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Elan Reports Second Quarter And First Half 2013 Financial Results

Elan Corporation, plc (NYSE:ELN) today reported its second quarter and first half 2013 financial results.

“We are focused squarely on the process of exploring a sale of the company as announced by our Board of Directors on June 14, 2013,” commented Mr. Kelly Martin, CEO, adding, “the Board of Directors and executive management are in complete alignment with regard to exploring all opportunities to maximize shareholder value.”

Mr. Martin further added that, “the collective work and effort over the previous years has produced a business platform that is highly unique across a number of tactical as well as strategic dimensions. We will continue to advance the process and communicate the outcome to the marketplace at the appropriate time.”

Mr. Nigel Clerkin, chief financial officer, said, “our second quarter results have been substantially impacted by the completion of the Tysabri transaction, the subsequent $1.0 billion share buyback, debt retirements and other transactions. Our net income for the quarter, of $2,288.7 million, reflects the gain recorded on the Tysabri transaction of $2,540.2 million, while our sharecount was reduced by approximately 15%. We remain in a very strong financial position, and ended the quarter with over $1.9 billion in cash and cash equivalents, and no debt.”

Unaudited Consolidated U.S. GAAP Income Statement Data
Three Months Ended         Six Months Ended
June 30 June 30
2012   2013 2012   2013
US$m   US$m           US$m   US$m
Continuing Operations
(0.2) 56.3 Revenue (see page 7) 56.5
0.1

Cost of goods sold
0.2
(0.3) 56.3 Gross margin (0.2) 56.5
 
Operating Expenses (see page 7)
32.8 26.2 Selling, general and administrative 62.8 55.2
25.6 22.2 Research and development 50.5 41.6
(0.1) 97.5 Other net charges/(gain) (see page 9) 1.9 116.2
58.3 145.9 Total operating expenses 115.2 213.0
(58.6) (89.6) Operating loss (115.4) (156.5)
 
Net Interest and Investment Gains and Losses (see page 10)
12.4 4.5 Net interest expense 29.2 13.6
140.2 Net charge on debt retirements 140.2
34.3 14.3 Net loss on equity method investments 50.2 29.2
46.7 159.0 Net interest and investment gains and losses 79.4 183.0
 
(105.3) (248.6) Net loss from continuing operations before tax (194.8) (339.5)
(15.3) 3.2 Provision for/(benefit from) income taxes (30.1) (14.9)
(90.0) (251.8) Net loss from continuing operations (164.7) (324.6)
 
Discontinued Operations
61.5 2,540.5 Net income from discontinued operations, net of tax (see page 12) 104.4 2,676.6
(28.5) 2,288.7 Net income/(loss) (60.3) 2,352.0
 
(0.15) (0.47) Basic and diluted net loss per ordinary share - continuing operations (0.28) (0.57)
0.10 4.75 Basic and diluted net income per ordinary share – discontinued operations 0.18 4.73
(0.05) 4.28 Basic and diluted net income/(loss) per ordinary share – total operations (0.10) 4.16
591.8 535.3 Basic and diluted weighted average number of ordinary shares outstanding (in millions) – continuing and discontinued operations 591.3 565.8
 
Unaudited Non-GAAP Financial Information – Adjusted EBITDA
 
Three Months Ended     Non-GAAP Financial Information     Six Months Ended
June 30 Reconciliation Schedule June 30
2012   2013 2012   2013
US$m   US$m           US$m   US$m
 
