SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A (Amendment No. 1)
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURTIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 22, 2002
ENZON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in charter)
Delaware 0-12957 22-2372868
(State or other jurisdiction (Commission of File (IRS Employer
incorporation) Number) Identification No.)
685 Route 202/206, Bridgewater, New Jersey 08807
(Address of principal executive officers) (zip)
Registrant's telephone number, including area code (908) 541-8600
ENZON, INC.
(Former names or former address, if changed since last report.)
FORM 8-K/A No. 1
The Registrant hereby amends and restates its Report on Form 8-K, filed with the
Securities and Exchange Commission on December 9, 2002, to update and file the
financial statements and pro forma financial information required by Item 7 of
Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of business acquired
Financial statements for The Abelcet Product Line: (i) the report of
KPMG, independent auditors (ii) audited statements of assets to be
sold as of September 27, 2002 and December 31, 2001; (iii) audited
statement of revenues and expenses for the period from January 1,
2002 to September 27, 2002, the year ended December 31, 2001, the
period from May 13, 2000 to December 31, 2000, and the period from
January 1, 2000 to May 12, 2000; (iv) notes to the audited financial
statements; and (v) unaudited supplemental cash flow disclosure for
the periods from January 1, 2002 to September 27, 2002, the year
ended December 31, 2001, the period from May 13, 2000 to December
31, 2000, and the period from January 1, 2000 to May 12, 2000.
(b) Pro forma financial information
Unaudited pro forma condensed consolidated financial statements are
attached hereto:
(i) Notes to unaudited pro forma condensed consolidated statements
of operations.
(ii) Unaudited pro forma condensed consolidated statement of
operations for the year ended June 30, 2002 and the
three-month period ended September 30, 2002 and notes thereto.
(iii) Unaudited pro forma condensed consolidated balance sheet as of
September 30, 2002 and notes thereto.
(c) Exhibits
23.1 Consent of KPMG
2
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Table of Contents
Page
Independent Auditors' Report 4
Statements of Assets to be Sold 5
Statements of Revenues and Expenses 6
Notes to Financial Statements 7
Unaudited Supplemental Cash Flow Disclosure 14
3
Independent Auditors' Report
The Board of Directors
Elan Corporation, plc
We have audited the accompanying statements of assets to be sold as of September
27, 2002 and December 31, 2001, and the related statements of revenues and
expenses for the period from January 1, 2002 to September 27, 2002, the year
ended December 31, 2001, the period from May 13, 2000 to December 31, 2000, and
the period from January 1, 2000 to May 12, 2000 of the Abelcet Product Line of
Elan Corporation, plc. These financial statements are the responsibility of Elan
Corporation, plc's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements were prepared to present the assets to be
sold and the revenues and expenses of the Abelcet Product Line pursuant to the
Asset Purchase Agreement, dated October 1, 2002 (the Agreement) between Enzon,
Inc. and Elan Corporation, plc and certain of its subsidiaries as described in
note 2, and are not intended to be a complete presentation of the financial
position, results of operations, or cash flows of the Elan entities involved in
the agreement.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets to be sold of the Abelcet Product Line as of
September 27, 2002 and December 31, 2001 and the Abelcet Product Line's revenues
and expenses for the period from January 1, 2002 to September 27, 2002, for the
year ended December 31, 2001, for the period from May 13, 2000 to December 31,
2000, and for the period from January 1, 2000 to May 12, 2000 pursuant to the
Agreement, in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 3 to the financial statements, effective January 1, 2002
Elan Pharmaceuticals, plc adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
KPMG
Chartered Accountants
Dublin, Ireland
November 22, 2002
4
The Abelcet Product Line
(A Product of the Elan Group)
Statements of Assets to be Sold
(In US$, Thousands)
September 27, December 31,
2002 2001
------------- ------------
Assets:
Fixed assets (note 4) 11,833 12,551
Inventories (note 5) 8,712 5,480
Abelcet product intangible, net of accumulated
amortizations of $27,684 and $19,100 as of September
27, 2002 and December 31, 2001,
respectively (note 6) 201,216 209,800
Goodwill (note 6) 19,000 19,000
Current assets (note 7) 88 217
------- -------
Net assets to be sold 240,849 247,048
======= =======
The accompanying notes are an integral part of these financial statements.
