Unwavering Commitment
`
`annual report 2005
`
`Diving deeper. Reaching further.
`
`APOTEX 1051, pg. 1
`
`

`

`company overview Allergan, Inc. is a premier, global specialty
`pharmaceutical and medical device company that develops and
`commercializes innovative products for the ophthalmology,
`neurosciences, medical dermatology, medical aesthetics and other
`specialty markets. Headquartered in Irvine, California, Allergan is
`dedicated to delivering value to its customers, satisfying unmet
`medical needs and improving people’s lives. The Company employs
`more than 5,000 people worldwide and operates two world-class
`research and development facilities and three state-of-the-art
`manufacturing plants. In addition to its discovery-to-development
`research programs, Allergan has global marketing and sales
`capabilities, with a presence in more than 100 countries.
`
`APOTEX 1051, pg. 2
`
`

`

`
`
`
`In millions, except per share data
`
`
`
`2005
`
` Year Ended December 31,
`2004
`2003
`
`2002
`
`statement of operations highlights
`(As reported under U.S. GAAP)
`
`Product net sales
`Gross profit
`Research and development
`Earnings (loss) from continuing operations
`Earnings from discontinued operations
`Net earnings (loss)
`
`Basic earnings (loss) per share:
`
`Continuing operations
`
`Discontinued operations
`Diluted earnings (loss) per share:
`
`Continuing operations
`
`Discontinued operations
`
`Dividends per share
`
`adjusted amounts (a)
`Adjusted earnings from continuing operations
`Adjusted basic earnings per share:
`
`Continuing operations
`Adjusted diluted earnings per share:
`
`Continuing operations
`
`net sales by product line
`Specialty Pharmaceuticals:
`
`Eye Care Pharmaceuticals
`BOTOX®/Neuromodulators
`
`
`Skin Care
`
`
`
`
`
`
`Total Pharmaceutical Sales
`
`Other
`
`
`
`Total Net Sales
`
`product sold by location
`Domestic
`International
`
`$2,319.2
`1,919.6
`391.0
`403.9
`—
`403.9
`
`3.08
`—
`
`3.01
`—
`
`0.40
`
`453.3
`
`3.46
`
`3.38
`
`$1,321.7
`830.9
`120.2
`
`2,272.8
`46.4
`
`$2,319.2
`
`67.5%
`32.5%
`
`$2,045.6
`1,658.9
`345.6
`377.1
`—
`377.1
`
`$1,755.4
` 1,435.1
`763.5
`(52.5)
`—
`(52.5)
`
`$1,385.0
`1,163.3
`233.1
` 64.0
`11.2
`75.2
`
`2.87
`—
`
`2.82
`—
`
`0.36
`
`368.8
`
`2.81
`
`2.75
`
`(0.40)
` —
`
`(0.40)
` —
`
`0.36
`
`305.2
`
`2.34
`
`2.30
`
`0.49
`0.09
`
`0.49
` 0.08
`
`0.36
`
`252.3
`
`1.95
`
` 1.92
`
`$1,137.1
`705.1
`103.4
`
`1,945.6
`100.0
`
`$ 999.5
`563.9
`109.3
`
`1,672.7
`82.7
`
`$ 827.3
`439.7
`90.2
`
`1,357.2
`27.8
`
`$2,045.6
`
`$1,755.4
`
`$1,385.0
`
`69.1%
`30.9%
`
`70.4%
`29.6%
`
`70.6%
`29.4%
`
`(a)
`
`
`
`
`
` The adjusted amounts in 2005 exclude income taxes of $49.6 million related to the repatriation of
`foreign earnings that had been previously permanently reinvested outside the United States, and
`income tax benefits of $24.1 million related to the resolution of uncertain tax positions and an
`additional benefit for state income taxes of $1.4 million, and the after-tax effects of the following:
`1) $28.8 million restructuring charge and $5.6 million of transition/duplicate operating costs related
`to the streamlining of the Company’s European operations, 2) $12.9 million restructuring charge
`related to the scheduled termination of the Company’s manufacturing and supply agreement
`with Advanced Medical Optics, 3) $7.9 million gain on the sale of a distribution business in India,
`4) $7.3 million reduction in interest expense related to the resolution of uncertain income tax
`positions and $2.1 million of interest income related to previously paid state income taxes,
`5) $5.7 million gain on the sale of assets previously used in contract manufacturing activities,
