Exhibit 99.2
PDL BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended September 30, 2007 | Nine Months Ended September 30, 2007 | |||||||||||||||||||||||
| As Previously Issued | Impact of Adjustments | As Corrected | As Previously Issued | Impact of Adjustments | As Corrected | |||||||||||||||||||
REVENUES: | ||||||||||||||||||||||||
Product sales, net | $ | 48,813 | $ | — | $ | 48,813 | $ | 146,902 | $ | — | $ | 146,902 | ||||||||||||
Royalties | 55,135 | — | 55,135 | 183,572 | — | 183,572 | ||||||||||||||||||
License, collaboration and other | 6,121 | — | 6,121 | 25,597 | — | 25,597 | ||||||||||||||||||
Total revenues | 110,069 | — | 110,069 | 356,071 | — | 356,071 | ||||||||||||||||||
COSTS AND EXPENSES: | ||||||||||||||||||||||||
Cost of product sales | 16,801 | — | 16,801 | 60,348 | — | 60,348 | ||||||||||||||||||
Research and development | 56,285 | (321 | ) | 55,964 | 177,414 | (321 | ) | 177,093 | ||||||||||||||||
Selling and marketing | 20,162 | — | 20,162 | 60,505 | — | 60,505 | ||||||||||||||||||
General and administrative | 19,732 | — | 19,732 | 54,563 | — | 54,563 | ||||||||||||||||||
Restructuring charges | 4,545 | — | 4,545 | 6,131 | — | 6,131 | ||||||||||||||||||
Other acquisition-related charges | 243 | — | 243 | 1,881 | — | 1,881 | ||||||||||||||||||
Asset impairment charges | 315 | — | 315 | 315 | 5,016 | 5,331 | ||||||||||||||||||
Total costs and expenses | 118,083 | (321 | ) | 117,762 | 361,157 | 4,695 | 365,852 | |||||||||||||||||
Operating loss | (8,014 | ) | 321 | (7,693 | ) | (5,086 | ) | (4,695 | ) | (9,781 | ) | |||||||||||||
Interest income and other, net | 5,378 | — | 5,378 | 15,341 | — | 15,341 | ||||||||||||||||||
Interest expense | (3,284 | ) | — | (3,284 | ) | (10,268 | ) | — | (10,268 | ) | ||||||||||||||
Loss before income taxes | (5,920 | ) | 321 | (5,599 | ) | (13 | ) | (4,695 | ) | (4,708 | ) | |||||||||||||
Income tax expense | 185 | — | 185 | 774 | — | 774 | ||||||||||||||||||
Net loss | $ | (6,105 | ) | $ | 321 | $ | (5,784 | ) | $ | (787 | ) | $ | (4,695 | ) | $ | (5,482 | ) | |||||||
NET LOSS PER SHARE: | ||||||||||||||||||||||||
Basic and diluted | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.05 | ) | ||||||||||||
Weighted average shares—basic and diluted | 116,861 | 116,861 | 116,017 | 116,017 | ||||||||||||||||||||
In addition to the consolidated financial statements presented in accordance with GAAP, PDL uses non-GAAP measures of operating performance, which are adjusted from results based on GAAP to exclude depreciation of property and equipment; stock-based compensation expense; amortization of intangible assets; interest income and other, net; interest expense; income taxes and certain other miscellaneous items. PDL believes that the non-GAAP results provide added insight into its performance by focusing on results generated by its ongoing operations. PDL uses the non-GAAP results when assessing the performance of its ongoing operations, in making resource allocation decisions and for planning and forecasting. Additionally, PDL considers these non-GAAP results in awarding bonus and other incentive compensation to its employees, including management. The non-GAAP financial measures should be considered as a supplement to, not as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures.
