SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULES 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Month of January 2004
SANOFI-SYNTHELABO
(Exact name of registrant as specified in its charter)
174, avenue de France, 75013 Paris, FRANCE
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes [ ] No [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_______________.
1
On October 24, 2003, we published our results for the six months ended June 30,
2002, prepared in accordance with French GAAP in the Bulletin des Annonces
Legales Obligatoire (the BALO) as required by French law.
Included in this current report on Form 6-K is an English language translation
of the half-year management report (rapport semestriel) and our unaudited
interim financial statements for the six months ended June 30, 2003, prepared in
accordance with French GAAP. We originally included this information in our
current report on Form 6-K, dated October 27, 2003. The only differences between
the information included in this current report on Form 6-K and the information
included in the publication in the BALO and in our current report on Form 6-K,
dated October 27, 2003 relate to the deletion of the non-GAAP measure
Consolidated net income before exceptional items and goodwill amortization, and
the related EPS, and discussion of those measures from the management report
and in the interim consolidated financial statements.
As in our current report on Form 6-K, dated October 27, 2003, we have omitted
the certification of our auditors, included in the BALO publication, as well as
certain information regarding our insurance coverage required by the rules of
the Commission des operations de bourse that we do not consider material to
investors.
2
MANAGEMENT REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS
OF SANOFI-SYNTHELABO
FOR THE SIX MONTHS ENDED JUNE 30, 2003
Highlights of the first half of 2003 were:
- growth in consolidated net sales ahead of pharmaceuticals market growth;
- confirmation of the success of Eloxatin(R) in the treatment of colorectal
cancer, both in Europe and in the United States, where Eloxatin(R) was
launched in September 2002;
- dynamic performances from other strategic products such as Plavix(R),
Aprovel(R), and Ambien(R)/Stilnox(R),
- earnings growth amongst the best achieved by any of the pharmaceuticals
majors;
- continuation of the share buy-back programs initiated in May 2002.
During the first half of 2003, Sanofi-Synthelabo recorded CONSOLIDATED NET SALES
of 3,903 million euros, AN INCREASE OF 14.4% ON A COMPARABLE BASIS and 6.1% on a
reported basis.
OPERATING PROFIT for the six months to June 30, 2003 came to 1,391 million
euros, a rise of 12.8%. The operating margin rate was 35.6%, compared with 33.5%
in the first half of 2002. This advance was achieved in spite of negative
movements in the exchange rates of the main currencies against the euro. AT 2002
EXCHANGE RATES, OPERATING PROFIT WOULD HAVE SHOWN AN INCREASE OF 30.3% RELATIVE
TO THE FIRST HALF OF 2002.
CONSOLIDATED NET INCOME for the six months to June 30, 2003 was 944 million
euros, against 830 million euros for the six months to June 30, 2002, a rise of
13.7%. This represented 24.2% of consolidated net sales, against 22.5% for the
six months to June 30, 2002. At 2002 exchange rates, the increase would have
been 27.4%. EARNINGS PER SHARE came to 1.34 euros, compared with 1.13 euros in
the first half of 2002, A RISE OF 18.6%.
3
SALES
DEVELOPED SALES
When we refer to "developed sales" of a product, we mean consolidated sales,
excluding sales of products to our alliance partners, but including those that
are made through our alliances and which are not included in our consolidated
sales. These alliances are with Bristol-Myers Squibb on Plavix(R)/Iscover(R)
(clopidogrel) and Aprovel(R)/Avapro(R)/Karvea(R) (irbesartan), with Fujisawa on
Stilnox (R)/Myslee(R) (zolpidem), and with Organon on Arixtra(R) (fondaparinux).
Our alliance partners provide us with information regarding their sales in order
to allow us to calculate developed sales.
We believe that developed sales are a useful measurement tool because they
demonstrate trends in the overall presence of our products in the market.
The table below reconciles consolidated net sales to developed sales.
IN MILLIONS OF EUROS H1 2003 H1 2002
-------------------- ------- -------
Reported Comparable
-------- ----------
- CONSOLIDATED NET SALES 3,903 3,680 3,412
- sales of products to alliance partners (170) (167) (167)
- sales generated by alliance partners 1,180 1,213 1,027
DEVELOPED SALES 4,913 4,726 4,272
DEVELOPED SALES FOR THE FIRST HALF OF 2003 WERE 4,913 MILLION EUROS, AN INCREASE
OF 15.0% ON A COMPARABLE BASIS.
In the United States, developed sales amounted to 1,718 million euros,
representing 35% of worldwide developed sales.
DEVELOPED SALES OF PLAVIX(R)/ISCOVER(R)
Q1 2003 Change on a Q2 2003 Change on a H1 2003 Change on a
IN MILLIONS OF comparable comparable comparable
EUROS basis basis basis
--------------------------------------------------------------------------------------------------------
Europe 233 +28.7% 243 +24.0% 476 +26.3%
United States 287 -14.1% 426 +50.5% 713 +15.6%
Rest of the world 73 +62.2% 84 +61.5% 157 +61.9%
----- ----- ----- ------ ----- ------
TOTAL 593 +5.9% 753 +41.8% 1,346 +23.4%
===== ===== ===== ====== ===== ======
DEVELOPED SALES OF PLAVIX(R)/ISCOVER(R) REACHED 1,346 MILLION EUROS IN THE FIRST
HALF OF 2003, A RISE OF 23.4% ON A COMPARABLE BASIS.
4
IN THE UNITED STATES:
- Invoiced sales of Plavix(R) in the first quarter of 2003 fell by 14% on a
comparable basis, largely due to a sharp reduction in shipments to
wholesalers in response to a change in the marketing policy adopted by
Bristol-Myers Squibb.
- Second-quarter invoiced sales of Plavix(R) saw robust growth of 50.5% on a
comparable basis. This growth corresponds to invoiced sales in line with
demand, and also reflects a favorable comparative base, as Bristol-Myers
Squibb only began its inventory workdown in the second quarter of 2002.
- Over the first half of 2003, demand for Plavix(R) continued to grow at a
sustained pace, with prescriptions up 26.7% (Prescription IMS YTD June
2003 retail + mail order + long term care), coupled with a favorable price
effect.
- Given the very strong growth in prescriptions and the current level of
inventories held by American wholesalers, full-year invoiced sales should
be close to demand.
OUTSIDE THE UNITED STATES, first-half sales rose by 33.5% on a comparable basis.
