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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_____________________________________________________________________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 ............................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
_____________________________________________________________________________
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 1995 1-10269
ALLERGAN, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
95-1622442
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92715
TELEPHONE NUMBER 714/752-4500
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) X yes no
----- -----
(2) X yes no
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of April 28, 1995 there were 64,105,816 shares of common stock outstanding.
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ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) Consolidated Statements of Earnings - 3
Three Months Ended March 31, 1995 and 1994
(B) Consolidated Balance Sheets - 4
March 31, 1995 and December 31, 1994
(C) Consolidated Statements of Cash Flows - 5
Three Months Ended March 31, 1995 and 1994
(D) Notes to Consolidated Financial Statements 6-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-10
PART II - OTHER INFORMATION
ITEM 1 11
ITEM 4 11
ITEM 6 12
Signature 13
Exhibits
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PART I - FINANCIAL INFORMATION
Allergan, Inc.
Consolidated Statements of Earnings
(In millions, except per share amounts)
Three months ended
March 31,
--------------------
1995 1994
---- ----
Net Sales $228.3 $210.1
Operating costs and expenses:
Cost of sales 71.1 63.5
Selling, general and
administrative 103.5 86.3
Research and development 25.6 26.9
------ ------
200.2 176.7
------ ------
Operating income 28.1 33.4
Nonoperating income (expense):
Interest income 3.1 1.7
Interest expense (2.3) (2.3)
Other, net 2.4 (0.3)
------ ------
3.2 (0.9)
------ ------
Earnings from continuing operations
before income taxes and
minority interest 31.3 32.5
Provision for income taxes 9.2 9.6
Minority interest 0.4 0.7
------ ------
Net Earnings $ 21.7 $ 22.2
====== ======
Net Earnings Per Common Share $ 0.34 $ 0.35
====== ======
Weighted Average Common
Shares Outstanding 64.5 64.0
See accompanying notes to consolidated financial statements.
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4
Allergan, Inc.
Consolidated Balance Sheets
(In millions, except share data)
March 31, December 31,
1995 1994
--------- ------------
ASSETS
Current assets:
Cash and equivalents $ 97.8 $ 130.7
Trade receivables, net 177.8 179.7
Inventories 101.6 96.8
Other current assets 85.0 78.3
-------- --------
Total current assets 462.2 485.5
Investments and other assets 148.4 133.4
Property, plant and equipment, net 317.1 314.8
Goodwill and intangibles, net 143.0 126.1
-------- --------
Total assets $1,070.7 $1,059.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 47.1 $ 48.6
Accounts payable 44.8 59.9
Accrued expenses 133.0 148.7
Income taxes 40.5 66.5
-------- --------
Total current liabilities 265.4 323.7
Long-term debt 130.4 83.7
Other liabilities 40.3 38.5
Commitments and contingencies
Minority interest 15.5 10.6
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
150,000,000 shares; issued 67,372,000
and 67,387,000 shares 0.7 0.7
Additional paid-in capital 198.5 196.7
Foreign currency translation
adjustment 1.1 4.2
Investment market value adjustment (3.9) --
Retained earnings 499.4 485.3
-------- --------
695.8 686.9
Less - treasury stock, at cost
(3,417,000 and 3,724,000 shares) (76.7) (83.6)
-------- --------
Total stockholders' equity 619.1 603.3
-------- --------
Total liabilities and
stockholders' equity $1,070.7 $1,059.8
======== ========
See accompanying notes to consolidated financial statements.
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Allergan, Inc.
Consolidated Statements of Cash Flows
(In millions)
Three months
ended March 31,
---------------------
1995 1994
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 21.7 $ 22.2
Non-cash items included in net earnings:
Depreciation and amortization 13.3 11.6
Amortization of prepaid royalties 2.1 0.0
Deferred income taxes (0.4) (0.1)
Loss on sale of assets 0.7 0.8
Expense of compensation plans 0.5 1.1
Minority interest 0.4 0.6
Changes in assets and liabilities:
Trade receivables 4.9 0.9
Inventories (3.2) (2.5)
Accounts payable (15.3) (18.5)
Accrued liabilities (18.0) (14.6)
Income taxes (26.0) (2.8)
Other (9.7) (1.6)
------ ------
Net cash provided by/(used in)
operating activities (29.0) (2.9)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (10.0) (7.1)
Disposals of property, plant and equipment 0.6 0.2
Prepayment of royalties (14.6) 0.0
Acquisitions of businesses (18.3) 0.0
Other, net (5.5) (2.4)
------ ------
Net cash used in investing activities (47.8) (9.3)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (7.0) (6.4)
Net borrowings under
commercial paper obligations 39.7 26.4
Increase/(decrease) in notes payable 0.6 (0.5)
Sale of stock to employees 6.0 1.2
Increase in long term debt 3.8 0.0
Decrease in long term debt (0.5) (0.4)
Payments to acquire treasury stock (0.0) (16.2)
------ ------
Net cash provided by/(used in)
financing activities 42.6 4.1
------ ------
Effect of exchange rates on cash and
equivalents 1.3 2.3
------ ------
Net decrease in cash and equivalents (32.9) (5.8)
Cash and equivalents at beginning of period 130.7 141.8
------ ------
Cash and equivalents at end of period $ 97.8 $136.0
====== ======
See accompanying notes to consolidated financial statements.
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Allergan, Inc.
