Allergan Inc. (NYSE:AGN.)

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Allergan Inc., effective income tax rate (EITR) reconciliation

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Statutory rate of tax expense	35.00%	35.00%	35.00%	35.00%	35.00%
State taxes, net of U.S. tax benefit	0.40%	0.90%	1.10%	1.60%	20.40%
Tax differential on foreign earnings	-10.80%	-9.00%	-8.80%	-9.10%	28.40%
Other credits (R&D)	-2.90%	-3.00%	-0.90%	-2.00%	-15.90%
Tax audit settlements/adjustments	0.70%	0.80%	1.30%	1.50%	6.00%
Legal settlement	0.00%	0.00%	0.00%	0.00%	18.80%
Other	0.60%	1.80%	0.40%	0.80%	4.40%
Effective tax rate	23.00%	26.50%	28.10%	27.80%	97.10%

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 effective income tax rate (EITR) exhibited extreme volatility between 2010 and 2014, characterized by an extraordinary peak in the first year followed by a period of stabilization and a gradual downward trend below the statutory rate.

Statutory and Effective Rate Correlation: While the statutory tax rate remained constant at 35.00% across the entire five-year period, the EITR deviated significantly. A peak of 97.10% was recorded in 2010, representing a massive variance from the statutory benchmark. From 2011 through 2014, however, the EITR remained consistently below the statutory rate, moving from 27.80% in 2011 to 23.00% by the end of 2014.
Analysis of the 2010 Anomaly: The anomalous EITR in 2010 was driven by several substantial one-time or non-recurring adjustments. Key contributors included a legal settlement of 18.80%, a high state tax impact of 20.40%, and a positive tax differential on foreign earnings of 28.40%. These factors, combined with tax audit settlements of 6.00%, resulted in a tax burden far exceeding the statutory rate.
Primary Drivers of Tax Rate Reduction (2011–2014): Following the 2010 peak, the EITR was consistently lowered by the tax differential on foreign earnings, which shifted to a negative impact, ranging from -9.10% in 2011 to -10.80% in 2014. R&D credits also provided a recurring downward adjustment, peaking at -3.00% in 2013 and -2.90% in 2014.
Trends in State Taxes and Audit Adjustments: A sharp decline is observed in state taxes, net of U.S. tax benefits, which dropped from 20.40% in 2010 to 0.40% by 2014. Similarly, tax audit settlements and adjustments diminished from 6.00% in 2010 to 0.70% in 2014, indicating a reduction in one-time tax liabilities and a movement toward a more predictable tax profile.

In summary, the tax profile transitioned from a state of high volatility driven by exceptional legal and state tax events in 2010 to a managed decline in the effective rate. This later trend was primarily sustained by foreign earnings differentials and research and development credits, which successfully offset the statutory tax obligation.

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Allergan Inc., components of deferred tax assets and liabilities

US$ in thousands

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Net operating losses	144,900)	179,700)	66,600)	44,700)	40,300)
Accrued expenses	173,600)	130,000)	114,400)	105,600)	103,300)
Capitalized expenses	161,100)	176,500)	182,300)	136,200)	104,400)
Deferred compensation	52,100)	47,400)	41,700)	35,700)	30,200)
Medicare, Medicaid and other accrued health care rebates	110,100)	80,000)	85,000)	69,000)	48,600)
Postretirement medical benefits	21,900)	16,600)	17,800)	16,100)	20,600)
Capitalized intangible assets	31,500)	38,900)	45,000)	49,900)	83,300)
Deferred revenue	19,200)	19,200)	22,300)	17,200)	13,100)
Inventory reserves and adjustments	14,200)	14,500)	18,700)	80,300)	75,800)
Share-based compensation awards	94,800)	101,600)	90,200)	86,600)	88,000)
Unbilled costs	28,100)	28,300)	23,000)	25,500)	23,600)
Pension plans	69,900)	52,600)	66,500)	67,700)	52,600)
R&D credits	37,200)	26,200)	12,700)	—)	—)
All other	57,400)	46,300)	30,100)	50,000)	50,200)
Deferred tax assets, gross	1,016,000)	957,800)	816,300)	784,500)	734,000)
Valuation allowance	(39,100)	(48,900)	(22,600)	(14,900)	(4,300)
Deferred tax assets	976,900)	908,900)	793,700)	769,600)	729,700)
Depreciation	13,100)	(100)	(9,600)	(15,500)	(15,000)
Developed and technology-related intangible assets	(131,300)	(153,500)	(227,300)	(188,300)	(213,700)
In-process R&D	(428,300)	(348,600)	(100,800)	(107,600)	—)
All other	—)	—)	—)	—)	(5,500)
Deferred tax liabilities	(546,500)	(502,200)	(337,700)	(311,400)	(234,200)
Net deferred tax assets (liabilities)	430,400)	406,700)	456,000)	458,200)	495,500)