5
The Abelcet Product Line
(A Product of the Elan Group)
Statements of Revenues and Expenses
(In US$, Thousands)
Successor Predecessor
Post Acquisition Pre Acquisition
--------------------------------------------------------------------- -----------------
Period from Year Period from Period From
January 1, 2002 to Ended May 13, 2000 to January 1, 2000 to
September 27, 2002 December 31, 2001 December 31, 2000 May 12, 2000
--------------------- ------------------- --------------------- -----------------
Product sales:
Third party sales:
United States and Canada $54,598 $69,100 $53,792 $25,798
Other international 4,509 5,021 5,655 5,744
Affiliate sales 10,330 7,681 6,920 -
--------------------- ------------------- --------------------- ----------------
Net product sales 69,437 81,802 66,367 31,542
Contract manufacturing revenue 4,222 5,264 3,680 966
--------------------- ------------------- --------------------- ----------------
Total revenue (note 8) 73,659 87,066 70,047 32,508
--------------------- ------------------- --------------------- ----------------
Cost of products sold 13,024 12,565 9,962 4,509
Contract manufacturing costs 2,569 4,059 1,797 1,075
Royalty costs 3,200 4,628 3,993 1,883
--------------------- ------------------- --------------------- ----------------
Total cost of goods sold (note 8) 18,793 21,252 15,752 7,467
--------------------- ------------------- --------------------- ----------------
Gross profit 54,866 65,814 54,295 25,041
Selling, general and administration
expenses (note 9) 16,697 35,371 23,858 17,329
Amortization expense (note 6)
product intangible 8,584 11,500 7,600 -
goodwill - 1,050 700 -
Restructuring costs (note 10) 1,800 5,197 - 6,727
Corporate expenses (note 11) 1,479 1,962 1,362 -
Other expense - 171 174 142
--------------------- ------------------- --------------------- ----------------
Excess of revenue over expenses $26,306 $10,563 $20,601 $843
===================== =================== ===================== ================
The accompanying notes are an integral part of these financial statements.
6
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements
1. The Agreement
Elan Corporation, plc. and subsidiaries (Elan/Elan Group) acquired the
Abelcet product intangible, pursuant to the acquisition of The Liposome
Company, Inc. (Liposome) in May 2000. Abelcet which is an amphotericin B
lipid complex, is used for treatment of systemic fungal infections. These
infections mainly occur in immuno-compromised patients such as those
undergoing cancer chemotherapy.
Pursuant to an Asset Purchase Agreement and Related Agreements (the
Agreement), dated as of October 1, 2002, Enzon, Inc. (the Buyer) acquired
certain assets, consisting mainly of fixed assets, inventories and certain
intangible rights to make, use and sell the Abelcet(R) product in the
United States of America, Canada, and Japan (the Acquisition). Elan
retained the rights to sell Abelcet in the rest of the world. The
Agreement was entered into with Elan Corporation, plc and certain of its
subsidiaries. The Abelcet product line is primarily marketed and
distributed in the United States and Canada.
2. Basis of presentation
The statements of assets to be sold and the statements of revenues and
expenses have been prepared in accordance with generally accepted
accounting principles in the United States of America and in connection
with the carve-out of the Abelcet Product Line as described below.
Carve-out
The statements have been prepared on a carve-out basis in order to
represent assets to be sold, as well as revenues and expenses, which have
been derived from the historical accounting records of Elan Corporation,
plc and subsidiaries and The Liposome Company, Inc. and reflect
significant assumptions and allocations.
Elan did not account for Liposome or the Abelcet Product Line as a
separate entity. Liposome was integrated into the pharmaceutical segment
of Elan. The statements of assets to be sold and revenues and expenses
include certain allocations as discussed in note 3 below. Management of
Elan believes that the allocations are reasonable; however, these
allocated expenses are not necessarily indicative of costs that would have
been incurred related to the Abelcet Product Line on a stand-alone basis.
Tax expense and interest income have not been included in the accompanying
statements of revenue and expenses, as they are not specifically
identifiable to the Abelcet Product Line.
Transaction systems (e.g. payroll, employee benefits, accounts receivable,
accounts payable) used to record and account for cash transactions were
not designed to track assets/liabilities and receipts/payments on a
product specific basis. Given these constraints, and the fact that only
certain assets of the Abelcet Product Line are to be sold, statements of
financial position and cash flows have not been prepared.
The statement of revenues and expenses for the period from January 1, 2000
to May 12, 2000 relate to the pre-acquisition period of the predecessor
company, The Liposome Company, Inc. and have been accounted for as such.
Accordingly, results for this period do not reflect the purchase
accounting for the May 12, 2000 Acquisition and are therefore not
comparable with the results from May 13, 2000 forward.
3. Summary of Significant Accounting Policies
(a) Revenue Recognition
Product revenue is recognized when title passes, net of applicable
discounts and allowances.