PDL BIOPHARMA, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||
REVENUES: | ||||||||||||
Product sales, net | $ | 48,813 | $ | 41,064 | $ | 146,902 | $ | 117,650 | ||||
Royalties | 55,135 | 42,533 | 183,572 | 140,524 | ||||||||
License, collaboration and other | 6,121 | 27,795 | 25,597 | 48,754 | ||||||||
Total revenues | 110,069 | 111,392 | 356,071 | 306,928 | ||||||||
COSTS AND EXPENSES: | ||||||||||||
Cost of product sales | 8,429 | 6,772 | 35,233 | 30,083 | ||||||||
Research and development | 46,942 | 51,716 | 151,945 | 147,786 | ||||||||
Selling and marketing | 18,658 | 14,245 | 56,293 | 40,807 | ||||||||
General and administrative | 16,782 | 12,155 | 45,639 | 38,424 | ||||||||
Non-GAAP costs and expenses | 90,811 | 84,888 | 289,110 | 257,100 | ||||||||
Non-GAAP net income | $ | 19,258 | $ | 26,504 | $ | 66,961 | $ | 49,828 | ||||
NON-GAAP NET INCOME PER SHARE: | ||||||||||||
Basic | $ | 0.16 | $ | 0.23 | $ | 0.58 | $ | 0.44 | ||||
Weighted average shares—basic | 116,861 | 113,868 | 116,017 | 113,293 | ||||||||
Diluted | $ | 0.16 | $ | 0.23 | $ | 0.57 | $ | 0.42 | ||||
Weighted average shares—diluted(2) | 118,810 | 116,594 | 118,064 | 117,438 | ||||||||
(1) These non-GAAP condensed consolidated statements of operations exclude amortization of intangible assets; depreciation of property and equipment; stock-based compensation expense; interest income and other, net; interest expense; income taxes and certain other miscellaneous items that were not classified in the foregoing categories and are identified below.
During the three and nine months ended September 30, 2007, the miscellaneous excluded items consisted of (a) restructuring charges of $4.5 million and $6.1 million, respectively, related to a reduction in force, primarily at the Company’s manufacturing facility, in the third quarter of 2007, and facilities-related charges, (b) other acquisition-related charges of $243,000 and $1.9 million, respectively, related to the operations of ESP Pharma Holding Company, Inc. prior to the Company’s acquisition of ESP Pharma on March 23, 2005, primarily product returns, as well as returns of Retavase for sales made prior to the Company’s acquisition of the rights to the product from Centocor, Inc. on the same date, and (c) asset impairment charges of $315,000 and $5.3 million, respectively, $5.0 million of which in the nine months ended September 30, 2007 relates to the write-down of certain property held for sale to the estimated realizable value in the second quarter of 2007. During the three and nine months ended September 30, 2006, the miscellaneous excluded items consisted of (a) a $5.6 million charge for both periods incurred in connection with the company’s acquisition in September 2006 of certain Cardene-related rights from Roche, (b) $0 and $4.1 million, respectively, in charges for payments to Wyeth in consideration of Wyeth’s consent to the Company’s transfer of the Company’s rights to the off-patent branded products, (c) other acquisition-related charges of $2.6 million and $5.9 million, respectively, and (d) asset impairment charges of $1.7 million and $2.6 million, respectively.
(2) Diluted weighted average shares on a non-GAAP basis exclude the impact of 12.4 million shares and 10.6 million shares of common stock underlying the convertible notes the Company issued in July 2003 and February 2005, respectively.
PDL BIOPHARMA, INC.