(28.5) 2,288.7 Net income/(loss) (60.3) 2,352.0
Net income/(loss) from discontinued operations:
(67.9) (2,540.5) Net income from Tysabri (138.8) (2,633.9)
6.6 Net loss from Prothena 14.1 0.5
(0.2) Net (income)/loss from EDT/Alkermes 20.3 (43.2)
(90.0) (251.8) Net loss from continuing operations (164.7) (324.6)
12.4 4.5 Net interest expense 29.2 13.6
(15.3) 3.2 Provision for/(benefit from) income taxes (30.1) (14.9)
3.2 1.1 Depreciation and amortization 6.5 2.2
Amortized fees (0.1) (0.1)
(89.7) (243.0) EBITDA from continuing operations (159.2) (323.8)
8.2 4.4 Share-based compensation 19.1 12.3
(0.1) 97.5 Other net charges/(gain) 1.9 116.2
34.3 14.3 Net loss on equity method investments 50.2 29.2
140.2 Net charge on debt retirements 140.2
(47.3) 13.4 Adjusted EBITDA from continuing operations (1) (88.0) (25.9)
 

(1) A reconciliation of Adjusted EBITDA from discontinued operations to net income/(loss) from discontinued operations for the three and six months ended June 30, 2012 and 2013 is set out in Appendix I and II.

To supplement its consolidated financial statements presented on a U.S. GAAP basis, Elan provides readers with Adjusted EBITDA, a non-GAAP measure of operating results. Adjusted EBITDA is defined as net loss from continuing operations plus or minus net income or loss from discontinued operations, net interest expense, provision for or benefit from income taxes, depreciation and amortization of costs and revenue, share-based compensation, other net charges or gains, net loss on equity method investments and net charges on debt retirements. Adjusted EBITDA is not presented as, and should not be considered an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. GAAP. Elan’s management uses Adjusted EBITDA to evaluate the operating performance of Elan and its business and this measure is among the factors considered as a basis for Elan’s planning and forecasting for future periods. Elan believes Adjusted EBITDA is a measure of performance used by some investors, equity analysts and others to make informed investment decisions. Adjusted EBITDA is used as an analytical indicator of income generated to service debt and to fund capital expenditures. Adjusted EBITDA does not give effect to cash used for interest payments related to debt service requirements and does not reflect funds available for investment in the business of Elan or for other discretionary purposes. Adjusted EBITDA, as defined by Elan and presented in this press release, may not be comparable to similarly titled measures reported by other companies. A reconciliation of Adjusted EBITDA to net income/(loss) is set out in the table above titled, “Non-GAAP Financial Information Reconciliation Schedule”.

Unaudited Consolidated U.S. GAAP Balance Sheet Data
       
December 31 June 30
2012 2013
      US$m     US$m
Assets
Current Assets
Cash and cash equivalents 431.3 1,918.3
Restricted cash and cash equivalents — current 2.6 3.4
Investment securities — current 167.9 42.0
Held for sale assets 220.1
Deferred tax assets — current 380.9
Other current assets 206.7 83.7
Total current assets 1,409.5 2,047.4
 
Non-Current Assets
Intangible assets, net 99.0 97.8
Property, plant and equipment, net 12.7 8.2
Equity method investments 14.0 69.5
Investment securities — non-current 8.6 9.0
Deferred tax assets — non-current 64.6
Restricted cash and cash equivalents — non-current 13.7 0.9
Other assets 18.1 17.2
Total Assets 1,640.2 2,250.0
 
Liabilities and Shareholders’ Equity
Accounts payable, accrued and other liabilities 422.0 199.9
Long-term debt 600.0
Shareholders’ equity 618.2 2,050.1
Total Liabilities and Shareholders’ Equity 1,640.2 2,250.0
 

Movement in Shareholders’ Equity
       
Three Months Six Months
ended June 30, ended June 30,
2013 2013
US$m           US$m
682.2 Opening shareholders’ equity 618.2
2,288.7 Net income for the period 2,352.0
4.4 Share-based compensation 13.2
16.7 Issuance of share capital 29.3
24.8 Unrealized movement on defined benefit pension plan 24.8
19.8 Increase in net unrealized gain on investment securities 0.7
(1,013.9) Share repurchase and associated costs (1,016.4)
27.4 (1) Excess tax benefits from share based compensation 28.3
2,050.1 Closing shareholders’ equity 2,050.1
 