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 net deferred tax position reflects a general increase in both deferred tax assets and liabilities between 2010 and 2014. While gross deferred tax assets grew consistently over the period, this growth was largely offset by a more aggressive increase in deferred tax liabilities, leading to a slight overall decrease in the net deferred tax asset balance from 495.5 million USD in 2010 to 430.4 million USD in 2014.

Growth and Composition of Deferred Tax Assets: Gross deferred tax assets increased from 734.0 million USD in 2010 to 1.016 billion USD in 2014. This expansion was driven primarily by several key components. Net operating losses showed significant volatility, peaking at 179.7 million USD in 2013 before moderating to 144.9 million USD in 2014. Accrued expenses exhibited a steady upward trajectory, rising from 103.3 million USD to 173.6 million USD. Additionally, Medicare, Medicaid, and other healthcare rebates grew substantially from 48.6 million USD in 2010 to 110.1 million USD in 2014. R&D credits, which were not recorded in 2010 or 2011, emerged in 2012 at 12.7 million USD and climbed to 37.2 million USD by 2014. Conversely, inventory reserves and adjustments declined sharply from 75.8 million USD in 2010 to 14.2 million USD in 2014.
Expansion of Deferred Tax Liabilities: Deferred tax liabilities grew from 234.2 million USD in 2010 to 546.5 million USD in 2014. The primary driver of this increase was the sharp rise in liabilities related to in-process R&D, which were non-existent in 2010 but reached 428.3 million USD by 2014. Developed and technology-related intangible assets also contributed significantly to the liability balance, though they fluctuated, ending at 131.3 million USD in 2014. The rapid growth in in-process R&D liabilities suggests significant investment or acquisition activity in the technology and development pipeline.
Valuation Allowance and Net Impact: The valuation allowance against deferred tax assets increased from 4.3 million USD in 2010 to a peak of 48.9 million USD in 2013, before settling at 39.1 million USD in 2014. Despite this increase, the valuation allowance remained a small fraction of the gross deferred tax assets, indicating a high level of confidence in the realizability of the assets. The net deferred tax asset position remained positive throughout the period, although the substantial growth in tax liabilities associated with intangible assets and R&D prevented the net asset balance from mirroring the growth seen in the gross asset figures.

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Allergan Inc., deferred tax assets and liabilities, classification

US$ in thousands

		Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
	Net current deferred tax assets	343,500)	277,900)	249,100)	305,600)	277,700)
	Net non-current deferred tax assets	86,900)	128,800)	206,900)	152,600)	217,800)

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 net deferred tax assets between 2010 and 2014 reveals a divergent trend in asset classification, characterized by a general increase in current assets and a simultaneous decline in non-current assets.

Net Current Deferred Tax Assets: A general upward trajectory is observed, with values rising from US$ 277.7 million in 2010 to US$ 343.5 million by 2014. While a temporary decrease occurred in 2012, where assets fell to US$ 249.1 million, the subsequent two years showed consistent growth, resulting in a total increase of approximately 23.7% over the five-year period.
Net Non-Current Deferred Tax Assets: A significant downward trend is evident in non-current classifications. These assets declined from US$ 217.8 million in 2010 to US$ 86.9 million in 2014. Although there was a brief recovery in 2012 to US$ 206.9 million, the assets experienced a sharp contraction thereafter, ending the period with a total decrease of approximately 60.1%.
Classification Shift and Composition: There is a notable shift in the composition of the deferred tax asset portfolio. In 2010, net current deferred tax assets constituted approximately 56% of the total net deferred tax assets. By 2014, this proportion increased to approximately 80%. This migration indicates a higher concentration of tax benefits expected to be realized within the short-term operating cycle relative to long-term expectations.

