MONT-SAINT-HILAIRE, QC, May 4 /PRNewswire-FirstCall/ -- AXCAN
PHARMA INC. Consolidated Balance Sheets
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(in thousands of U.S. dollars, except share related data) March
September 31, 2006 30, 2005 ---------- ----------- (unaudited)
ASSETS $ $ Current assets Cash and cash equivalents 110,612 79,969
Short-term investments available for sale 31,040 17,619 Accounts
receivable, net 31,993 37,587 Income taxes receivable 8,630 8,351
Inventories (Note 3) 39,430 36,016 Prepaid expenses and deposits
3,723 1,771 Deferred income taxes 6,845 9,044
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Total current assets 232,273 190,357 Property, plant and equipment,
net 29,916 31,673 Intangible assets, net (Note 4) 375,340 388,921
Goodwill, net 27,467 27,467 Deferred debt issue expenses, net 2,022
2,577 Deferred income taxes 3,049 412
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Total assets 670,067 641,407
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LIABILITIES Current liabilities Accounts payable and accrued
liabilities 59,521 52,990 Income taxes payable 3,994 3,247
Instalments on long-term debt 1,365 1,497 Deferred income taxes
1,398 602
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Total current liabilities 66,278 58,336 Long-term debt 125,767
126,332 Deferred income taxes 39,346 39,135
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Total liabilities 231,391 223,803
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SHAREHOLDERS' EQUITY Capital stock Preferred shares, without par
value; unlimited shares authorized: no shares issued. - - Series A
preferred shares, without par value; shares authorized: 14,175,000;
no shares issued. - - Series B preferred shares, without par value;
shares authorized: 12,000,000; no shares issued. - - Common shares,
without par value; unlimited shares authorized; 45,769,214 issued
as at March 31, 2006 and 45,682,175 as at September 30, 2005.
262,468 261,714 Retained earnings 156,354 138,787 Additional
paid-in capital 3,376 1,329 Accumulated other comprehensive income
16,478 15,774
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Total shareholders' equity 438,676 417,604
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Total liabilities and shareholders' equity 670,067 641,407
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See the accompanying notes to the Consolidated Financial
Statements. These interim financial statements should be read in
conjunction with the annual Consolidated Financial Statements.
AXCAN PHARMA INC. Consolidated Shareholders' Equity
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(in thousands of U.S. dollars, except share related data)
(unaudited) For the For the For the For the three-month three-month
six-month six-month period period period period ended ended ended
ended March March March March 31, 2006 31, 2005 31, 2006 31, 2005
------------ ----------- ----------- ------------ Common shares
(number) Balance, beginning of period 45,688,344 45,581,050
45,682,175 45,562,336 Shares issued pursuant to the stock option
plan 80,870 37,201 87,039 55,915
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Balance, end of period 45,769,214 45,618,251 45,769,214 45,618,251
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$ $ $ $ Common shares Balance, beginning of period 261,780 260,799
261,714 260,643 Shares issued pursuant to the stock option plan 688
401 754 557
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Balance, end of period 262,468 261,200 262,468 261,200
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Retained earnings Balance, beginning of period 148,032 120,116
138,787 112,362 Net income 8,322 5,425 17,567 13,179
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Balance, end of period 156,354 125,541 156,354 125,541
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Additional paid-in capital Balance, beginning of period 2,401 980
1,329 - Stock-based compensation expense 918 - 1,990 - Income tax
deductions on stock options exercise 57 130 57 1,110
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Balance, end of period 3,376 1,110 3,376 1,110
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Accumulated other comprehensive income (loss) Balance, beginning of
period 13,599 29,919 15,774 19,071 Foreign currency translation
adjustments 2,879 (5,494) 704 5,354
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Balance, end of period 16,478 24,425 16,478 24,425
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Total shareholders' equity 438,676 412,276 438,676 412,276
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Comprehensive income (loss) Foreign currency translation
adjustments 2,879 (5,494) 704 5,354 Net income 8,322 5,425 17,567
13,179
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Total comprehensive income 11,201 (69) 18,271 18,533
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See the accompanying notes to the Consolidated Financial
Statements. These interim financial statements should be read in
conjunction with the annual Consolidated Financial Statements.