7
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements (continued)
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
disclosures. Actual results could differ from these estimates. As
discussed in note 2, the financial statements include allocations and
estimates that are not necessarily indicative of the costs and
expenses, that would have resulted if the Abelcet Product Line had
been operated as a separate entity, or of the future results of the
Abelcet Product Line.
(c) Tangible Fixed Assets
Tangible fixed assets are stated at cost less accumulated
depreciation. No depreciation is provided on freehold land.
Depreciation of tangible assets is computed using the straight-line
method based on estimated useful lives as follows:
Buildings 40 years
Leasehold improvements 20 years or life of the lease,
whichever is lesser
Machinery and equipment 7 years
Computers 3 years
Furniture and fixtures 10 years
All fixed assets are reviewed for impairment when there are
indications that the carrying value may not be recoverable and any
impairment is charged to the statement of revenue and expenses.
Capital work in progress consists principally of uninstalled
equipment and is not depreciated until such times as work has been
completed and the asset is in use.
(d) Inventories
Inventories have been valued at the lower of cost or market value.
Cost in the case of raw materials and supplies is calculated on a
first-in, first-out basis and comprises the purchase price including
import duties, transport and handling costs and any other directly
attributable costs, less trade discounts. Costs in the case of
work-in-progress and finished goods comprises direct labor, material
costs, and attributable overheads.
(e) Intangible Assets
Product rights are amortized using the straight-line method over the
useful life of the product, principally over a period of 20 years.
Long-lived assets, including intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(f) Selling, General and Administrative expenses
Certain selling, general and administrative expenses are specifically
identifiable and others are allocated to the Abelcet Product Line
based on the percentage of sales of the Abelcet Product Line compared
to total sales of the
8
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements (continued)
United States Hospital Business of Elan. Such allocated expenses
represent management's best estimate of the charges that are
attributable to the Abelcet Product Line, and include expenses such
as salaries, professional fees, regulatory costs, marketing and
selling expenses, and other general and administrative expenses.
(g) Goodwill
The Abelcet Product Line represents a portion of "Core Elan" a
reporting unit, as defined in FAS No. 142 "Goodwill and Other
Intangible Assets". Goodwill allocated to Abelcet is based on the
relative fair values of the assets to be disposed of and the portion
of the reporting unit that will be retained in accordance with FAS No
142.
In accordance with FAS No. 142 with effect from January 1, 2002,
goodwill has not been amortized and is subject to annual impairment
testing.
4. Fixed Assets
The Fixed Assets to be sold are primarily located at the Indianapolis
manufacturing facility. The balances as at September 27, 2002 and December
31, 2001 are as follows:
Machinery
Leasehold and Furniture Capital
Land and improve equipment/ and work in
buildings ments Computers Fixtures progress Total
----------- ------------ ------------- ------------ ------------ ----------
US$ (in
thousands)
----------- ------------ ------------- ------------ ------------ ----------
Net book value at
September 27, 2002 $ 5,631 371 5,210 108 513 11,833
Net book value at
December 31, 2001 $ 5,759 375 5,900 79 438 12,551
5. Inventories
Inventories at September 27, 2002 and December 31, 2001 consist of the
following:
2002 2001
---------------------- ----------------------
US$ (in thousands) US$ (in thousands)
Raw materials $ 3,992 2,045
Work in process 403 983
Finished goods 4,317 2,452
---------------------- ----------------------
$ 8,712 5,480
====================== ======================
9
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements (continued)
Inventories include finished goods of $875,000 at September 27, 2002 and
$477,000 at December 31, 2001 relating to MultiVitamin manufactured by
Elan under a contract manufacturing agreement with AAIPharma. The Buyer
has agreed to manufacture MultiVitamin for AAIPharma in accordance with
the Agreement.
6. Intangible Assets
Abelcet Product Intangible
On May 12, 2000, Elan completed the acquisition of The Liposome Company,
Inc. In connection with the acquisition, Elan recognized an intangible
asset of $263,100,000 for the Abelcet product intangible based on the
discounted value of future cash flows. The Abelcet intangible is covered
by patents and other intellectual property rights throughout the world.
For the purpose of the statement of assets to be sold, an amount of
$228,900,000 was identified as the value relating to rights to Abelcet in
the United States, Canada, and Japan, which are to be sold. Such
intangible asset is being amortized on a straight-line basis over its
estimated useful life, over a period of 20 years commencing from May 2000.