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Allergan Inc., Financial Data: Reported vs. Adjusted

Allergan Inc., adjustments to financial statements

US$ in thousands

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Adjustment to Current Assets
Current assets (as reported)	6,871,200)	5,319,700)	4,458,800)	4,048,300)	3,993,700)
Less: Current deferred tax assets, net	343,500)	277,900)	249,100)	305,600)	277,700)
Current assets (adjusted)	6,527,700)	5,041,800)	4,209,700)	3,742,700)	3,716,000)
Adjustment to Total Assets
Total assets (as reported)	12,415,700)	10,574,300)	9,179,300)	8,508,600)	8,308,100)
Less: Current deferred tax assets, net	343,500)	277,900)	249,100)	305,600)	277,700)
Less: Noncurrent deferred tax assets, net	86,900)	128,800)	206,900)	152,600)	217,800)
Total assets (adjusted)	11,985,300)	10,167,600)	8,723,300)	8,050,400)	7,812,600)
Adjustment to Total Allergan, Inc. Stockholders’ Equity
Total Allergan, Inc. stockholders’ equity (as reported)	7,753,000)	6,463,200)	5,837,100)	5,309,600)	4,757,700)
Less: Net deferred tax assets (liabilities)	430,400)	406,700)	456,000)	458,200)	495,500)
Total Allergan, Inc. stockholders’ equity (adjusted)	7,322,600)	6,056,500)	5,381,100)	4,851,400)	4,262,200)
Adjustment to Net Earnings Attributable To Allergan, Inc.
Net earnings attributable to Allergan, Inc. (as reported)	1,524,200)	985,100)	1,098,800)	934,500)	600)
Add: Deferred income tax expense (benefit)	(79,800)	(61,500)	(88,300)	(68,900)	(249,100)
Net earnings attributable to Allergan, Inc. (adjusted)	1,444,400)	923,600)	1,010,500)	865,600)	(248,500)

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).

A comprehensive review of the financial performance from 2010 to 2014 reveals a consistent growth trajectory in assets, equity, and net earnings. The systematic removal of deferred taxes results in a downward adjustment across all primary balance sheet and income statement metrics, indicating that deferred tax accounts contributed positively to the reported financial position throughout the period.

Asset Valuation and Trends: Reported current assets grew from 3,993,700 thousand US$ in 2010 to 6,871,200 thousand US$ in 2014. Adjusted current assets followed a parallel increase, reaching 6,527,700 thousand US$ by 2014, though they remained consistently lower than reported figures. Total assets showed a similar upward trend, increasing from 8,308,100 thousand US$ to 12,415,700 thousand US$ over the five-year span. The variance between reported and adjusted total assets indicates a substantial reliance on deferred tax assets to bolster the reported asset base.
Stockholders' Equity Adjustments: Reported stockholders' equity increased steadily from 4,757,700 thousand US$ in 2010 to 7,753,000 thousand US$ in 2014. The adjusted equity figures were consistently lower, ending at 7,322,600 thousand US$ in 2014. A direct correlation is observed between the reduction in total assets and the reduction in equity, confirming that the removal of deferred tax assets directly reduced the net book value attributable to shareholders.
Net Earnings Analysis: Reported net earnings exhibited significant growth, rising from 600 thousand US$ in 2010 to 1,524,200 thousand US$ in 2014. The impact of deferred tax removal on earnings was most pronounced in 2010, where the adjustment converted a marginal reported profit into an adjusted net loss of 248,500 thousand US$. From 2011 onward, adjusted net earnings remained consistently below reported earnings, suggesting that deferred tax benefits provided a recurring boost to the reported bottom line.

