ANNUAL REPORT 20 06
`
`ALLERGAN ANNUAL REPORT 20 06
`
`NYSE: AGN | 2525 DUPONT DRIVE | P.O. BOX 19534 | IRVINE, CA 92623-9534 | (714) 246.4500 | WWW.ALLERGAN.COM
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`R3_COVER TO PRINT.indd 1R3_COVER TO PRINT.indd 1
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`3/20/07 1:36:08 PM3/20/07 1:36:08 PM
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`Reaching further. Living better.
`
`company overview Allergan, Inc. is a premier, global specialty pharmaceutical and medical device
`company that discovers, 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 6,500 people worldwide and
`operates world-class research and development facilities and 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 1052, pg. 1
`
`

`

`(cid:86)(cid:100)(cid:1)(cid:115)(cid:103)(cid:104)(cid:109)(cid:106)(cid:1)(cid:99)(cid:100)(cid:100)(cid:111)(cid:107)(cid:120)(cid:1)(cid:96)(cid:97)(cid:110)(cid:116)(cid:115)(cid:1)(cid:115)(cid:103)(cid:100)(cid:1)(cid:105)(cid:109)(cid:89)(cid:100)(cid:97)(cid:108)(cid:113)(cid:1)(cid:103)(cid:94)(cid:1)(cid:100)(cid:97)(cid:94)(cid:93)(cid:45)(cid:1)
`
`(cid:33)(cid:1)(cid:47)(cid:41)(cid:51)(cid:48)(cid:54)
`
`(cid:35)(cid:1)(cid:49)(cid:43)(cid:49)(cid:54)(cid:50)
`
`(cid:35)(cid:1)(cid:48)(cid:43)(cid:56)(cid:51)(cid:53)
`
`(cid:35)(cid:1)(cid:48)(cid:43)(cid:53)(cid:54)(cid:50)
`
`(cid:35)(cid:1)(cid:48)(cid:43)(cid:50)(cid:52)(cid:54)
`
`(cid:33)(cid:1)(cid:52)(cid:49)(cid:52)
`
`(cid:35)(cid:1)(cid:51)(cid:49)(cid:52)
`
`(cid:35)(cid:1)(cid:52)(cid:51)(cid:56)
`
`(cid:35)(cid:1)(cid:51)(cid:50)(cid:52)
`
`(cid:35)(cid:1)(cid:49)(cid:49)(cid:47)
`
`(cid:42)(cid:48)(cid:56)(cid:36)
`
`(cid:42)(cid:49)(cid:50)(cid:36) (cid:42)(cid:48)(cid:53)(cid:36) (cid:42)(cid:48)(cid:54)(cid:36)
`
`(cid:40)(cid:46)(cid:51)(cid:34)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:45)(cid:51)
`
`
`
`
`In millions, except per share data
`
`statement of operations highlights
`(As reported under U.S. GAAP)
`
`Product net sales
`Total revenues
`Research and development
`(Loss) earnings from continuing operations
`Earnings from discontinued operations
`Net (loss) earnings
`
`Basic (loss) earnings per share:
`
`Continuing operations
`
`Discontinued operations
`Diluted (loss) earnings per share:
`
`Continuing operations
`
`Discontinued operations
`
`Dividends per share
`
`(a)
`
`adjusted amounts
`Adjusted earnings from continuing operations
`Adjusted basic earnings per share:
`
`Continuing operations
`Adjusted diluted earnings per share:
`
`Continuing operations
`
`
`2006
`
`Year Ended December 31,
`2004
`
`2005
`
`2003
`
`2002
`
`$3,010.1
`3,063.3
`1,055.5
`(127.4)
`—
`(127.4)
`
`$2,319.2
`2,342.6
`388.3
`403.9
`—
`403.9
`
`$2,045.6
`2,058.9
`342.9
`377.1
`—
`377.1
`
`$1,755.4
`1,780.8
`762.6
`(52.5)
`—
`(52.5)
`
`$1,385.0
`1,435.8
`232.7
`64.0
`11.2
`75.2
`
`(0.87)
`—
`
`(0.87)
`—
`
`0.40
`
`547.2
`
`3.72
`
`3.66
`
`3.08
`—
`
`3.01
`—
`
`0.40
`
`453.3
`
`3.46
`
`3.38
`