AXCAN PHARMA INC. Consolidated Cash Flows
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(in thousands of U.S. dollars) (unaudited) For the For the For the
For the three-month three-month six-month six-month period period
period period ended ended ended ended March March March March 31,
2006 31, 2005 31, 2006 31, 2005 ------------ -----------
----------- ------------ Operations $ $ $ $ Net income 8,322 5,425
17,567 13,179 Non-cash items Amortization of deferred debt issue
expenses 280 275 555 550 Other depreciation and amortization 5,649
5,330 11,283 10,694 Partial write-down of intangible assets 5,800 -
5,800 - Stock-based compensation expense 918 - 1,990 - Foreign
currency fluctuation 273 (126) (10) (142) Deferred income taxes
(1,357) (1,886) (78) (1,285) Changes in working capital items
Accounts receivable (7,259) (2,646) 5,617 (2,784) Income taxes
receivable (735) 3,383 (329) 2,701 Inventories (3,299) 3,418
(2,977) 2,293 Prepaid expenses and deposits (137) 550 (1,861) (172)
Accounts payable and accrued liabilities 8,477 4,825 6,908 (424)
Income taxes payable (878) (451) 849 2,304
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Cash flows from operating activities 16,054 18,097 45,314 26,914
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Financing Repayment of long-term debt (371) (488) (739) (957)
Deferred debt issue expenses - - - (589) Issue of shares 688 401
754 557
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Cash flows from financing activities 317 (87) 15 (989)
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Investment Acquisition of short-term investments (20,418) (1,395)
(20,418) (1,395) Disposal of short-term investments - - 6,997
12,822 Acquisition of property, plant and equipment (587) (1,752)
(1,153) (3,586) Acquisition of intangible assets (20) (14) (20)
(22)
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Cash flows from investment activities (21,025) (3,161) (14,594)
7,819
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Foreign exchange gain (loss) on cash held in foreign currencies 28
(114) (92) 61
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Net increase (decrease) in cash and cash equivalents (4,626) 14,735
30,643 33,805 Cash and cash equivalents, beginning of period
115,238 41,049 79,969 21,979
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Cash and cash equivalents, end of period 110,612 55,784 110,612
55,784
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Additional information Interest received 948 286 1,845 385 Interest
paid 33 176 2,713 2,874 Income taxes paid 7,000 2,103 7,814 3,372
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See the accompanying notes to the Consolidated Financial
Statements. These interim financial statements should be read in
conjunction with the annual Consolidated Financial Statements.
AXCAN PHARMA INC. Consolidated Operations
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(in thousands of U.S. dollars, except share related data)
(unaudited) For the For the For the For the three-month three-month
six-month six-month period period period period ended ended ended
ended March March March March 31, 2006 31, 2005 31, 2006 31, 2005
------------ ----------- ----------- ------------ $ $ $ $ Revenue
72,770 63,364 143,409 124,947
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Cost of goods sold excluding depreciation and amortization 18,466
20,469 36,695 37,226 Selling and administrative expenses 22,888
20,948 46,530 41,905 Research and development expenses 7,288 8,313
16,182 14,702 Depreciation and amortization 5,649 5,330 11,283
10,694 Partial write-down of intangible assets 5,800 - 5,800 -
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60,091 55,060 116,490 104,527
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Operating income 12,679 8,304 26,919 20,420
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Financial expenses 1,737 1,869 3,495 3,656 Interest income (971)
(286) (1,757) (372) Gain on foreign currency (335) (207) (545)
(440)
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431 1,376 1,193 2,844
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Income before income taxes 12,248 6,928 25,726 17,576 Income taxes
3,926 1,503 8,159 4,397
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Net income 8,322 5,425 17,567 13,179
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Income per common share Basic 0.18 0.12 0.38 0.29 Diluted 0.17 0.12
0.36 0.28
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Weighted average number of common shares Basic 45,712,790
45,599,780 45,711,291 45,582,668 Diluted 55,215,847 55,442,988
55,140,379 55,367,112
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See the accompanying notes to the Consolidated Financial
Statements. These interim financial statements should be read in
conjunction with the annual Consolidated Financial Statements AXCAN
PHARMA INC. Notes to Consolidated Financial Statements
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(amounts in tables are stated in thousands of U.S. dollars, except
share related data) (unaudited) 1. Significant Accounting Policies
The accompanying unaudited financial statements are prepared in
accordance with U.S. GAAP for interim financial statements and do
not include all the information required for complete financial
statements. They are consistent with the policies outlined in the
Company's audited financial statements for the year ended September
30, 2005 except for the change mentioned in note 2. The interim
financial statements and related notes should be read in
conjunction with the Company's audited financial statements for the
year ended September 30, 2005. When necessary, the financial
statements include amounts based on informed estimates and best
judgements of management. The results of operations for the interim
periods reported are not necessarily indicative of results to be
expected for the year. 2. Change in Accounting Policies In December
2004, The Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based
Payment". SFAS No. 123R requires all entities to recognize
compensation cost for share-based awards, including options,
granted to employees. The Statement eliminates the ability to
account for share-based compensation transactions using the
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued To Employees", and generally requires instead that
such transactions be accounted for using a fair-value based method.