DEVELOPED SALES OF APROVEL(R)/AVAPRO(R)/KARVEA(R)
Q1 2003 Change on a Q2 2003 Change on a H1 2003 Change on a
IN MILLIONS OF comparable comparable comparable
EUROS basis basis basis
------------------------------------------------------------------------------------------------------
Europe 146 +27.0% 160 +25.0% 306 +25.9%
United States 98 +3.2% 90 -2.2% 188 +0.5%
Rest of the world 46 +43.8% 51 +37.8% 97 +40.6%
----- ----- ----- ------ ----- ------
TOTAL 290 +19.8% 301 +17.1% 591 18.4%
===== ===== ===== ====== ===== ======
DEVELOPED SALES OF APROVEL(R)/AVAPRO(R)/KARVEA(R) CAME TO 591 MILLION EUROS IN
THE FIRST HALF OF 2003, AN INCREASE OF 18.4% ON A COMPARABLE BASIS.
- IN THE UNITED STATES, second-quarter sales of Avapro(R) reached 90 million
euros. Over the first half, prescriptions grew by 14.0% (Prescriptions IMS
YTD June 2003 retail + mail order + long term care), coupled with a
favorable price effect. Invoiced sales were in line with demand over the
first half. The lack of comparable-basis growth was due to an unfavorable
comparative base, the inventory workdown being implemented by
Bristol-Myers Squibb from the second half of 2002.
- OUTSIDE THE UNITED STATES, first-half sales rose by 29.2% on a comparable
basis.
5
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Sanofi~Synthelabo and its subsidiaries
(the "Group") have been prepared in accordance with Rule 99-02 of the Comite de
la Reglementation Comptable ("CRC") issued April 29, 1999 and applicable with
effect from January 1, 2000, and with Recommendation 99 R 01 of the CRC issued
March 18, 1999 on interim financial statements.
The accounting policies and methods used are identical to those applied in the
preparation of the financial statements for the year ended December 31, 2002,
except for the adoption with effect from January 1, 2003 of CRC Rule 2002-10 on
the depreciation and impairment of assets, which had no material impact on the
first-half consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME
CONSOLIDATED NET SALES
Consolidated net sales reached 3,903 million euros in the first half of 2003, an
increase of 14.4% on a comparable basis and 6.1% on a reported basis.
When we refer to the change in our sales on a "comparable" basis, we mean that
we exclude the impact of exchange rate fluctuations and changes in Group
structure (acquisitions and divestitures of entities and rights to products as
well as change in the consolidation percentage for consolidated entities).
For any two periods, we exclude the impact of exchange rates by recalculating
sales for the earlier period on the basis of exchange rates used in the later
period.
We exclude the impact of acquisitions by including sales for a portion of the
prior period equal to the portion of the current period during which we owned
the entity or product rights based on sales information we receive from the
party from whom we make the acquisition. Similarly, we exclude sales in the
relevant portion of the prior period when we have sold an entity or rights to a
product.
For a change in the consolidation percentage of a consolidated entity, the prior
period is recalculated on the basis of the consolidation method used for the
current period.
Currency fluctuations had an unfavorable impact of 7.8 percentage points over
the half-year. Of this, half was due to the weakening of the US dollar (in the
first half of 2003, the euro on average appreciated by more than 20% against the
dollar relative to the first half of 2002), and the rest was due to the weakness
of certain Latin American and Asian currencies. Changes in Group structure had
an unfavorable impact of 0.5 of a percentage point during the year to June 30,
2003, due primarily to the change from full consolidation to 51% proportionate
consolidation of Sanofi-Synthelabo Fujisawa (Taiwan) in May 2002.
6
CONSOLIDATED NET SALES BY GEOGRAPHICAL REGION
H1 2003 H1 2002
------- ------- Change on a Change on a
MILLIONS OF EUROS Comparable Reported comparable basis reported basis
----------------- ---------- -------- ---------------- --------------
Europe 2,320 2,151 2,176 +7.9% +6.6%
United States 884 631 756 +40.1% +16.9%
Rest of the world 699 630 749 +11.0% -6.7%
----- ----- ----- ----- ----
TOTAL 3,903 3,412 3,680 +14.4% +6.1%
===== ===== ===== ===== ====
- IN EUROPE, FIRST-HALF CONSOLIDATED NET SALES REACHED 2,320 MILLION EUROS,
7.9% higher on a comparable basis. Excluding sales of finished products to
Bristol-Myers Squibb, comparable-basis growth was 8.2% in the first half,
a higher growth rate than that of the market (7.3% IMS YTD retail to end
May).
- IN THE UNITED STATES, FIRST-HALF CONSOLIDATED NET SALES REACHED 884
MILLION EUROS, an increase of 40.1% on a comparable basis and 16.9% on a
reported basis, the difference being entirely due to fluctuations in the
dollar/euro exchange rate. This performance was due to the success of
Eloxatin(R), which generated sales of 213 million euros, and to the
progress made by Ambien(R), which posted 516 million euros in sales, an
increase of 24.0% on a comparable basis.
- IN THE REST OF THE WORLD, sustained growth in Asia and a recovery in Latin
American operations led to FIRST-HALF SALES OF 699 MILLION EUROS, up 11.0%
on a comparable basis but down 6.7% on a reported basis. The fall in the
reported-basis figure was due to the weakness of some Latin American and
Asian currencies during the first half, and to the change to 51%
proportionate consolidation of Sanofi-Synthelabo-Fujisawa (Taiwan).
CONSOLIDATED NET SALES BY PRODUCT (comparable-basis figures)
FIRST-HALF CONSOLIDATED NET SALES OF THE GROUP'S TOP 10 PRODUCTS WERE 2,574
MILLION EUROS, AN INCREASE OF 30.4% (21.1% on a reported basis).
THESE TOP 10 PRODUCTS REPRESENTED 65.9% OF FIRST-HALF CONSOLIDATED NET SALES,
compared with 57.9% in the first half of 2002.
7
Change on a
IN MILLIONS OF EUROS Indication H1 2003 comparable
basis
------------------------------------------------------------------------------------------
Stilnox(R)/Ambien(R) Insomnia 627 +20.8%
Plavix(R) Atherothrombosis 612 +27.0%
Eloxatin(R) Colorectal cancer 384 +220.0%
Aprovel(R) Hypertension 334 +29.5%
Fraxiparine(R) Thrombosis 166 +3.8%
Depakine(R) Epilepsy 137 +5.4%
Xatral(R) Benign prostatic hypertrophy 103 +19.8%
Cordarone(R) Arrhythmia 73 -8.8%
Solian(R) Schizophrenia 71 +6.0%
Tildiem(R) Angina, hypertension 67 -6.9%
----- -----
TOTAL FOR THE TOP 10
PRODUCTS 2,574 +30.4%
===== =====
During the first half of 2003:
- CONSOLIDATED NET SALES OF STILNOX(R)/AMBIEN(R)/MYSLEE(R) WERE 627 MILLION
EUROS, a rise of 20.8%. In the United States, the product recorded sales
of 516 million euros, up 24.0%. In Japan, consolidated net sales of
Myslee(R) were 23 million euros, up 23.7%.