`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
`
`(cid:76)(cid:103)(cid:1)(cid:109)(cid:107)(cid:36)(cid:1)(cid:97)(cid:108)(cid:1)(cid:97)(cid:107)(cid:1)(cid:94)(cid:89)(cid:106)(cid:1)(cid:101)(cid:103)(cid:106)(cid:93)(cid:1)(cid:108)(cid:96)(cid:89)(cid:102)(cid:1)(cid:89)(cid:1)(cid:100)(cid:89)(cid:90)(cid:93)(cid:100)(cid:1)(cid:111)(cid:93)(cid:1)(cid:89)(cid:108)(cid:108)(cid:89)(cid:91)(cid:96)(cid:1)(cid:108)(cid:103)(cid:1)(cid:108)(cid:96)(cid:93)(cid:1)(cid:96)(cid:93)(cid:89)(cid:100)(cid:108)(cid:96)(cid:1)(cid:91)(cid:89)(cid:106)(cid:93)(cid:1)(cid:107)(cid:103)(cid:100)(cid:109)(cid:108)(cid:97)(cid:103)(cid:102)(cid:107)(cid:1)
`(cid:111)(cid:93)(cid:1)(cid:104)(cid:106)(cid:103)(cid:110)(cid:97)(cid:92)(cid:93)(cid:38)(cid:1)(cid:65)(cid:108)(cid:1)(cid:97)(cid:107)(cid:1)(cid:89)(cid:102)(cid:1)(cid:97)(cid:92)(cid:93)(cid:89)(cid:1)(cid:108)(cid:96)(cid:89)(cid:108)(cid:1)(cid:97)(cid:102)(cid:107)(cid:104)(cid:97)(cid:106)(cid:93)(cid:107)(cid:1)(cid:109)(cid:107)(cid:1)(cid:108)(cid:103)(cid:1)(cid:106)(cid:93)(cid:89)(cid:91)(cid:96)(cid:1)(cid:94)(cid:109)(cid:106)(cid:108)(cid:96)(cid:93)(cid:106)(cid:1)(cid:97)(cid:102)(cid:108)(cid:103)(cid:1)(cid:108)(cid:96)(cid:93)(cid:1)
`(cid:107)(cid:104)(cid:93)(cid:91)(cid:97)(cid:89)(cid:100)(cid:108)(cid:113)(cid:1)(cid:89)(cid:106)(cid:93)(cid:89)(cid:107)(cid:1)(cid:111)(cid:93)(cid:1)(cid:107)(cid:93)(cid:106)(cid:110)(cid:93)(cid:36)(cid:1)(cid:104)(cid:109)(cid:106)(cid:107)(cid:109)(cid:97)(cid:102)(cid:95)(cid:1)(cid:92)(cid:97)(cid:107)(cid:91)(cid:103)(cid:110)(cid:93)(cid:106)(cid:97)(cid:93)(cid:107)(cid:1)(cid:89)(cid:102)(cid:92)(cid:1)(cid:108)(cid:106)(cid:93)(cid:89)(cid:108)(cid:101)(cid:93)(cid:102)(cid:108)(cid:107)(cid:1)(cid:108)(cid:96)(cid:89)(cid:108)(cid:1)
`(cid:93)(cid:101)(cid:104)(cid:103)(cid:111)(cid:93)(cid:106)(cid:1)(cid:97)(cid:102)(cid:92)(cid:97)(cid:110)(cid:97)(cid:92)(cid:109)(cid:89)(cid:100)(cid:107)(cid:1)(cid:108)(cid:103)(cid:1)(cid:100)(cid:97)(cid:110)(cid:93)(cid:1)(cid:100)(cid:97)(cid:94)(cid:93)(cid:1)(cid:108)(cid:103)(cid:1)(cid:97)(cid:108)(cid:107)(cid:1)(cid:94)(cid:109)(cid:100)(cid:100)(cid:93)(cid:107)(cid:108)(cid:1)(cid:104)(cid:103)(cid:108)(cid:93)(cid:102)(cid:108)(cid:97)(cid:89)(cid:100)(cid:1)(cid:200)(cid:1)(cid:111)(cid:97)(cid:108)(cid:96)(cid:1)(cid:93)(cid:110)(cid:93)(cid:106)(cid:113)(cid:1)(cid:1)
`(cid:90)(cid:97)(cid:108)(cid:1)(cid:103)(cid:94)(cid:1)(cid:108)(cid:96)(cid:93)(cid:1)(cid:93)(cid:102)(cid:93)(cid:106)(cid:95)(cid:113)(cid:36)(cid:1)(cid:99)(cid:102)(cid:103)(cid:111)(cid:100)(cid:93)(cid:92)(cid:95)(cid:93)(cid:36)(cid:1)(cid:91)(cid:106)(cid:93)(cid:89)(cid:108)(cid:97)(cid:110)(cid:97)(cid:108)(cid:113)(cid:36)(cid:1)(cid:92)(cid:97)(cid:100)(cid:97)(cid:95)(cid:93)(cid:102)(cid:91)(cid:93)(cid:1)(cid:89)(cid:102)(cid:92)(cid:1)(cid:91)(cid:89)(cid:106)(cid:93)(cid:1)(cid:103)(cid:94)(cid:1)(cid:111)(cid:96)(cid:97)(cid:91)(cid:96)(cid:1)(cid:1)