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Allergan Inc., Financial Ratios: Reported vs. Adjusted

Allergan Inc., adjusted financial ratios

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Current Ratio
Reported current ratio	4.41	4.28	4.07	4.24	2.61
Adjusted current ratio	4.19	4.05	3.84	3.92	2.43
Net Profit Margin
Reported net profit margin	21.39%	15.90%	19.25%	17.48%	0.01%
Adjusted net profit margin	20.27%	14.90%	17.70%	16.19%	-5.16%
Total Asset Turnover
Reported total asset turnover	0.57	0.59	0.62	0.63	0.58
Adjusted total asset turnover	0.59	0.61	0.65	0.66	0.62
Financial Leverage
Reported financial leverage	1.60	1.64	1.57	1.60	1.75
Adjusted financial leverage	1.64	1.68	1.62	1.66	1.83
Return on Equity (ROE)
Reported ROE	19.66%	15.24%	18.82%	17.60%	0.01%
Adjusted ROE	19.73%	15.25%	18.78%	17.84%	-5.83%
Return on Assets (ROA)
Reported ROA	12.28%	9.32%	11.97%	10.98%	0.01%
Adjusted ROA	12.05%	9.08%	11.58%	10.75%	-3.18%

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 analysis of financial ratios from 2010 to 2014 reveals a consistent divergence between reported and adjusted figures resulting from the removal of deferred taxes. While the reported metrics often present a more favorable view of liquidity and early-period profitability, the adjusted ratios provide a perspective focused on core operational performance. A general trend of strengthening liquidity and profitability is evident across the five-year period, regardless of the accounting treatment.

Liquidity Position: The current ratio demonstrates a strong upward trajectory, increasing from 2.61 to 4.41 on a reported basis. The adjusted current ratio follows a similar growth pattern, rising from 2.43 to 4.19. The consistent gap between these two figures suggests that deferred tax assets have contributed to the inflation of reported current assets, although the underlying liquidity trend remains robustly positive.
Profitability and Returns: Significant volatility and divergence are observed in the net profit margin, ROE, and ROA, particularly in 2010. In that year, reported profitability was near zero, while adjusted figures showed substantial negative returns (Adjusted Net Profit Margin of -5.16%, Adjusted ROE of -5.83%, and Adjusted ROA of -3.18%). This indicates that deferred tax accounting significantly masked operational losses in 2010. However, from 2011 onward, profitability grew aggressively, with the adjusted net profit margin reaching 20.27% by 2014, closely aligning with the reported margin of 21.39%.
Operational Efficiency: Total asset turnover remained relatively stable with a slight downward trend, moving from a reported 0.58 to 0.57. Interestingly, the adjusted total asset turnover remained consistently higher than the reported figures throughout the period, peaking at 0.66 in 2011. This suggests that the removal of deferred tax assets reduces the total asset base, thereby increasing the calculated efficiency of asset utilization.
Financial Leverage: Financial leverage exhibited low volatility, fluctuating between 1.57 and 1.75 on a reported basis. The adjusted financial leverage remained consistently higher than the reported leverage, ranging from 1.62 to 1.83. This indicates that the presence of deferred tax assets in the reported equity figures serves to artificially lower the perceived leverage of the organization.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Current assets	6,871,200)	5,319,700)	4,458,800)	4,048,300)	3,993,700)
Current liabilities	1,557,300)	1,244,300)	1,095,200)	955,000)	1,528,400)
Liquidity Ratio
Current ratio¹	4.41	4.28	4.07	4.24	2.61
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted current assets	6,527,700)	5,041,800)	4,209,700)	3,742,700)	3,716,000)
Current liabilities	1,557,300)	1,244,300)	1,095,200)	955,000)	1,528,400)
Liquidity Ratio
Adjusted current ratio²	4.19	4.05	3.84	3.92	2.43

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 Current ratio = Current assets ÷ Current liabilities
= 6,871,200 ÷ 1,557,300 = 4.41

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 6,527,700 ÷ 1,557,300 = 4.19

A consistent upward trajectory in liquidity is observed between 2010 and 2014. Both reported and adjusted current assets experienced uninterrupted annual growth, with reported current assets increasing from 3,993,700 thousand USD to 6,871,200 thousand USD over the five-year period. Adjusted current assets followed a similar growth pattern, rising from 3,716,000 thousand USD to 6,527,700 thousand USD.

