Elan Corporation (ELN)

Net Interest and Investment Gains and Losses

Net interest and investment gains and losses amounted to a net charge of $28.4 million for the third quarter of 2005, compared to a net charge of $22.7 million for the same period of 2004. The increase is primarily a result of the issuance of $1.15 billion in senior fixed and floating notes in November 2004, partially offset by the repayment of the EPIL III notes, the retirement of $242.8 million of our 2008 debt in the second quarter of 2005, and by interest income earned on higher average cash balances.

Net Interest and Investment Gains and Losses

Net interest and investment gains and losses amounted to a charge of $88.6 million for the second quarter of 2005, compared to a charge of $71.1 million for the same period of 2004 due to increased interest cost and a net charge on early debt retirement, offset by reduced investment losses.

In the second quarter of 2005, net interest expense amounted to $34.7 million, compared to $24.4 million in the same period of 2004. Net interest expense increased in the second quarter of 2005 over the corresponding period in 2004 primarily as a result of the issuance of $1.15 billion in senior fixed and floating notes in November 2004, partially offset by the repayment of the EPIL III notes and by interest income earned on higher average cash balances.

During the second quarter of 2005, $33.3 million in net cash proceeds was raised from the sale of investments. Of the remaining portfolio of investments, which has a total book value of $39.2 million at June 30, 2005, down from $71.1 million at March 31, 2005, approximately 55% is held in publicly traded companies. Net investment losses of $1.7 million were incurred during the second quarter of 2005 (2004: $46.7 million).

During the second quarter of 2005, we availed ourselves of opportunities in the capital markets to retire $242.8 million of our 2008 debt with equity and $82.4 million in cash. The $242.8 million comprises $206.0 million in aggregate principal amount of the 6.5% Convertible Notes, which was purchased for approximately $255.0 million at an average premium of approximately 4% to the market price of the 6.5% Convertible Notes at the date of purchase. The consideration was satisfied with the issuance of 27,762,801 ADSs at the debt conversion price of $7.42, together with $49.1 million in cash and accrued interest of $0.7 million. The remaining $36.8 million of the debt retirement represents the aggregate principal amount of the Athena Notes, which was purchased for $33.3 million plus accrued interest of $0.6 million. As a result of the retirement, Elan incurred a net charge on debt retirement of $52.2 million, including $5.2 million for written-off financing costs, in the second quarter of 2005 and Elan’s annual interest cost will be reduced by approximately $16 million.