`(cid:111)(cid:93)(cid:1)(cid:89)(cid:106)(cid:93)(cid:1)(cid:91)(cid:89)(cid:104)(cid:89)(cid:90)(cid:100)(cid:93)(cid:38)
`
`net sales by product line
`Specialty Pharmaceuticals:
`
`Eye Care Pharmaceuticals
`BOTOX®/Neuromodulators
`
`
`Skin Care
`
`
`Subtotal Pharmaceuticals
`
`Other (primarily contract sales)
`
`
`Total specialty pharmaceuticals
`Medical Devices:
`
`Breast Aesthetics
`
`Obesity Intervention
`
`Facial Aesthetics
`
`
`Total medical devices
`
`Total product net sales
`
`product sold by location
`Domestic
`International
`
`$1,530.6
`982.2
`125.7
`2,638.5
`—
`2,638.5
`
`177.2
`142.3
`52.1
`371.6
`
`$1,321.7
`830.9
`120.2
`2,272.8
` 46.4
`2,319.2
`
`—
`—
`—
`—
`
`$1,137.1
` 705.1
` 103.4
`1,945.6
`100.0
`2,045.6
`
`—
`—
`—
`—
`
`$ 999.5
` 563.9
` 109.3
`1,672.7
`82.7
`1,755.4
`
`—
`—
`—
`—
`
`$ 827.3
` 439.7
` 90.2
`1,357.2
`27.8
`1,385.0
`
`—
`—
`—
`—
`
`$3,010.1
`
`$2,319.2
`
`$2,045.6
`
`$1,755.4
`
`$1,385.0
`
`67.4%
`32.6%
`
`67.5%
`32.5%
`
`69.1%
`30.9%
`
`70.4%
`29.6%
`
`70.6%
`29.4%
`
`(a)
`
` The adjusted amounts in 2006 exclude income tax benefi ts of $11.7 million related to the
`resolution of uncertain tax positions and favorable recovery of previously paid state income taxes,
`an income tax benefi t of $17.2 million related to a change in valuation allowance associated with
`a refund claim fi led in 2006 for a prior tax year, an income tax benefi t of $2.8 million related to
`a change in estimated income taxes on 2005 dividend repatriation, and income tax expenses of
`$1.6 million related to intercompany transfers of trade businesses and net assets, and the after-tax
`effects of the following: 1) $579.3 million charge for in-process research and development related
`to the acquisition of Inamed Corporation (Inamed), 2) $58.6 million amortization of acquired
`intangible assets related to the acquisition of Inamed, 3) $47.9 million related to Inamed fair-market
`value inventory adjustment roll out, 4) $13.5 million restructuring charge and $20.7 million of
`integration and transition costs related to the Inamed integration, 5) $28.5 million contribution to
`The Allergan Foundation, 6) $8.6 million restructuring charge and $6.2 million of transition/duplicate
`operating costs related to the streamlining of the Company’s European operations, 7) $0.6 million
`restructuring charge related to the scheduled termination of the Company’s manufacturing and
`supply agreement with Advanced Medical Optics, 8) $4.9 million reversal of interest income on
`previously paid state income taxes and $4.9 million reversal of interest expense related to the
`resolution of uncertain tax positions, 9) $2.7 million of costs to settle a contingency involving non-
`income taxes in Brazil, 10) $0.4 million reversal of restructuring charge related to the streamlining
`of the Company’s operations in Japan, 11) $0.1 million of costs related to the acquisition of Groupe
`Cornéal Laboratoires, and 12) $0.3 million unrealized loss on derivative instruments.