`6) $2.3 million restructuring charge related to the streamlining of the Company’s operations in
`Japan, 7) $0.6 million gain on the sale of a former manufacturing plant in Argentina, 8) $0.8 million
`gain on the sale of a third party equity investment, 9) $3.6 million gain on the termination of the
`Vitrase collaboration agreement with ISTA Pharmaceuticals, 10) $3.0 million buy-out of a license
`agreement with Johns Hopkins University, 11) $0.4 million in costs related to the acquisition of
`Inamed Corporation, and 12) $1.1 million unrealized gain on derivative instruments.
`
` The adjusted amounts in 2004 exclude the favorable recovery of $6.1 million of previously paid
`state income taxes and the after-tax effects of the following: 1) income of $2.4 million from a
`patent infringement settlement, 2) $7.0 million restructuring charge related to the scheduled
`termination of the Company’s manufacturing and supply agreement with Advanced Medical Optics,
`3) $0.4 million unrealized loss on derivative instruments, and 4) income of $11.5 million from a
`technology transfer fee and a revised Vitrase collaboration agreement with ISTA Pharmaceuticals.
`
` The adjusted amounts in 2003 exclude the after-tax effects of the following: 1) $179.2 million
`charge for in-process research and development related to the purchase of Oculex
`
`Pharmaceuticals, Inc., 2) $278.8 million charge for in-process research and development related to
`the purchase of Bardeen Sciences Company, LLC, 3) $0.4 million reversal of restructuring charge and
`asset write-offs, net related to the 2002 spin-off of the Company’s ophthalmic surgical and contact
`lens care businesses, 4) $0.3 million unrealized loss on derivative instruments, and 5) $0.9 million
`charge for the early extinguishment of convertible debt.
`
`The adjusted amounts in 2002 exclude the after-tax effects of the following: 1) $118.7 million in
`litigation settlement costs, 2) net costs of $100.3 million associated with the 2002 spin-off of the
`Company’s ophthalmic surgical and contact lens care businesses to Advanced Medical Optics which
`consist of restructuring charge and asset write-offs of $63.5 million, duplicate operating expenses
`of $42.5 million and gain of $5.7 million on sale of a facility, 3) $30.2 million loss on the other than
`temporary impairment of equity investments, 4) $1.7 million unrealized loss on derivative instruments,
`5) net gain of $1.0 million from partnering agreements, and 6) $11.7 million charge for the early
`extinguishment of convertible debt.
`
`The adjusted amounts in 2001 exclude the $40.0 million charge for in-process research and develop-
`ment related to the purchase of Allergan Specialty Therapeutics, Inc. and the after-tax effects of the
`following: 1) $6.2 million restructuring charge and asset write-off reversal consisting of $1.7 million
`restructuring charge reversal and a $4.5 million gain on sale of a facility reducing the write-offs
`recorded in 1998, 2) income of $1.5 million from a partnering agreement, 3) $4.5 million loss
`on the permanent impairment of equity investments, 4) $2.0 million gain on the sale of divested
`pharmaceutical products in Brazil, 5) $4.2 million unrealized gain on derivative instruments, and
`6) $4.4 million associated with the 2002 spin-off of the Company’s ophthalmic surgical and contact
`lens care businesses.
`
`The foregoing language contains certain non-GAAP financial measures and non-GAAP
`adjustments. For a reconciliation of these non-GAAP financial measures to GAAP financial
`measures, please refer to pages 2 and 3 of this Annual Report.
`
`APOTEX 1051, pg. 3
`
`

