This excerpt taken from the ABII 8-K filed Nov 8, 2007.
Notes to Unaudited Pro Forma Combined Financial Statements
Please note that, due to regulations governing the preparation of pro forma financial statements, the pro forma combined financial statements do not reflect certain estimated incremental expenses associated with being an independent, public company. These additional pretax expenses are estimated to be $27 million for 2007. The estimated incremental expenses associated with being an independent, public company include costs for computer systems and costs associated with corporate administrative services such as tax, treasury, audit, risk management and insurance, investor relations and human resources.
(a) Reflects the estimated difference in cost of sales that would be recorded under the manufacturing agreement to be entered into with New APP with an initial term through December 31, 2011. Subsequent to the separation, cost of sales will reflect a markup for products manufactured. See Relationship Between New APP and Us After the Separation and DistributionManufacturing Agreement.
(b) The hospital-based products business utilized certain property, plant and equipment owned by us prior to the separation and related transactions and, subsequent to the separation and related transactions, will continue to utilize certain assets. Depreciation expense was allocated in the historical financial statements based on estimates of utilized square footage with respect to shared facilities and estimates of usage with respect to shared equipment. The adjustment reflects the expected difference in depreciation expense subsequent to the separation and related transactions as compared to the methodology used in the historical financial statements.
(c) We will enter into facility lease arrangements with New APP pursuant to which we will lease our manufacturing facility in Melrose Park, Illinois and a portion of our research and development and warehouse facility in Melrose Park, Illinois to New APP, and New APP will lease a portion of its Grand Island, New York manufacturing facility to us. Historically, operation costs for these shared facilities were allocated to the businesses at cost based on estimates of utilized square footage. Subsequent to the separation and related transactions, the lease rentals paid and received by us will be based on the respective local fair market rental rates for comparable properties. The adjustment reflects the estimated difference in revenues and expenses that will be recorded under the lease arrangements for the leased facilities. Each lease agreement will have a term through at least December 31, 2011, except the lease for the research and development facility in Melrose Park, which expires on December 31, 2010. See Relationship Between New APP and Us After the Separation and DistributionReal Estate Leases.
(d) Reflects adjustment to show the amortization of 2006 Merger related intangibles as if the 2006 Merger occurred on January 1, 2006.
(e) Reflects adjustment to eliminate one-time in process research and development charge associated with the 2006 Merger.
(f) Reflects the tax effects of the pro forma adjustments at the statutory income tax rates.
(g) The number of our shares used to compute basic earnings per share is based on the number of Old Abraxis common shares outstanding on June 30, 2007 (159,517,809, which excludes shares held in treasury) and the distribution ratio of one share of our common stock for every four shares of Abraxis BioScience common stock outstanding. The actual number of our basic shares outstanding will not be known until the actual distribution at the distribution date.
(h) The number of shares used to compute diluted earnings per share is based on the assumed number of basic shares as described in Note (g) above.
(i) We expect to receive a cash contribution of approximately $715 million from Abraxis BioScience immediately prior to the closing of the separation and related transactions. Abraxis BioScience will provide the
approximately $715 million as part of its investment in us. The proceeds for Abraxis BioSciences cash contribution to us will be made available from a debt financing of $1.0 billion. Approximately $265 million of the proceeds of this indebtedness will be used to repay in full Old Abraxis revolving credit facility; approximately $20 million will be used to pay fees and expenses related to the debt financing; and approximately $715 million will be contributed to us. New APP LLC and New APP will be solely responsible for servicing the debt following the separation and related transactions.
(j) On the distribution date, Abraxis BioSciences net investment in New Abraxis will be redesignated as New Abraxis stockholders equity and will be allocated between common stock and additional paid-in capital based on the number of shares of New Abraxis common stock outstanding at the distribution date. We have used in the pro forma combined financial statements the distribution ratio of one share of our common stock for every four shares of Abraxis BioScience common stock outstanding, which at June 30, 2007 was 159,517,809, which excludes treasury shares. The actual number of our basic shares outstanding will not be known until the distribution date.