`
`
`
` 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 benefi ts of $24.1 million related to the resolution of uncertain tax positions and an
`additional benefi t 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 buy-out of a license agreement with Johns Hopkins University,
`11) $0.4 million in costs related to the acquisition of Inamed, 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 foregoing presentation contains certain non-GAAP fi nancial measures and non-GAAP
`adjustments. For a reconciliation of these non-GAAP fi nancial measures to GAAP fi nancial
`measures, please refer to pages 2 and 3 of this Annual Report.
`
`
`
`
`
`
`
`
`
`(cid:33)(cid:46)(cid:53)(cid:45)
`
`(cid:33)(cid:46)(cid:51)(cid:45)
`
`(cid:33)(cid:46)(cid:49)(cid:45)
`
`(cid:33)(cid:46)(cid:47)(cid:45)
`
`(cid:33)(cid:46)(cid:45)(cid:45)
`
`(cid:33)(cid:53)(cid:45)
`
`(cid:33)(cid:51)(cid:45)
`
`(cid:33)(cid:49)(cid:45)
`
`(cid:33)(cid:47)(cid:45)
`
`(cid:33)(cid:45)
`
`(cid:45)(cid:47)
`
`(cid:45)(cid:48)
`
`(cid:45)(cid:49)
`
`(cid:45)(cid:50)
`
`(cid:45)(cid:51)
`
`(cid:45)(cid:47)
`
`cash flow
`from operations
`(in millions of dollars)
`
`pharmaceuticals
`sales/growth
`(in millions of dollars)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:46)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:47)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:48)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:49)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:50)
`
`(cid:46)(cid:47)(cid:44)(cid:45)(cid:51)
`
`cumulative total return
`(cid:82)(cid:37)(cid:79)(cid:1)(cid:52)(cid:47)(cid:47)
`(cid:57)(cid:100)(cid:100)(cid:93)(cid:106)(cid:95)(cid:89)(cid:102)(cid:1)(cid:65)(cid:102)(cid:91)(cid:38)
`
`(cid:79)(cid:100)(cid:100)(cid:113)(cid:1)(cid:70)(cid:113)(cid:110)(cid:116)(cid:111)
`
`(cid:64)(cid:76)(cid:68)(cid:87)(cid:1)(cid:79)(cid:103)(cid:96)(cid:113)(cid:108)(cid:96)(cid:98)(cid:100)(cid:116)(cid:115)(cid:104)(cid:98)(cid:96)(cid:107)
`
`The 17 companies included in the customized peer group are: Alcon Inc., Amgen Inc., Biogen Idec Inc.,
`Celgene Corp., Cephalon Inc., Eli Lilly & Company, Endo Pharmaceuticals Holdings Inc., Forest Laboratories,
`Genentech Inc., Genzyme Corp., Gilead Sciences Inc., Johnson & Johnson, Medicis Pharmaceutical Corp.,
`Medimmune Inc., Mentor Corp., Sepracor Inc. and Wyeth.
`
`APOTEX 1052, pg. 2
`
`

`

`Condensed Consolidated Statements of Operations
`and Reconciliation of Non-GAAP Adjustments
`
`In millions, except per share data
`
`
`
`
`
`
`
`Year Ended December 31, 2006
` Non-GAAP
`GAAP Adjustments
`
`
`Adjusted
`
`revenues
`Specialty pharmaceuticals product net sales
`Medical devices product net sales
`Product net sales
`
`Other revenues
`Research service revenues
`Total
`
`operating costs and expenses
`Cost of product sales (excludes amortization of acquired
`intangible assets)
`
`Cost of research services
`Selling, general and administrative
`Research and development
`Amortization of acquired intangible assets
`Legal settlement