`

` Year Ended December 31,
`2003
`
`2002
`
`2001
`
`financial overview
`
`(cid:33)(cid:1)(cid:50)(cid:49)(cid:54)(cid:43)(cid:47)
`
`(cid:35)(cid:1)(cid:50)(cid:48)(cid:48)(cid:45)(cid:53)
`
`(cid:35)(cid:1)(cid:39)(cid:56)(cid:47)(cid:45)(cid:48)(cid:40)
`
`(cid:35)(cid:1)(cid:48)(cid:52)(cid:54)(cid:45)(cid:56)
`
`(cid:35)(cid:1)(cid:48)(cid:53)(cid:54)(cid:45)(cid:49)
`
`(cid:33)(cid:1)(cid:49)(cid:47)(cid:49)(cid:43)(cid:51)
`
`(cid:35)(cid:1)(cid:52)(cid:51)(cid:55)(cid:45)(cid:52)
`
`(cid:35)(cid:1)(cid:51)(cid:50)(cid:52)(cid:45)(cid:50)
`
`(cid:35)(cid:1)(cid:49)(cid:48)(cid:56)(cid:45)(cid:53)
`
`(cid:35)(cid:1)(cid:50)(cid:51)(cid:55)(cid:45)(cid:50)
`
`(cid:45)(cid:46)
`
`(cid:45)(cid:47)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:45)(cid:46)
`
`(cid:45)(cid:47)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:98)(cid:96)(cid:114)(cid:103)(cid:1)(cid:101)(cid:107)(cid:110)(cid:118)(cid:1)
`(cid:101)(cid:113)(cid:110)(cid:108)(cid:1)(cid:110)(cid:111)(cid:100)(cid:113)(cid:96)(cid:115)(cid:104)(cid:110)(cid:109)(cid:114)(cid:41)
`(cid:39)(cid:104)(cid:109)(cid:1)(cid:108)(cid:104)(cid:107)(cid:107)(cid:104)(cid:110)(cid:109)(cid:114)(cid:1)(cid:110)(cid:101)(cid:1)(cid:99)(cid:110)(cid:107)(cid:107)(cid:96)(cid:113)(cid:114)(cid:40)(cid:1)
`
`(cid:98)(cid:96)(cid:114)(cid:103)(cid:43)(cid:1)(cid:109)(cid:100)(cid:115)(cid:1)(cid:110)(cid:101)(cid:1)(cid:99)(cid:100)(cid:97)(cid:115)(cid:41)
`(cid:39)(cid:104)(cid:109)(cid:1)(cid:108)(cid:104)(cid:107)(cid:107)(cid:104)(cid:110)(cid:109)(cid:114)(cid:1)(cid:110)(cid:101)(cid:1)(cid:99)(cid:110)(cid:107)(cid:107)(cid:96)(cid:113)(cid:114)(cid:40)
`
`(cid:47)(cid:45)(cid:1)(cid:34)
`
`(cid:49)(cid:49)(cid:1)(cid:36)
`
`(cid:49)(cid:50)(cid:1)(cid:36)
`
`(cid:48)(cid:55)(cid:1)(cid:36)
`
`(cid:48)(cid:53)(cid:1)(cid:36)
`
`(cid:47)(cid:54)(cid:1)(cid:34)
`
`(cid:50)(cid:50)(cid:1)(cid:36)
`
`(cid:51)(cid:49)(cid:1)(cid:36)
`
`(cid:50)(cid:50)(cid:1)(cid:36)
`
`(cid:49)(cid:54)(cid:1)(cid:36)
`
`$1,755.4
` 1,435.1
`763.5
`(52.5)
`—
`(52.5)
`
`$1,385.0
`1,163.3
`233.1
` 64.0
`11.2
`75.2
`
`$1,142.1
`944.0
` 227.5
` 171.2
`54.9
`224.9
`
`(0.40)
` —
`
`(0.40)
` —
`
`0.36
`
`305.2
`
`2.34
`
`2.30
`
`0.49
`0.09
`
`0.49
` 0.08
`
`0.36
`
`252.3
`
`1.95
`
` 1.92
`
`1.30
`0.42
`
`1.29
`0.40
`
`0.36
`
`207.7
`
`1.58
`
`1.55
`
`$ 999.5
`563.9
`109.3
`
`1,672.7
`82.7
`
`$ 827.3
`439.7
`90.2
`
`1,357.2
`27.8
`
`$ 753.7
`309.5
`78.9
`
`1,142.1
`—
`
`$1,755.4
`
`$1,385.0
`
`$1,142.1
`
`70.4%
`29.6%
`
`70.6%
`29.4%
`
`67.0%
`33.0%
`
`Pharmaceuticals, Inc., 2) $278.8 million charge for in-process research and development related to
`the purchase of Bardeen Sciences Company, LLC, 3) $0.4 million reversal of restructuring charge and
`asset write-offs, net related to the 2002 spin-off of the Company’s ophthalmic surgical and contact
`lens care businesses, 4) $0.3 million unrealized loss on derivative instruments, and 5) $0.9 million
`charge for the early extinguishment of convertible debt.
`
`The adjusted amounts in 2002 exclude the after-tax effects of the following: 1) $118.7 million in
`litigation settlement costs, 2) net costs of $100.3 million associated with the 2002 spin-off of the
