
|
|
·
|
Presentation of “trade and other receivables, net” ($1,473 million) in “trade and other receivables” ($1,473 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “prepaid expenses and other current assets” ($706 million) within “income tax receivable” ($57 million), “derivative financial instruments” (current) ($41 million) and “trade and other receivables” ($608 million);
|
|
|
|
|
|
|
·
|
Presentation of “current portion of long-term debt” ($143 million) within “interest-bearing loans and borrowings” (current) ($143 million);
|
|
|
|
|
|
|
·
|
Presentation of “current portion of contingent consideration” ($120 million) in “trade and other payables” ($120 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “accrued expenses” ($911 million) in “provisions” (current) ($71 million), “income tax payable” ($86 million) and “trade and other payables” ($754 million);
|
|
|
|
|
|
|
·
|
Presentation of “accounts payable” ($125 million) in “trade and other payables” ($125 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “other current liabilities” ($127 million) within “lease liabilities” (current) ($34 million), “derivative financial instruments” (current) ($67 million) and “trade and other payables” ($26 million);
|
|
|
|
|
|
|
·
|
Separate presentation of components of “contingent consideration” (non-current) ($304 million) in “other payables” ($304 million);
|
|
|
|
|
|
|
·
|
Presentation of “noncurrent operating lease liabilities” ($171 million) in “lease liabilities” (non-current) ($171 million);
|
|
|
|
|
|
|
·
|
Presentation of “long-term debt, less current portion” ($2,389 million) within “interest-bearing loans and borrowings” (non-current) ($2,389 million);
|
|
|
|
|
|
|
·
|
Separate presentation of non-current “other liabilities” ($290 million) within “lease liabilities” (non-current) ($66 million), “derivative finance instruments” (non-current) ($33 million), “retirement benefit obligations” ($34 million), “income tax payable” ($98 million) and “other payables” ($59 million);
|
|
|
|
|
|
|
·
|
Separate presentation of “additional paid-in capital” ($9,243 million) within “share premium account” ($6,172 million) and “retained earnings” ($3,071 million);
|
|
|
|
|
|
|
·
|
Presentation of “treasury stock, at cost” ($2,621 million) within “retained earnings” ($2,621 million); and
|
|
|
|
|
|
|
·
|
Presentation of “accumulated other comprehensive loss” ($85 million) in “retained earnings” ($85 million).
|
Under U.S. GAAP, costs incurred
to acquire intellectual property (e.g. patents, licenses and development and commercial rights to product candidates) and in-process research
and development (“IPR&D”) assets were charged to the statement of operations by Alexion. Under IFRS, such costs would
be capitalized as intangible assets, or recorded as prepaid R&D. Milestones payable would only be accrued once the relevant performance
condition has been satisfied. Intangible assets in development are not amortized but tested for impairment annually.
As a result, additional intangible
assets of $926 million, prepaid R&D of $3 million and reversal of accrued milestones of $3 million have been recorded in the balance
sheet at March 31, 2021, with an associated historical deferred tax liability of $126 million. In the statement of operations, there
is a charge to Research and Development expense of $41 million for the year ended December 31, 2020, and an income tax benefit of $9
million for the year ended December 31, 2020.
Under U.S. GAAP, Right of
Use (“ROU”) assets under operating leases are amortized to a schedule based on the difference between the operating lease
expense and the interest accretion amount, and Alexion presents the combined operating lease expense (inclusive of the interest accretion
portion) within selling, general and administrative costs. Further, Alexion did not separate the lease and non-lease components upon transition
to ASC 842, Leases, with the exception of Contract Manufacturing Organization contracts. Under IFRS, a straight line basis is used,
amortizing over the shorter of the term of the lease or useful economic life of the underlying asset and AstraZeneca would present the
interest accretion portion for all leases within finance expense. AstraZeneca would separate all lease and non-lease components upon transition
to IFRS 16, Leases.