- CONSOLIDATED NET SALES OF PLAVIX(R) TOTALED 612 MILLION EUROS, a rise of
27.0%. Excluding sales of active ingredient and finished products to
Bristol-Myers Squibb, Plavix(R) posted sales growth of 38.3%.
- CONSOLIDATED NET SALES OF ELOXATIN(R) TOTALED 384 MILLION EUROS, an
increase of 220.0%. This very strong growth reflects the continuing
success of Eloxatin(R) in the United States, where it achieved sales of
213 million euros. Outside the United States, sales advanced by 43.4%.
- CONSOLIDATED NET SALES OF APROVEL(R) WERE 334 MILLION EUROS, up 29.5%,
underlining the success of this product, especially in Europe.
- Consolidated net sales of Arixtra(R) remained low at 8 million euros, due
to the current narrow range of indications. The program aimed at extending
indications for Arixtra(R) is on track.
Apart from the top 10 products, the rest of the portfolio generated sales of
1,329 million euros in the first half of 2003, a decline of 7.6%. Stripping out
the fall in sales of Ticlid(R) and the virtual disappearance of sales of
Corotrope(R)/Primacor(R) (since the introduction of generics in the United
States in May 2002), sales of the other products in the portfolio were almost
unchanged (-0.4%).
8
GROSS PROFIT
Gross profit was 3,153 million euros, an increase of 6.0%. At 2002 exchange
rates, growth in gross profit would have been 16.9%.
The GROSS MARGIN RATE was unchanged relative to the first half of 2002 at 80.8%,
reflecting:
- Negative currency effects, in particular on royalties paid by
Bristol-Myers Squibb on invoiced sales of Plavix(R) and Avapro(R) in the
United States. At 2002 exchange rates, the gross margin rate would have
been 81.9%, an improvement of 1.1 percentage points.
- A further improvement in the product mix, due to sustained growth for the
major products and in spite of the very strong rate of growth in sales of
Eloxatin(R), on which gross margin is lower than the Group figure due to
royalties paid to our alliance partner Debiopharm.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by 5.8% to 621 million euros and
represented 15.9% of consolidated net sales, the same proportion as in the first
half of 2002. At 2002 exchange rates, research and development expenses would
have risen by 12.9%. This increase was mainly due to major clinical trials
programs covering products already on the market (Plavix(R),
Aprovel(R)/Avapro(R)) and new molecules in phase III of development (Rimonabant,
Zolpidem MR, Idraparinux).
In 2003, our continuing efforts in research and development were rewarded by:
- Announcement in June 2003 at the 39th annual conference of the ASCO
(American Society of Clinical Oncology) of major results with Oxaliplatine
(Eloxatin(R)), clearly demonstrating consistent superiority in the
treatment of colorectal cancer in all settings of the disease (early
stage, adjuvant treatment after surgery, metastatic settings).
- Approval in June 2003 by the US Food and Drug Administration of
Uroxatral(R) in the treatment of the signs and symptoms of benign
prostatic hypertrophy.
- Approval in June 2003 by the US Food and Drug Administration, and
favorable opinion in July 2003 from the Committee for Proprietary
Medicinal Products on approval for marketing in Europe, for Arixtra(R) in
the long-term prevention of deep venous thrombosis in patients undergoing
hip fracture surgery.
- Announcement in July 2003 at the 19th conference of the ISTH
(International Society on Thrombosis and Haemostasis) of favorable results
with Arixtra(R), demonstrating a significant reduction of the risk of deep
venous thrombosis in medical patients (ARTEMIS study) and benefits in
prevention of deep venous thrombosis after major abdominal surgery
(PEGASUS study).
9
SELLING AND GENERAL EXPENSES
Selling and general expenses amounted to 1,204 million euros, 2.8% lower than in
the first half of 2002. At 2002 exchange rates, they would have risen by 5.1%,
with marketing spend up by 6.6% and general expenses stable.
The increase in marketing resources and the sales force was concentrated in the
United States to support the growth of Ambien(R) and the launch of Eloxatin(R),
and to prepare for the launch of Uroxatral(R).
In Europe, sales and marketing efforts were maintained in order to provide
further support for sales growth.
In Latin America, local structures were adapted to take account of the economic
crisis, especially in Argentina and Brazil.
OTHER OPERATING INCOME AND EXPENSES
Other operating income and expenses relate primarily to transfers to and from
our partners in respect of profit sharing arrangements under joint venture and
alliance agreements on product marketing and development. The effects of these
profit sharing arrangements are reflected in operating profit.
During the first half of 2003, other operating income and expenses, relating
primarily to joint operations with Bristol-Myers Squibb, represented a net gain
of 63 million euros, against 85 million euros for the first half of 2002. At
2002 exchange rates, this item would have shown an increase of 12.9%.
The year-on-year change reflects the following factors:
- Negative currency effect on the share of profits generated by
Plavix(R) and Avapro(R) in the United States transferred by
Bristol-Myers Squibb.
- A marked increase in profits transferred to Bristol-Myers Squibb as
a result of the strong growth of Plavix(R) and Aprovel(R) in Europe.
In the first half of 2003, our share of the profits generated by Plavix(R) and
Avapro(R) in North America, the territory managed by Bristol-Myers Squibb, came
to 153 million euros, against 171 million euros in the first half of 2002.
Conversely, the profits transferred to Bristol-Myers Squibb in respect of the
territory managed by Sanofi~Synthelabo amounted to 83 million euros in the first
half of 2003, compared with 66 million euros to end June 2002.
OPERATING PROFIT
Operating profit for the first half of 2003 came to 1,391 million euros, 12.8%
higher than in the first half of 2002. At 2002 exchange rates, growth in
operating profit would have been 30.3%. In spite of unfavorable currency
effects, the operating margin rate advanced by more than 2 percentage points to
35.6%, against 33.5% for the first half of 2002.
In geographical terms, operating profit made progress in all regions. However,
the 20% fall in the US dollar against the euro held back growth in profits
generated in the United States.
10
IN MILLIONS OF EUROS H1 2002 H1 2003 % change
-------------------- ------- ------- --------
- Europe 817 922 12.9%
- United States 807 857 6.2%
- Rest of the world 253 274 8.3%
- Unallocated costs (644) (662) 2.8%
----- ----- ----
TOTAL OPERATING PROFIT 1,233 1,391 12.8%
===== ===== ====
Europe accounted for 45% of consolidated operating profit before unallocated
costs, against 44% in the first half of 2002.
The United States contributed 42% of consolidated operating profit before
unallocated costs, against 43% in the first half of 2002.
Unallocated costs consist mainly of fundamental research and worldwide
development of pharmaceutical molecules, and part of the cost of support
functions.