`Company’s ophthalmic surgical and contact lens care businesses to Advanced Medical Optics which
`consist of restructuring charge and asset write-offs of $63.5 million, duplicate operating expenses
`of $42.5 million and gain of $5.7 million on sale of a facility, 3) $30.2 million loss on the other than
`temporary impairment of equity investments, 4) $1.7 million unrealized loss on derivative instruments,
`5) net gain of $1.0 million from partnering agreements, and 6) $11.7 million charge for the early
`
`The adjusted amounts in 2001 exclude the $40.0 million charge for in-process research and develop-
`ment related to the purchase of Allergan Specialty Therapeutics, Inc. and the after-tax effects of the
`following: 1) $6.2 million restructuring charge and asset write-off reversal consisting of $1.7 million
`restructuring charge reversal and a $4.5 million gain on sale of a facility reducing the write-offs
`recorded in 1998, 2) income of $1.5 million from a partnering agreement, 3) $4.5 million loss
`on the permanent impairment of equity investments, 4) $2.0 million gain on the sale of divested
`pharmaceutical products in Brazil, 5) $4.2 million unrealized gain on derivative instruments, and
`6) $4.4 million associated with the 2002 spin-off of the Company’s ophthalmic surgical and contact
`
`The foregoing language contains certain non-GAAP financial measures and non-GAAP
`adjustments. For a reconciliation of these non-GAAP financial measures to GAAP financial
`measures, please refer to pages 2 and 3 of this Annual Report.
`
`(cid:45)(cid:46)
`
`(cid:45)(cid:47)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:45)(cid:46)
`
`(cid:45)(cid:47)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:113)(cid:100)(cid:115)(cid:116)(cid:113)(cid:109)(cid:1)(cid:110)(cid:109)(cid:1)(cid:100)(cid:112)(cid:116)(cid:104)(cid:115)(cid:120)
`(cid:39)(cid:96)(cid:99)(cid:105)(cid:116)(cid:114)(cid:115)(cid:100)(cid:99)(cid:1)(cid:101)(cid:110)(cid:113)(cid:1)(cid:109)(cid:110)(cid:109)(cid:44)(cid:70)(cid:64)(cid:64)(cid:79)(cid:1)(cid:104)(cid:115)(cid:100)(cid:108)(cid:114)(cid:40)(cid:41)(cid:41)
`
`(cid:113)(cid:100)(cid:115)(cid:116)(cid:113)(cid:109)(cid:1)(cid:110)(cid:109)(cid:1)(cid:98)(cid:96)(cid:111)(cid:104)(cid:115)(cid:96)(cid:107)
`(cid:39)(cid:96)(cid:99)(cid:105)(cid:116)(cid:114)(cid:115)(cid:100)(cid:99)(cid:1)(cid:101)(cid:110)(cid:113)(cid:1)(cid:109)(cid:110)(cid:109)(cid:44)(cid:70)(cid:64)(cid:64)(cid:79)(cid:1)(cid:104)(cid:115)(cid:100)(cid:108)(cid:114)(cid:40)(cid:41)(cid:41)
`
`* As reported, including discontinued operations.
`
`** Adjustments to GAAP net earnings (loss) used to calculate return on equity, adjusted for
`non-GAAP items, and return on capital, adjusted for non-GAAP items, include the aggregate
`non-GAAP adjustments, net of tax, detailed on pages 2 and 3 of this Annual Report. Return
`on equity using GAAP net earnings (loss) was 26%, 34%, (7)%, 9% and 23% for 2005, 2004,
`2003, 2002 and 2001, respectively. Return on capital using GAAP net earnings (loss) was
`17%, 22%, (4)%, 5% and 14% for 2005, 2004, 2003, 2002 and 2001, respectively.
`
`APOTEX 1051, pg. 4
`
`