As a result, ROU assets of
$23 million and lease liabilities of $16 million have been derecognized in the balance sheet at March 31, 2021, along with the related
impact to deferred tax liabilities of $2 million. The statement of operations reflects a $5 million reduction in selling, general and
administrative costs for the year ended December 31, 2020 and a $1 million reduction in selling, general and administrative costs for
the three months ended March 31, 2021, a $7 million increase to finance costs for the year ended December 31, 2020 and a $2 million increase
to finance costs for the three months ended March 31, 2021 and a related tax benefit of $1 million for the year ended December 31, 2020
and a $nil related tax benefit for the three months ended March 31, 2021.
Under U.S. GAAP, when there
is a debt modification event, no gain/loss is recognized. Rather, a new effective interest rate is established based on the carrying value
of the debt and the revised cash flows. Under IFRS, a gain/loss is recognized immediately. Under U.S. GAAP, investments in equity securities
are measured at fair value through profit and loss, while under IFRS, AstraZeneca would measure them at fair value through other comprehensive
income. There is no measurement difference on the balance sheet carrying value.
As a result, in relation to
Alexion’s debt modification in 2018, the carrying value at March 31, 2021 has been reduced by $11 million, with an associated deferred
tax adjustment of $2 million, and an additional finance expense of $4 million has been recognized in the year ended December 31, 2020
($1 million in the three months ended March 31, 2021), with a related tax benefit of $1 million for the year ended December 31, 2020 and
a $nil related tax benefit for the three months ended March 31, 2021. In relation to the investment in equity securities, net gains of
$52 million, less the related tax impact of $12 million, have been reclassified to other comprehensive income for the year ended December
31, 2020 (a net loss of $10 million less the related tax impact of $2 million for the three months ended March 31, 2021).
Under U.S. GAAP, Alexion elected
to apply the straight line approach for graded vesting when measuring share-based payment replacement awards. Under IFRS, AstraZeneca
would use the graded vesting method, resulting in a higher proportion of cost being allocated to the earlier years. For replacement awards
in a business combination, this would result in more goodwill and less acquisition related costs.
As a result, $15 million of additional
selling, general and administrative costs along with the related tax adjustment of $3 million are included in the statement of
operations for the year ended December 31, 2020 ($10 million of additional selling, general and administrative costs less the
related tax adjustment of $2 million are included in the statement of operations for the three months ended March 31, 2021) and an
associated adjustment of $2 million to the deferred tax liability at March, 31 2021. In addition, an $11 million increase in
goodwill has been recorded in the balance sheet at March 31, 2021 with an
equal reduction in acquisition related costs in the statement of operations, which is presented within selling, general and
administrative costs.
(i) Year ended December 31,
2020
Under U.S. GAAP, Alexion deferred
the current tax on the intercompany transfer of inventory, which was booked at the seller’s rate, with no deferred tax impact being
booked. Under IFRS, the current tax impact is recorded in the statement of operations (also at the seller’s rate) with a corresponding
deferred tax asset recorded at the buyer’s rate.
Under US GAAP, Alexion measured deferred tax on stock based compensation
based on the related statement of operations expense as it accrued. Under IFRS, AstraZeneca would measure the deferred tax asset based
on the estimated future tax deduction by reference to the share price at the balance sheet date. Where this estimate exceeds the associated
cumulative statement of operations expense, the excess is recognized directly in equity.
The net impact of these changes
in accounting treatment result in a credit to the statement of operations of $15 million.
(ii) Three months ended March
31, 2021
Under U.S. GAAP, Alexion has
calculated the interim tax provision by applying the estimated annual worldwide effective tax rate for the group to the group’s
worldwide consolidated interim pre-tax profits. A similar methodology is required to calculate the interim tax provision under IFRS, but,
to the extent practicable, a separate estimated average annual effective income tax rate is determined for each taxing jurisdiction and
applied individually to the interim pre-tax profits of each jurisdiction.
The net impact of this is
a debit to the income statement of $19 million. The primary reason for the increase in the tax charge is due a higher tax rate being applied
to the group’s unrealized profit in inventory.
In the balance sheet,
net U.S. deferred tax liabilities are reduced by $143 million and trade and other receivables are reduced by $108 million.