Goodwill
The Abelcet Product Line represents a portion of "Core Elan" a reporting
unit as defined in FAS No. 142 "Goodwill and Other Intangible Assts". In
accordance with FAS No. 142, goodwill has been allocated to the Abelcet
Product line based on the relative fair values of the assets to be
disposed of and the portion of the reporting unit that will be retained by
Elan. The amount of goodwill allocated to the Abelcet product line amounts
to $20,750,000. This allocation was performed on September 27, 2002. Elan
has not re-performed the fair value exercise for the prior periods
presented herein as FAS No. 142 was adopted with effect from January 1,
2002. Elan has amortized goodwill over 20 years in the prior periods prior
to 2002 from date of acquisition. Excess of revenue over expenses for the
year ended December 31, 2001 and the period from May 13, 2000 to December
31, 2000 would have been higher by $1,050,000 and $700,000 respectively
had FAS No. 142 been in effect at those times.
Elan purchased the Liposome Company on May 12, 2000 for a consideration of
$677,800,000. Goodwill arising from the acquisition amounted to
$183,800,000. As Elan has used the relative fair value model mandated by
SFAS 142 to determine the goodwill amount allocated to Abelcet, the
significant value of goodwill ascribed to The Liposome Company, Inc.
acquisition remains on Elan's financial statements and has not been
ascribed to the Abelcet product line.
7. Current Assets
Pursuant to the Agreement, the Buyer has agreed to acquire the prepaid
expenses relating to the manufacturing facility at Indianapolis. The
balance of $88,000 and $217,000 at September 27, 2002 and at December 31,
2001, respectively, relates to prepaid insurance expenses for assets at
the manufacturing facility.
8. Total Revenue and Cost of Goods Sold
In accordance with the Agreement the Buyer has agreed, to produce both
Abelcet and Myocet for supply to Elan for sale in the United Kingdom and
the rest of the world (as defined in the Agreement). The Buyer has also
agreed to undertake the contract manufacturing for a product known as
"MultiVitamin" currently being produced by Elan for AAIPharma.
Total revenue for the nine month period ended September 27, 2002, the year
ended December 31, 2001 and for the period from May 13, 2000 to December
31, 2000 includes sales to third parties, contract manufacturing revenue
and costs as well as revenue and costs that relate to sales of Abelcet and
Myocet to affiliate companies at an inter-company transfer price. The
margins reflected for the sales to affiliates does not represent future
margins as the future
10
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements (continued)
sale of Abelcet and Myocet by the Buyer to Elan will be at standard rates
specified in the Agreement. Prior to May 13, 2000, the sales of Abelcet in
the United Kingdom and rest of the world are included in Other
International Sales.
The detail of sales to affiliate for the nine month period ended September
27, 2002, the year ended December 31, 2001, the period from May 13, 2000
to December 31, 2000 and the period from January 1, 2000 to May 12, 2000
is as follows:
Post Acquisition Pre Acquisition
January 1, 2002 January 1, 2001 May 13, 2000 January 1, 2000
to to to to
September 27, 2002 December 31, 2001 December 31, 2000 May 12, 2000
US$ (in thousands)
Sales to Affiliates:
Abelcet 8,519 6,214 6,920 -
Myocet 1,811 1,467 - -
----------------------- --------------------- --------------------- -----------------
Total sales to
Affiliates $ 10,330 $ 7,681 $ 6,920 -
======================= ===================== ===================== =================
9. Selling, General and Administrative Expenses
Abelcet is marketed by Elan's hospital force primarily to hospital-based
oncologists.
The selling, general and administrative expenses consist of the marketing
expenses, clinical costs, general administration costs, and costs related
to facilities and depreciation thereof. In addition, selling, general and
administration expenses include amounts allocated in respect of
non-product specific costs of the United States Hospital Business of Elan
to the Abelcet Product Line based on the percentage of sales of the
Abelcet Product Line compared to total sales of the United States Hospital
Business of Elan. The amount of such allocated costs is $8,500,000 for the
nine month period ended September 27, 2002 and $3,325,000 for the year
ended December 31, 2001. There are no such allocations for the period from
January 1, 2000 to May 12, 2000 or for the period from May 13, 2000 to
December 31, 2000 as the commercial activities of The Abelcet Product Line
were undertaken entirely out of the Princeton facility of The Liposome
Company, Inc for those periods.
10. Restructuring Costs
In July 2002, Elan announced a Recovery Plan to restructure its business,
assets, and balance sheet as a biopharmaceutical company focused on the
discovery, development, manufacturing, selling, and marketing of novel
therapeutic products in neurology, pain and autoimmune diseases, and to
strengthen the group's liquidity position.
