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Allergan Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 6, 2010 07:32PM
Allergan Inc. (AGN) filed Quarterly Report for the period ended 2010-06-30. Allergan Inc. has a market cap of $19.69 billion; its shares were traded at around $64.02 with a P/E ratio of 22.3 and P/S ratio of 4.3. The dividend yield of Allergan Inc. stocks is 0.3%. Allergan Inc. had an annual average earning growth of 19.3% over the past 5 years.AGN is in the portfolios of Eric Mindich of Eton Park Capital Management, L.P., Stanley Druckenmiller of Duquesne Capital Management, LLC, Pioneer Investments, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC, Dodge & Cox.
Highlight of Business Operations:
We generally offer cash discounts to customers for the early payment of receivables. Those discounts are recorded as a reduction of revenue and accounts receivable in the same period that the related sale is recorded. The amounts reserved for cash discounts were $3.9 million and $3.3 million at June 30, 2010 and December 31, 2009, respectively. Provisions for cash discounts deducted from consolidated sales in the second quarter of 2010 and 2009 were $13.7 million and $12.2 million, respectively. Provisions for cash discounts deducted from consolidated sales in the first six months of 2010 and 2009 were $26.1 million and $23.0 million, respectively.
We permit returns of product from most product lines by any class of customer if such product is returned in a timely manner, in good condition and from normal distribution channels. Return policies in certain international markets and for certain medical device products, primarily breast implants, provide for more stringent guidelines in accordance with the terms of contractual agreements with customers. Our estimates for sales returns are based upon the historical patterns of product returns matched against sales, and managements evaluation of specific factors that may increase the risk of product returns. The amount of allowances for sales returns recognized in our consolidated balance sheets at June 30, 2010 and December 31, 2009 were $47.1 million and $41.5 million, respectively, and are recorded in Other accrued expenses and Trade receivables, net in our consolidated balance sheets. Provisions for sales returns deducted from consolidated sales were $104.7 million and $95.4 million in the second quarter of 2010 and 2009, respectively. Provisions for sales returns deducted from consolidated sales were $191.8 million and $181.0 million in the first six months of 2010 and 2009, respectively. The increases in the amount of allowances for sales returns at June 30, 2010 compared to December 31, 2009 and the provisions for sales returns in the second quarter and first six months of 2010 compared to the second quarter and first six months of 2009 are primarily due to increased sales returns related to breast implant products. Historical allowances for cash discounts and product returns have been consistent with the amounts reserved or accrued.
our consolidated balance sheets. The amounts accrued for sales rebates and other incentive programs were $174.8 million and $158.6 million at June 30, 2010 and December 31, 2009, respectively. Provisions for sales rebates and other incentive programs deducted from consolidated sales were $133.3 million and $115.4 million in the second quarter of 2010 and 2009, respectively. Provisions for sales rebates and other incentive programs deducted from consolidated sales were $265.0 million and $205.6 million in the first six months of 2010 and 2009, respectively. The increases in the amounts accrued at June 30, 2010 compared to December 31, 2009 and the provisions for sales rebates and other incentive programs in the second quarter and the first six months of 2010 compared to the second quarter and the first six months of 2009 are primarily due to an increase in activity under previously established rebate and incentive programs, principally related to our eye care pharmaceuticals, Botox® Cosmetic, skin care and facial aesthetics products, an increase in the number of incentive programs offered, and additional contractual discounts to federal government agencies related to the recently enacted health care reform legislation. In addition, an increase in our published list prices in the United States for pharmaceutical products, which occurred for several of our products in each of 2010 and 2009, generally results in higher provisions for sales rebates and other incentive programs deducted from consolidated sales.
Our procedures for estimating amounts accrued for sales rebates and other incentive programs at the end of any period are based on available quantitative data and are supplemented by managements judgment with respect to many factors, including but not limited to, current market dynamics, changes in contract terms, changes in sales trends, an evaluation of current laws and regulations and product pricing. Quantitatively, we use historical sales, product utilization and rebate data and apply forecasting techniques in order to estimate our liability amounts. Qualitatively, managements judgment is applied to these items to modify, if appropriate, the estimated liability amounts. There are inherent risks in this process. For example, customers may not achieve assumed utilization levels; customers may misreport their utilization to us; and actual movements of the U.S. Consumer Price Index for All Urban Consumers, or CPI-U, which affect our rebate programs with U.S. federal and state government agencies, may differ from those estimated. On a quarterly basis, adjustments to our estimated liabilities for sales rebates and other incentive programs related to sales made in prior periods have not been material and have generally been less than 0.5% of consolidated product net sales. An adjustment to our estimated liabilities of 0.5% of consolidated product net sales on a quarterly basis would result in an increase or decrease to net sales and earnings before income taxes of approximately $6.0 million to $7.0 million. The sensitivity of our estimates can vary by program and type of customer. Additionally, there is a significant time lag between the date we determine the estimated liability and when we actually pay the liability. Due to this time lag, we record adjustments to our estimated liabilities over several periods, which can result in a net increase to earnings or a net decrease to earnings in those periods. Material differences may result in the amount of revenue we recognize from product sales if the actual amount of rebates and incentives differ materially from the amounts estimated by management.
On January 15, 2010, we acquired Serica Technologies, Inc., or Serica, for an aggregate purchase price of approximately $63.7 million, net of cash acquired. On July 7, 2009, we acquired a 50.001% stockholder interest in a joint venture, Samil Allergan Ophthalmic Joint Venture Company, or Samil, for approximately $14.8 million, net of cash acquired. We accounted for the acquisitions of Serica and Samil as business combinations. The tangible and intangible assets acquired and liabilities assumed in connection with these acquisitions were recognized based on their estimated fair values at the acquisition dates. The determination of estimated fair values requires significant estimates and assumptions, including but not limited to, determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows, and developing appropriate discount rates. We believe the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.
As of June 30, 2010, the combined total amount of Sanctura® franchise intangible assets and an associated $19.1 million prepaid royalty asset is $367.4 million compared to a combined total of $381.4 million at December 31, 2009. In September 2009, we announced a co-promotion agreement with Quintiles Transnational Corp., or Quintiles, under which Quintiles agreed to promote Sanctura XR® to general practitioners in the United States. Quintiles promotion efforts began in earnest in January 2010. We believe the co-promotion efforts need sufficient time to establish a performance trend that we can use to reasonably evaluate future performance expectations. We continue to monitor net sales, operating expenses and cash flows of the Sanctura XR® developed technology asset. If the actual estimated future net sales, operating expenses and cash flows differ significantly from our current expectations, there could be a potential future impairment of the Sanctura XR® developed technology asset.
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