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Elan Reports Third Quarter 2013 Financial Results

Stocks in this article: ELN

Elan Corporation, plc (NYSE:ELN) today reported its third quarter and first nine months 2013 financial results.

“We remain focused on presenting the proposed acquisition of Elan by Perrigo to our shareholders at the shareholder meetings in November. In parallel, we continue to manage our company as we have done in quarters and years past. We remain on track to close the previously announced transaction by the end of 2013,” said Mr. Kelly Martin, Chief Executive Officer.

Mr. Martin added, “The anticipated successful completion of the acquisition by Perrigo will bring to a close more than 40 years of proud and independent history for Elan in Ireland. Many people have contributed to Elan over those years and through their collective efforts, Elan was an enterprise whose mission was to advance science and ultimately have a positive impact on patients. Through the myriad of all the various twists and turns, the company and its employees never lost sight of the mission - to help patients lead better lives”.

Mr. Nigel Clerkin, chief financial officer, said, “as we move towards the closing of the Perrigo transaction, we remain in a very strong financial position. We ended the quarter with almost $1.9 billion in cash and cash equivalents, and no debt. The net loss for the quarter of $13.8 million was impacted by costs associated with the Perrigo transaction. We recorded Adjusted EBITDA of $12.1 million for the third quarter, reflecting the first full quarter of the new royalty arrangements on Tysabri, as well as sustained cost discipline.”

Unaudited Consolidated U.S. GAAP Income Statement Data
 
Three Months Ended September 30   Nine Months Ended September 30
2012

US$m

  2013

US$m

      2012

US$m

  2013

US$m

  Continuing Operations  
48.6 Revenue (see page 7) 105.1
Cost of goods sold 0.2
48.6 Gross margin (0.2) 105.1
 
Operating Expenses (see page 7)
24.0 24.1 Selling, general and administrative 86.8 79.3
23.0 17.4 Research and development 73.5 59.0
107.7 11.4 Other net charges (see page 9) 109.6 127.6
154.7 52.9 Total operating expenses 269.9 265.9
(154.7) (4.3) Operating loss (270.1) (160.8)
 
Net Interest and Investment Gains and Losses (see page 9)
15.0 (1.5) Net interest (income)/expense 44.2 12.1
Net charge on debt retirements 140.2
145.8 10.1 Net loss on equity method investments 196.0 39.3
0.2 Net investment losses 0.2
160.8 8.8 Net interest and investment gains and losses 240.2 191.8
 
(315.5) (13.1) Net loss from continuing operations before tax (510.3) (352.6)
(16.2) 0.7 Provision for/(benefit from) income taxes (46.3) (14.2)
(299.3) (13.8) Net loss from continuing operations (464.0) (338.4)
 
Discontinued Operations
69.4 Net income from discontinued operations, net of tax (see page 11) 173.8 2,676.6
(229.9) (13.8) Net income/(loss) (290.2) 2,338.2
 
(0.51) (0.03)

 

Basic and diluted net loss per ordinary share - continuing operations

(0.78) (0.62)
0.12

 

Basic and diluted net income per ordinary share – discontinued operations

0.29 4.89
(0.39) (0.03)

 

Basic and diluted net income/(loss) per ordinary share – total operations

(0.49) 4.27
592.9 512.4

 

Basic and diluted weighted average number of ordinary shares outstanding (in millions) – continuing and discontinued operations

591.8 547.9

Unaudited Non-GAAP Financial Information – Adjusted EBITDA
 
Three Months Ended

September 30

  Non-GAAP Financial Information

Reconciliation Schedule

Nine Months Ended

September 30

2012

US$m

  2013

US$m

    2012

US$m

  2013

US$m

     
(229.9) (13.8) Net income/(loss) (290.2) 2,338.2
Net income/(loss) from discontinued operations:
(82.0) Net income from Tysabri (220.8) (2,633.9)
12.6 Net loss from Prothena 26.7 0.5
Net (income)/loss from EDT/Alkermes 20.3 (43.2)
(299.3) (13.8) Net loss from continuing operations (464.0) (338.4)
15.0 (1.5) Net interest (income)/expense 44.2 12.1
(16.2) 0.7 Provision for/(benefit from) income taxes (46.3) (14.2)
2.9 0.9 Depreciation and amortization 9.4 3.1
(0.2) (0.1) Amortized fees (0.3) (0.2)
(297.8) (13.8) EBITDA from continuing operations (457.0) (337.6)
5.7 4.2 Share-based compensation 24.8 16.5
107.7 11.4 Other net charges 109.6 127.6
145.8 10.1 Net loss on equity method investments 196.0 39.3
0.2 Net investment losses 0.2
Net charge on debt retirements 140.2
(38.6) 12.1 Adjusted EBITDA from continuing operations (1) (126.6) (13.8)