As part of its restructuring process, Elan incurred $1,800,000 as
severance costs for employees whose contracts were terminated. Such costs
have been identified as costs incurred specific to the sale of The Abelcet
Product Line.
During the year 2001, Elan incurred severance costs of $5,197,000 in
relation to termination of employee contracts as a result of the merger in
the year 2000. The restructuring costs incurred during the period from
January 1, 2000 to May 12, 2000 of $6,727,000 relate to merger costs for
the acquisition of The Liposome Company by Elan.
11
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Notes to the financial statements (continued)
11. Corporate Expenses
Corporate expenses allocated to The Abelcet Product Line include expenses
incurred by Elan Corporation, plc and other group companies in relation to
administrative and support services provided to The Abelcet Product Line.
In view of the sale of the Abelcet Product Line, no allocation has yet
been made by Elan Corporation, plc for the period from January 1, 2002 to
September 27, 2002, however, management estimates the amount to be
$1,479,000. This is based on the 2001 charge time - weighted to reflect
the nine month period to September 27, 2002.
12
The Abelcet Product Line
(A Product of the Elan Group)
Unaudited Supplemental Cash Flow Disclosure
(In US$, Thousands)
Successor Predecessor
Post Acquisition Pre Acquisition
------------------------------------------------------------------ -----------------
Period from Year Period from Period From
January 1, 2002 Ended May 13, 2000 January 1, 2000
to to to
September 27, 2002 December 31, 2001 December 31, 2000 May 12, 2000
------------------ ----------------- ----------------- ------------
Cash flows from operating activities:
Excess of revenue over expenses $26,306 $10,563 $20,601 $843
Adjustments to reconcile excess of
revenue over expenses to net cash
provided by operating activities:
Depreciation 1,333 1,717 1,052 641
Amortization 8,584 12,550 8,300 -
Net changes in assets and
liabilities:
Inventory (3,232) (2,429) 2,799 268
Prepaid expenses 129 (173) 238 (282)
(a) Net cash provided by
-------------------- ------------------- ------------------- -----------------
operating activities 33,120 22,228 32,990 1,470
-------------------- ------------------- ------------------- -----------------
Cash flows from
investing activities
Purchases of property, plant & (615) (757) (607) (175)
equipment
Net cash used for investing
-------------------- ------------------- ------------------- -----------------
activities (615) (757) (607) (175)
-------------------- ------------------- ------------------- -----------------
(b) Cash flows from
financing activities
Remittances to Elan Corp. plc (32,505) (21,471) (32,383) (1,295)
-------------------- ------------------- ------------------- -----------------
Net cash provided/(used)
for investing activities (32,505) (21,471) (32,383) (1,295)
-------------------- ------------------- ------------------- -----------------
Net increase in cash and
cash equivalents $ - $ - $ - $ -
==================== =================== =================== =================
13
THE ABELCET PRODUCT LINE
(A Product of the Elan Group)
Unaudited Supplemental Cash Flow
The unaudited supplemental cash flow disclosures are based on the underlying
statements of revenues and expenses and statements of assets to be sold as of
and for the periods presented.
The statements have been prepared on a carve out basis to represent assets to be
sold, as well as revenues and expenses, which have been derived from the
historical accounting records of Elan Corporation, plc and Subsidiaries and The
Liposome Company, Inc. and reflect significant assumptions and allocations. As
such, the unaudited supplemental cash flow data is not necessarily indicative of
the actual cash flows attributable to the Abelcet Product Line on a stand alone
basis.
(a) Operating cash flows
Net cash provided by operating activities includes the excess of revenue
over expenses for the Abelcet Product Line and adds back non-cash items
for depreciation and amortization related to the product line tangible and
intangible assets. The excess of revenue over expenses includes a range of
allocated expenses which represent management's best estimate of the
charges attributable to the Abelcet Product Line and are not necessarily
indicative of the actual cash flows that would have been incurred related
to the Abelcet Product Line on a stand alone basis.
In addition, the operating cash flow data does not reflect net changes in
accounts receivable and accounts payable as the underlying transaction
systems used to record and account for cash transactions was not designed
to track assets/liabilities and receipts/payments on a product specific
basis.
Cash flows arising from taxation and interest income are not included in
the unaudited supplementary cash flow data as they are not specifically
attributable to the Abelcet Product Line.
(b) Financing cash flows
There are no specific financing cash flows directly attributable to the
Abelcet Product Line. The cash flows generated by the Abelcet Product Line
for the periods reported were available to Elan Corporation, plc for its
general corporate purposes.