Reported Current Ratio Trends: The reported current ratio exhibited a significant increase between 2010 and 2011, rising from 2.61 to 4.24. Following this initial surge, the ratio remained relatively stable, ending the period at 4.41 in 2014. This suggests a substantial strengthening of the short-term solvency position early in the period, which was maintained through 2014.
Adjusted Current Ratio Trends: The adjusted current ratio mirrors the movements of the reported ratio, starting at 2.43 in 2010 and climbing to 3.92 in 2011. Despite a slight contraction to 3.84 in 2012, the ratio resumed an upward trend to reach 4.19 by December 31, 2014. The adjusted figures consistently remain lower than the reported figures, indicating that the adjustments applied to current assets exert a downward pressure on the liquidity ratios.
Comparative Analysis of Adjustments: The variance between reported and adjusted current assets remained relatively proportional throughout the period. In 2010, the adjusted current assets were approximately 93.7% of reported assets, and by 2014, they represented approximately 94.8% of reported assets. This narrow gap suggests a stable relationship between the reported financial position and the adjustments made for the current ratio calculation.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Allergan, Inc.	1,524,200)	985,100)	1,098,800)	934,500)	600)
Product net sales	7,126,100)	6,197,500)	5,708,800)	5,347,100)	4,819,600)
Profitability Ratio
Net profit margin¹	21.39%	15.90%	19.25%	17.48%	0.01%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Allergan, Inc.	1,444,400)	923,600)	1,010,500)	865,600)	(248,500)
Product net sales	7,126,100)	6,197,500)	5,708,800)	5,347,100)	4,819,600)
Profitability Ratio
Adjusted net profit margin²	20.27%	14.90%	17.70%	16.19%	-5.16%

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 Net profit margin = 100 × Net earnings attributable to Allergan, Inc. ÷ Product net sales
= 100 × 1,524,200 ÷ 7,126,100 = 21.39%

² Adjusted net profit margin = 100 × Adjusted net earnings attributable to Allergan, Inc. ÷ Product net sales
= 100 × 1,444,400 ÷ 7,126,100 = 20.27%

Profitability exhibits a strong upward trajectory between 2010 and 2014, characterized by a sharp recovery from a volatile initial period and reaching a peak in the final year of the analyzed timeframe.

Net Earnings Performance: A dramatic increase in reported net earnings occurred between 2010 and 2011, rising from 600 thousand to 934.5 million. While reported figures remained positive throughout the period, adjusted net earnings began at a deficit of 248.5 million in 2010 before shifting to a positive trajectory. A temporary contraction in earnings was observed in 2013, followed by a significant surge to a period high of 1.52 billion in reported earnings and 1.44 billion in adjusted earnings by 2014.
Adjusted Net Profit Margin Trends: The adjusted net profit margin transitioned from a negative 5.16% in 2010 to a positive 16.19% in 2011. This growth continued to 17.70% in 2012, followed by a decline to 14.90% in 2013, and a final expansion to 20.27% in 2014. This pattern mirrors the movement of reported margins but maintains a consistent offset.
Analysis of Reporting Variance: A notable divergence is observed in 2010, where reported earnings were marginally positive despite a substantial adjusted loss, suggesting the presence of significant non-recurring gains in the reported results that did not reflect core operational performance. From 2011 through 2014, the variance between reported and adjusted net profit margins narrowed and remained relatively stable, typically ranging between 1.0 and 1.3 percentage points, indicating a higher degree of alignment between statutory and adjusted profitability in later years.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Product net sales	7,126,100)	6,197,500)	5,708,800)	5,347,100)	4,819,600)
Total assets	12,415,700)	10,574,300)	9,179,300)	8,508,600)	8,308,100)
Activity Ratio
Total asset turnover¹	0.57	0.59	0.62	0.63	0.58
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Product net sales	7,126,100)	6,197,500)	5,708,800)	5,347,100)	4,819,600)
Adjusted total assets	11,985,300)	10,167,600)	8,723,300)	8,050,400)	7,812,600)
Activity Ratio
Adjusted total asset turnover²	0.59	0.61	0.65	0.66	0.62

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 Total asset turnover = Product net sales ÷ Total assets
= 7,126,100 ÷ 12,415,700 = 0.57

² Adjusted total asset turnover = Product net sales ÷ Adjusted total assets
= 7,126,100 ÷ 11,985,300 = 0.59

A consistent increase in total assets was observed between 2010 and 2014, while asset turnover ratios experienced an initial increase followed by a gradual decline. The growth in the asset base outpaced the growth in corresponding revenue generation, leading to a compression of efficiency ratios in the latter half of the period.

