Analysis of Debt
Total Debt (Carrying Amount)
Allergan Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31), 10-K (reporting date: 2010-12-31).
The total carrying amount of notes payable and long-term debt exhibited a non-linear trajectory between 2010 and 2014, characterized by an initial sharp contraction followed by a significant increase in leverage. Total debt decreased from $2.20 billion in 2010 to a low of $1.56 billion in 2012, before returning to $2.16 billion by the end of 2014.
- Convertible Notes Elimination
- A primary driver for the reduction in total debt between 2010 and 2011 was the complete removal of convertible notes, which accounted for $642.5 million of the total debt in 2010. The absence of this instrument in subsequent years contributed significantly to the lower debt levels observed in 2011 and 2012.
- Long-term Debt Expansion
- Long-term debt, excluding current maturities, remained relatively stable at approximately $1.51 billion from 2011 through 2012. However, a substantial increase occurred in 2013, where the balance rose to $2.098 billion, representing an increase of approximately $586 million. This surge effectively offset the earlier reductions in debt and established a new higher baseline that persisted into 2014.
- Notes Payable Fluctuations
- Notes payable remained a marginal component of the overall debt structure throughout the period. While values fluctuated—peaking at $83.9 million in 2011 and $72.1 million in 2014—these changes had a negligible impact on the total carrying amount compared to the movements in long-term debt and convertible notes.
- Overall Leverage Trend
- The financial profile shifted from a diverse debt structure in 2010, including convertible instruments, to a more concentrated reliance on traditional long-term debt by 2014. The total debt levels at the end of 2014 were nearly equivalent to those of 2010, despite the interim period of deleveraging.
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Total Debt (Fair Value)
| Dec 31, 2014 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Notes payable | 72,100) |
| Convertible notes | —) |
| Long-term debt | 2,095,500) |
| Total notes payable and long-term debt (fair value) | 2,167,600) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.00 |
Based on: 10-K (reporting date: 2014-12-31).
Weighted-average Interest Rate on Debt
Weighted-average effective interest rate on debt: 3.49%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 8.83% | 72,100) | 6,366) | |
| 5.65% | 20,000) | 1,130) | |
| 3.94% | 817,500) | 32,209) | |
| 1.39% | 249,700) | 3,471) | |
| 3.41% | 648,900) | 22,127) | |
| 2.83% | 349,200) | 9,882) | |
| Total | 2,157,400) | 75,187) | |
| 3.49% | |||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 75,187 ÷ 2,157,400 = 3.49%
Interest Costs Incurred
Allergan Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31), 10-K (reporting date: 2010-12-31).
An analysis of the interest costs incurred between 2010 and 2014 reveals a period of fluctuation characterized by a mid-period decline and a significant late-period increase in the capitalization of interest.
- Total Interest Costs Incurred
- Total interest costs peaked at US$ 79.2 million in 2010, followed by a consistent downward trend that reached a period low of US$ 64.5 million in 2012. This was followed by a sharp increase to US$ 76.8 million in 2013, with a slight moderation to US$ 75.0 million by the end of 2014.
- Interest Expense Patterns
- The interest expense recognized in the profit and loss statement closely tracked the total costs incurred. A reduction from US$ 78.7 million in 2010 to US$ 63.6 million in 2012 indicates a decrease in the cost of servicing debt during those years. The expense rose again to US$ 75.0 million in 2013 before decreasing to US$ 69.4 million in 2014.
- Interest Capitalization Trends
- A distinct upward trajectory is observed in capitalized interest. From 2010 to 2012, capitalized amounts remained minimal, fluctuating between US$ 500 thousand and US$ 1 million. However, a substantial increase occurred in 2014, where capitalized interest reached US$ 5.6 million. This growth suggests a shift toward financing long-term assets or capital projects that allow for the capitalization of borrowing costs rather than immediate expensing.
- Composition of Interest Costs
- The proportion of total interest costs being capitalized increased over the analyzed period. In 2010, capitalized interest represented approximately 0.6% of total interest costs, whereas by 2014, this figure rose to approximately 7.5%, reflecting a change in the accounting treatment of interest due to increased capital investment activities.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31), 10-K (reporting date: 2010-12-31).
2014 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 2,058,700 ÷ 69,400 = 29.66
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 2,058,700 ÷ 75,000 = 27.45
A substantial improvement in the capacity to cover interest expenses is evident from 2010 through 2014. The overall trend reflects a significant strengthening of solvency and a reduced risk profile regarding debt service obligations.
- Adjusted Interest Coverage Ratio (with capitalized interest)
- The adjusted ratio exhibited a dramatic increase from 3.15 in 2010 to 18.84 in 2011, representing the most significant period of growth. Following this surge, the ratio continued to climb, reaching 24.76 in 2012, before experiencing a marginal decline to 23.51 in 2013 and eventually peaking at 27.45 in 2014.
- Comparative Analysis of Coverage Metrics
- A consistent positive correlation is observed between the interest coverage ratio without capitalized interest and the adjusted interest coverage ratio. While both metrics trended upward, the variance between the two widened over the five-year period. In 2010, the difference was negligible at 0.02; however, by 2014, the divergence increased to 2.21, suggesting that capitalized interest had a more pronounced impact on the adjusted coverage calculation in the later years of the period.
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