14
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following presents certain unaudited pro forma condensed consolidated
financial information of Enzon Pharmaceuticals, Inc. the "Company" for the
periods as indicated. The unaudited pro forma condensed consolidated
financial information gives effect to the Abelcet Product Line acquisition
which occurred on November 22, 2002, as if such transaction had occurred
on July 1, 2001 for purposes of the pro forma statements of operations for
the year ended June 30, 2002 and the three-month period ended September
30, 2002, and on September 30, 2002 for purposes of the pro forma balance
sheet as of September 30, 2002. The pro forma financial information was
prepared using the assumptions described below and in the related notes
thereto.
The unaudited pro forma condensed consolidated financial information
reflects pro forma adjustments that are based upon available information
and certain assumptions that the Company believes are reasonable. The pro
forma financial information does not purport to represent the Company's
results of operations or financial position that would have resulted had
the transaction to which pro forma effect is given been consummated as of
the dates or for the periods indicated. In preparing the pro forma
financial information, the Company believes it has utilized reasonable
methods to conform the basis of presentation. The Abelcet Product Line
acquisition has been accounted for herein under Statement of Financial
Accounting Standards No. 141 and 142, related to business combinations.
Certain estimated fair values for intangible assets are based on the
preliminary results of third party appraisals, which are still being
finalized.
Elan Corporation, plc, which owned the Abelcet Product Line, had a
December 31 fiscal year end. For purposes of the unaudited pro forma
condensed consolidated statements of operations, the Company's historical
statement of operations for the year ended June 30, 2002 was combined with
the Abelcet Product Line historical unaudited statement of operations for
the fiscal year ended June 30, 2002. In addition, the Company's historical
unaudited statement of operations for the three-month period ended
September 30, 2002 was combined with the Abelcet Product Line unaudited
historical statement of operations for the same period.
The unaudited pro forma financial statements and accompanying notes should
be read in conjunction with the historical financial statements of Enzon
Pharmaceuticals, Inc. and the Abelcet Product Line.
15
ENZON PHARMACEUTICALS, INC.
Notes to Unaudited Pro Forma
Condensed Consolidated Financial Information
(dollars in thousands)
Overview
The Abelcet Product Line acquisition was consummated by the Company as of
November 22, 2002 as an asset purchase. The acquisition has been accounted for
using the purchase method of accounting. Accordingly, the excess of the purchase
price over the fair value of identifiable net tangible and intangible assets
acquired, representing goodwill, is shown below. The consideration and
allocation of the purchase price as of November 22, 2002 are summarized below.
Purchase Price Consideration:
Cash $ 360,000
Out of pocket expenses 9,120
--------------
$ 369,120
==============
Allocation of Purchase Price:
Inventories $ 8,572
Property, plant and equipment (1) 13,707
Intangible Assets (2) 196,000
Goodwill (3) 150,841
--------------
$ 369,120
==============
1) Property, plant and equipment is recorded at its estimated
fair value of the assets as acquired as determined by a third
party valuation report.
2) Intangible assets include the following components:
Product Patented Technology (12 year estimated life) $ 64,400
Manufacturing Patent (12 year estimated life) 18,300
NDA Approval (12 year estimated life) 31,100
Marketing Intangibles (15 year estimated life) 80,000
Manufacturing Contract (3 year estimated life) 2,200
-------------
$ 196,000
=============
These values are based on the preliminary results of third
party appraisals, which are still being finalized.
3) Goodwill will not be amortized but will be tested for
impairment periodically.