(1) A reconciliation of Adjusted EBITDA from discontinued operations to net income/(loss) from discontinued operations for the three and nine months ended September 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, net loss on equity method investments, net investment losses 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

2012

US$m

    September 30

2013

US$m

Assets
Current Assets
Cash and cash equivalents 431.3 1,873.3
Restricted cash and cash equivalents — current 2.6 3.0
Investment securities — current 167.9 65.5
Held for sale assets 220.1
Deferred tax assets — current 380.9 1.0
Other current assets 206.7 75.4
Total current assets 1,409.5 2,018.2
 
Non-Current Assets
Intangible assets, net 99.0 97.6
Property, plant and equipment, net 12.7 8.0
Equity method investments 14.0 59.4
Investment securities — non-current 8.6 9.1
Deferred tax assets — non-current 64.6 8.9
Restricted cash and cash equivalents — non-current 13.7 0.9
Other assets 18.1 25.8
Total Assets 1,640.2 2,227.9
 
Liabilities and Shareholders’ Equity
Accounts payable, accrued and other liabilities 422.0 141.5
Long-term debt 600.0
Shareholders’ equity 618.2 2,086.4
Total Liabilities and Shareholders’ Equity 1,640.2 2,227.9

Movement in Shareholders’ Equity

   
Three Months

ended September 30, 2013

US$m

      Nine Months ended September 30,

2013

US$m

2,050.1 Opening shareholders’ equity 618.2
(13.8) Net income for the period 2,338.2
4.2 Share-based compensation 17.4
12.3 Issuance of share capital 41.6
Unrealized movement on defined benefit pension plan 24.8
23.9 Increase in net unrealized gain on investment securities 24.6
(0.2) Share repurchase and associated costs (1,016.6)
9.9 Excess tax benefits from share based compensation 38.2
2,086.4 Closing shareholders’ equity 2,086.4

Unaudited Consolidated U.S. GAAP Cash Flow Data
 
Three Months Ended

September 30

    Nine Months Ended

September 30

2012

US$m

  2013

US$m

      2012

US$m

  2013

US$m

   
(38.6) 12.1 Adjusted EBITDA from continuing operations (126.6) (13.8)
99.8 Adjusted EBITDA from discontinued operations (1) 269.4 116.9
(15.6) (9.8) Net interest and tax (2) (44.1) (61.8)
(41.6) (11.3) Other net charges (3) (43.1) (166.6)
11.9 (54.8) Working capital decrease/(increase) (26.6) (104.2)
15.9 (63.8) Cash flows provided by/(used in) operating activities 29.0 (229.5)
(3.8) (0.2) Net purchases of tangible and intangible assets (9.8) (0.9)
(0.1) (0.1) Purchase of investments (0.5) (0.4)
Funding provided to equity method investment (Janssen AI) (48.7) (55.7)
Net proceeds from sale of Alkermes plc shares 381.1 169.7
Proceeds from sale of Tysabri business 3,249.5
Purchase of equity method investment (Newbridge) (40.0)
Receipt of deferred consideration (Prialt) 7.0
8.2 18.7 Cash provided by/(used in) financing activities (2)(4) 16.8 (1,663.1)
0.4 Restricted cash and cash equivalents movement

 

12.4
20.2 (45.0) Net cash movement 374.9 1,442.0
626.4 1,918.3 Beginning cash balance 271.7 431.3
646.6 1,873.3 Cash and cash equivalents at end of period 646.6 1,873.3

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

(2) Includes a non-cash reclassification from net interest and tax to cash used in financing activities of $9.9 million and $38.2 million of excess tax benefits from share based compensation for the three months ended September 30, 2013 and for the nine months ended September 30, 2013, respectively, 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 $133.9 million for the nine months ended September 30, 2013 in addition to cash transaction costs of $32.7 million related to the Tysabri Transaction.

(4) Includes share repurchase costs of $1,015.1 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 $38.2 million and proceeds from the issue of share capital of $41.6 million for the nine months ended September 30, 2013.

Overview

The net loss for the third quarter of 2013 of $13.8 million relates entirely to continuing operations. The net loss of $229.9 million for the third quarter of 2012 includes a net loss from continuing operations of $299.3 million and net income from discontinued operations of $69.4 million related to the Tysabri and Prothena businesses (see page 11 and Appendix I).

The net income for the nine months ended September 30, 2013 of $2,338.2 million (2012: net loss of $290.2 million) includes a net loss from continuing operations of $338.4 million (2012: $464.0 million) (see page 8), and net income from discontinued operations of $2,676.6 million (2012: $173.8 million) related to the Tysabri, Prothena and EDT businesses (see page 11 and Appendix II).

Perrigo Company’s Acquisition of Elan

On July 29, 2013, Elan announced that, following a formal sale process, Perrigo Company (Perrigo) and Elan had entered into a definitive agreement under which Elan will be acquired by a new holding company incorporated in Ireland (New Perrigo).

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