Note 3. Preliminary purchase consideration and
allocation
The transaction will be accounted
for as a business combination using the acquisition method of accounting in accordance with IFRS. Under this method, the Alexion assets
acquired and liabilities assumed have been recorded based on preliminary estimates of fair value. In accordance with IFRS, AstraZeneca
measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The final fair values will be determined upon the completion of the transaction and may vary
materially from these estimates.
The estimated purchase consideration
is calculated as follows (all amounts in $ millions except share amounts):
|
Alexion shares outstanding as of May 19, 2021
|
|
|
221,675,313
|
|
|
Net share options
|
|
|
271,214
|
|
|
Total shares outstanding
|
|
|
221,946,527
|
|
|
Exchange ratio
|
|
|
2.1243
|
|
|
Total AstraZeneca ADSs to be issued to Alexion shareholders
|
|
|
471,481,007
|
|
|
AstraZeneca ADS share price as of May 19, 2021
|
|
|
56.34
|
|
|
Equity consideration
|
|
|
26,563
|
|
|
Consideration related to RSUs/PSUs vesting before March 31, 2021
|
|
|
374
|
(iii)
|
|
Total equity consideration
|
|
|
26,937
|
(i)
|
|
Cash consideration
|
|
|
13,317
|
(ii)
|
|
Total purchase consideration
|
|
|
40,254
|
|
|
|
(i)
|
The total share consideration for each share of Alexion common stock was
estimated using the closing price of AstraZeneca ADSs on Nasdaq as of May 19, 2021, and the number of shares outstanding as of May 19,
2021, which was the last practicable date prior to the issuance of this Pro Forma Financial Information. The proportion of the Alexion
RSUs and PSUs vesting prior to March 31, 2021, were also included within the total share consideration. The actual purchase consideration
will be determined upon the completion of the transaction. A hypothetical 5% change in the price of AstraZeneca ADSs, all other factors
remaining constant, would result in a corresponding increase or decrease in the total purchase consideration of $1.3 billion.
|
|
|
(ii)
|
The total cash consideration was estimated using the shares of Alexion common stock outstanding as of
May 19, 2021, and the $60 due to Alexion shareholders for each share of Alexion common stock.
|
|
|
(iii)
|
The portion of the fair value of Alexion’s equity awards attributable to pre-combination service
that will be assumed by AstraZeneca upon completion of the transaction amounts to $374 million. The incremental annual stock-based
compensation expense resulting from the step up to fair value of Alexion’s share-based compensation instruments, which will be replaced
with AstraZeneca instruments upon consummation of the transaction is set out in note 5(iv).
|
The preliminary allocation
of purchase consideration to estimated fair value of acquired assets and liabilities is as follows:
|
(in $ millions)
|
|
|
|
|
|
|
|
|
|
Estimated fair values of assets acquired and liabilities assumed
|
|
|
|
|
|
Property, plant and equipment
|
|
|
1,744
|
(iv)
|
|
Goodwill
|
|
|
6,193
|
(v)
|
|
Intangible assets
|
|
|
30,873
|
(vi)
|
|
Inventory
|
|
|
4,705
|
(vii)
|
|
Cash and cash equivalents
|
|
|
3,429
|
|
|
Interest bearing loans and borrowings
|
|
|
(2,521
|
)
|
|
Deferred tax assets/liabilities
|
|
|
(4,877
|
)(viii)
|
|
Contingent liabilities
|
|
|
(70
|
)(ix)
|
|
Other assets/liabilities
|
|
|
778
|
|
|
Total allocation
|
|
|
40,254
|
|
Except as discussed
below, the carrying value of Alexion’s assets and liabilities are considered to approximate their fair values.
|
|
(iv)
|
The estimated fair value of property, plant and equipment (“PPE”) is $1,744 million (including
the $567 million process performance qualification (“PPQ”) adjustment in note (vii) below), which represents an uplift of
$655 million. The PPE was valued based on a Cost Approach, specifically the Replacement Cost New (“RCN”) method using an indirect
cost approach. The RCN of the assets has been calculated by indexing the historical cost as listed in the fixed asset register as at March
31, 2021, while adjusting for depreciation. The fair value uplift is split by $567 million in relation to PPQ, $59 million related to
assets in use and $29 million related to assets under construction. However, the fair valuation was based on certain assumptions and limited
information, and therefore the final amounts may differ materially from these estimates.
