Alcon fourth quarter sales raise 5.7% to $1.81 billion in 2010

Alcon, Inc. reported that global sales rose 5.7 percent to $1.81 billion for the fourth quarter of 2010. Revenue from acquisitions added 100 basis points to sales growth in the quarter, while foreign currency fluctuations reduced reported sales growth by 20 basis points. Excluding these two factors, the organic sales growth rate was 4.9 percent.

Net earnings for the fourth quarter of 2010 rose 13.8 percent to $521 million, or $1.71 per diluted share, compared to $458 million, or $1.51 per diluted share, in the fourth quarter of 2009. Reported net earnings in the fourth quarter of 2010 included $9 million in after-tax other operating expenses related to the change of majority ownership and merger proposal from Novartis AG. Reported net earnings in the fourth quarter of 2009 included a $30 million tax provision related to a change in tax law regarding the deductibility of foreign currency losses. Excluding these expenses, non-GAAP adjusted net earnings would have grown 8.6 percent to $530 million, or $1.74 per diluted share, compared to adjusted net earnings in the fourth quarter 2009.

For the full year 2010, Alcon, Inc. reported global sales of $7.18 billion, an increase of 10.5 percent over 2009. Revenue from acquisitions and foreign currency fluctuations added 60 and 130 basis points, respectively, to reported sales growth in 2010. Excluding these two factors, the organic sales growth rate was 8.6 percent. Based on these results and an analysis of market factors, Alcon expects to achieve constant currency sales growth in the high single digits in 2011.

Net earnings for 2010 rose 10.1 percent to $2.21 billion, or $7.27 per share on a diluted basis, compared to $2.01 billion, or $6.66 per diluted share, in 2009. Reported net earnings in 2010 included a $24 million pre-tax reduction to cost of goods sold related to changes in estimates for accrued royalties, $130 million in after-tax other operating expenses related to the change of majority ownership and merger proposal from Novartis AG and a $25 million period tax charge related to a change in the tax treatment of retiree medical benefits resulting from U.S. health care reform legislation. Reported net earnings in 2009 included $14 million of after-tax costs related to a reduction in force and $30 million related to the aforementioned tax provision. Excluding these expenses, non-GAAP adjusted net earnings for 2010 would have risen 14.3 percent to $2.34 billion, or $7.71 per diluted share compared to adjusted net earnings in 2009.

Reconciliations of reported and adjusted results for the fourth quarter and full year are included in the financial tables below.

"2010 was an extremely successful year for Alcon," said Kevin Buehler, Alcon's president and chief executive officer. "We emerged from the challenging economic environment that began in late 2008 to achieve another year of solid operational performance driven by global market share gains, strong organic growth and margin improvement."

"We also welcomed a new strategic majority owner in Novartis AG, and reached agreement on the terms of a full merger that, when approved, will result in Alcon becoming the second largest division of Novartis," Buehler added. "This is an exciting new chapter for Alcon. I believe we can successfully leverage Alcon's leadership position in the eye care specialty segment with the scale and broad-based expertise of Novartis to create a stronger eye care business to meet the needs of doctors and patients."

Fourth Quarter Financial Performance

Sales Highlights

Summarized below are sales highlights for the fourth quarter of 2010. All growth comparisons are for the fourth quarter of 2010 compared to the fourth quarter of 2009. Organic sales growth rates exclude currency impacts and acquisitions and are non-GAAP measures that are reconciled in a table at the end of this release.