`Restructuring charge (reversal) and asset write-offs
`
`$2,638.5
`371.6
`3,010.1
`53.2
`—
`3,063.3
`
`575.7
`—
`1,333.4
`1,055.5
`79.6
`—
`22.3
`
`$ —
`—
`—
`—
`—
`—
`
`$2,638.5
`371.6
`3,010.1
`53.2
`—
`3,063.3
`
`(48.8) (a)(b)
`526.9
`—
`—
`(53.9) (a)(c)(d)(e) 1,279.5
`(580.0)(a)(d)(f)
`475.5
`(58.6) (g)
`21.0
`—
`—
`(22.3) (h)
`—
`
`(3.2)
`
`763.6
`
`Year Ended December 31, 2005
` Non-GAAP
`Adjustments
`
`
`Adjusted
`
`GAAP
`
`Year Ended December 31, 2004
` Non-GAAP
`Adjustments
`
`
`Adjusted
`
`GAAP
`
`Year Ended December 31, 2003
` Non-GAAP
`Adjustments
`
`
`Adjusted
`
`GAAP
`
`Year Ended December 31, 2002
` Non-GAAP
`Adjustments
`
`Adjusted
`
`GAAP
`
`$2,319.2
`—
`2,319.2
`23.4
`—
`2,342.6
`
`385.3
`—
`936.8
`388.3
`17.5
`—
`43.8
`
`$ —
`—
`—
`—
`—
`—
`
`$2,319.2
`—
`2,319.2
`23.4
`—
`2,342.6
`
`(0.5) (m)(n)
`—
`10.0 (m)(o)(p)
`(4.5) (m)(q)
`—
`—
`(43.8) (n)
`
`384.8
`—
`946.8
`383.8
`17.5
`—
`—
`
`$2,045.6
`—
`2,045.6
`13.3
`—
`2,058.9
`
`381.7
`—
`791.7
`342.9
`8.2
`—
`7.0
`
`$ —
`—
`—
`—
`—
`—
`
`$2,045.6
`—
`2,045.6
`13.3
`—
`2,058.9
`
`$1,755.4
`—
`1,755.4
`9.4
`16.0
`1,780.8
`
`$ —
`—
`—
`—
`—
`—
`
`$1,755.4
`—
`1,755.4
`9.4
`16.0
`1,780.8
`
`$1,385.0
`—
`1,385.0
`10.5
`40.3
`1,435.8
`
`$ —
`—
`—
`—
`—
`—
`
`$1,385.0
`—
`1,385.0
`10.5
`40.3
`1,435.8
`
`—
`—
`2.4 (w)
`—
`—
`—
`(7.0) (z)
`
`381.7
`—
`794.1
`342.9
`8.2
`—
`—
`
`316.9
`14.5
`705.9
`762.6
`5.0
`—
`(0.4)
`
`—
`—
`—
`(458.0) (y)
`—
`—
`0.4 (z)
`
`316.9
`14.5
`705.9
`304.6
`5.0
`—
`—
`
`221.4
`36.6
`633.9
`232.7
`1.1
`118.7
`62.4
`
`129.0
`
`(3.7) (ac)
`—
`(39.2) (ad)
`(4.7) (ae)
`—
`(118.7) (af)
`(62.4) (z)
`
`228.7
`
`217.7
`36.6
`594.7
`228.0
`1.1
`—
`—
`
`357.7
`
`Operating (loss) income
`Interest income
`Interest expense
`Gain (loss) on investments
`Unrealized (loss) gain on derivative instruments, net
`Other, net
`
`
`
`
`48.9
`(60.2)
`0.3
`(0.3)
`(5.0)
`(16.3)
`
`(19.5)
`
`107.5
`
`4.9
`(i)
`(4.9) (i)
`—
`0.3
`(j)
`2.7
`(k)
`3.0
`
`766.6
`
`92.0 (l)
`
`760.4
`
`53.8
`(65.1)
`0.3
`—
`(2.3)
`(13.3)
`
`747.1
`
`570.9
`
`35.4
`(12.4)
`0.8
`1.1
`3.4
`28.3
`
`38.8
`
`609.7
`
`(2.2) (r)(s)
`(7.3) (r)
`(0.8) (t)
`(1.1) (j)
`(3.5) (s)
`(14.9)
`
`33.2
`(19.7)
`—
`—
`(0.1)
`13.4
`
`527.4
`
`14.1
`(18.1)
`0.3
`(0.4)
`8.8
`4.7
`
`—
`—
`—
`0.4 (j)
`(11.5)
`(11.1)
`
`4.6
`
`532.0
`
`599.2
`
`23.9
`
`623.1
`
`532.1
`
`(6.5)
`
`14.1
`(18.1)
`0.3
`—
`(2.7)
`(6.4)
`
`525.6
`
`155.8
`
`(23.7)
`
`13.0
`(15.6)
`—
`(0.3)
`(2.9)
`(5.8)
`
`(29.5)
`
`22.2
`
`457.6
`
`433.9
`
`—
`—
`—
`0.3 (j)
`0.9 (aa)
`1.2
`
`13.0
`(15.6)
`—
`—
`(2.0)
`(4.6)
`
`458.8
`
`101.1 (ab)
`
`429.3
`
`123.3
`
`15.8
`(17.4)
`(30.2)
`(1.7)
`(5.7)
`(39.2)
`
`89.8
`
`25.1
`
`—
`—
`30.2 (ah)
`1.7 (j)
`1.0 (ag)
`32.9
`
`15.8
`(17.4)
`—
`—
`(4.7)
`(6.3)
`
`261.6
`
`73.3 (ab)
`
`351.4
`
`98.4
`
`(Loss) earnings from continuing operations before
`income taxes and minority interest
`
`Provision for income taxes
`Minority interest
`
`(Loss) earnings from continuing operations
`
`0.4
`
`—
`
`199.5
`
`0.4
`
`192.4
`
`2.9
`
`(22.4) (u)
`
`(3.1) (v)
`
`170.0
`
`(0.2)
`
`154.0
