Elan Corporation (ELN)

 

We had a net tax benefit of $226.3 million for 2008, compared to a net tax provision of $6.9 million in 2007 and a net tax benefit of $9.0 million for 2006.

 

The overall net benefit from income tax for 2008 was $228.7 million (2007: $5.1 million provision; 2006: $11.0 million benefit). Of this amount, $2.4 million (2007: $1.8 million; 2006: $2.0 million) has been credited to shareholders’ deficit to reflect utilization of stock option deductions. The remaining $226.3 million benefit (2007: $6.9 million provision; 2006: $9.0 million benefit) is allocated to ordinary activities. The tax benefit reflected the release of the valuation allowance against the DTAs of our U.S. entities (U.S. valuation allowance), the availability of tax losses, tax at standard rates in the jurisdictions in which we operate, income derived from Irish patents and foreign withholding tax. Our Irish patent-derived income was exempt from tax pursuant to Irish legislation, which exempts from Irish tax income derived from qualifying patents. From January 1, 2008, the amount of income that can qualify for the patent exemption will be capped at €5 million per year. This cap will not have a material effect on our tax position. For additional information regarding tax, refer to Note 20 to the Consolidated Financial Statements.

 

The net benefit from income tax of $226.3 million in 2008 includes the recognition of a net DTA of $236.6 million. The deferred tax assets or liabilities are determined based on the differences between the GAAP basis financial statements and tax basis of assets and liabilities using the tax rates projected to be in effect for the periods in which the differences are to be utilized. DTAs are recognized for all deductible temporary differences and operating loss and tax credit carryforwards. A valuation allowance is required for DTAs if, based on available evidence, it is more likely than not that all or some of the asset will not be realized due to the inability to generate sufficient future taxable income. Because of cumulative losses, we had maintained a valuation allowance against substantially all of our net DTAs at December 31, 2007. However, as a result of the U.S. business generating cumulative earnings in recent years and projected U.S. profitability arising from the continued growth of the Biopharmaceutical business in the United States, we now believe there is evidence to support the generation of sufficient future taxable income to conclude that most U.S. DTAs are more likely than not to be realized in future years. Accordingly, $236.6 million of the U.S. valuation allowance was released during 2008.

 

 

We had a net tax provision of $6.9 million for 2007, compared to a net tax benefit of $9.0 million in 2006 and a net tax provision of $1.0 million for 2005.

 

We had a net tax provision of $1.0 million for 2005, compared to a net tax benefit of $1.7 million for 2004. The overall tax provision for 2005 was $0.4 million. Of this amount, $0.6 million has been credited to shareholders’ equity to reflect utilization of stock option deductions. The remaining $1.0 million provision is allocated to ordinary activities. The tax provision reflected tax at standard rates in the jurisdictions in which we operate, income derived from Irish patents, foreign withholding tax and the availability of tax losses. Our Irish patent derived income was exempt from tax pursuant to Irish legislation, which exempts from Irish tax income derived from qualifying patents. Currently, there is no termination date in effect for such exemption. For additional information regarding income taxes, please refer to Note 21 to the Consolidated Financial Statements.

 

We had a net tax provision of $1.0 million for 2005, compared to a net tax benefit of $1.7 million for 2004. The overall tax provision for 2005 was $0.4 million. Of this amount, $0.6 million has been credited to shareholders’ equity to reflect utilization of stock option deductions. The remaining $1.0 million provision is allocated to ordinary activities. The tax provision reflected tax at standard rates in the jurisdictions in which we operate, income derived from Irish patents, foreign withholding tax and the availability of tax losses. Our Irish patent derived income was