INTANGIBLES - AMORTIZATION AND IMPAIRMENT
Amortization and impairment of intangibles increased from 55 million euros in
the first half of 2002 to 66 million euros in the first half of 2003, due to a
full six months of amortization charges for the rights to Ambien(R) in the
United States, acquired in April 2002.
NET FINANCIAL INCOME
During the first half of 2003, net financial income totaled 63 million euros,
compared with 28 million euros in the first half of 2002. Despite a reduction in
the Group's net cash position as a result of the share buy-back program
initiated in 2002 and a fall in the rate of interest on the investment of
surplus cash, net financial income showed an overall improvement due to the
following factors:
- A net foreign exchange gain of 53 million euros in the first half of
2003, compared with 13 million euros in the first half of 2002.
- A charge of 20 million euros in the first half of 2003 to the
provision for treasury shares allocated to stock option plans,
compared with the 38 million euro charge taken in the first half of
2002.
11
INCOME BEFORE TAX AND EXCEPTIONAL ITEMS
Income before tax and exceptional items totaled 1,388 million euros, 15.1%
higher than in the first half of 2002.
INCOME TAXES
Income taxes amounted to 458 million euros, against 313 million euros in the
first half of 2002. The Group's effective tax rate was abnormally low in the
first half of 2002 at 25.8%, due to the write-back of provisions for taxes of
some 50 million euros and to the non-taxation of the share of the Lorex joint
venture profits transferred to Pharmacia in April 2002. The effective tax rate
for the first half of 2003 was 33%, close to the level recorded in the second
half of 2002 (32%).
INCOME FROM EQUITY INVESTEES
The share of net income from equity investees for the first half of 2003 was 19
million euros, mainly comprising the share of 2002 profits to which
Sanofi-Synthelabo is entitled via its interest in the Yves Rocher group. The
treatment applied to this item is unchanged from the first half of 2002, when
the amount involved was very similar.
MINORITY INTERESTS
Minority interests came to 2 million euros, against 83 million euros in the
first half of 2002. The 2002 first-half figure mainly comprised the entitlement
of Pharmacia to a share in the profits of the Lorex joint venture for the period
from January 1, 2002 through April 16, 2002.
NET INCOME AND EARNINGS PER SHARE
CONSOLIDATED NET INCOME came to 944 million euros, up 13.7% on the first half of
2002.
EARNINGS PER SHARE CAME TO 1.34 EUROS, AGAINST 1.13 EUROS FOR THE FIRST HALF OF
2002, A RISE OF 18.6%. EXCLUDING CURRENCY EFFECTS, THE INCREASE WOULD HAVE BEEN
31.9%.
The difference between growth in net income and growth in earnings per share was
mainly due to the impact of the share buy-back program initiated in 2002. The
average number of shares used to calculate earnings per share for the first half
of 2003 was 706.5 million, against 731.8 million for the first half of 2002.
12
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating cash flow before changes in working capital for the first half of 2003
was 1,114 million euros, 2.5% higher than the 2002 first-half figure of 1,087
million euros. This modest rate of growth was due mainly to the inclusion in the
first half of 2002 of minority interest payments to Pharmacia in operating cash
flow before changes in working capital.
Working capital needs rose by 355 million euros during the period, compared with
an increase of 697 million euros in the six months to June 30, 2002. The rise
during the first half of 2003 was mainly due to an increase in accounts
receivable and to payments made in respect of tax reassessments accepted in
2002.
Total investments amounted to 185 million euros, compared with 1,014 million
euros in the six months to June 30, 2002. Acquisitions during the first half of
2002 included the buyout of 51% of the Lorex joint venture in the United States.
Proceeds from disposals of fixed assets, net of income taxes, came to 5 million
euros, against 14 million euros in the first half of 2002.
Dividends paid to Sanofi-Synthelabo shareholders represented 579 million euros,
compared with 473 million euros in 2002, an increase of 22.4%. The dividend per
share rose by 27.2%, from 0.66 of a euro to 0.84 of a euro per share. Treasury
shares are not entitled to dividends, limiting the overall amount of dividend
paid.
The movement in other financing activities corresponds to the implementation of
the share buy-back programs authorized by the General Meetings of May 22, 2002
and May 19, 2003, which resulted in the purchase during the period of 13,940,301
shares for a total amount of 688 million euros. These shares are netted off
consolidated shareholders' equity. Disposals of shares in connection with stock
option plans amounted to a total of 4 million euros.
After all these cash flows, the amount of cash and cash equivalents (defined as
liquid assets, excluding treasury shares classified as short-term investments)
shown in the statement of cash flows fell by 790 million euros during the first
half of 2003.
CONSOLIDATED BALANCE SHEET
The balance sheet total was 8,837 million euros as of June 30, 2003, 622 million
euros lower than as of December 31, 2002.
Shareholders' equity was 5,591 million euros, a drop of 444 million euros.
Shares purchased under the share buy-back program and netted off shareholders'
equity totaled 1,651 million euros, including 688 million euros acquired during
the first half of 2003.
The main balance sheet items showing material movements relative to December 31,
2002 were:
13
ASSETS:
- Accounts receivable rose by 238 million euros, in line with the
expansion of the Group's sales, especially in the United States.
LIABILITIES:
- Other current liabilities fell by 90 million euros, mainly as a
result of the payment during the period of tax reassessments
accepted in 2002.
- Short-term debt fell by 103 million euros, largely due to the
repayment of loan installments.
The Group had a net positive net cash position of 1,967 million euros at the end
of the period, against 2,672 million euros as of December 31, 2002, after taking
account of 599 million euros of treasury shares held in connection with stock
option plans as of June 30, 2003.
RECENT EVENTS
- As of August 31, 2003, the Group held 32.3 million shares acquired under
the share buy-back programs authorized by the General Meetings of May 22,
2002 and May 19, 2003, representing 4.41% of the share capital and
amounting to 1,749 million euros. These figures do not include treasury
shares held in connection with stock option plans.
- In connection with the Plavix litigation in the United States, and as
announced on June 20, 2003, patent "328" expiring 2014 has been withdrawn
from the patent infringement action and will be delisted from the Food and
Drug Administration "Orange Book". This withdrawal has no effect on
product patent "265" expiring 2011, which protects clopidogrel, the active
ingredient of Plavix, which we are confidently defending. As regards the
action itself, fact discovery is scheduled to end on October 15, 2003,
with the pre-trial order expected towards mid-2004. The trial itself will
follow, on a date to be fixed by the Court.
OUTLOOK FOR 2003
The acceleration in sales growth during the first half has enabled us to upgrade
our forecast for 2003 full-year sales growth, which we now expect to be in the
region of 15% on a comparable basis, as opposed to our initial forecast of
12.8%.
At the same time, the second half of 2003 will see an acceleration in spending
on research and development associated with ongoing clinical trials, plus a
reinforcement of marketing resources, especially in the United States ahead of
the launch of Uroxatral.
