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Year Ended December 31, 2005 | |
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| GAAP | Non-GAAP Adjustments |
Adjusted | |||||||||
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Product Sales |
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| Net sales — pharmaceutical only | $ | 2,272.8 | $ | — | $ | 2,272.8 | |||||
| Non-pharmaceutical sales (primarily contract sales) | 46.4 | — | 46.4 | ||||||||
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| Total | 2,319.2 | — | 2,319.2 | ||||||||
| Cost of sales — pharmaceutical only | 363.6 | (0.5 | )(a)(b) | 363.1 | |||||||
| Cost of sales — non-pharmaceutical | 36.0 | — | 36.0 | ||||||||
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| Product gross margin | 1,919.6 | 0.5 | 1,920.1 | ||||||||
| Research services margin | — | — | — | ||||||||
| Selling, general and administrative | 913.9 | 10.0 | (a)(c)(d) | 923.9 | |||||||
| Research & development | 391.0 | (4.5 | )(a)(e) | 386.5 | |||||||
| Legal settlement | — | — | — | ||||||||
| Technology fees from related party | — | — | — | ||||||||
| Restructuring charge (reversal) and asset write-offs | 43.8 | (43.8 | )(b) | — | |||||||
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| Operating income (loss) | 570.9 | 38.8 | 609.7 | ||||||||
| Interest income | 35.4 | (2.2 | )(f)(g) | 33.2 | |||||||
| Interest expense | (12.4 | ) | (7.3 | )(f) | (19.7 | ) | |||||
| Gain (loss) on investments | 0.8 | (0.8 | )(h) | — | |||||||
| Unrealized gain (loss) on derivative instruments, net | 1.1 | (1.1 | )(i) | — | |||||||
| Other, net | 3.4 | (3.5 | )(g) | (0.1 | ) | ||||||
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| 28.3 | (14.9 | ) | 13.4 | ||||||||
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| Earnings (loss) from continuing operations before | |||||||||||
| income taxes and minority interest | 599.2 | 23.9 | 623.1 | ||||||||
| Provision for income taxes | 192.4 | (22.4 | )(j) | 170.0 | |||||||
| Minority interest | 2.9 | (3.1 | )(k) | (0.2 | ) | ||||||
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| Earnings (loss) from continuing operations | $ | 403.9 | $ | 49.4 | $ | 453.3 | |||||
| Basic earnings (loss) per share: | |||||||||||
| Continuing operations | $ | 3.08 | $ | 0.38 | $ | 3.46 | |||||
| Diluted earnings (loss) per share: | |||||||||||
| Continuing operations | $ | 3.01 | $ | 0.37 | $ | 3.38 | |||||
| Total net sales | $ | 2,319.2 | $ | (22.3 | )(ab) | $ | 2,296.9 | ||||
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“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. |
| (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. |
| (m) | Favorable recovery of previously paid state income taxes and the tax effect for non-GAAP adjustments. |
| (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. |
| (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. |
| (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. |
| (x) | In-process research and development charge related to the acquisition of Allergan Specialty Therapeutics, Inc. |
| (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. |