Public companies are required to measure stock-based compensation
classified as equity by valuing the instrument the employee
receives at its grant-date fair value. Previously such awards were
measured at intrinsic value under both APB No. 25 and SFAS No. 123,
"Accounting for Stock-Based Compensation". The Company applied the
Statement beginning in fiscal 2006 using the modified prospective
transition approach. If this change in accounting policy had been
applied to the previous fiscal year, the Company's net income,
basic income per share and diluted income per share for the periods
ended March 31, 2005 would have been reduced on a pro-forma basis
as follows: For the For the For the For the three-month three-month
six-month six-month period period period period ended ended ended
ended March March March March 31, 2005 31, 2005 31, 2005 31, 2005
------------ ----------- ----------- ------------ As reported
Pro-forma As reported Pro-forma ------------ -----------
----------- ------------ $ $ $ $ Net income 5,425 4,580 13,179
11,237 Basic income per share 0.12 0.10 0.29 0.25 Diluted income
per share 0.12 0.10 0.28 0.24 The estimated fair value of granted
stock options for the periods ended March 31, 2006 and 2005 using
the Black-Scholes model was as follows: For the For the For the For
the three-month three-month six-month six-month period period
period period ended ended ended ended March March March March 31,
2006 31, 2005 31, 2006 31, 2005 ------------ -----------
----------- ------------ Fair value per option $7.67 $7.45 $6.61
$7.09 Assumptions used Expected volatility 42% 43% 42% 43%
Risk-free interest rate 4.12% 3.76% 4.28% 4.08% Expected option
life (years) 6 6 6 6 Expected dividend - - - - 3. Inventories March
September 31, 2006 30, 2005 ---------- ----------- $ $ Raw
materials and packaging material 17,008 18,710 Work in progress
1,456 1,547 Finished goods 20,966 15,759
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39,430 36,016
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4. Intangible Assets
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March 31, 2006
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Accumulated amorti- Cost zation Net
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$ $ $ Trademarks, trademark licenses and manufacturing rights with
a: Finite life 339,634 50,970 288,664 Indefinite life 98,726 12,050
86,676
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438,360 63,020 375,340
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September 30, 2005
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Accumulated amorti- Cost zation Net
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$ $ $ Trademarks, trademark licenses and manufacturing rights with
a: Finite life 334,749 45,841 288,908 Indefinite life 112,430
12,417 100,013
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447,179 58,258 388,921
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Further to budgetary initiatives implemented by the French
government, which resulted in the delisting of a number of
pharmaceutical products from government formularies and re-pricing
of other pharmaceutical products, the Company reviewed the
appropriate carrying value and useful life of its French
subsidiary's intangible assets. During the three-month period ended
March 31, 2006, a partial write-down of $5,800,000 was recognized
on a French line of products including TAGAMET and TRANSULOSE as
the carrying value of the intangible assets associated with these
products exceeded the estimated value of cash generated by these
same products. The cost of the products LACTEOL and ADEKs has been
transferred from intangible assets with an indefinite life to
intangible assets with a finite life following changes in the
regulatory rules applicable to these products and resulting in the
modification of their useful life. The net cost of these products
as of October 1, 2005, which amounted to $13,520,565, is therefore
amortized over a 15-year period. 5. Segmented Information The
Company considers that it operates in a single reportable segment,
the pharmaceutical industry, since its other activities do not
account for a significant portion of segment assets. The Company
operates in the following geographic areas: For the For the For the
For the three-month three-month six-month six-month period period
period period ended ended ended ended March March March March 31,
2006 31, 2005 31, 2006 31, 2005 ------------ -----------