|
|
|
(v)
|
The goodwill balance arising from the merger is estimated to be $6,193 million, which represents a net
adjustment of $1,082 million. The goodwill has been calculated as the excess of the purchase consideration of $40,254 million over the
fair value of the net assets acquired of $34,061 million.
|
|
|
(vi)
|
The estimated fair value of Alexion’s intangible assets is estimated to be $30,873 million, or a
net increase of $26,846 million compared to a carrying value of $4,027 million. The primary intangible assets include product rights and
IPR&D, for which the fair value estimates of identifiable intangible assets have been determined using the income approach. Software
of $53 million is held at book value. The assumptions used by AstraZeneca to arrive at the estimated fair value of the identifiable intangible
assets have been derived primarily from public information and information provided by AstraZeneca and Alexion. However, a detailed analysis
has not been completed and actual results may differ materially from these estimates.
|
The fair value
and weighted average estimated useful life of identifiable intangible assets are estimated as follows:
|
|
|
Fair value
|
|
|
Weighted- average estimated
useful life
|
|
|
Annual amortization
|
|
|
|
|
(in $ millions)
|
|
|
(in years)
|
|
|
(in $ millions)
|
|
|
Product rights
|
|
|
28,489
|
|
|
|
12
|
|
|
|
2,355
|
|
|
Software
|
|
|
53
|
|
|
|
5
|
|
|
|
11
|
|
|
IPR&D
|
|
|
2,331
|
|
|
|
Not amortized
|
|
|
|
-
|
|
|
Total acquired identifiable intangible assets
|
|
|
30,873
|
|
|
|
|
|
|
|
2,366
|
|
|
Less: Alexion’s historical net book value of intangible assets
|
|
|
4,027
|
|
|
|
|
|
|
|
|
|
|
Adjustment to intangible assets, net
|
|
|
26,846
|
|
|
|
|
|
|
|
|
|
Based on the estimated respective
fair values of identified intangible assets and the weighted average estimated useful lives, an adjustment to amortization expense of
$2,112 million has been included in the Pro Forma Income Statement for the year ended December 31, 2020, being the annual amortization
charge above less $254 million amortization of purchased intangible assets expensed in the year. This has been pro rated for the three
months ended March 31, 2021 and offset by the $54 million amortization expensed in the period. The related estimated net decrease to income
tax expense for the Pro Forma Income Statement is $339 million and $86 million for the year ended December 31, 2020 and the three months
ended March 31, 2021, respectively. This adjustment will recur for the life of the underlying assets.
|
|
(vii)
|
The fair value of Alexion’s inventory, which includes raw materials, work in progress and finished
goods, is estimated to be $4,705 million, which represents an uplift of $3,793 million on the book value of $912 million. The fair value
adjustment relates only to work in progress and finished goods.
|
In addition, PPQ inventory (which
comprises inventory produced during the validation process) carried at a book value of $148 million is included within “PPE”
and “other receivables.” The fair value of this inventory was estimated to be $772 million, being an uplift on book value
of $624 million allocated as $567 million to “PPE” and $57 million to “other receivables.”
The inventory was valued at estimated
selling price less the estimated costs to be incurred to complete (in the case of work in progress) and sell the inventory, the associated
margins on these activities and holding costs. However, the fair valuation was based on certain assumptions and limited information and
therefore the final amounts may differ materially from these estimates. The step-up in the fair value of inventory is expected to increase
cost of goods sold in the twelve months ended December 31, 2020 by $2,976 million and by $607
million in the three months ended March 31, 2021, as the inventory is sold. The related estimated net decrease to income tax expense for
the Pro Forma Income Statement is $687 million for the twelve months ended December 31, 2020 and $140
million for the three months ended March 31, 2021.