16
ENZON PHARMACEUTICALS, INC.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended June 30, 2002
(in thousands except for per share amounts)
Historical
-------------------------------------
Abelcet
Enzon Product Pro Forma Pro Forma
Pharmaceuticals Line Adjustments Consolidated
-------------------- ------------- --------------- ---------------
Revenues:
Net sales $ 22,183 $ 102,825 (1) 2,450 $ 118,672
(2) (8,786)
Royalties 53,329 - - 53,329
Contract revenue 293 - - 293
-------------------- ------------- --------------- ---------------
Total revenues 75,805 102,825 (6,336) 172,294
-------------------- ------------- --------------- ---------------
Cost and expenses:
Cost of sales 6,078 23,444 (3) 1,194 28,852
(4) (1,864)
Research and development expenses 18,427 - - 18,427
Selling, general and administrative
expenses 16,687 41,601 (5) 15,550 62,392
(6) (11,446)
-------------------- ------------- --------------- ---------------
Total costs and expenses 41,192 65,045 3,434 109,671
-------------------- ------------- --------------- ---------------
Operating income 34,613 37,780 (9,770) 62,623
-------------------- ------------- --------------- ---------------
Other income (expense)
Interest and dividend income 18,681 (7) (13,400) 5,281
Interest expense (19,829) - (19,829)
Other 3,218 - 3,218
-------------------- --------------- ---------------
2,070 (13,400) (11,330)
-------------------- --------------- ---------------
Income (loss) before taxes 36,683 (23,170) 51,293
Tax (benefit) provision (9,123) - (9,123)
-------------------- --------------- ---------------
Net income $ 45,806 $ (23,170) $ 60,416
==================== =============== ===============
Basic earnings per common share $ 1.07 $ 1.41
==================== ===============
Diluted earnings per common share $ 1.04 $ 1.37
==================== ===============
Weighted average number of common
shares outstanding - basic 42,726 42,726
==================== ===============
Weighted average number of common
shares and dilutive potential common
shares outstanding 44,026 44,026
==================== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
17
ENZON PHARMACEUTICALS, INC.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2002
(in thousands except for per share amounts)
Historical
-----------------------------------------
Abelcet
Enzon Product Pro Forma Pro Forma
Pharmaceuticals Line Adjustments Consolidated
-------------------- ----------------- --------------- ---------------
Revenues:
Net sales $6,658 $16,622 (1) 792 $21,232
(2) (2,840)
Royalties 18,326 - - 18,326
Contract revenue 83 - - 83
-------------------- ----------------- --------------- ---------------
Total revenues 25,067 16,622 (2,048) 39,641
-------------------- ----------------- --------------- ---------------
Cost and expenses:
Cost of sales 2,514 6,244 (3) 299 8,591
(4) (466)
Research and development expenses 4,062 - - 4,062
Selling, general and administrative
expenses 3,943 10,606 (5) 3,888 15,576
(6) (2,861)
-------------------- ----------------- --------------- ---------------
Total costs and expenses 10,519 16,850 860 28,229
-------------------- ----------------- --------------- ---------------
Operating income (loss) 14,548 (228) (2,908) 11,412
-------------------- ----------------- --------------- ---------------
Other income (expense)
Interest and dividend income 3,453 (7) (3,018) 435
Interest expense (4,957) - (4,957)
Other - - -
-------------------- --------------- ---------------
(1,504) (3,018) (4,522)
-------------------- --------------- ---------------
Income before taxes 13,044 (5,926) 6,890
Tax (benefit) provision 260 - 260
-------------------- --------------- ---------------
Net income $12,784 $(5,926) $ 6,630
==================== =============== ===============
Basic earnings per common share $ 0.30 $ 0.15
==================== ===============
Diluted earnings per common share $ 0.29 $ 0.15
==================== ===============
Weighted average number of common
shares outstanding - basic 42,980 42,980
==================== ===============
Weighted average number of common
shares and dilutive potential common
shares outstanding 43,681 43,681
==================== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
18
ENZON PHARMACEUTICALS, INC.
Notes to Unaudited Pro forma Condensed Consolidated
Statements of Operations For year ended June 30, 2002 and
for the three months ended September 30, 2002
The following is a summary of the Pro Forma adjustments recorded in the Pro
Forma Condensed Consolidated Statements of Operations.
Three Months
Year Ended Ended
June 30, 2002 September 30, 2002
-------------------- ---------------------
debit (credit)
(dollars in thousands)
(1) Adjustment to record selling price for Abelcet and Myocet $ 2,450 $ 792
manufactured for Elan Corporation for sales in the United
Kingdom and rest of world based on the transfer price per the
manufacturing agreement signed at the date of acquisition.
(2) Adjustment to eliminate historical intercompany transfer $ (8,786) $ (2,840)
pricing for Abelcet and Myocet for sales in the United Kingdom
and rest of world recorded by Elan Corporation.
(3) Adjustment to record depreciation expense for property, plant $ 1,194 $ 299
and equipment at their fair value after purchase accounting.
Property, plant and equipment are being depreciated on a
straight line basis over the estimated useful lives, which
are 5-27 years.
(4) Adjustment to eliminate historical depreciation expense for $ (1,864) $ (466)
property, plant and equipment recorded by Elan Corporation.
(5) Adjustment to record amortization expense for intangible $ 15,550 $ 3,888
assets under Statement of Financial Accounting Standards
No. 142 at their fair value after purchase accounting.
Intangible assets are being amortized on a straight line
basis
over the estimated useful lives, which are 3-15 years.
(6) Adjustment to eliminate historical amortization expense for $ (11,446) $ (2,861)
intangible assets recorded by Elan Corporation.
(7) Adjustment to eliminate historical interest income on cash $ 13,400 $ 3,018
balances used to fund the acquisition (3.63% rate assumed for
fiscal 2002, and 3.27% for the three months ended September 30,
2002).
