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Income Tax Accounting Policy

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Allergan evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include Allergan's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in Allergan's effective tax rate on future earnings.

Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. Allergan recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.

The income tax effects of the TCJA have been initially accounted for on a provisional basis pursuant to the guidance in Staff Accouting Bulletin ("SAB") 118. Reasonable estimates for all material tax effects of the TCJA (other than amounts related to accounting policy elections) have been provided and adjustments to provisional amounts will be made in subsequent reporting periods as information becomes available to complete provisional computations. The provisional impact of the TCJA for the Federal tax rate change and the resulting deferred tax liability for unremitted earnings will be completed in subsequent measurement periods when the required computations for the 2017 tax year and the related tax returns for the relevant entities have been completed. The final amount for the toll charge is dependent on amounts that cannot be determined until the 2018 financial results of certain non-US subsidiaries are completed. In addition, the IRS continues to issue interpretive guidance on the computation of the tax on deferred foreign earnings and therefore the computations cannot be finalized until all relevant IRS guidance has been promulgated and its impact assessed.

The TCJA introduced an additional U.S. tax on certain non-U.S. subsidiaries' earnings which are considered to be Global Intangible Low Taxed Income (referred to as "GILTI"). Under this provision, the amount of GILTI included by a U.S. shareholder will be taxed at a rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits.

Due to the complexity of the new GILTI tax rules, Allergan is continuing to evaluate this provision of the TCJA and the application of ASC 740 and is considering if deferred tax amounts should be recorded for this provision. The accounting policies depend, in part, on analyzing the global income to determine whether Allergan expects material tax liabilities resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes and whether such amounts can be reasonably estimated. Anticipated further guidance from the IRS will also clarify the manner in which the GILTI tax is computed. For these reasons, Allergan has not recorded a deferred tax expense or benefit relating to potential GILTI tax in the 2017 consolidated financial statements and has not made a policy election regarding whether to record deferred taxes on GILTI or account for the GILTI entirely as a period cost.

Source: Allergan PLC, Annual Report

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Income Tax Expense (Benefit)

Allergan PLC, income tax expense (benefit), continuing operations

USD $ in thousands

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
U.S. federal
U.S. state
Non-U.S.
Current provision
U.S. federal
U.S. state
Non-U.S.
Deferred benefit
Provision (benefit) for income taxes

Source: Based on data from Allergan PLC Annual Reports

Item Description The company
Current provision The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. Allergan PLC's current provision declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred benefit The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. Allergan PLC's deferred benefit declined from 2015 to 2016 and from 2016 to 2017.
Provision (benefit) for income taxes The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. Allergan PLC's provision (benefit) for income taxes declined from 2015 to 2016 and from 2016 to 2017.

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Effective Income Tax Rate (EITR)

Allergan PLC, effective income tax rate (EITR) reconciliation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Statutory tax rate % % % % %
Effective income tax rate % % % % %

Source: Based on data from Allergan PLC Annual Reports

Item Description The company
Effective income tax rate A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. Allergan PLC's effective income tax rate increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Components of Deferred Tax Assets and Liabilities

Allergan PLC, components of deferred tax assets and liabilities

USD $ in thousands

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Benefits from net operating and capital losses and tax credit carryfowards
Inventories, receivables and accruals
Basis differences in investments
Outside basis differences
Share-based and other compensation
Other
Deferred tax asset, gross
Valuation allowance
Deferred tax asset, net
Property, equipment and intangible assets
Outside basis differences
Investment in subsidiaries
Basis difference in debt
Other
Deferred tax liabilities
Deferred taxes

Source: Based on data from Allergan PLC Annual Reports

Item Description The company
Deferred tax asset, gross The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. Allergan PLC's deferred tax asset, gross declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Deferred tax asset, net The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Allergan PLC's deferred tax asset, net declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Deferred taxes For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. Allergan PLC's deferred taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Deferred Tax Assets and Liabilities, Classification

Allergan PLC, deferred tax assets and liabilities, classification

USD $ in thousands

 

Source: Based on data from Allergan PLC Annual Reports

Item Description The company
Current deferred tax assets The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Non-current deferred tax assets The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Allergan PLC's non-current deferred tax assets increased from 2015 to 2016 and from 2016 to 2017.
Current deferred tax liabilities Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.
Non-current deferred tax liabilities Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Allergan PLC's non-current deferred tax liabilities increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Analyst Adjustments: Removal of Deferred Taxes

Allergan PLC, adjustments to financial data

USD $ in thousands

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Less: Noncurrent deferred tax assets, net
Total assets (adjusted)
Adjustment to Current Liabilities
Current liabilities (as reported)
Less: Current deferred tax liabilities, net
Current liabilities (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Current deferred tax liabilities, net
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Shareholders' Equity
Shareholders' equity (as reported)
Less: Net deferred tax assets (liabilities)
Shareholders' equity (adjusted)
Adjustment to Net Income (loss) Attributable To Shareholders
Net income (loss) attributable to shareholders (as reported)
Add: Deferred income tax expense (benefit)
Net income (loss) attributable to shareholders (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

Allergan PLC, adjusted ratios

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin % % % % %
Adjusted net profit margin % % % % %
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE % % % % %
Adjusted ROE % % % % %
Return on Assets (ROA)
Reported ROA % % % % %
Adjusted ROA % % % % %
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Allergan PLC's adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Allergan PLC's adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Allergan PLC's adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Allergan PLC's adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Allergan PLC's adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Allergan PLC's adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Current Ratio

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Current assets (USD $ in thousands)
Current liabilities (USD $ in thousands)
Current ratio1
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in thousands)
Adjusted current liabilities (USD $ in thousands)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= ÷ =

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Allergan PLC's adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

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Adjusted Net Profit Margin

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to shareholders (USD $ in thousands)
Net revenues (USD $ in thousands)
Net profit margin1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to shareholders (USD $ in thousands)
Adjusted net profit margin2 % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income (loss) attributable to shareholders ÷ Net revenues
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to shareholders ÷ Net revenues
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Allergan PLC's adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net revenues (USD $ in thousands)
Total assets (USD $ in thousands)
Total asset turnover1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Net revenues ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Allergan PLC's adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Financial Leverage

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in thousands)
Shareholders' equity (USD $ in thousands)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands)
Adjusted shareholders' equity (USD $ in thousands)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Shareholders' equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders' equity
= ÷ =

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Allergan PLC's adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to shareholders (USD $ in thousands)
Shareholders' equity (USD $ in thousands)
ROE1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to shareholders (USD $ in thousands)
Adjusted shareholders' equity (USD $ in thousands)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Net income (loss) attributable to shareholders ÷ Shareholders' equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to shareholders ÷ Adjusted shareholders' equity
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Allergan PLC's adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to shareholders (USD $ in thousands)
Total assets (USD $ in thousands)
ROA1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to shareholders (USD $ in thousands)
Adjusted total assets (USD $ in thousands)
Adjusted ROA2 % % % % %

2017 Calculations

1 ROA = 100 × Net income (loss) attributable to shareholders ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to shareholders ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Allergan PLC's adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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