RECONCILIATION OF NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS TO GAAP
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended September 30, 2007 | |||||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Non-GAAP Results | Amortization of Intangible Assets | Depreciation of Property and Equipment | Stock-Based Compensation Expenses | Other Excluded Items | GAAP Results As Reported | ||||||||||||||||||
REVENUES: | |||||||||||||||||||||||
Product sales, net | $ | 48,813 | $ | — | $ | — | $ | — | $ | — | $ | 48,813 | |||||||||||
Royalties | 55,135 | — | — | — | — | 55,135 | |||||||||||||||||
License, collaboration and other | 6,121 | — | — | — | — | 6,121 | |||||||||||||||||
Total revenues | 110,069 | — | — | — | — | 110,069 | |||||||||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||||
Cost of product sales | 8,429 | 8,372 | — | — | — | 16,801 | |||||||||||||||||
Research and development | 46,942 | 412 | 5,818 | 2,792 | — | 55,964 | |||||||||||||||||
Selling and marketing | 18,658 | — | 565 | 939 | — | 20,162 | |||||||||||||||||
General and administrative | 16,782 | — | 1,641 | 1,309 | — | 19,732 | |||||||||||||||||
Restructuring charges | — | 4,545 | 4,545 | ||||||||||||||||||||
Other acquisition-related charges | — | 243 | 243 | ||||||||||||||||||||
Asset impairment charges | — | — | — | 315 | 315 | ||||||||||||||||||
Costs and expenses | 90,811 | 8,784 | 8,024 | 5,040 | 5,103 | 117,762 | |||||||||||||||||
Operating income (loss) | 19,258 | (8,784 | ) | (8,024 | ) | (5,040 | ) | (5,103 | ) | (7,693 | ) | ||||||||||||
Interest income and other, net | — | — | — | — | 5,378 | 5,378 | |||||||||||||||||
Interest expense | — | — | — | — | (3,284 | ) | (3,284 | ) | |||||||||||||||
Income (loss) before income taxes | 19,258 | (8,784 | ) | (8,024 | ) | (5,040 | ) | (3,009 | ) | (5,599 | ) | ||||||||||||
Income tax expense | — | — | — | — | 185 | 185 | |||||||||||||||||
Net income (loss) | $ | 19,258 | $ | (8,784 | ) | $ | (8,024 | ) | $ | (5,040 | ) | $ | (3,194 | ) | $ | (5,784 | ) | ||||||
NET INCOME (LOSS) PER SHARE: | |||||||||||||||||||||||
Basic | $ | 0.16 | $ | (0.05 | ) | ||||||||||||||||||
Weighted average shares — basic | 116,861 | 116,861 | |||||||||||||||||||||
Diluted | $ | 0.16 | $ | (0.05 | ) | ||||||||||||||||||
Weighted average shares — diluted | 118,810 | 116,861 | |||||||||||||||||||||
| Three Months Ended September 30, 2006 | |||||||||||||||||||||||
| Non-GAAP Results | Amortization of Intangible Assets | Depreciation of Property and Equipment | Stock-Based Compensation Expenses | Other Excluded Items | GAAP Results As Reported | ||||||||||||||||||
REVENUES: | |||||||||||||||||||||||
Product sales, net | $ | 41,064 | $ | — | $ | — | $ | — | $ | — | $ | 41,064 | |||||||||||
Royalties | 42,533 | — | — | — | — | 42,533 | |||||||||||||||||
License, collaboration and other | 27,795 | — | — | — | — | 27,795 | |||||||||||||||||
Total revenues | 111,392 | — | — | — | — | 111,392 | |||||||||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||||
Cost of product sales | 6,772 | 10,661 | — | — | — | 17,433 | |||||||||||||||||
Research and development | 51,716 | 412 | 6,397 | 3,368 | 5,621 | 67,514 | |||||||||||||||||
Selling and marketing | 14,245 | — | 452 | 955 | 15,652 | ||||||||||||||||||
General and administrative | 12,155 | — | 562 | 1,669 | 14,386 | ||||||||||||||||||
Other acquisition-related charges | — | — | — | — | 2,615 | 2,615 | |||||||||||||||||
Asset impairment charges | — | — | — | — | 1,656 | 1,656 | |||||||||||||||||
Costs and expenses | 84,888 | 11,073 | 7,411 | 5,992 | 9,892 | 119,256 | |||||||||||||||||
Operating income (loss) | 26,504 | (11,073 | ) | (7,411 | ) | (5,992 | ) | (9,892 | ) | (7,864 | ) | ||||||||||||
Interest income and other, net | — | — | — | — | 5,042 | 5,042 | |||||||||||||||||
Interest expense | — | — | — | — | (3,693 | ) | (3,693 | ) | |||||||||||||||
Income (loss) before income taxes | 26,504 | (11,073 | ) | (7,411 | ) | (5,992 | ) | (8,543 | ) | (6,515 | ) | ||||||||||||
Income tax expense | — | — | — | — | 208 | 208 | |||||||||||||||||
Net income (loss) | $ | 26,504 | $ | (11,073 | ) | $ | (7,411 | ) | $ | (5,992 | ) | $ | (8,751 | ) | $ | (6,723 | ) | ||||||
NET INCOME (LOSS) PER SHARE: | |||||||||||||||||||||||
Basic | $ | 0.23 | $ | (0.06 | ) | ||||||||||||||||||
Weighted average shares — basic | 113,868 | 113,868 | |||||||||||||||||||||
Diluted | $ | 0.23 | $ | (0.06 | ) | ||||||||||||||||||
Weighted average shares — diluted | 116,594 | 113,868 | |||||||||||||||||||||
PDL BIOPHARMA, INC.