`

`Diving deeper. Reaching further.
`
`We are a technology-driven health care company with a portfolio
`representing a unique blend of specialty businesses comprised of
`pharmaceutical and medical device products and offerings. We have a
`vision for a better way of doing business and an unwavering commitment
`to helping improve quality of life. We have achieved leadership by
`developing deep scientific and medical expertise in select specialties and
`have adopted an innovative approach to discovering and developing new
`medicines and technologies that address unmet medical needs. We follow
`our research and development (R&D) into specialty markets and work
`closely with the physicians who rely on us to help the patients they serve.
`We listen. And we offer advice and counsel every step of the way. By
`continually diving deeper and reaching further, we have created a world-
`class R&D program and global infrastructure to make new things possible
`and help people live life to their full potential.
`
`Think of it as a blend of science and innovation. We do.
`
`01
`
`APOTEX 1051, pg. 5
`
`

`

`Condensed Consolidated Statements of Operations
`and Reconciliation of Non-GAAP Adjustments
`
`In millions, except per share data
`
`
`
`
`
`
`
`Year Ended December 31, 2005
` Non-GAAP
`GAAP Adjustments
`
`
` Adjusted
`
`Year Ended December 31, 2004
`
`Non-GAAP
`GAAP Adjustments
`
`
`Adjusted
`
`product sales
`Net sales — pharmaceutical only
`Non-pharmaceutical sales (primarily contract sales)
`
`$2,272.8
`46.4
`
`$ —
`—
`
`$2,272.8
`46.4
`
`
`
`Total
`
`Cost of sales — pharmaceutical only
`Cost of sales — non-pharmaceutical
`
`
`
`
`
`Product gross margin
`
`Research services margin
`
`Selling, general and administrative
`Research & development
`Legal settlement
`Technology fees from related party
`Restructuring charge (reversal) and asset write-offs
`
`
`
`Operating income (loss)
`
`Interest income
`Interest expense
`Gain (loss) on investments
`Unrealized gain (loss) on derivative instruments, net
`Other, net
`
`2,319.2
`
`363.6
`36.0
`
`1,919.6
`
`—
`
`913.9
`391.0
`—
`—
`43.8
`
`570.9
`
`35.4
`(12.4)
`0.8
`1.1
`3.4
`
`—
`
`2,319.2
`
`(0.5) (a)(b)
`—
`
`363.1
`36.0
`
`0.5
`
`1,920.1
`
`—
`
`—
`
`10.0 (a)(c)(d) 923.9
`
`(4.5) (a)(e)
`—
`—
`(43.8) (b)
`
`386.5
`—
`—
`—
`
`38.8
`
`609.7
`
`(2.2) (f)(g)
`(7.3) (f)
`(0.8) (h)
`(1.1) (i)
`(3.5) (g)
`
`33.2
`(19.7)
`—
`—
`(0.1)
`
`$1,945.6
`100.0
`
`2,045.6
`
`301.6
`85.1
`
`1,658.9
`
`—
`
`778.9
`345.6
`—
`—
`7.0
`
`527.4
`
`14.1
`(18.1)
`0.3
`(0.4)
`8.8
`
`$ —
` —
`
`$1,945.6
`100.0
`
`—
`
` —
`—
`
` —
`
` —
`
` 2.4 (l)
`—
` —
` —
`(7.0) (o)
`
`2,045.6
`
`301.6
`85.1
`
`1,658.9
`
` —
`
`781.3
`345.6
`—
`—
`—
`
`4.6
`
` 532.0
`
`—
`—
` —
`0.4 (i)
` (11.5)
`
` (11.1)
`
`14.1
`(18.1)
`0.3
` —
`(2.7)
`
` (6.4)
`
`
`
`
`
`
`
`28.3
`
`(14.9)
`
`13.4
`
`Earnings (loss) from continuing operations before
`
`income taxes and minority interest
`
`Provision for income taxes
`
`Minority interest
`
`599.2
`
`192.4
`
`2.9
`
`23.9
`
`(22.4) (j)
`
`623.1
`
`170.0
`
`(3.1) (k)
`
`(0.2)
`
`4.7
`
`532.1
`
`154.0
`
`1.0
`
` (6.5)
`
`1.8 (m)
`
`—
`
`525.6
`
`155.8
`
`1.0
`
`Earnings (loss) from continuing operations
`
`$ 403.9
`
`$ 49.4
`
`$ 453.3
`
`$ 377.1
`
`$ (8.3)
`
`$ 368.8
`
`Basic earnings (loss) per share:
`
`Continuing operations
`
`Diluted earnings (loss) per share:
`
`Continuing operations
`
`Total net sales
`
`$ 3.08
`
`$ 0.38
`
`$ 3.46
`
`$ 2.87
`
`$(0.06)
`
`$ 2.81
`
`$ 3.01
`
`$2,319.2
`
`$ 0.37
`