Asset Base Expansion: Reported total assets grew steadily from US$ 8,308,100 thousand in 2010 to US$ 12,415,700 thousand in 2014. Adjusted total assets mirrored this growth pattern, increasing from US$ 7,812,600 thousand to US$ 11,985,300 thousand during the same timeframe.
Asset Turnover Trends: Both reported and adjusted asset turnover ratios peaked in 2011 at 0.63 and 0.66, respectively. Following this peak, a downward trend is evident; the reported ratio decreased to 0.57 by 2014, and the adjusted ratio declined to 0.59.
Reported versus Adjusted Variance: The adjusted total asset turnover remained consistently higher than the reported total asset turnover throughout the five-year period. This suggests that the adjustments made to the total asset base effectively remove non-productive or specific accounting assets, thereby presenting a more favorable view of the company's operational efficiency in utilizing its assets to generate revenue.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Total assets	12,415,700)	10,574,300)	9,179,300)	8,508,600)	8,308,100)
Total Allergan, Inc. stockholders’ equity	7,753,000)	6,463,200)	5,837,100)	5,309,600)	4,757,700)
Solvency Ratio
Financial leverage¹	1.60	1.64	1.57	1.60	1.75
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets	11,985,300)	10,167,600)	8,723,300)	8,050,400)	7,812,600)
Adjusted total Allergan, Inc. stockholders’ equity	7,322,600)	6,056,500)	5,381,100)	4,851,400)	4,262,200)
Solvency Ratio
Adjusted financial leverage²	1.64	1.68	1.62	1.66	1.83

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 Financial leverage = Total assets ÷ Total Allergan, Inc. stockholders’ equity
= 12,415,700 ÷ 7,753,000 = 1.60

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Allergan, Inc. stockholders’ equity
= 11,985,300 ÷ 7,322,600 = 1.64

The financial position from 2010 to 2014 is characterized by a consistent expansion in both asset base and stockholders' equity. Reported total assets increased from US$ 8,308,100 thousand to US$ 12,415,700 thousand, while reported stockholders' equity grew from US$ 4,757,700 thousand to US$ 7,753,000 thousand over the same period.

Impact of Financial Adjustments: A consistent divergence is observed between reported and adjusted figures. Adjusted total assets and adjusted stockholders' equity remained systematically lower than their reported counterparts throughout the five-year period. This indicates that the adjustments applied to the balance sheet consistently reduced the recognized value of both assets and equity.
Reported Financial Leverage Trends: The reported financial leverage ratio exhibited an initial decline, moving from 1.75 in 2010 to a period low of 1.57 in 2012. This was followed by a slight increase to 1.64 in 2013 and a stabilization at 1.60 by the end of 2014, suggesting a period of relative volatility before returning to levels similar to those seen in 2011.
Adjusted Financial Leverage Analysis: Adjusted financial leverage was consistently higher than reported leverage across all observed years. The adjusted ratio followed a trend parallel to the reported ratio, decreasing from 1.83 in 2010 to 1.62 in 2012, before rising to 1.68 in 2013 and settling at 1.64 in 2014. The persistent gap between reported and adjusted leverage ratios suggests that the adjustments disproportionately impact the equity base relative to the asset base, thereby resulting in a higher calculated leverage profile.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Allergan, Inc.	1,524,200)	985,100)	1,098,800)	934,500)	600)
Total Allergan, Inc. stockholders’ equity	7,753,000)	6,463,200)	5,837,100)	5,309,600)	4,757,700)
Profitability Ratio
ROE¹	19.66%	15.24%	18.82%	17.60%	0.01%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Allergan, Inc.	1,444,400)	923,600)	1,010,500)	865,600)	(248,500)
Adjusted total Allergan, Inc. stockholders’ equity	7,322,600)	6,056,500)	5,381,100)	4,851,400)	4,262,200)
Profitability Ratio
Adjusted ROE²	19.73%	15.25%	18.78%	17.84%	-5.83%

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 ROE = 100 × Net earnings attributable to Allergan, Inc. ÷ Total Allergan, Inc. stockholders’ equity
= 100 × 1,524,200 ÷ 7,753,000 = 19.66%

² Adjusted ROE = 100 × Adjusted net earnings attributable to Allergan, Inc. ÷ Adjusted total Allergan, Inc. stockholders’ equity
= 100 × 1,444,400 ÷ 7,322,600 = 19.73%

Profitability and shareholder equity exhibited a general upward trajectory between 2010 and 2014, despite a temporary contraction in earnings during the 2013 period.