RECONCILIATION OF NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS TO GAAP
(in thousands, except per share amounts)
(unaudited)
| Nine Months Ended September 30, 2007 | |||||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Non-GAAP Results | Amortization of Intangible Assets | Depreciation of Property and Equipment | Stock-Based Compensation Expenses | Other Excluded Items | GAAP Results As Reported | ||||||||||||||||||
REVENUES: | |||||||||||||||||||||||
Product sales, net | $ | 146,902 | $ | — | $ | — | $ | — | $ | — | $ | 146,902 | |||||||||||
Royalties | 183,572 | — | — | — | — | 183,572 | |||||||||||||||||
License, collaboration and other | 25,597 | — | — | — | — | 25,597 | |||||||||||||||||
Total revenues | 356,071 | — | — | — | — | 356,071 | |||||||||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||||
Cost of product sales | 35,233 | 25,115 | — | — | — | 60,348 | |||||||||||||||||
Research and development | 151,945 | 1,235 | 15,871 | 8,042 | — | 177,093 | |||||||||||||||||
Selling and marketing | 56,293 | — | 1,516 | 2,696 | — | 60,505 | |||||||||||||||||
General and administrative | 45,639 | — | 5,324 | 3,600 | — | 54,563 | |||||||||||||||||
Restructuring charges | — | — | — | — | 6,131 | 6,131 | |||||||||||||||||
Other acquisition-related charges | — | — | — | — | 1,881 | 1,881 | |||||||||||||||||
Asset impairment charges | — | — | — | — | 5,331 | 5,331 | |||||||||||||||||
Costs and expenses | 289,110 | 26,350 | 22,711 | 14,338 | 13,343 | 365,852 | |||||||||||||||||
Operating income (loss) | 66,961 | (26,350 | ) | (22,711 | ) | (14,338 | ) | (13,343 | ) | (9,781 | ) | ||||||||||||
Interest income and other, net | — | — | — | — | 15,341 | 15,341 | |||||||||||||||||
Interest expense | — | — | — | — | (10,268 | ) | (10,268 | ) | |||||||||||||||
Income (loss) before income taxes | 66,961 | (26,350 | ) | (22,711 | ) | (14,338 | ) | (8,270 | ) | (4,708 | ) | ||||||||||||
Income tax expense | — | — | — | — | 774 | 774 | |||||||||||||||||
Net income (loss) | $ | 66,961 | $ | (26,350 | ) | $ | (22,711 | ) | $ | (14,338 | ) | $ | (9,044 | ) | $ | (5,482 | ) | ||||||
NET INCOME (LOSS) PER SHARE: | |||||||||||||||||||||||
Basic | $ | 0.58 | $ | (0.05 | ) | ||||||||||||||||||
Weighted average shares — basic | 116,017 | 116,017 | |||||||||||||||||||||
Diluted | $ | 0.57 | $ | (0.05 | ) | ||||||||||||||||||
Weighted average shares — diluted | 118,064 | 116,017 | |||||||||||||||||||||
| Nine Months Ended September 30, 2006 | |||||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Non-GAAP Results | Amortization of Intangible Assets | Depreciation of Property and Equipment | Stock-Based Compensation Expenses | Other Excluded Items | GAAP Results As Reported | ||||||||||||||||||
REVENUES: | |||||||||||||||||||||||
Product sales, net | $ | 117,650 | $ | — | $ | — | $ | — | $ | — | $ | 117,650 | |||||||||||
Royalties | 140,524 | — | — | — | — | 140,524 | |||||||||||||||||