`$ 3.38
`
`$(22.3) (ab) $2,296.9
`
`$ 2.82
`
`$2,045.6
`
`$(0.07)
`
`$ 2.75
`
`$(41.9) (ab) $2,003.7
`
`02
`
`“GAAP” refers to financial information presented in accordance with generally accepted accounting principles
`in the United States.
`
`In this Annual Report, Allergan included historical non-GAAP financial measures, as defined in Regulation G
`promulgated by the Securities and Exchange Commission, with respect to the year ended December 31, 2005,
`as well as the corresponding periods for 2001 through 2004. Allergan believes that its presentation of historical
`non-GAAP financial measures provides useful supplementary information to investors. The presentation of
`historical non-GAAP financial measures is not meant to be considered in isolation from or as substitute for
`results prepared in accordance with accounting principles generally accepted in the United States.
`
`In this Annual Report, Allergan reported the non-GAAP financial measure of “adjusted earnings” and related
`“adjusted earnings per share.” Allergan uses adjusted earnings to enhance the investor’s overall
`understanding of the financial performance and prospects for the future of Allergan’s core business
`activities. Specifically, Allergan believes that a report of adjusted earnings provides consistency between its
`current, past and future periods. Adjusted earnings is one of the primary indicators management uses for
`planning and forecasting in future periods. Allergan also uses adjusted earnings for evaluating management
`performance for compensation purposes.
`
`In this Annual Report, Allergan also reported sales performance using the non-GAAP financial measure of
`constant currency sales. Constant currency sales represent current period reported sales adjusted for the
`translation effect of changes in average foreign currency exchange rates between the current period and the
`
`corresponding period in the prior year. Allergan calculates the currency effect by comparing adjusted current
`period reported amounts, calculated using the monthly average foreign exchange rates for the corresponding
`period in the prior year, to the actual current period reported amounts. Management refers to growth rates
`in constant currency so that sales results can be viewed without the impact of changing foreign currency
`exchange rates, thereby facilitating period to period comparisons of Allergan’s sales. Generally, when the
`dollar either strengthens or weakens against other currencies, the growth at constant currency rates will
`be higher or lower, respectively, than growth reported at actual exchange rates.
`
`(a)
`
` Transition/duplicate operating expenses, consisting of cost of sales of $0.3 million; selling, general and
`administrative expense of $3.8 million and research and development expense of $1.5 million.
`
`(b) Restructuring charge of $43.8 million and related inventory write-offs of $0.2 million.
`
`(c)
`
` Gain on sale of assets primarily used for Advanced Medical Optics contract manufacturing ($5.7 million),
`gain on sale of distribution business in India ($7.9 million), and gain on sale of a former manufacturing
`plant in Argentina ($0.6 million).
`
`(d) Costs related to the acquisition of Inamed Corporation of $0.4 million.
`
`(e) Buy-out of license agreement with Johns Hopkins University.
`
`(f)
`
` Interest income related to previously paid state income taxes and reversal of interest expense related to
`tax settlements.
`
`APOTEX 1051, pg. 6
`
`