|
|
(viii)
|
The estimated fair value of the net deferred tax liability is $4,877 million, which represents an adjustment
of $5,398 million. This adjustment comprises $4,360 million in relation to the fair value uplift on intangible assets, $1,023million in
relation to the fair value uplift on inventory and $20 million in relation to the fair value uplift on PPE, offset by a $5 million deferred
tax asset in relation to the fair value uplift on contingent liabilities. The estimated net deferred tax liability is based on assumptions
and limited information, and therefore the final amounts may differ materially from these estimates.
|
|
|
(ix)
|
The estimated fair value of contingent liabilities is $70 million, relating to various claims and disputes
in each case where there is a possible, but not probable, future financial exposure. The estimated fair value is based on preliminary
assumptions and limited information, and therefore the final amounts may differ materially from these estimates. This amount has been
added to other payables.
|
Note 4. Financing
A $17.5 billion credit facility
has been entered into by members of the AstraZeneca Group with a syndicate of banks to provide financing certainty for the transaction.
The credit facility consists of four credit facilities:
(1) a $12.5 billion
bridge facility, which we refer to as the “Bridge Facility,” which terminates on the date falling 12 months after the earlier
of (i) the date of closing of the transaction and (ii) December 12, 2021, with up to two six-month extensions available at the discretion
of AstraZeneca;
(2) a $2.0 billion term loan, which
we refer to as “Facility A,” which terminates on the date falling two years after the earlier of (i) the date of closing of
the transaction and (ii) December 24, 2021;
(3) a $2.0 billion term loan, which
we refer to as “Facility B,” which terminates on the date falling three years after the earlier of (i) the date of closing
of the transaction and (ii) December 24, 2021; and
(4) a $1.0 billion revolving facility,
which we refer to as the “Revolving Facility,” which terminates on the date falling 12 months after the earlier of (i) the
date of closing of the transaction and (ii) December 24, 2021, subject to AstraZeneca’s right (at its option) to extend the term
of the Revolving Facility for an additional period of 364 days.
Together, Facility A, Facility
B and the Revolving Facility are referred to as the Take-Out Facilities.
The proceeds of the Bridge
Facility, Facility A and Facility B are to be used to finance or refinance the amounts payable under the merger agreement, any financial
indebtedness of Alexion or its subsidiaries (in connection with the planned transaction, Alexion evaluated the terms of its credit agreement
and determined that the agreement could require acceleration of payments upon a change of control) and any other fees, commissions, costs
and expenses in relation to the transaction. Facility A and Facility B may also be used to finance or refinance amounts payable under
the Bridge Facility.
The proceeds of the Revolving
Facility are to be used towards the general corporate purposes of AstraZeneca. It is assumed that this new revolving credit facility will
not be drawn on with respect to the transaction and accordingly this facility has been excluded from the debt financing adjustments below.
AstraZeneca expects to replace
some or all of the Bridge Facility prior to the completion of the transaction with longer term financing. There can be no assurance that
the permanent financing will be obtained prior to the completion of the transaction, and the terms of expected permanent financing are
uncertain at this time.
Current and non-current interest
bearing loans and borrowings have been adjusted as follows based on the sources of funding described above:
|
(in $ millions)
|
|
|
Financing
adjustments
|
|
|
Proceeds from the Bridge Facility
|
|
|
12,500
|
|
|
Proceeds from Facility A
|
|
|
2,000
|
|
|
Proceeds from Facility B
|
|
|
2,000
|
|
|
Total sources of funding
|
|
|
16,500
|
|
|
Debt issuance costs
|
|
|
(30
|
)(i)
|
|
Total sources of funding, net of debt issuance costs
|
|
|
16,470
|
|
|
Repayment of outstanding Alexion term loan facility
|
|
|
(2,351
|
)
|
|
Elimination of historical Alexion unamortized debt issuance costs
|
|
|
19
|
(iv)
|
|
Net change in debt
|
|
|
14,138
|
|
|
Presented as:
|
|
|
|
|
|
Current portion of debt adjustment
|
|
|
12,350
|
(ii)
|
|
Non-current portion of debt adjustment
|
|
|
1,788
|
(iii)
|
|
(i)
|
In relation to the Bridge Facility, Facility A and Facility B, total debt issuance costs amount to $23
million, $3 million and $4 million, respectively of which $20 million were paid on signing the facilities. These were included within
Trade and other receivables in the balance sheet at March 31, 2021 and will be capitalized within debt on closing.