14
Even after this investment in our future, we anticipate 2003 full-year growth in
earnings per share before exceptional items and goodwill amortization of close
to 20% at an average annual rate of 1.10 dollars to the euro (as opposed to the
1 dollar per euro rate previously used). This equates to a 20% upward revision
to the previously-announced forecast rate of growth in 2003 full-year earnings
per share before exceptional items and goodwill amortization. The sensitivity of
this growth rate to fluctuations in the dollar is unchanged, at 1% for a 3-cent
movement.
SANOFI-SYNTHELABO PARENT COMPANY
The statement of income of the Sanofi-Synthelabo parent company for the six
months ended June 30, 2003 shows income before tax and exceptional items of 883
million euros, compared with 771 million euros for the six months ended June 30,
2002.
15
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED FINANCIAL
STATEMENTS
AS OF JUNE 30, 2003
16
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
- CONSOLIDATED BALANCE SHEETS ......................................... 2-3
- CONSOLIDATED STATEMENTS OF INCOME ................................... 4
- CONSOLIDATED STATEMENTS OF CASH FLOWS ............................... 5
- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ..................... 6
- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...................... 7-14
17
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED BALANCE SHEETS
Before appropriation of profit
ASSETS
June 30, December 31,
(In millions of euros) 2003 2002
Note (unaudited)
---- ----------- ------------
INTANGIBLE ASSETS, NET
Goodwill ....................................................................... 125 134
Other intangible assets ........................................................ 1,023 1,161
----- -----
PROPERTY, PLANT AND EQUIPMENT................................................... 1,148 1,295
Gross .......................................................................... 2,097 1,989
Accumulated depreciation ....................................................... (676) (594)
----- -----
Net ............................................................................ 1,421 1,395
LONG-TERM INVESTMENTS
Investments in/advances to equity investees .................................... C.3 126 109
Investments in/advances to non-consolidated companies .......................... 27 27
Other long-term investments .................................................... 97 73
----- -----
TOTAL FIXED ASSETS ............................................................. 2,819 2,899
===== =====
Deferred income taxes .......................................................... 471 484
Inventories .................................................................... 831 823
Accounts receivable ............................................................ 1,549 1,311
Other current assets ........................................................... 893 854
Short-term investments and deposits ............................................ 2,166 2,944
Cash ........................................................................... 108 144
----- -----
TOTAL ASSETS ................................................................... 8,837 9,459
===== =====
The accompanying notes on pages 7 to 14 are an integral part of the consolidated
financial statements.
18
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED BALANCE SHEETS
Before appropriation of profit
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
(in millions of euros) 2003 2002
Note (unaudited)
---- ----------- ------------
SHAREHOLDERS' EQUITY
Share capital .................................................................. 1,465 1,465
(June 30, 2003 : 732,494,621 shares , December 31, 2002 : 732,367,507 shares)
Additional paid in capital and reserves ........................................ 3,466 2,971
Net income for the period ...................................................... 944 1,759
Cumulative translation adjustment .............................................. (284) (160)
----- -----
Total shareholders' equity ..................................................... 5,591 6,035
===== =====
MINORITY INTERESTS ............................................................. 18 17
Long-term debt ................................................................. 59 65
Provisions and other long-term liabilities ..................................... C.6 771 786
Deferred income taxes .......................................................... 9 10
Accounts payable ............................................................... 632 596
Other current liabilities ...................................................... 1,509 1,599
Short-term debt ................................................................ 248 351
----- -----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... 8,837 9,459
===== =====
The accompanying notes on pages 7 to 14 are an integral part of the consolidated
financial statements.
19
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED STATEMENTS OF INCOME
(in millions of euros, except per-share amounts) 6 months ended 6 months ended Year ended
June 30, June 30, 2002 December
2003
Note (unaudited) (unaudited) 31, 2002
---- ----------- ----------- --------
Net sales ....................................................... C.9 3,903 3,680 7,448
Cost of goods sold .............................................. (750) (706) (1,378)
GROSS PROFIT .................................................... 3,153 2,974 6,070
Research and development expenses ............................... (621) (587) (1,218)
Selling and general expenses .................................... (1,204) (1,239) (2,428)
Other operating income/(expense), net ........................... 63 85 190
OPERATING PROFIT ................................................ C.9 1,391 1,233 2,614
Intangibles - amortization and impairment ....................... (66) (55) (129)
Financial income/(expense), net ................................. 63 28 85
INCOME BEFORE TAX AND EXCEPTIONAL ITEMS ......................... 1,388 1,206 2,570
Exceptional items ............................................... 1 6 10
Income taxes .................................................... C.7 (458) (313) (746)
NET INCOME BEFORE INCOME FROM EQUITY INVESTEES, GOODWILL
AMORTIZATION AND MINORITY INTERESTS ............................. 931 899 1,834
Income from equity investees, net ............................... 19 18 20
Goodwill amortization ........................................... (4) (4) (8)
NET INCOME BEFORE MINORITY INTERESTS ............................ 946 913 1,846
Minority interests .............................................. C.8 (2) (83) (87)
----------- ----------- -----------
NET INCOME ...................................................... 944 830 1,759
=========== =========== ===========
Weighted average shares outstanding ............................. 706,514,070 731,762,997 727,686,372
EARNINGS PER SHARE, BASIC AND DILUTED (IN EUROS) ................ 1.34 1.13 2.42
=========== =========== ===========
The accompanying notes on pages 7 to 14 are an integral part of the consolidated
financial statements.