`

`allergan: annual report 2005
`
`Year Ended December 31, 2003
`
`Non-GAAP
`GAAP Adjustments
`
`
`Adjusted
`
`Year Ended December 31, 2002
`
`Non-GAAP
`GAAP Adjustments
`
`
`Adjusted
`
`Year Ended December 31, 2001
`
`Non-GAAP
`GAAP Adjustments
`
`Adjusted
`
`$1,672.7
`82.7
`
`$ —
`—
`
`$1,672.7
`82.7
`
`$1,357.2
`27.8
`
`$ —
` —
`
`$1,357.2
`27.8
`
`1,755.4
`
`242.5
` 77.8
`
`1,435.1
`
`1.5
`
`697.2
`763.5
` —
` —
`(0.4)
`
`(23.7)
`
`13.0
`(15.6)
` —
`(0.3)
`(2.9)
`
` —
`
` —
` —
`
` —
`
`—
`
` —
` (458.0) (n)
` —
` —
`0.4 (o)
`
`457.6
`
` —
` —
` —
`0.3 (i)
`0.9 (p)
`
`1.2
`
`1,755.4
`
`242.5
`77.8
`
`1,435.1
`
`1.5
`
`697.2
`305.5
` —
` —
`—
`
`433.9
`
`13.0
`(15.6)
`—
` —
`(2.0)
`
`(4.6)
`
`1,385.0
`
`191.4
`30.3
`
`1,163.3
`
`3.7
`
`623.8
`233.1
`118.7
`—
`62.4
`
`129.0
`
`15.8
`(17.4)
`(30.2)
`(1.7)
`(5.7)
`
`(39.2)
`
` —
`
`1,385.0
`
`(3.7) (r)
` —
`
`3.7
`
`—
`
` (39.2) (s)
` (4.7) (t)
`(118.7) (u)
`—
` (62.4) (o)
`
`228.7
`
` —
`—
` 30.2 (z)
` 1.7 (i)
`1.0 (v)
`
`32.9
`
` 187.7
`30.3
`
`1,167.0
`
`3.7
`
`584.6
`228.4
`—
`—
` —
`
`357.7
`
` 15.8
` (17.4)
` —
`—
`(4.7)
`
`(6.3)
`
`$1,142.1
` —
`
`1,142.1
`
`198.1
` —
`
`944.0
`
`4.2
`
`481.0
` 227.5
`—
` (0.7)
`(1.7)
`
`242.1
`
`30.6
`(18.1)
` (4.5)
`4.2
` 6.0
`
`18.2
`
`$ —
` —
`
`$1,142.1
` —
`
` —
`
`—
` —
`
`—
`
`—
`
` (2.9) (w)
`(40.0) (x)
`—
` —
`1.7 (y)
`
`41.2
`
` —
`—
`4.5 (z)
`(4.2) (i)
` (6.5) (aa)
`
` (6.2)
`
`1,142.1
`
`198.1
` —
`
`944.0
`
`4.2
`
`478.1
`187.5
`—
`(0.7)
`—
`
`283.3
`
`30.6
`(18.1)
` —
`—
`(0.5)
`
`12.0
`
`(5.8)
`
`(29.5)
`
` 22.2
`
`0.8
`
`458.8
`
`101.1 (q)
`
` —
`
`429.3
`
`123.3
`
`0.8
`
`89.8
`
`25.1
`
`0.7
`
`261.6
`
`351.4
`
`73.3 (q)
`
` —
`
`98.4
`
`0.7
`
`260.3
`
` 88.5
`
`0.6
`
` 35.0
`
` (1.5) (q)
`
` —
`
`295.3
`
` 87.0
`
`0.6
`
`$ (52.5)
`
`$ 357.7
`
`$ 305.2
`
`$ 64.0
`
`$ 188.3
`
`$ 252.3
`
`$ 171.2
`
`$ 36.5
`
`$ 207.7
`
`$ (0.40)
`
`$ 2.74
`
`$ 2.34
`
`$ 0.49
`
`$ 1.46
`
`$ 1.95
`
`$ 1.30
`
`$ 0.28
`
`$ 1.58
`
`$ (0.40)
`
`$ 2.70
`
`$ 2.30
`
`$1,755.4
`
`$ (45.9) (ab) $1,709.5
`
`$ 0.49
`
`$1,385.0
`
`$ 1.43
`
`$ 1.92
`
`$ 6.5 (ab) $1,391.5
`
`$ 1.29
`
`$1,142.1
`
`$ 0.26
`
`$ 1.55
`
`$ 28.8 (ab) $1,170.9
`
`(g) Termination of ISTA Vitrase collaboration agreement (including interest income of $0.1 million).
`
`(h) Gain on sale of third party equity investment.
`
`(i) Unrealized gain/(loss) on the mark-to-market adjustment to derivative instruments.
`
`(j)
`
` Total tax effect for non-GAAP pre-tax adjustments of $(1.7) million, resolution of uncertain tax positions
`of $(24.1) million, additional benefit for state income taxes of $(1.4) million and $49.6 million related
`to the repatriation of foreign earnings that had been previously permanently reinvested outside the
`United States.
`
`(k) Minority interest related to gain on sale of distribution business in India.
`
`(l)
`
`Income from a patent infringement settlement.
`
`(r)
`
` Duplicate operating expenses of $2.6 million and restructuring charge and asset write-offs of
`$1.1 million related the spin-off of Advanced Medical Optics.
`
`(s) Duplicate operating expenses incurred related to the spin-off of Advanced Medical Optics.
`
`03
`
`(t) Duplicate operating expenses of $0.7 million and partnering collaboration expense of $4.0 million.
`(u) Legal settlement regarding LUMIGAN®.
`(v)
` Partnering deal settlement of $5.0 million, gain on sale of facility (spin-related) of $5.7 million and loss
`on early extinguishment of debt of $11.7 million.
`
`(w) Duplicate operating expenses of $4.4 million related to the spin-off of Advanced Medical Optics, net of
`$1.5 million from a partnering agreement.
`
`(m) Favorable recovery of previously paid state income taxes and the tax effect for non-GAAP adjustments.
`
`(x)
`
`In-process research and development charge related to the acquisition of Allergan Specialty Therapeutics, Inc.
`
`(n) In-process research and development charge related to the acquisition of Bardeen Sciences Company, LLC
`and Oculex Pharmaceuticals, Inc.
`
`(o) Restructuring charge (reversal) and asset write-offs, net related to the spin-off of Advanced Medical Optics.
`
`(p) Loss on early extinguishment of debt.
`
`(q) Tax effect for non-GAAP adjustments.
`
`(y) Restructuring charge reversal related to the 1998 restructuring charge.
`
`(z) Mark-to-market loss on investments and related third party collaborations.
`
`(aa) Gain on sale of facility (1998 restructuring-related) of $4.5 million and $2.0 million gain on the sale of
`divested pharmaceutical products in Brazil.
`
`(ab) The adjustment to measure sales using constant currency.
`
`APOTEX 1051, pg. 7
`
`