|
|
(ii)
|
The current portion of the debt adjustment is comprised of the proceeds from the Bridge Facility, net
of debt issuance costs, and the current portion of the Alexion debt which was $127 million at March 31, 2021.
|
|
(iii)
|
The non-current portion of the debt adjustment is comprised of the proceeds of Facility A and Facility
B, net of debt issuance costs, and the non-current portion of the Alexion debt which was $2,205 million at March 31, 2021.
|
|
(iv)
|
Alexion’s current and non-current unamortized debt issuance costs
at March 31, 2021 were $4 million and $15 million respectively.
|
The transaction facilities
have a floating rate of interest which is initially based on an interest rate calculated as the aggregate of the applicable margin and
LIBOR. As a result of certain LIBOR rates and tenors being discontinued as of December 31, 2021, the transaction facilities each include
a rate switch mechanic such that after a rate switch date (to be determined), interest will no longer be calculated with reference to
LIBOR and will instead be calculated as the aggregate of the applicable margin, SOFR and credit adjustment spread. The rate switch date
will be the earlier of a date selected by AstraZeneca and the occurrence of one of certain external events, including LIBOR rates ceasing
to be published or ceasing to be representative of the underlying market or economic reality.
For the Bridge Facility, the
initial margin is 0.30% per annum, which increases 0.10% every three months until December 12, 2021, after which it increases 0.15% every
three months until December 12, 2022 and 0.10% every three months thereafter.
For the Take-Out Facilities,
the initial margins are, per annum, 0.55% for Facility A and 0.65% for Facility B. The margin rates thereafter will vary depending on
the AstraZeneca’s S&P/Moody’s long-term credit ratings.
|
|
|
|
|
|
|
|
|
Finance expense
|
|
|
(in $ millions)
|
|
Average
principal
|
|
|
Interest
rate
|
|
|
Year ended
December 31,
2020
|
|
|
Three months
ended March 31,
2021
|
|
|
Bridge Facility
|
|
|
12,500
|
|
|
|
0.45 - 0.90
|
|
|
|
74
|
|
|
|
29
|
|
|
Facility A
|
|
|
2,000
|
|
|
|
0.70
|
|
|
|
14
|
|
|
|
3
|
|
|
Facility B
|
|
|
2,000
|
|
|
|
0.80
|
|
|
|
16
|
|
|
|
4
|
|
|
Elimination of interest on Alexion’s term loan facility
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
(9
|
)
|
|
Debt issuance cost amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge Facility
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
6
|
|
|
Facility A
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
-
|
|
|
Facility B
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
-
|
|
|
Elimination of debt issuance cost amortization on Alexion’s term loan facility
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
Total finance expense adjustment
|
|
|
|
|
|
|
|
|
|
|
75
|
(v)
|
|
|
32
|
(v)
|
|
(v)
|
As of May 19, 2021, AstraZeneca’s long term credit rating was
BBB+ and A3 with Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. For the purpose of the
finance expense calculation, AstraZeneca has assumed an interest rate based on the opening margin within the applicable margin matrix
for each facility for an average credit rating of BBB+ / A3 with increases at each period specified in the facility agreement. AstraZeneca
has also considered the variability of the applicable margin based on AstraZeneca’s credit rating in accordance with each applicable
margin matrix, which each include a maximum rating of “A+ / A1 or above” to a minimum rating of “BBB- / Baa3
or below.” A change in the credit rating to BBB- / Baa3 or lower (or no rating) from BBB+ / A3 would increase the finance
expense for the Pro Forma Income Statement by approximately $10 million in the year ended December 31, 2020 and $3 million in the three
months ended March 31, 2021. A change in the credit rating of AstraZeneca to A+ / A1 or above from BBB+ / A3 would decrease the finance
expense for the Pro Forma Income Statement by approximately $6 and $1 million in the year ended December 31, 2020 and the three months
ended March 31, 2021, respectively.
|
For the purposes
of calculating the above finance expense, a three-month U.S. dollar LIBOR rate of 0.14925% as of May 19, 2021, has been assumed, which
may differ from the rates in place when actually utilizing the facilities. A hypothetical change in interest rates of 0.125% would increase
or decrease total finance expense for the Pro Forma Income Statement by approximately $20 million in the year ended December 31, 2020
and $5 million in the three months ended March 31, 2021.