`
`1.0
`
`1.8 (x)
`
`—
`
`1.0
`
`0.8
`
`—
`
`0.8
`
`0.7
`
`—
`
`0.7
`
`$ (127.4)
`
`$ 674.6
`
`$ 547.2
`
`$ 403.9
`
`$ 49.4
`
`$ 453.3
`
`$ 377.1
`
`$ (8.3)
`
`$ 368.8
`
`$ (52.5)
`
`$ 357.7
`
`$ 305.2
`
`$ 64.0
`
`$ 188.3
`
`$ 252.3
`
`$ (0.87)
`
`$ 4.59
`
`$ 0.38
`
`$ 3.46
`
`$ 2.87
`
`$(0.06)
`
`$ 2.81
`
`$ (0.40)
`
`$ 2.74
`
`$ 2.34
`
`$ 0.49
`
`$ 1.46
`
`$ 1.95
`
`Basic (loss) earnings per share:
`Continuing operations
`
`
`Diluted (loss) earnings per share:
`Continuing operations
`
`Total product net sales
`
`$ 3.72
`
`$ 3.08
`
`$ (0.87)
`
`$ 4.53
`
`$ 3.66
`
`$3,010.1
`
`$ (15.2)
`(ai)
`
`$2,994.9
`
`$ 3.01
`
`$2,319.2
`
`$ 0.37
`
`$ 3.38
`
`$(22.3) (ai)
`
`$2,296.9
`
`$ 2.82
`
`$2,045.6
`
`$(0.07)
`
`$ 2.75
`
`$(41.9) (ai)
`
`$2,003.7
`
`$ (0.40)
`
`$1,755.4
`
`$ 2.70
`
`$ 2.30
`
`$ (45.9) (ai)
`
`$1,709.5
`
`$ 0.49
`
`$1,385.0
`
`$ 1.43
`
`$ 1.92
`
`$ 6.5 (ai)
`
`$1,391.5
`
`2
`
`“GAAP” refers to fi nancial information presented in accordance with generally accepted accounting principles in the
`United States.
`
`In this Annual Report, Allergan included historical non-GAAP fi nancial measures, as defi ned in Regulation G promulgated
`by the Securities and Exchange Commission, with respect to the year ended December 31, 2006, as well as the
`corresponding periods for 2005 through 2002. Allergan believes that its presentation of historical non-GAAP fi nancial
`measures provides useful supplementary information to investors. The presentation of historical non-GAAP fi nancial
`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 fi nancial measure “adjusted net earnings” and related “adjusted
`earnings per share” – both basic and diluted. Allergan uses adjusted earnings to enhance the investor’s overall
`understanding of the fi nancial performance and prospects for the future of Allergan’s core business activities. Adjusted
`earnings is one of the primary indicators management uses for planning and forecasting in future periods, including
`trending and analyzing the core operating performance of Allergan’s business from period to period without the effect
`of the non-core business items indicated. Management uses adjusted earnings to prepare operating budgets and
`forecasts and to measure Allergan’s performance against those budgets and forecasts on a corporate and segment
`level. Allergan also uses adjusted earnings for evaluating management performance for compensation purposes.
`
`Despite the importance of adjusted earnings in analyzing Allergan’s underlying business, the budgeting and forecasting
`process and designing incentive compensation, adjusted earnings has no standardized meaning defi ned by GAAP.
`Therefore, adjusted earnings has limitations as an analytical tool, and should not be considered in isolation, or as a
`substitute for analysis of Allergan’s results as reported under GAAP. Allergan strongly encourages investors to consider
`net earnings (loss) determined under GAAP as compared to adjusted net earnings, and to perform their own analysis,
`as appropriate.