• U.S. sales increased 3.4 percent to $758 million, driven primarily by solid sales of pharmaceutical products, which grew 9.1 percent.
  • Sales of allergy pharmaceutical products rose 19.0 percent as a result of a strong fall allergy season.
  • The acquisitions of Optonol and DUREZOL^® ophthalmic steroid added 230 basis points of growth.
  • Surgical growth was negatively affected by a strong comparable quarter in 2009.
  • Heavy promotional activity in the third quarter had a residual negative impact on sales of contact lens disinfectants in the fourth quarter.
• Sales in international markets rose 7.7 percent on an organic basis (+7.3 percent reported) to $1.05 billion with balanced contributions from most global markets.
  • Sales in emerging markets increased 13.1 percent organically (+13.7 percent reported), led by the BRIC nations (Brazil, Russia, India and China), which rose 17.2 percent on an organic basis (+18.5 percent reported).
  • International pharmaceutical sales increased 10.9 percent organically (+9.8 percent reported) on broad-based growth across most therapeutic categories.
• Global sales of pharmaceutical products increased 8.1 percent on an organic basis (+9.4 percent reported) to $743 million, primarily due to solid global performance of the infection/inflammation franchise and a more severe fall allergy season in the United States.
  • Global infection/inflammation pharmaceutical product sales rose 13.6 percent organically (+18.6 percent reported), led by strong global growth of Vigamox^® ophthalmic solution and NEVANAC^® ophthalmic suspension, as well as DUREZOL^® the United States.
  • Global glaucoma pharmaceutical product sales were $336 million, an increase of 3.4 percent on an organic basis (+2.4 percent reported). Strong sales performance for glaucoma combinations (DuoTrav^® ophthalmic solution and Azarga^® ophthalmic suspension) was offset by the conversion of TRAVATAN^® to TRAVATAN Z^® ophthalmic solutions in the United States and a strong comparable quarter for generic glaucoma products that included the launch of brimonidine tartrate 0.15%.
• Global surgical sales were $858 million, an increase of 3.3 percent on an organic basis (+3.6 percent reported).
  • Global sales of advanced technology intraocular lenses rose 8.4 percent organically (+8.5 percent reported) on continued adoption and utilization by cataract surgeons of the AcrySof^® IQ ReSTOR^® +3.0 and AcrySof^® IQ Toric intraocular lenses.
• Global sales of consumer eye care products rose 1.0 percent on an organic basis (+1.4 percent reported) to $211 million. The strong global performance the Systane^® family of artificial tears offset declines in contact lens care and other consumer products.

Earnings Highlights

Summarized below are earnings highlights for the fourth quarter of 2010. All growth comparisons are for the fourth quarter of 2010 compared to the fourth quarter of 2009.

• Gross profit margin was 76.0 percent compared to 74.0 percent in 2009. The increase was primarily attributable to the impact of foreign exchange rate fluctuations in each period and positive price contribution.
• Operating income rose 7.3 percent to $576 million, or 31.8 percent of sales. Non-GAAP adjusted operating income would have increased 9.3 percent to $587 million, or 32.4 percent of sales. This increase was attributable to solid sales growth, positive price contribution and the temporary favorable impact of foreign exchange rates on gross profit. Adjusted operating income in the fourth quarter of 2010 excluded $11 million in other operating expenses related to the change of majority ownership and merger proposal from Novartis.
• Net earnings increased 13.8 percent to $521 million, or $1.71 per diluted share. Non-GAAP adjusted net earnings would have risen 8.6 percent to $530 million, or $1.74 per diluted share. Adjusted net earnings in the fourth quarter of 2010 exclude $9 million of after-tax expenses related to the change of majority ownership and merger proposal from Novartis. Adjusted net earnings in the fourth quarter of 2009 exclude the $30 million tax adjustment.

Full Year Financial Performance

Sales Highlights

Summarized below are sales highlights for full year 2010. All growth comparisons are for full year 2010 compared to full year 2009. Organic sales growth rates exclude currency impacts and acquisitions and are non-GAAP measures that are reconciled in a table at the end of this release.