In addition to incremental
interest charges, AstraZeneca has also recorded a pro forma adjustment for debt issuance cost amortization for each facility, which will
be deferred and amortized over the duration of the borrowings.
The related estimated
net decrease to income tax expense for the Pro Forma Income Statement is $12 million and $6 million in the year ended December 31, 2020
and the three months ended March 31, 2021, respectively.
Note 5. Other transaction accounting adjustments
|
|
(i)
|
It has been estimated that total transaction and related costs of $244 million will be incurred collectively
by AstraZeneca and Alexion in connection with the transaction, which include advisory, legal, valuation and other professional fees. AstraZeneca
and Alexion incurred $24 million and $2 million of transaction and related costs, respectively, in the year ended December 31, 2020 and
$20 million and $8 million of transaction and related costs in the three months ended March 31, 2021, respectively. As a result, an adjustment
of $218 million has been presented in the Pro Forma Income Statement for the year ended December 31, 2020, within selling, general and
administrative expenses. The transaction and related costs expensed in the three months ended March 31, 2021 have been reversed and included
in the selling, general and administrative fees in the year ended December 31, 2020. These one-off costs will not have a continuing impact
on the results of the combined company.
|
|
|
(ii)
|
Total estimated transaction and related costs in conjunction with the transaction of $244 million are
attributable as follows: AstraZeneca $144 million and Alexion $100 million. As at March 31, 2021, AstraZeneca had charged $44 million,
and therefore an adjustment of $100 million has been presented in the Pro Forma Balance Sheet as at March 31, 2021 as a reduction to cash
and cash equivalents and a corresponding reduction to retained earnings to represent the estimated future charge. Alexion had charged
$10 million, and therefore an adjustment of $90 million has been presented in the Pro Forma Balance Sheet as at March 31, 2021 as a reduction
to cash and cash equivalents and a corresponding increase to goodwill as these transaction costs will reduce Alexion’s retained
earnings prior to the consummation of the transaction.
|
|
|
(iii)
|
Alexion and AstraZeneca have negotiated the terms of a retention/transaction bonus plan whereby up to
$50 million may be used for retention bonus awards to employees at the level of Vice President or below and up to $40 million may be used
for transaction bonus awards to employees. These bonuses will vest and be payable 6 months after the consummation of the transaction,
or earlier upon certain termination of employment or if agreed by the parties. An adjustment of $90 million is reflected in selling, general
and administrative costs in the income statement for the year ended December 31, 2020, with a corresponding tax impact of $21 million.
These one-off costs will not have a continuing impact on the results of the combined company.
|
|
|
(iv)
|
Upon closing of the transaction, each share of Alexion common stock that is outstanding and unexercised
will be cancelled in consideration for the right to receive a quotient of merger consideration without interest and less withholding taxes.
This quotient is based on (a) the excess, if any, of the value of the merger consideration over the exercise price per share of Alexion
common stock subject to such an Alexion Stock Option, multiplied by (b) the number of shares of Alexion common stock subject to such an
Alexion Stock Option immediately prior to completion, divided by (c) the merger consideration.
|
Upon closing of the transaction,
each Alexion RSU held by non-employee directors shall be cancelled in consideration for the right to receive the merger
consideration in respect of each share of Alexion common stock subject to an Alexion RSU award without interest and less withholding
taxes subject to this not resulting in a penalty of Section 409A of the Code in which case this shall be treated as an RSU award
held by an employee.