`
`In this Annual Report, Allergan also reported sales performance using the non-GAAP fi nancial 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)
`
` Integration and transition costs related to the acquisition of Inamed Corporation (Inamed), consisting of cost of
`sales of $0.9 million; selling, general and administrative expense of $19.6 million and research and development
`expense of $0.2 million.
`Inamed fair-market value inventory adjustment roll out of $47.9 million.
`(b)
`(c) Costs related to the acquisition of Groupe Cornéal Laboratoires of $0.1 million.
`(d)
` Transition/duplicate operating expenses related to restructuring and streamlining of European operations,
`consisting of selling, general and administrative expense of $5.7 million and research and development expense
`of $0.5 million.
`(e) Contribution to The Allergan Foundation of $28.5 million.
`In-process research and development charge of $579.3 million related to the acquisition of Inamed.
`(f)
`(g) Amortization of acquired intangible assets related to the acquisition of Inamed.
`(h) Restructuring charges.
`
`(i)
`
` Reversal of interest income on previously paid state income taxes and reversal of interest expense related to the
`resolution of uncertain tax positions.
`(j) Unrealized gain/(loss) on the mark-to-market adjustment to derivative instruments.
`(k) Costs to settle a previously disclosed contingency involving non-income taxes in Brazil.
` Total tax effect for non-GAAP pre-tax adjustments of $(61.9) million, resolution of uncertain tax positions and
`(l)
`favorable recovery of previously paid state income taxes of $(11.7) million, change in valuation allowance associated
`with a refund claim fi led in 2006 for a prior tax year of $(17.2) million, change in estimated income taxes on 2005
`dividend repatriation of $(2.8) million and taxes related to intercompany transfers of trade businesses and net
`assets of $1.6 million.
`(m) Transition/duplicate operating expenses related to restructuring and streamlining of European operations, 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.
`(n) Restructuring charge of $43.8 million and related inventory write-offs of $0.2 million.
` Gain on sale of assets primarily used for Advanced Medical Optics contract manufacturing ($5.7 million), gain on sale of
`(o)
`distribution business in India ($7.9 million), and gain on sale of a former manufacturing plant in Argentina ($0.6 million).
`(p) Costs related to the acquisition of Inamed $0.4 million.
`(q) Buyout of license agreement with Johns Hopkins University.
`(r)
` Interest income related to previously paid state income taxes and reversal of interest expense related to tax
`settlements.
`(s) Termination of ISTA Vitrase collaboration agreement (including interest income of $0.1 million).
`(t) Gain on sale of third party equity investment.
`
`(u)
`
` Total tax effect for non-GAAP pre-tax adjustments of $(1.7) million, resolution of uncertain tax positions of
`$(24.1) million, additional benefi t 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.
`(v) Minority interest related to gain on sale of distribution business in India.
`(w) Income from a patent infringement settlement.
`(x) Favorable recovery of previously paid state income taxes and the tax effect for non-GAAP adjustments.
`(y)
` In-process research and development charge related to the acquisition of Bardeen Sciences Company, LLC and
`Oculex Pharmaceuticals, Inc.
`(z) Restructuring charge (reversal) and asset write-offs, net related to the spin-off of Advanced Medical Optics.
`(aa) Loss on early extinguishment of debt.
`(ab) Tax effect for non-GAAP adjustments.
`(ac) Duplicate operating expenses of $2.6 million and restructuring charge and asset write-offs of $1.1 million related
`to the spin-off of Advanced Medical Optics.
`(ad) Duplicate operating expenses incurred related to the spin-off of Advanced Medical Optics.
`(ae) Duplicate operating expenses of $0.7 million and partnering collaboration expense of $4.0 million.
`(af) Legal settlement regarding LUMIGAN®.
`(ag) 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.
`(ah) Mark-to-market loss on investments and related third party collaborations.
`(ai) The adjustment to measure sales using constant currency.
`
`3
`
`
`
`R5_06ALGN16_proof3h.indd 2-3R5_06ALGN16_proof3h.indd 2-3
`
`
`
`3/20/07 3:31:02 PM3/20/07 3:31:02 PM
`
`APOTEX 1052, pg. 3
`
`

`

`To Our Investors
`
`a year of transformation
`In 2006, Allergan recorded the largest increase in sales in any
`one year in over 0 years of our operations, with an increase
`of almost $700 million over 200 sales. At approximately
`$3 billion, sales increased 30 percent over 200. In addition
`to achieving our primary sales and cost synergy goals for the
`integration of the Inamed Corporation, we are particularly
`pleased by the continued strong organic growth of our pharma-
`ceutical businesses, with organic sales increasing 18 percent
`over 200.(1) Expansion occurred on a broad front: Our eye care
`pharmaceuticals product line, BOTOX® Cosmetic and BOTOX®
`therapeutic all grew by double digits in all operating regions:
`North America, Europe, Latin America and Asia Pacific.