Income-taxes have not been provided on the earnings of the Abelcet Product Line
based on the availability of Enzon's net operating loss carryforwards.
19
ENZON PHARMACEUTICALS, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2002
(dollars in thousands)
Historical
------------------------------------
Abelcet
Enzon Product Pro Forma Pro Forma
Pharmaceuticals Line Adjustments Consolidated
-------------------- ------------ --------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $155,713 $ - (1) (57,862) $97,851
Short-term investments 68,028 - (1) (58,510) 9,518
Accounts receivable 25,041 - - 25,041
Inventories 2,896 8,712 (2) 708 12,316
Other current assets 5,106 88 - 5,194
-------------------- ------------ --------------- --------------
Total current assets 256,784 8,800 (115,664) 149,920
-------------------- ------------ --------------- --------------
Property plant and equipment 19,995 11,833 (3) 1,874 33,702
Less accumulated depreciation (9,443) - - (9,443)
-------------------- ------------ --------------- --------------
10,552 11,833 1,874 24,259
-------------------- ------------ --------------- --------------
Other assets:
Marketable securities 270,292 - (1) (243,628) 26,664
Cost method equity investments 48,382 - - 48,382
Debt issue costs, net 10,489 - - 10,489
Goodwill - 19,000 (4) 130,905 149,905
Intangible assets and other assets, net 23,876 201,216 (5) (5,216) 219,876
-------------------- ------------ --------------- --------------
353,039 220,216 (117,939) 455,316
-------------------- ------------ --------------- --------------
Total assets $620,375 $ 240,849 $ (231,729) $629,495
==================== ============ =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,837 - - $4,837
Accrued expenses 4,803 - (1) 9,120 13,923
Accrued interest 4,500 - - 4,500
-------------------- ------------ --------------- --------------
Total current liabilities 14,140 - 9,120 23,260
-------------------- ------------ --------------- --------------
Accrued rent 526 - - 526
Notes payable 400,000 - - 400,000
-------------------- ------------ --------------- --------------
400,526 - - 400,526
-------------------- ------------ --------------- --------------
Total stockholders' equity 205,709 240,849 (6) (240,849) 205,709
-------------------- ------------ --------------- --------------
Total liabilities and stockholders' equity $620,375 $ 240,849 $ (231,729) $ 629,495
==================== ============ =============== ==============
* Based on the September 27, 2002 audited statement of assets to be sold.
(1) To reflect cash paid of $360,000 and accrued out of pocket expenses of
$9,100.
(2) To reflect inventory fair value adjustment.
(3) To reflect property, plant and equipment fair value adjustment.
(4) To reflect acquired goodwill after the elimination of historical goodwill.
(5) To reflect acquired intangible assets after the elimination of historical
intangible assets. These adjustments are based on the preliminary results
of third party appraisals which are still being finalized.
(6) To eliminate the historical net assets to be sold of the Abelcet Product
Line.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to the report to be signed on
its behalf by the undersigned thereunto duly authorized.
Enzon Pharmaceuticals, Inc.
Date: February 7, 2003 By: /s/ Kenneth J. Zuerblis
-----------------------
Kenneth J. Zuerblis
Vice President Finance,
Chief Financial Officer
(Principal Financial
and Accounting
Officer) and Corporate
Secretary
21
EXHIBIT INDEX
Exhibit
Number Description
23.1 Consent of KPMG
22
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Elan Corporation, plc
We consent to incorporation by reference in the Registration Statements Nos.,
333-64110, 333-18051 and 33-50904 on Form S-8 and Registration Statement Nos.
333-101898, 333-67506, 333-58269, 333-46117, 333-32093, 333-1535 and 333-30818
on Form S-3 of Enzon Pharmaceuticals, Inc. of our report dated November 22, 2002
with respect to the statements of assets to be sold of The Abelcet Product Line
of Elan Corporation, plc as of September 27, 2002 and December 31, 2001, and the
related statements of revenues and expenses for the period from January 1, 2002
to September 27, 2002, the year ended December 31, 2001, the period from May 13,
2000 to December 31, 2000, and the period from January 1, 2000 to May 12, 2000,
which report appears in the Form 8-K/A of Enzon Pharmaceuticals, Inc. dated
February 7, 2003. Our report on the aforementioned statements refers to the
adoption by Elan Corporation, plc of Statement of Financial Accounting Standards
No. 142 "Goodwill and Other Intangible Assets."
/s/ KPMG
KPMG
Chartered Accountants
Dublin, Ireland
February 7, 2003