`

`To Our Investors
`
`another year of strong results
`It is gratifying to report that Allergan’s 2005 operating results were
`among the very best since I joined the Company as Chief Executive
`Officer in 1998. Pharmaceutical sales increased by 17 percent to
`$2.3 billion and all of our businesses and operating regions produced
`double-digit sales growth. Including the effect of a one-time Internal
`Revenue Service (IRS) tax settlement reached in February 2006, diluted
`earnings per share (EPS) increased by a strong 23 percent, adjusted
`for restructuring in Europe and Japan, and for the termination of our
`contract manufacturing agreement with Advanced Medical Optics
`(AMO), a company spun off in 2002, as well as for certain other
`transaction gains and losses (1). Had Allergan not achieved this IRS tax
`settlement, adjusted EPS would still have grown a robust 20 percent.
`Our high adjusted EPS growth was achieved while continuing to invest
`fully in the long-term future of our company.
`
`Within the attractive, high-growth specialty markets we serve, we
`were able to steadily strengthen our positions in several key areas.
`For the third consecutive year, Allergan has been the fastest-growing
`global ophthalmology company in the world when one excludes retinal
`therapeutics (2), a segment in which Allergan’s research and development
`(R&D) candidates have not yet been commercialized. Further market
`share gains were recorded in our U.S. dermatology unit. Finally, the
`estimated global share of our BOTOX® franchise increased from
`85 percent to 86 percent (3), even in the face of increasing competition.
`
`The strong 2005 results were a clear reflection of increased and
`improved management focus on the greatest opportunities within our
`portfolio. In mid-2004 we experienced a disappointing, but thankfully
`for Allergan, a rare set-back when we received a non-approvable letter
`from the U.S. Food & Drug Administration (FDA) for TAZORAL™, our
`innovative oral medication for psoriasis. Denied this sales growth
`driver for 2005, we were forced to re-examine our other prospects.
`Rebounding from this challenge, we focused our commercial efforts
`on our key opportunities for growth and dedicated our attention
`and funds to BOTOX® Cosmetic/VISTABEL®/VISTABEX™, BOTOX®
`therapeutic, RESTASIS® and LUMIGAN®.
`
`consumer advertising to inform our patients. BOTOX® Cosmetic is, for
`the fourth consecutive year, the No. 1 cosmetic procedure administered
`in the offices of U.S. dermatologists and plastic surgeons (4). Also, in
`terms of positive brand media awareness, BOTOX® ranks, amongst all
`pharmaceuticals, second only to VIAGRA® worldwide.
`
`In Europe we made significant investments in introducing VISTABEL®/
`VISTABEX™, the European trade names for BOTOX® Cosmetic, to many
`major markets and we received marketing approvals in the important
`countries of Germany and the United Kingdom in January 2006. Within
`the BOTOX® therapeutic franchise, we have continued to educate
`physicians and their patients about the use of BOTOX® as an innovative
`alternative in treating hyperhidrosis, or excessive sweating. BOTOX®
`continued its strong trajectory of growth, increasing global sales by
`18 percent from 2004 to $831 million. Presently, BOTOX® is approved for
`20 indications in more than 75 countries, with an estimated 57 percent
`of sales relating to therapeutic uses and 43 percent to aesthetic use.
`
`RESTASIS® is the only therapeutic agent approved in the United States
`to treat dry eye disease, in contrast to traditional artificial tears which
`are designed to alleviate the symptoms. In 2005 we were able to increase
`global RESTASIS® sales by 91 percent to $191 million. Early in the year,
`we bought out our patent royalty obligations relating to RESTASIS® from
`Novartis, which permitted us to invest in heavy direct-to-consumer
`advertising. LUMIGAN® consolidated its position, increasing global sales
`by 15 percent to $268 million and establishing its position as the 4th
`largest glaucoma drug in the world by value (2).
`
`Expenditures on R&D, adjusted for non-GAAP items, increased by
`12 percent to $387 million (5), or 17 percent of pharmaceutical-only
`sales. Within Allergan’s rapidly growing R&D organization, our goals
`are to support the benefits of increasing scale by creating dedicated
`
`(1) Adjustments to GAAP diluted earnings per share used to calculate diluted earnings per share growth,
`adjusted for non-GAAP items, include the aggregate non-GAAP adjustments, net of tax, detailed on
`pages 2 and 3 in this Annual Report. Diluted earnings per share growth using GAAP net earnings was
`6.7 percent for 2005.
`
`(2) Intercontinental Medical Statistics (IMS): (from ~48 countries), Q3 2005, in constant exchange,
`for the trailing 12 months, as of September 2005.
`
`(3) Allergan market estimates.
`
`For each of these leading products, we were able to achieve significant
`results and in several instances have created major new markets as we
`addressed unmet medical needs and harnessed the power of direct-to-
`
`(4) The American Society for Aesthetic Plastic Surgery (ASAPS) 2005 Cosmetic Surgery National Data Bank.
`
`(5) Adjustments to GAAP research and development expense used to calculate research and development
`expenditures, adjusted for non-GAAP items, include $1.5 million of transition/duplicate operating
`expenses and a $3.0 million buy-out of a license agreement in 2005. GAAP research and development
`expense was $391 million in 2005, a 13 percent increase from 2004.
`
`04
`
`APOTEX 1051, pg. 8
`
`

`

`Building leadership positions in specialties
`
`leadership within each therapeutic area. We are increasing our focus on
`the top tier clinical development programs. In addition, we are setting
`clear objectives for the discovery group in terms of new compounds
`that will transition from the laboratory to human clinical use.
`
`During 2005, we received approval for COMBIGAN™, a fixed combina-
`tion of brimonidine and timolol, in all member states of the European
`Union, Australia, Mexico and Argentina. We expect this powerful
`new combination therapy to be an important driver for Allergan’s
`glaucoma franchise in 2006. We also received approval for the newest
`line extension of ALPHAGAN® from the FDA — ALPHAGAN® P 0.1% —
`which we launched in the United States in early 2006. Thanks to the
`innovative formulation of this product, we are able to reduce drug
`exposure and achieve equivalent efficacy to the original ALPHAGAN®.
`
`Allergan’s financial performance for the year was also robust,
`generating $425 million of operating cash flow, return on equity of
`29 percent and return on capital of 20 percent, both adjusted for
`non-GAAP items (6). This places Allergan in the top quartile of the
`pharmaceutical industry and provides us with flexibility for strategic
`transactions in the future.
`
`change and continuing evolution
`of allergan’s business model
`The long-term vibrancy of our business will continue to be driven by
`the discovery, development and approval of innovative new medicines,
`new devices and new procedures as well as our focus on the needs of
`physicians and their patients. In addition, we are constantly searching
`for ways to increase operational efficiencies. In 2005, we made several
`significant structural changes to our business, including:
`
`• Restructuring of our European commercial and R&D operations; and
`
`• Out-licensing of BOTOX® in Japan and China to GlaxoSmithKline (GSK);
`and co-promotion of GSK’s IMITREX STATdose System® and AMERGE®,
`which are indicated for migraine treatment in the United States.
`
`As a consequence of