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of euros) 6 months 6 months
ended ended
June 30, June 30, Year ended
2003 2002 December
Note (unaudited) (unaudited) 31, 2002
Net income ..................................................................... 944 830 1,759
Minority interests ............................................................. C.8 2 83 87
Share in undistributed earnings of equity investees ............................ (19) (18) (20)
Depreciation and amortization .................................................. 188 167 379
Gains on disposals of fixed assets, net of income taxes ........................ (1) (6) (9)
Provisions, long-term deferred taxes and other ................................. - 31 64
----- ----- -----
OPERATING CASH FLOW BEFORE CHANGES IN WORKING CAPITAL .......................... 1,114 1,087 2,260
----- ----- -----
- Dividends received from equity investees ..................................... - 10 11
- (Increase) / decrease in inventories ......................................... (51) (58) (78)
- (Increase)/ decrease in accounts receivable .................................. (223) (41) (18)
- Increase / (decrease) in accounts payable .................................... 34 (38) (77)
- Change in other operating assets and liabilities (net) ....................... (115) (570) (422)
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES (A) .................................. 759 390 1,676
----- ----- -----
Acquisitions of property, plant & equipment and intangibles .................... C.2 (185) (1,014) (1,403)
Acquisitions of investments .................................................... (2) (12) (32)
Proceeds from disposals of fixed assets, net of income taxes ................... 5 14 22
Net change in loans, long-term advances and other investing cash flows ......... 1 3 4
----- ----- -----
NET CASH USED IN INVESTING ACTIVITIES (B) ...................................... (181) (1,009) (1,409)
----- ----- -----
Issuance of shares ............................................................. 2 2 4
Capital contribution from minority shareholders ................................ 4 - 5
Dividends paid :
- to Sanofi-Synthelabo shareholders ........................................... (579) (473) (473)
- to minority shareholders of subsidiaries .................................... (3) (3) (3)
Additional long-term borrowings ................................................ - - 1
Repayments of long-term borrowings ............................................. (52) (4) (9)
Net change in short-term borrowings ............................................ (45) 76 54
Acquisitions of treasury shares net of disposal ................................ (684) (386) (1,170)
----- ----- -----
NET CASH USED IN FINANCING ACTIVITIES (C) ..................................... (1,357) (788) (1,591)
----- ----- -----
Impact of exchange rates on cash and cash equivalents (D) ...................... (11) (6) (16)
NET CHANGE IN CASH AND CASH EQUIVALENTS (A) + (B) + (C) + (D) .................. (790) (1,413) (1,340)
----- ----- -----
----- ----- -----
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. C.4 2,465 3,805 3,805
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... C.4 1,675 2,392 2,465
----- ----- -----
The accompanying notes on pages 7 to 14 are an integral part of the consolidated
financial statements.
(SANOFI-SYNTHELABO LOGO)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(in millions of euros, except share amounts) ADDITIONAL
PAID IN CUMULATIVE
NUMBER OF SHARE CAPITAL AND TRANSLATION
SHARES CAPITAL RESERVES ADJUSTMENT TOTAL
----------- ------- ----------- ----------- -----
BALANCE, DECEMBER 31, 2001 ........................... 732,005,084 1,464 4,321 (17) 5,768
----------- ----- ----- ----- -----
Dividend paid out of 2001 earnings (0.66 E per share) - - (473) - (473)
----------- ----- ----- ----- -----
Issuance of shares on exercise of stock options ...... 362,423 1 3 - 4
----------- ----- ----- ----- -----
NET INCOME FOR YEAR ENDED DECEMBER 31, 2002 .......... - - 1,759 - 1,759
----------- ----- ----- ----- -----
Adjustments related to the Sanofi-Synthelabo merger
(note C.5.2) ......................................... - - 59 - 59
----------- ----- ----- ----- -----
Change in accounting method (note A) ................. - - 24 - 24
----------- ----- ----- ----- -----
Repurchase of shares (note C.5.3) .................... - - (963) - (963)
----------- ----- ----- ----- -----
Movement in cumulative translation adjustment ........ - - - (143) (143)
----------- ----- ----- ----- -----
BALANCE, DECEMBER 31, 2002 ........................... 732,367,507 1,465 4,730 (160) 6,035
----------- ----- ----- ----- -----
Dividends paid out of 2002 earnings (0.84 E per share) - - (579) - (579)
----------- ----- ----- ----- -----
Issuance of shares on exercise of stock options ...... 127,114 - 2 - 2
----------- ----- ----- ----- -----
NET INCOME FOR THE 6 MONTHS ENDED JUNE 30, 2003 ...... - - 944 - 944
----------- ----- ----- ----- -----
Adjustment related to the Sanofi-Synthelabo merger
(note C.5.2) ......................................... - - 1 - 1
----------- ----- ----- ----- -----
Repurchase of shares (note C.5.3) .................... - - (688) - (688)
----------- ----- ----- ----- -----
Movement in cumulative translation adjustment ........ - - - (124) (124)
----------- ----- ----- ----- -----
BALANCE, JUNE 30, 2003 ............................... 732,494,621 1,465 4,410 (284) 5,591
----------- ----- ----- ----- -----
The accompanying notes on pages 7 to 14 are an integral part of the consolidated
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003
A. BASIS OF PREPARATION
The consolidated financial statements of Sanofi-Synthelabo and its
subsidiaries (the << Group >>) have been prepared in accordance with Rule
99-02 of the Comite de la Reglementation Comptable ("CRC") issued April
29, 1999 and effective as of January 1, 2000, and CNC recommendation 99 R
01 of March 18, 1999 on interim accounts.
The accounting policies and methods used are identical to those applied in
the preparation of the financial statements for the year ended December
31, 2002, except for the adoption as of January 1, 2003 of the rule CRC
2002.10 concerning the amortization and impairment of assets. This has no
significant impact on the consolidated financial statements for the six
months period ended June 30, 2003.
Pursuant to the new CRC Rule 2000-06, which became effective as of January
1, 2002, the Group reviewed all its liabilities as of that date for
compliance with the new rule. The impact of applying this new rule was an
adjustment to shareholders' equity of 24 million euros net of income
taxes.
The consolidated financial statements for the 6 months ended June 30, 2003
should be read in conjunction with the consolidated financial statements
for the year ended December 31, 2002.
B. ALLIANCE AGREEMENTS WITH BRISTOL-MYERS SQUIBB (BMS)
Two of the Group's leading products were jointly developed with BMS : the
anti-hypertensive agent irbesartan (Aprovel(R) / Avapro(R) / Karvea(R)
and the atherothrombosis treatment clopidogrel (Plavix(R) / Iscover(R).
Sanofi-Synthelabo is paid as inventor of the two molecules, a royalty
based on all sales generated by these products. This royalty is recorded
as a reduction in cost of goods sold.
As co-developers of the products, Sanofi-Synthelabo and BMS each receive
equal development royalties from their two licensees which have been
responsible, since 1997, for marketing the products using their local
distribution network, composed of the affiliates of both groups. These
licensees operate in two separate territories: (i) Europe, Africa and
Asia, under the operational management of Sanofi-Synthelabo; and (ii) the
rest of the world (excluding Japan), under the operational management of
BMS. In Japan, Sanofi-Synthelabo has granted a license to BMS and
Shionogi, a Japanese pharmaceutical company.
The products are marketed in different ways in different countries.
Co-promotion consists of a pooling of sales resources under a single brand
name. Co-promotion is preferably achieved through contracts or through
appropriate tax-transparent legal entities. Each partner records directly
its share of taxable income.
Co-marketing consists of separate marketing of the products by each local
affiliate using its own name and resources under different brand names for
the product.
In certain countries of Eastern Europe, Africa, Asia, Latin America and
Middle East, the products are marketed on an exclusive basis, either by
Sanofi-Synthelabo or by BMS.
In the territory managed by Sanofi-Synthelabo, operations are recognized
by the Group as follows:
(i) Co-promotion is used in most of the countries of Western Europe and Asia
(excluding Japan) for both products, and in Portugal for irbesartan
(Aprovel(R)/Avapro(R)/Karvea(R)). The legal entities used are partnerships
("societes en participation") or other tax-transparent entities, which are
majority-owned by and under the operational management of the Group.