Net Earnings Trends: Reported net earnings rose from 600 thousand US dollars in 2010 to 1.524 billion US dollars by 2014. Adjusted net earnings showed greater volatility in the initial period, starting at negative 248.5 million US dollars in 2010 before climbing to 1.444 billion US dollars in 2014. A slight decline in earnings was noted in 2013 across both reported and adjusted figures before a strong recovery in 2014.
Equity Growth: Total stockholders' equity increased consistently year-over-year. Reported equity grew from 4.757 billion US dollars in 2010 to 7.753 billion US dollars in 2014. Adjusted equity followed a similar growth pattern, rising from 4.262 billion US dollars to 7.322 billion US dollars over the same period, maintaining a consistent gap below the reported equity figures.
Return on Equity (ROE) Performance: The adjusted ROE experienced a significant reversal from -5.83% in 2010 to a peak of 19.73% in 2014. The variance between reported and adjusted ROE was most pronounced in 2010, where reported ROE remained marginally positive at 0.01% while adjusted ROE was negative. From 2011 onward, reported and adjusted ROE converged closely, fluctuating between 15.24% and 19.73%.

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	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Allergan, Inc.	1,524,200)	985,100)	1,098,800)	934,500)	600)
Total assets	12,415,700)	10,574,300)	9,179,300)	8,508,600)	8,308,100)
Profitability Ratio
ROA¹	12.28%	9.32%	11.97%	10.98%	0.01%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Allergan, Inc.	1,444,400)	923,600)	1,010,500)	865,600)	(248,500)
Adjusted total assets	11,985,300)	10,167,600)	8,723,300)	8,050,400)	7,812,600)
Profitability Ratio
Adjusted ROA²	12.05%	9.08%	11.58%	10.75%	-3.18%

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 ROA = 100 × Net earnings attributable to Allergan, Inc. ÷ Total assets
= 100 × 1,524,200 ÷ 12,415,700 = 12.28%

² Adjusted ROA = 100 × Adjusted net earnings attributable to Allergan, Inc. ÷ Adjusted total assets
= 100 × 1,444,400 ÷ 11,985,300 = 12.05%

A comprehensive analysis of the financial performance between 2010 and 2014 reveals a strong recovery and subsequent growth trajectory in operational efficiency and profitability. The period is characterized by a significant transition from negative adjusted earnings in 2010 to a peak in asset utilization by 2014.

Adjusted Return on Assets (ROA): The adjusted ROA exhibited substantial volatility and growth, starting at -3.18% in 2010 and rising to a five-year high of 12.05% by 2014. A notable recovery occurred in 2011, where the ratio climbed to 10.75%. Despite a temporary contraction to 9.08% in 2013, the metric rebounded in 2014, indicating an improved ability to generate earnings from the adjusted asset base.
Net Earnings Trends: Adjusted net earnings showed a dramatic upward trend, moving from a loss of $248.5 million in 2010 to $1.44 billion in 2014. The most significant growth leap occurred between 2010 and 2011, marking a shift toward sustained profitability. While earnings experienced a slight dip in 2013, the overall trajectory remained positive, culminating in the highest earnings level of the period in 2014.
Asset Base Expansion: Adjusted total assets grew consistently over the five-year period, increasing from $7.81 billion in 2010 to $11.99 billion in 2014. This steady expansion of the asset base coincided with the rise in net earnings, suggesting that the increase in resources was effectively leveraged to drive higher returns.
Reported versus Adjusted Performance: A significant divergence between reported and adjusted figures is observed in 2010, where reported net earnings were marginally positive while adjusted earnings were negative. However, from 2011 through 2014, the gap between reported and adjusted ROA narrowed significantly, with both metrics moving in close correlation. This suggests that the adjustments made to the financial statements became less impactful relative to total performance as the company scaled.

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