----------- ------------ $ $ $ $ Revenue Canada Domestic sales
9,143 7,710 19,327 16,900 Foreign sales - - - - United States
Domestic sales 48,089 39,100 92,998 76,128 Foreign sales 1,850
1,182 3,196 2,339 Europe Domestic sales 11,007 12,525 23,152 24,268
Foreign sales 2,614 2,769 4,636 5,192 Other 67 78 100 120
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72,770 63,364 143,409 124,947
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March September 31, 2006 30, 2005 ---------- ----------- $ $
Property, plant, equipment, intangible assets and goodwill Canada
38,455 39,506 United States 125,777 127,915 Europe 241,060 252,509
Other 27,431 28,131
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432,723 448,061
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Revenue is attributed to geographic segments based on the sales
country of origin. 6. Financial Information Included in the
Consolidated Operations a) Financial expenses For the For the For
the For the three-month three-month six-month six-month period
period period period ended ended ended ended March March March
March 31, 2006 31, 2005 31, 2006 31, 2005 ------------ -----------
----------- ------------ $ $ $ $ Interest on long-term debt 1,347
1,448 2,722 2,882 Bank charges 31 41 60 48 Financing fees 79 105
158 176 Amortization of deferred debt issue expenses 280 275 555
550
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1,737 1,869 3,495 3,656
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b) Selling and administrative expenses Selling and administrative
expenses include the following: For the For the For the For the
three-month three-month six-month six-month period period period
period ended ended ended ended March March March March 31, 2006 31,
2005 31, 2006 31, 2005 ------------ ----------- -----------
------------ $ $ $ $ Shipping and handling expenses 2,644 1,271
3,902 2,275 Advertising expenses 1,920 4,104 5,989 8,729 c) Other
information For the For the For the For the three-month three-month
six-month six-month period period period period ended ended ended
ended March March March March 31, 2006 31, 2005 31, 2006 31, 2005
------------ ----------- ----------- ------------ $ $ $ $ Rental
expenses 568 287 858 574 Depreciation of property, plant and
equipment 1,426 1,298 2,832 2,599 Amortization of intangible assets
4,223 4,032 8,451 8,095 d) Income per common share The following
tables reconcile the numerators and the denominators of the basic
and diluted income per common share computations: For the For the
For the For the three-month three-month six-month six-month period
period period period ended ended ended ended March March March
March 31, 2006 31, 2005 31, 2006 31, 2005 ------------ -----------
----------- ------------ $ $ $ $ Net income available to common
shareholders Basic 8,322 5,425 17,567 13,179 Interest and
amortization of deferred debt issue expenses relating to the
convertible subordinated notes, net of income taxes 1,069 1,055
2,190 2,134
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Net income available to common shareholders on a diluted basis
9,391 6,480 19,757 15,313
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For the For the For the For the three-month three-month six-month
six-month period period period period ended ended ended ended March
March March March 31, 2006 31, 2005 31, 2006 31, 2005 ------------
----------- ----------- ------------ Weighted average number of
common shares Weighted average number of common shares outstanding
45,712,790 45,599,780 45,711,291 45,582,668 Effect of dilutive
stock options 578,944 919,095 504,975 860,331 Effect of dilutive
convertible subordinated notes 8,924,113 8,924,113 8,924,113
8,924,113
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Adjusted weighted average number of common shares outstanding
55,215,847 55,442,988 55,140,379 55,367,112
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Number of common shares outstanding as at May 1, 2006 45,769,214
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Options to purchase 883,450 and 271,200 common shares were
outstanding as at March 31, 2006 and 2005 respectively but were not
included in the computation of diluted income per share for the
six-month periods ended March 31, 2006 and 2005 respectively
because the exercise price of the options was greater than the
average market price of the common shares. The $125,000,000
subordinated notes are convertible into 8,924,113 common shares.