`
`Diluted Earnings Per Share (EPS) for 2006 were $3.66, adjusted
`for several items principally related to the accounting treatment
`of the acquisition of Inamed, merger-related integration and
`transition costs, and the restructuring of our pharmaceutical
`operations in Europe. This EPS result marked an increase of
`18 percent over the adjusted EPS result for 200,(2) even as
`we continued to invest vigorously in the company’s long-term
`growth and innovation.
`
`In 2006, we invested $76 million in research and development
`(R&D), excluding the $79 million in-process R&D charge related
`to the Inamed acquisition and adjusted for other smaller non-
`GAAP items, which marked an increase of 22 percent over
`200.(3) Operating cash flow post-capital expenditures was a
`strong $616 million, compared to $36 million in 200, which
`has led to a high cash balance of $1. billion at year end and
`a net debt position of only $339 million after our expenditure
`of $1. billion in cash on the Inamed acquisition. This strong
`balance sheet gives us ample flexibility for acquisitions and
`in-licensing activities in the future.
`
`acquisition of inamed and leadership
`in medical aesthetics
`As we have grown our BOTOX® Cosmetic franchise, we held
`a long-standing strategic interest in medical aesthetics, a
`fast-growing category driven by consumers’ universal desire
`to enhance their personal appearance.
`
`In March, we completed the acquisition of Inamed for a
`consideration of approximately $3. billion, and in January
`2007 completed the follow-on acquisition of Groupe Cornéal
`Laboratoires in France, the inventor of our JUVÉDERM™ line
`of dermal fillers, for approximately $220 million.
`
`By marrying our leading BOTOX® Cosmetic franchise with the
`breast aesthetics and dermal filler product lines from these two
`companies, we realized our goal of establishing Allergan as the
`largest medical aesthetics company in the world.
`
`The approval of JUVÉDERM™ by the U.S. Food and Drug
`Administration (FDA) in June and the landmark approvals of
`our INAMED® Silicone-Filled Breast Implants by Health Canada
`in October and the FDA in November, have validated both our
`acquisition strategy as well as our financial model for the
`Inamed acquisition.
`
`With the acquisition of Inamed, we also acquired two promising
`obesity intervention products, LAP-BAND® Adjustable Gastric
`Banding System and the BIB™ BioEnterics® Intragastric Balloon.
`Given the obesity crisis in the developed world, these products,
`which offer lower cost and less invasive surgical alternatives
`
`(1) Excludes the impact of BOTOX® sales in Japan of $38.8 million in 2005. GAAP sales growth of
`pharmaceutical products was 16 percent in 2006.
`(2) Adjustments to GAAP diluted earnings per share used to calculate diluted earnings per share, adjusted for
`non-GAAP items, include the aggregate non-GAAP adjustments, net of tax, detailed on pages 2 and 3 in
`this Annual Report, and for the purpose of calculating the increase in adjusted EPS of 18 percent in 2006
`compared to 2005, also excludes the $0.21 per share impact of expensing stock options in 2006. GAAP
`diluted loss per share was $0.87 in 2006 compared to GAAP diluted earnings per share of $3.01 in 2005.
`(3) Adjustments to GAAP research and development expense used to calculate research and development
`expense, adjusted for non-GAAP items, include $579.3 million of in-process research and development
`expense, $0.2 million of integration and transition costs related to the Inamed acquisition and
`$0.5 million of transition/duplicate operating expenses related to the restructuring and streamlining
`of European operations. GAAP research and development expense was $1,055.5 million in 2006, a
`171.8 percent increase over 2005.
`
`
`
`to traditional gastric bypass procedures, are high-potential
`growth opportunities in which we plan to fully invest.
`
`To further focus and build awareness for our efforts, we
`established Allergan Medical as a division in the latter part of
`the year that is comprised of our facial and breast aesthetic
`portfolio, as well as our rapidly growing obesity intervention
`business. The new division also encompasses our physician-
`dispensed skin care products, including M.D. FORTE® and