Upon closing of the transaction, each
Alexion RSU Award held by employees shall be converted into an AstraZeneca RSU that settles in a number of AstraZeneca ADSs equal to the
number of shares of Alexion common stock underlying the Alexion RSU award multiplied by the share exchange ratio, rounded up to the nearest
whole number of shares. Each award shall continue to have, and shall be subject to, the same terms and conditions as applied in the corresponding
Alexion RSU award immediately prior to completion (including any terms and conditions related to accelerated vesting on a termination
of the holders employment in connection with or following the merger).
Upon closing of the transaction, each
Alexion Performance-Based RSU (“Alexion PSU”) Award held by employees that vests upon the achievement of performance goals
shall be converted into an AstraZeneca RSU that settles in a number of AstraZeneca ADSs equal to the number of Alexion common stock underlying
the Alexion PSU award (deemed by the applicable performance goals to be achieved at the greater of the target level and the level of achievement
immediately prior to completion, subject to a limit of 175% for the target Alexion PSU awards granted in 2019 and a limit of 150% for
the target Alexion PSU awards granted in 2020) multiplied by the share exchange ratio, rounded up to the nearest whole number of
shares. Each award shall continue to have, and shall be subject to, the same terms and conditions as applied in the corresponding Alexion
PSU award (other than performance-based vesting conditions) immediately prior to completion (including any terms and conditions related
to accelerated vesting on a termination of the holder’s employment in connection with or following the consummation of the transaction).
The portion of the awards that has
been included as part of the consideration has been determined by multiplying the fair value of the award as at March 31, 2021, by the
portion of the requisite service period that elapsed prior to the proposed acquisition divided by the total service period.
The estimated portion of the award
attributable to post-combination services resulted in additional compensation expense of $64 million in the Pro Forma Income Statement
(employee benefit costs of $3 million, $17 million and $44 million charged to costs of sales, research and development expense and selling,
general and administrative costs, respectively) for the year ended December 31, 2020.
The estimated portion of the award
attributable to post-combination services resulted in additional compensation expense of $17 million in the Pro Forma Income Statement
(employee benefit costs of $1 million, $4 million and $12 million charged to costs of sales, research and development expense and selling,
general and administrative costs, respectively) for the three months ended March 31, 2021.
This adjustment will not have a continuing
impact on the combined company once the post-combination service period has elapsed.
Note 6. Earnings per share
The weighted average number
of AstraZeneca ordinary shares used in computing basic earnings per share has been calculated using the weighted average number of AstraZeneca
ordinary shares issued and outstanding during the period and the number of shares of Alexion common stock issued and outstanding as at
the period end, giving effect to the exchange ratio established in the merger agreement. For the year ended December 31, 2020, the AstraZeneca
pro forma basic earnings per share was calculated using 1,546 million weighted average shares, which reflects the 1,312 million
weighted average of AstraZeneca ordinary shares issued and outstanding for the period and the 220 million weighted average of Alexion
common stock outstanding at December 31, 2020, converted to 234 million shares per the merger agreement. For the three months ended March
31, 2021, the AstraZeneca pro forma basic earnings per share was calculated using 1,546 million weighted average shares, which
reflects the 1,312 million weighted average of AstraZeneca ordinary shares issued and outstanding for the period and the 220 million weighted
average of Alexion common stock outstanding at March 31, 2021, converted to 234 million shares per the merger agreement.
For the year ended December 31, 2020, the 1,555 million weighted average
number of AstraZeneca ordinary shares used in computing diluted earnings per share has been calculated using the 1,546 million basic average
number of AstraZeneca ordinary shares as per the paragraph above, adjusted for the dilutive impact of 1 million relevant to AstraZeneca,
and 5 million relevant to Alexion RSUs converted to 8 million shares per the exchange ratio set out in the merger agreement. For the three
months ended March 31, 2021, the 1,561 million weighted average number of AstraZeneca ordinary shares used in computing diluted earnings
per share has been calculated using the 1,546 million basic average number of AstraZeneca ordinary shares as per the paragraph above,
adjusted for the dilutive impact of 7 million relevant to AstraZeneca, and 5 million relevant to Alexion RSUs converted to 8 million shares
per the exchange ratio set out in the merger agreement.