• Sales in the United States rose 9.0 percent to $3.18 billion on strong contributions from advanced technology AcrySof^® intraocular lenses, pharmaceutical products and the Systane^® family of artificial tears.
  • Advanced technology intraocular lens sales rose 12.5 percent on increased penetration of both the AcrySof^® IQ ReSTOR^® +3.0 and AcrySof^® IQ Toric intraocular lenses.
  • Sales of glaucoma pharmaceutical products rose 12.8 percent, primarily attributable to strong contributions from TRAVATAN Z^®, Azopt^® ophthalmic suspension and brimonidine 0.15%.
  • Infection/inflammation pharmaceutical product sales increased 20.7 percent, primarily attributable to the strong performance of Vigamox^® and NEVANAC^®, as well as rapid market share growth of DUREZOL^®.
  • Supported by the mid-year launch of Systane^® BALANCE lubricant eye drops, sales of artificial tears increased 15.4 percent.
  • Sales growth included 130 basis points from the acquisitions of Optonol and DUREZOL^®.
• International market sales increased 9.2 percent on an organic basis (+11.6 percent reported) to $4.00 billion, primarily attributable to rapid growth in emerging markets, strong sales of pharmaceutical products and balanced contributions from most global markets.
  • Sales in emerging markets rose 17.1 percent organically (+21.3 percent reported), driven by strong sales in the BRIC nations, which together rose 21.9 percent organically (+30.3 reported).
  • International pharmaceutical product sales increased 12.4 percent on an organic basis (+14.1 percent reported) on broad-based growth in most therapeutic categories.
• Global sales of pharmaceutical products were $3.07 billion, an increase of 12.7 percent on an organic basis (+14.5 percent reported), due to continued solid global performance of the glaucoma franchise and the impact of the severe allergy season in the United States.
  • Global glaucoma pharmaceutical product sales rose 13.1 percent organically (+13.9 percent reported), reflecting strong market share growth outside the United States of AZARGA^® ophthalmic suspension and DuoTrav^® ophthalmic solution.
  • Severe allergy and swimmer's ear seasons in the United States led to higher global growth of Patanol^® and Pataday^® ophthalmic solutions, which rose 10.7 percent organically (+11.8 percent reported), and CIPRODEX^® otic suspension, which increased 9.9 percent on an organic basis (+10.5 percent reported).
  • Global sales of the TobraDex^® family increased 9.9 percent organically (+9.7 percent reported) due to strong international sales growth and the launch of TobraDex ST^® ophthalmic suspension in the United States.
• Global surgical sales rose 5.5 percent on an organic basis (+7.4 percent reported) to $3.22 billion on balanced growth across all product categories.
  • Global sales of advanced technology intraocular lenses increased 19.7 percent organically (+21.4 percent reported) as cataract surgeons around the world increased adoption and utilization of AcrySof^® IQ ReSTOR^® +3.0 and AcrySof^® IQ Toric.
  • Global sales of refractive products rose 11.4 percent on continued market share gains of the WaveLight^® suite of refractive lasers.
• Global sales of consumer products increased 6.3 percent on an organic basis (+8.2 percent reported) to $893 million on the strong global performance of the Systane^® family of artificial tears.
  • The launch of Systane^® BALANCE in the United States and further global expansion of Systane^® ULTRA lubricant eye drops contributed to strong performance in the artificial tear category, which rose 15.5 percent organically (+17.7 percent reported).

Earnings Highlights

Summarized below are earnings highlights for full year 2010. All growth comparisons are for full year 2010 compared to full year 2009.

• Gross profit was $5.50 billion, representing a gross profit margin of 76.7 percent. Reported gross profit in 2010 included a $24 million reduction to cost of goods sold related to changes in estimates for accrued royalties. Reported gross profit in 2009 included $3 million in expenses related to a reduction in force. Excluding these adjustments, non-GAAP gross profit would have increased 12.1 percent to $5.48 billion, or 76.3 percent of sales compared to 75.2 percent in 2009. The increase was primarily attributable to the impact of foreign exchange rate fluctuations in each period and positive price contribution.
• Operating income increased 9.5 percent to $2.48 billion, or 34.5 percent of sales. Reported operating income in 2010 included the aforementioned royalty adjustment and $152 million in other operating expenses related to the change of majority ownership and merger proposal from Novartis. Reported operating income in 2009 included $19 million related to a reduction in force. Excluding these expenses, non-GAAP adjusted operating income would have increased 14.2 percent to $2.60 billion, or 36.3 percent of sales. This increase was attributable to solid sales growth, positive price contribution and the temporary favorable impact of foreign exchange rates on gross profit.
• Net earnings increased 10.1 percent to $2.21 billion, or $7.27 per diluted share. Non-GAAP adjusted net earnings would have risen 14.3 percent to $2.34 billion, or $7.71 per diluted share. Adjusted net earnings in 2010 exclude an after-tax impact of $21 million related to the royalty adjustment, $130 million of after-tax expenses related to the change of majority ownership and merger proposal from Novartis and a $25 million period tax charge resulting from U.S. health care reform legislation. Adjusted net earnings in 2009 exclude after-tax expenses of $14 million related to a reduction in force and the $30 million tax adjustment.