(1) $27.4 million of excess tax benefits from share based compensation have been recognised in the three months ended June 30, 2013 as a result of the utilization of U.S. federal stock compensation net operating loss carryovers against a portion of the upfront profit on the sale of Tysabri which is attributed to the U.S.
Unaudited Consolidated U.S. GAAP Cash Flow Data
Three Months Ended         Six Months Ended
June 30 June 30
2012   2013 2012   2013
US$m   US$m           US$m   US$m
 
(47.3) 13.4 Adjusted EBITDA from continuing operations (88.0) (25.9)
82.6 Adjusted EBITDA from discontinued operations (1) 169.6 116.9
(13.8) (40.2) Net interest and tax (2) (28.5) (52.0)
(0.1) (133.4) Other net charges (3) (1.5) (155.4)
(2.3) 22.1 Working capital decrease/(increase) (38.5) (49.3)
19.1 (138.1) Cash flows provided by/(used in) operating activities 13.1 (165.7)
(1.5) 0.2 Net purchases of tangible and intangible assets (6.0) (0.7)
(0.2) (0.2) Purchase of investments (0.4) (0.3)
(48.7) (25.8) Funding provided to equity method investment (Janssen AI) (48.7) (55.7)
Net proceeds from sale of Alkermes shares 169.7
3,249.5 Proceeds from sale of Tysabri business 3,249.5
(40.0) Purchase of equity method investment (Newbridge) (40.0)
0.2 Net proceeds from sale of equity method investment (Alkermes plc) 381.1
7.0 Receipt of deferred consideration (Prialt) 7.0
3.6 (1,695.4) Cash provided by/(used in) financing activities (4) 8.6 (1,681.8)
12.0 Restricted cash and cash equivalents movement (5)

 
12.0
(20.5) 1,362.2 Net cash movement 354.7 1,487.0
646.9 556.1 Beginning cash balance 271.7 431.3
626.4 1,918.3 Cash and cash equivalents at end of period 626.4 1,918.3
 

(1) A reconciliation of Adjusted EBITDA from discontinued operations to net income/(loss) from discontinued operations for the three and six months ended June 30, 2012 and 2013 is set out in Appendix I and II.

(2) Includes a non-cash reclassification to cash used in financing activities of $27.4 million of excess tax benefits from share based compensation for the three months ended June 30, 2013 related to the utilization of stock compensation net operating loss carryovers against the gain on sale of Tysabri.

(3) Includes cash other net charges of $100.7 million for the three months ended June 30, 2013 in addition to cash transaction costs of $32.7 million related to the Tysabri Transaction.

(4) Includes Share Repurchase costs incurred to date of $1,011.7 million and debt redemption costs of $727.8 million reduced by a non-cash reclassification to net interest and tax of excess tax benefits from share based compensation of $27.4 million and proceeds from issue of share capital of $16.7 million for the three months ended June 30, 2013.

(5) Includes release of security deposit from exiting South San Francisco building leases in the three months ended June 30, 2013.

Overview

The net income for the second quarter of 2013 of $2,288.7 million (2012: net loss of $28.5 million) includes a net loss from continuing operations of $251.8 million (2012: $90.0 million) (see page 7), and net income from discontinued operations of $2,540.5 million (2012: $61.5 million) related to the Tysabri, Prothena and EDT businesses (see page 12 and Appendix I).

The net income for the first half of 2013 of $2,352.0 million (2012: net loss of $60.3 million) includes a net loss from continuing operations of $324.6 million (2012: $164.7 million) (see page 8), and net income from discontinued operations of $2,676.6 million (2012: $104.4 million) related to the Tysabri, Prothena and EDT businesses (see page 12 and Appendix II).

Sale Process

On June 14, 2013, Elan announced that it is proceeding with a formal sale process in light of the expressions of interest received to date. As previously stated, the Elan Board and management are aligned in maximizing the full value potential of the business on behalf of its shareholders. The sale process is continuing and the outcome will be communicated at the appropriate time.

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