Consolidated Financial Statements

Consolidated Income Statements

Twelve Months Ended December 31
(in CHF thousands, except per share amounts) 2006 2005
Net revenue:
Product sales 924,141 647,556
Contract revenue 21,532 16,033
Total net revenue 945,673 663,589
Operating expenses (1)
Cost of sales 90,594 65,635
Research and development 211,814 171,547
Marketing and advertising 185,491 140,012
Selling, general and administration 185,075 132,087
Amortization of acquired intangible assets 4,510 2,018
Total operating expense 677,484 511,299
Operating income 268,189 152,290
Interest income 8,386 2,989
Interest expense (163) (152)
Amortization of debt discount and issuance costs (8,410) (7,836)
Other financial income (expense), net 10,724 (11,294)
Income before income tax expense 278,726 135,997
Income tax expense (37,636) (10,459)
Net income 241,090 125,538
Basic income per share 10.64 5.62
Number of shares (in thousands) used in computation 22,654 22,329
Diluted income per share 10.25 5.54
Number of shares and share options (in thousands) used in computation 24,325 22,662
(1) Includes stock-based compensation as follows:
Research and development 11,328 4,807
Marketing and advertising 9,035 3,726
Selling, general and administration 12,298 5,113
Total stock-based compensation 32,661 13,646
The accompanying notes form an integral part of these consolidated financial statements.


Consolidated Balance Sheets

December 31,
(in CHF thousands, except share amounts) 2006 2005
Assets
Current assets
Cash and cash equivalents 926,137 138,017
Short-term deposits 189,098 244,900
Derivative instruments 3,667 1,303
Marketable securities 29,750 9,820
Trade and other receivables, net 217,376 157,220
Inventories 24,320 26,373
Other current assets 27,635 11,799
Deferred tax asset, current portion 4,518 5,940
Total current assets 1,422,501 595,372
Property, plant and equipment, net 81,970 50,186
Other assets 11,486 8,131
Intangible assets, net 19,159 20,852
Goodwill, net 27,385 27,333
Deferred tax asset 15,669 10,568
Total assets 1,578,170 712,442
Liabilities and Shareholders' Equity
Current liabilities
Trade and other payables 67,297 67,543
Accrued expenses 130,894 86,088
Deferred revenue, current portion 27,314 15,209
Other current liabilities 1,649 6,364
Short-term financial debt 626,832 -
Total current liabilities 853,986 175,204
Long-term financial debt - 159,266
Deferred revenue, less current portion 120,890 52,648
Other non-current liabilities 4,395 3,337
Pension liability 19,835 -
Deferred tax liability 932 273
Total liabilities 1,000,038 390,728
Shareholders' Equity
Common shares (par value CHF 2.50 per share, authorized
41,406,640 shares for both years; outstanding 22,955,884
and 22,545,547 shares in 2006 and 2005, respectively) 57,390 56,364
Additional paid-in capital 394,090 348,011
Accumulated profit (deficit) 156,621 (84,469)
Treasury shares, at cost (11,118) (467)
Accumulated other comprehensive income (loss) (18,851) 2,275
Total Shareholders' Equity 578,132 321,714
Total Liabilities and Shareholders' Equity 1,578,170 712,442
The accompanying notes form an integral part of these consolidated financial statements.


Consolidated Statements of Cash Flows

Twelve Months Ended December 31
(in CHF thousands) 2006 2005
Cash flow from operating activities
Net income 241,090 125,538
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization 19,525 12,634
Stock-based compensation 32,979 14,373
Excess tax benefits from share-based payment arrangements (3,959) (2,435)
(Gains) losses on derivative instruments (7,423) 6,845
Write-off of acquired in-process research and development 68 78
Amortization of debt discount and expense 8,410 7,836
Trade and other receivables (58,812) (42,890)
Inventories 2,052 (8,470)
Other current assets (4,914) (5,451)
Other assets (11,547) (11,895)
Trade and other payables 7,317 15,517
Accrued expenses 46,040 35,533
Deferred revenue 80,347 (9,775)
Other liabilities 3,942 942
Changes in other cash flow items (2,358) -
Net cash flow provided by operating activities 352,757 138,380
Cash flow from investing activities
Purchase of short-term deposits (323,157) (370,400)
Withdrawal of short-term deposits 378,900 229,500
Purchase of property, plant and equipment (42,519) (24,756)
Purchase of marketable securities (20,000) (9,837)
Purchase of derivative instruments (1,434) (2,951)
Proceeds from sale of derivative instruments 1,434 2,836
Purchase of intangible assets (11,124) (5,651)
Increase of investment - (32,494)
Net cash flow used in investing activities (17,900) (213,753)
Cash flow from financing activities
Payments on capital leases (226) (177)
Issuance of 2006 convertible bond 451,430 -
Proceeds from exercise of stock options 31,026 14,371
Purchase of treasury shares (10,839) -
Purchase of call option (20,562) -
Excess tax benefits from share-based payment arrangements 3,959 2,435
Net cash flow provided by financing activities 454,788 16,629
Net effect of exchange rates on cash and cash equivalents (1,525) 425
Net change in cash and cash equivalents 788,120 (58,319)
Cash and cash equivalents at beginning of period 138,017 196,336
Cash and cash equivalents at end of period 926,137 138,017
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest 163 152
Taxes 11,997 12,645
The accompanying notes form an integral part of these consolidated financial statements.


Consolidated Statement of Changes in Shareholders' Equity

(in CHF thousands, except share amounts) Common Shares
Shares Amount Additional Paid-in Capital Accumulated Profit (Deficit) Unearned Compensation Treasury Shares Other Comprehensive Income (Loss) Shareholders' Equity
At January 1, 2005 22,198,403 55,525 316,844 (210,007) (2,256) (871) (1,149) 158,086
Comprehensive income net of tax effect:
Net income 125,538 125,538
Other comprehensive income:
Currency translation adjustment 3,441 3,441
Unrealized loss on marketable securities (17) (17)
Comprehensive income 128,962
Change in accounting principle (1,374) 1,374 -
Excess tax benefit from share-based payment 5,922 5,922
Exercise of stock options 335,594 839 13,532 14,371
Transactions in treasury shares 5,353 323 404 727
Stock-based compensation expense, net 13,096 550 13,646
Stock options forfeitures and cancellations (332) 332 -
At December 31, 2005 22,539,350 56,364 348,011 (84,469) - (467) 2,275 321,714
Comprehensive income net of tax effect:
Net income 241,090 241,090
Other comprehensive income:
Currency translation adjustment (3,071) (3,071)
Additional minimum pension liability (2,332) (2,332)
Unrealized loss on marketable securities (70) (70)
Comprehensive income 235,617
Additional pension liability, adoption of SFAS 158 (15,653) (15,653)
Excess tax benefit from share-based payment 3,850 3,850
Exercise of stock options 410,337 1,026 30,000 31,026
Transactions in treasury shares (49,500) 130 (10,651) (10,521)
Options related to own shares (20,562) (20,562)
Stock-based compensation expense, net 32,661 32,661
At December 31, 2006 22,900,187 57,390 394,090 156,621 - (11,118) (18,851) 578,132
The accompanying notes form an integral part of these consolidated financial statements.