The noteholders may convert their notes during any quarterly
conversion period if the closing price per share for at the least
20 consecutive trading days during the 30 consecutive trading-day
period ending on the first day of the conversion period exceeds
110% of the conversion price in effect on that thirtieth trading
day. The noteholders may also convert their notes during the five
business-day period following any 10 consecutive trading-day period
in which the daily average of the trading prices for the notes was
less than 95% of the average conversion value for the notes during
that period. Finally, the noteholders may also convert their notes
upon the occurrence of specified corporate transactions or, if the
company has called the notes for redemption. On or after April 20,
2006, the Company may at its option, redeem the notes, in whole or
in part at redemption prices varying from 101.70% to 100.85% of the
principal amount plus any accrued and unpaid interest to the
redemption date. The notes also include provisions for the
redemption of all the notes for cash at the option of the Company
following certain changes in tax treatment. e) Employee benefit
plan A subsidiary of the Company has a defined contribution plan
("The Plan") for its U.S. employees. Participation is available to
substantially all U.S. employees. Employees may contribute up to
15% of their gross pay and up to limits set by the U.S. Internal
Revenue Service. For the six-month period ended March 31, 2006, the
Company made matching contributions to the Plan totalling $222,262
($272,185 in 2005). 7. Contingencies The Company's subsidiary,
Axcan Scandipharm, had been named along with other third parties,
as defendants in several legal proceedings related to the product
line it markets under the name ULTRASE. In addition, the product
line's manufacturer and other defendant companies had claimed a
right to recover amounts paid defending and settling these claims.
This claim was based on contractual and indemnity issues and the
parties had agreed to settle their dispute through binding
arbitration. The Company accrued $2,900,000 to cover any future
settlements in connection with the indemnification claim and the
lawsuits discussed above. Following a series of decisions rendered
by the arbitrator in favour of Axcan Scandipharm, the Company
revaluated its exposure and this accrual was reversed in the
three-month period ended March 31, 2006, thus reducing the selling
and administrative expenses by the same amount. 8. Subsequent Event
In connection with a reorganization of its international operations
due to budgetary initiatives implemented by the French government,
the Company has undertaken steps which seek a reduction of its
current workforce in Europe. To this end, on May 2, 2006, the
Company's French subsidiary communicated a reorganization plan to
the employee-representatives in France aimed at reducing its
workforce. If this plan is implemented, the Company anticipates
recording one time restructuring charges of approximately
$1,500,000 during the three-month period ending June 30, 2006. 9.
Summary of Differences Between Generally Accepted Accounting
Principles in the United States and in Canada The consolidated
interim financial statements have been prepared in accordance with
U.S. GAAP which, in the case of the Company, conform in all
material respects with Canadian GAAP, except as set forth below:
For the For the For the For the three-month three-month six-month
six-month period period period period ended ended ended ended March
March March March 31, 2006 31, 2005 31, 2006 31, 2005 ------------
----------- ----------- ------------ Operations adjustments $ $ $ $
Net income in accordance with U.S. GAAP 8,322 5,425 17,567 13,179
Implicit interest on convertible debt (1,226) (1,120) (2,455)
(2,243) Stock-based compensation expense - (1,131) - (2,431)
Amortization of new product acquisition costs (12) (12) (26) (26)
Income tax impact of the above adjustments (105) 135 (268) 140
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Net earnings in accordance with Canadian GAAP 6,979 3,297 14,818
8,619
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Earnings per share in accordance with Canadian GAAP Basic 0.15 0.07
0.32 0.19 Diluted 0.15 0.07 0.32 0.19 March 31, 2006 September 30,
2005 --------------------- --------------------- U.S. Canadian U.S.
Canadian GAAP GAAP GAAP GAAP -------- ----------- ---------
---------- Balance sheet adjustments $ $ $ $ Current assets 232,273
232,273 190,357 190,357 Property, plant and equipment 29,916 29,916
31,673 31,673 Intangible assets 375,340 387,622 388,921 401,229
Goodwill 27,467 28,862 27,467 28,862 Deferred debt issue expenses
2,022 2,022 2,577 2,577 Deferred income tax asset 3,049 2,770 412
412 Current liabilities 66,278 66,278 58,336 58,336 Long-term debt
125,767 115,140 126,332 113,250 Deferred income tax liability
39,346 40,435 39,135 40,234 Shareholders' equity Equity component
of convertible debt - 24,239 - 24,239 Capital stock 262,468 274,181
261,714 273,022 Additional paid-in capital 3,376 14,934 1,329
13,293 Retained earnings 156,354 127,624 138,787 112,806
Accumulated foreign currency translation adjustments 16,478 20,634
15,774 19,930 DATASOURCE: AXCAN PHARMA INC. CONTACT: PRNewswire -
May 4
Copyright