Sanofi-Synthelabo recognizes all the revenue associated with the sale of
the drugs, as well as the corresponding expenses. The share of net income
reverting to BMS subsidiaries is recorded in "Other operating
income/(expense), net".
(ii) Co-marketing is used in Germany, Italy, Spain and Greece for both
products, and in Portugal for clopidogrel (Plavix(R)/Iscover(R)).
Sanofi-Synthelabo recognizes revenues and expenses generated by its own
operations.
(iii) In Eastern Europe, Africa, Asia and the Middle East, where products are
marketed exclusively by Sanofi-Synthelabo, the Group recognizes revenues
and expenses generated by its own operations.
In the territory managed by BMS, operations are recognized by the Group as
follows:
(i) Co-promotion is used in the United States and Canada through entities
which are majority-owned by and under the operational leadership of BMS.
Sanofi-Synthelabo does not recognize revenues; rather, it invoices the
entity for its promotion expenses, accounts for royalties in gross profit
and records its share of net income in "Other operating income/(expense),
net".
(ii) Co-marketing is used in Brazil, Mexico, Argentina, Colombia and Australia.
Sanofi-Synthelabo recognizes revenues and expenses generated by its own
operations.
(iii) In certain other countries of Latin America, where products are marketed
exclusively by Sanofi-Synthelabo, the Group recognizes revenues and
expenses generated by its own operations.
The presentation of these transactions in the Sanofi-Synthelabo financial
statements, in accordance with the legal nature of the agreements, results
in the inclusion of Sanofi-Synthelabo's share of the results of operations
in its consolidated operating profit and consolidated income before tax
and exceptional items.
C. SIGNIFICANT INFORMATION ON THE PRESENTATION OF THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
C.1. IMPACT OF CHANGES IN THE SCOPE OF CONSOLIDATION
- SIGNIFICANT CHANGES IN THE SIX MONTHS ENDED JUNE 30, 2003
There were no significant acquisitions or divestitures in the six months
ended June 30, 2003.
- SIGNIFICANT CHANGES IN 2002
Acquisitions
The three main acquisitions during the period were:
- Acquisition on April 16, 2002 of the 51% interest held by
Pharmacia-Searle in the Lorex Pharmaceuticals joint venture (note
C.2). With effect from this date, Sanofi-Synthelabo has been
entitled to 100% of this entity's profits.
- Acquisition on January 1, 2002 of 100% of Institut Medical Algerien.
- The Group also acquired the minority interests held by third parties
in two companies in India and Greece.
The acquisitions made during the period resulted in the recognition of
goodwill with a gross value of 13 million euros as of December 31, 2002.
Divestitures
There were no significant divestitures in the year ended December 31,
2002.
Change in method of consolidation
The Fujisawa Sanofi-Synthelabo (Japan) joint venture is proportionately
consolidated at a rate of 51%, in order to reflect new agreements that
took effect in 2002. This entity was accounted for using the full
consolidation method at a rate of 51% in the year ended December 31, 2001.
C.2. ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Acquisitions of property, plant and equipment and intangible assets as
shown in the consolidated statement of cash flows comprise :
(in millions of euros) 6 months ended 6 months Year ended
June 30, ended June 30, December 31,
2003 2002 2002
-------------- -------------- ------------
Acquisitions of property, plant & equipment 166 212 423
Acquisitions of intangible assets 19 802 980
-------- -------- --------
TOTAL 185 1,014 1,403
======== ======== ========
Acquisitions of property, plant and equipment relate mainly to industrial
facilities (chemicals and drugs manufacturing) and to research sites. The
accelerated level of investment in property, plant and equipment from 2002
is related to increases in production capacity for new products.
During the first half of 2003, acquisitions of intangible assets relate
either to softwares or to pharmaceutical products.
In 2002, they mainly comprised the purchase of Ambien rights in the United
States pursuant the acquisition of the 51 % interest of Pharmacia-Searle
in Lorex Pharmaceuticals and payment of the balance for the rights to
Avapro in the United States.
C.3. INVESTMENTS IN/ADVANCES TO EQUITY INVESTEES
Investments in/advances to equity investees comprise:
(in millions of euros) JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Yves Rocher group............... 108 92
Other investments and advances.. 18 17
-------- --------
TOTAL........................... 126 109
======== ========
Following the merger of Sanofi and Synthelabo, the Group was in dispute
with its co-shareholders in the Yves Rocher Group, who rejected the
registration in the name of the merged entity Sanofi-Synthelabo of the
Group's shares in Financiere des Laboratoires de Cosmetologie Yves Rocher
and Laboratoires de Biologie Vegetale Yves Rocher. They had previously
been held by Sanofi.
The judgement dated January 10, 2001 concluded the following :
- Sanofi-Synthelabo rights in Financiere des Laboratoires de
Cosmetologie Yves Rocher have been restored.
- Laboratoires de Biologie Vegetale Yves Rocher were given the option
to repurchase Sanofi-Synthelabo's investment in their capital. This
acquisition was finalized in December 2001.
After this sale, and based on available information, the Group owns 39.1 %
of the Financiere des Laboratoires de Cosmetologie Yves Rocher, the
holding company, which in turn holds 51.3 % of Laboratoires de Biologie
Vegetale Yves Rocher. Consequently, the Group had an indirect financial
interest of 20.1% in the Yves Rocher Group.
During the first six months of 2001, both Sanofi-Synthelabo and Financiere
des Laboratoires de Cosmetologie Yves Rocher appealed separately to the
highest procedural court in France ("Cour de Cassation") on these
judgements. These appeals were rejected on May, 6 2003.
C.4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the consolidated statements of cash flows
includes available liquid assets, including short-term investments and
deposits and cash. Sanofi-Synthelabo's treasury shares are excluded from
cash. As of June 30, 2003, June 30, 2002 and December 31, 2002, the Group
held 599 million, 636 million and 623 million euros respectively of its
issued common shares in treasury (Note C.5.3).
C.5. SHAREHOLDER'S EQUITY
C.5.1. SHARE CAPITAL
The share capital comprises 732,494,621 shares with a par value of 2 euros
per share.
C.5.2. ADJUSTMENTS TO SHAREHOLDERS' EQUITY RELATED TO THE MERGER BETWEEN SANOFI
AND SYNTHELABO
In 2003 and 2002, shareholders' equity were adjusted due to the merger
between Sanofi and Synthelabo in an amount of 1 million and 59 million
euros, respectively.
These adjustments consist of the unused portion of provisions, initially
recorded in the opening balance sheet, which resulted from favourable
changes in circumstances during the period.