License, collaboration and other | 48,754 | — | — | — | — | 48,754 | |||||||||||||||||
Total revenues | 306,928 | — | — | — | — | 306,928 | |||||||||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||||
Cost of product sales | 30,083 | 31,791 | — | — | — | 61,874 | |||||||||||||||||
Research and development | 147,786 | 1,386 | 21,209 | 10,044 | 5,621 | 186,046 | |||||||||||||||||
Selling and marketing | 40,807 | — | 992 | 2,710 | 4,123 | 48,632 | |||||||||||||||||
General and administrative | 38,424 | — | 1,342 | 4,986 | — | 44,752 | |||||||||||||||||
Other acquisition-related charges | — | — | — | — | 5,910 | 5,910 | |||||||||||||||||
Asset impairment charges | — | — | — | — | 2,556 | 2,556 | |||||||||||||||||
Costs and expenses | 257,100 | 33,177 | 23,543 | 17,740 | 18,210 | 349,770 | |||||||||||||||||
Operating income (loss) | 49,828 | (33,177 | ) | (23,543 | ) | (17,740 | ) | (18,210 | ) | (42,842 | ) | ||||||||||||
Interest income and other, net | — | — | — | — | 12,436 | 12,436 | |||||||||||||||||
Interest expense | — | — | — | — | (9,465 | ) | (9,465 | ) | |||||||||||||||
Income (loss) before income taxes | 49,828 | (33,177 | ) | (23,543 | ) | (17,740 | ) | (15,239 | ) | (39,871 | ) | ||||||||||||
Income tax expense | — | — | — | — | 441 | 441 | |||||||||||||||||
Net income (loss) | $ | 49,828 | $ | (33,177 | ) | $ | (23,543 | ) | $ | (17,740 | ) | $ | (15,680 | ) | $ | (40,312 | ) | ||||||
NET INCOME (LOSS) PER SHARE: | |||||||||||||||||||||||
Basic | $ | 0.44 | $ | (0.36 | ) | ||||||||||||||||||
Weighted average shares — basic | 113,293 | 113,293 | |||||||||||||||||||||
Diluted | $ | 0.42 | $ | (0.36 | ) | ||||||||||||||||||
Weighted average shares — diluted | 117,438 | 113,293 | |||||||||||||||||||||
PDL BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(in thousands)
(unaudited)
| September 30, 2007 | December 31, | ||||||||||||
| As Previously Issued | Impact of Adjustments | As Corrected | |||||||||||
Cash, cash equivalents, marketable securities and restricted cash | $ | 409,487 | $ | — | $ | 409,487 | $ | 426,285 | |||||
Total assets | $ | 1,168,089 | $ | (4,695 | ) | $ | 1,163,394 | $ | 1,141,893 | ||||
Total stockholders’ equity | $ | 516,554 | $ | (4,695 | ) | $ | 511,859 | $ | 467,541 | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW DATA
(in thousands)
(unaudited)
| Nine Months Ended | ||||||||||||||||
| September 30, 2007 | September 30, | |||||||||||||||
| As Previously Issued | Impact of Adjustments | As Corrected | ||||||||||||||
Net loss | $ | (787 | ) | $ | (4,695 | ) | $ | (5,482 | ) | $ | (40,312 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities | 66,584 | 4,695 | 71,279 | 78,852 | ||||||||||||
Changes in assets and liabilities | (24,073 | ) | — | (24,073 | ) | 37,776 | ||||||||||
Net cash provided by operating activities | $ | 41,724 | $ | — | $ | 41,724 | $ | 76,316 | ||||||||