These adjustments are summarized as follows :
(in millions of euros) 6 months ended Year ended
June 30, 2003 2002
-------------- ----------
Change in provision for risks and deferred income taxes recorded in the opening
balance sheet...................................................................... 1 59
------ ------
TOTAL 1 59
------ ------
In 2002, the change in provisions for risks and deferred income taxes
related mainly to the settlement of tax litigation, primarily in France
and the United States.
C.5.3. SANOFI-SYNTHELABO SHARES
In 2002 and 2003, the Group proceeded with a policy of purchasing its own
shares with a view to holding, selling, transferring or canceling them.
The share purchase program involves up to 10% of Sanofi-Synthelabo's share
capital as authorized by the Annual General Meetings of May 22, 2002 and
May 19, 2003. The shares purchased are netted off shareholders' equity at
purchase price. Gains and losses on transactions in these shares, net of
taxes, are also taken to shareholders' equity.
Under this plan, the Group repurchased 13,940,301 shares in 2003 for 688
million euros. As at June 30, 2003, the Group held 30,352,096 treasury
shares, representing 4.14% of capital and amounting to 1,650 million
euros.
Moreover, the Group held 13,775,213 treasury shares with a net value of
599 million euros after a charge to provision for impairment of 20 million
euros in the six months to June 30, 2003 and after a charge to provision
for impairment of 46 million euros in the year to December 31, 2002. These
shares are included in "Short-term investments and deposits". These
treasury shares represent 1.88% of the capital and are mainly allocated to
employee stock option plans
C.6. PROVISIONS AND OTHER LONG-TERM LIABILITIES
Provisions and other long-term liabilities as of June 30, 2003 and December 31,
2002 comprise:
(in millions of euros) December Charges to Reversals of Reversals of Reclassifications Effect of June 30,
31, 2002 provisions provisions provisions in current exchange 2003
recognised in utilised not utilised* liabilities rates
net income for
the period
-------- -------------- ------------ ------------- ----------------- --------- --------
Provisions for pensions and
other benefits 427 38 (21) -- -- (10) 434
Restructuring provisions 8 -- -- -- -- -- 8
Other provisions for risks 347 12 (12) (20) -- (8) 319
Other long-term liabilities 4 4 (1) -- 3 -- 10
----- ----- ----- ----- ----- ----- -----
TOTAL 786 54 (34) (20) 3 (18) 771
----- ----- ----- ----- ----- ----- -----
* Reversals mainly due to settlements of tax audits.
The Group is involved in a number of legal proceedings and claims. These
include commercial and intellectual property litigation, tax audits and
other matters relating to the normal conduct of its business.
Provisions for tax exposures are recorded if the Group considers that the
tax authorities might challenge a tax position taken by the Group or a
subsidiary.
An assessment of these risks has been performed with the assistance of the
Group's legal advisers, and provisions have been recorded where
circumstances required.
C.7. INCOME TAXES
The tax charge for the six months to June 30, 2003 is 458 million euros
primarily related to current income taxes except for taxes on gains/losses
on disposal. For the six months to June 30, 2002, the tax charge of 313
million euros was also primarily related to current income taxes except
for taxes on gains/losses on disposal net gains on divestments.
The difference between the effective tax rate and the standard corporate
income tax rate applicable in France is explained as follows:
(as a percentage) 6 months 6 months ended Year ended
ended June 30, June 30, December 31,
2003 2002 2002
-------------- -------------- ------------
Tax rate applicable in France 35 35 35
Impact of income tax at reduced rate in France (3) (4) (4)
Lorex Pharmaceuticals -- (3) (1)
Other 1 (2) (1)
----- ----- -----
EFFECTIVE TAX RATE BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTIZATION 33 26 29
----- ----- -----
Impact of exceptional items -- -- --
----- ----- -----
EFFECTIVE TAX RATE 33 26 29
----- ----- -----
As from January, 1 2002, the Group fully consolidates Lorex
Pharmaceuticals. Income before tax and exceptional items includes all of
the profits and losses of this company, including the share of net income
reverting to Pharmacia-Searle for the period from January 1, 2002 through
April 15, 2002. As Lorex is a tax transparent entity, the "Income taxes"
line includes only the portion of the tax related to the profit share
attributed to the Group. This results in a 1% reduction of the effective
tax rate for 2002 full year and in a 3% reduction for the first six months
of 2002.
The "Other" line includes the difference between the French tax rate and
the tax rate applicable in other countries and the impact of reestimating
certain of the group's tax exposures.
C.8. MINORITY INTERESTS
As of June 30, 2002 and December 31, 2002, minority interests mainly
comprise the share in the net income of Lorex Pharmaceuticals reverting to
Pharmacia-Searle for the period from January 1, through April 15, 2002.
C.9. SEGMENT INFORMATION
The Group operates in one significant business segment - the research and
development, production and sale of pharmaceutical products.
The Group mainly operates in three geographical segments - "Europe", "the
United States" and "Other countries".
The table below presents net sales, operating profits, total assets and
long-lived assets by geographical segment. Net sales and operating profit
are allocated based on the location of the end customer. Total assets and
long-lived assets are allocated based on the location of the subsidiary.
6 MONTHS ENDED JUNE 30, 2003
Other Unallocated
(in millions of euros) Total Europe USA countries costs (1)
------ ------- ------ --------- -----------
Net sales 3,903 2,320 884 699 --
Operating profit 1,391 922 857 274 (662)
------ ------ ------ ---- -----
Total assets 8,837 6,325 1,857 655 --
Including long-lived assets 2,819 1,736 954 129 --
------ ------ ------ ---- -----
6 MONTHS ENDED JUNE 30, 2002
Other Unallocated
(in millions of euros) Total Europe USA countries costs (1)
------ ------- ------ --------- -----------
Net sales 3,680 2,173 755 752 --
Operating profit 1,233 817 807 253 (644)
------ ------ ------ ---- -----
Total assets 9,433 6,907 1,823 703 --
Including long-lived assets 2,879 1,631 1,109 139 --
------ ------ ------ ---- -----
YEAR ENDED DECEMBER 31, 2002
Other Unallocated
(in millions of euros) Total Europe USA countries costs (1)
------ ------- ------ --------- -----------
Net sales 7,448 4,297 1,689 1,462 --
Operating profit 2,614 1,633 1,781 522 (1,322)
------ ------ ------ ---- -----
Total assets 9,459 6,968 1,814 677 --
Including long-lived assets 2,899 1,715 1,052 132 --
------ ------ ------ ---- -----
(1) Unallocated costs consist mainly of fundamental research and worldwide
development of pharmaceutical molecules, and a part of the cost of support
functions.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: January 29, 2004
SANOFI-SYNTHELABO
By: /s/ Jean-Luc RENARD
-----------------------------------
Name: Jean-Luc RENARD
Title: Vice President, Corporate
Accounting and Tax
(Principal Accounting
Officer)