Notes to Consolidated Financial Statements
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information contained
therein. These statements do not include all disclosures required by generally
accepted accounting principles and should be read in conjunction with the
audited financial statements of the Company for the year ended December 31,
1994. The results of operations for the three months ended March 31, 1995 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1995. Earnings per common and common equivalent share were
computed by dividing net earnings by the weighted average number of common and
common equivalent shares outstanding during the respective periods.
2. Components of inventory were:
March 31, December 31,
1995 1994
--------- ------------
(in millions)
Finished goods $ 70.9 $ 69.7
Work in process 11.3 8.4
Raw materials 19.4 18.7
------ ------
Total $101.6 $ 96.8
====== ======
3. Income taxes are determined using an estimated annual effective tax rate,
which is less than the U.S. Federal statutory rate, primarily because of lower
tax rates in Puerto Rico and in certain non U.S. jurisdictions. Withholding
and U.S. taxes have not been provided for unremitted earnings of certain non
U.S. subsidiaries because the Company expects that such earnings have been or
will be reinvested in operations, or will be offset by appropriate credits for
foreign income taxes paid.
4. The Company is involved in various litigation and claims arising in the
normal course of business. The Company's management believes that recovery or
liability with respect to these matters would not have a material adverse
effect on the consolidated financial position and results of operations of the
Company.
5. The Company and Ligand Pharmaceuticals Incorporated (Ligand) operate a
joint venture for the purpose of performing certain research and development
activities. In December 1994, Allergan and Ligand formed a new research and
development company, Allergan Ligand Retinoid Therapeutics, Inc. (ALRT) which
is intended to function as the successor to the current joint venture between
the Company and Ligand. Subject to certain conditions, Ligand will contribute
$17.5 million to ALRT for a right to acquire all of the stock of ALRT at
specified future dates and amounts. At the same time, the Company will
contribute $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets, or a similar right to acquire all of the
stock of ALRT if Ligand does not exercise its right. The Company will also
purchase $6.0 million of Ligand common stock at the time of its contribution to
ALRT. The Company will account for its $50.0 million contribution as a charge
to operating expense at the time of the contribution.
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Allergan, Inc.
Notes to Consolidated Financial Statements (Continued)
6. On April 25, 1995 the Board of Directors declared a quarterly cash
dividend of $0.12 per share, payable June 16, 1995 to stockholders of record on
May 26, 1995.
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ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1995
RESULTS OF OPERATIONS
The following table compares 1995 and 1994 net sales by Product Line for the
first quarter periods:
Three Months
Ended March 31,
-----------------
Net Sales by Product Line ($ millions): 1995 1994
------ ------
Eye Care
Pharmaceuticals $ 85.6 $ 89.7
Surgical 40.1 27.3
Optical Lens Care 85.0 77.6
------ ------
210.7 194.6
Skin Care 7.5 7.7
Botox(R) 10.1 7.8
------ ------
Total Net Sales $228.3 $210.1
====== ======
For the quarter ended March 31, 1995 total net sales increased by $18.2 million
or 9% to $228.3 million as compared to the first quarter of 1994. The impact
of foreign currency fluctuations for the three month period ended March 31,
1995 increased net sales by $8.1 million over the prior comparable period.
Sales growth excluding the impact of foreign exchange between the comparable
quarters was 5%. These slower growth rates are, in part, a result of the
highly competitive and, in certain cases, also highly regulated markets
worldwide in which the company competes. The ability to increase prices has
been limited by, among other reasons, governmental actions, customer demands,
the introduction of competitors' innovative products and the introduction of
lower cost generic products. The impact to the Company for those affected
product lines is the partial loss of the ability to utilize price increases to
offset the effect of inflation on costs and expenses.
For the three months ended March 31, 1995, Eye Care Pharmaceuticals sales
decreased 5% from the comparable 1994 period. The decrease in net sales is
primarily the result of a decrease in wholesaler demand in the United States as
a result of a late fourth quarter 1994 price increase. Growth in sales has
been negatively impacted by governmental pressure to restrict price increases
in the United States, and governmental actions to control or reduce prices in
many international markets. The largest sales volume products in this product
line are glaucoma therapy products, including Betagan(R) and Propine(R)
ophthalmic solutions. In 1994, the Company and major competitors introduced
generic versions of levobunolol (Betagan(R)) and depivefrin (Propine(R)). The
impact of this form of competition has reduced sales.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1995 (Continued)
RESULTS OF OPERATIONS (Continued)
Surgical sales increased 47% in the first quarter of 1995 compared to the first
quarter of 1994. For the quarter, domestic sales increased 36% while
international sales increased 60%. Increases in both silicone and PMMA
intraocular lens (IOL) sales, along with increased sales of phacoemulsification
surgical instruments, contributed to the growth. In September 1994 the Company
acquired the assets of Ioptex Research Inc., a manufacturer of PMMA IOLs. In
January 1995, the Company acquired Optical Micro Systems, Inc. (OMS), a
manufacturer of phacoemulsification surgical instruments. Sales of $5.5
million of Ioptex and OMS products are included in 1995 surgical net sales.
IOL selling prices continue to decline in the United States and many
international markets as a result of competitive pressures and governmental
actions reducing reimbursement rates for cataract surgery.
Optical Lens Care net sales of $85.0 million for the three months ended March
31, 1995 increased by 10% compared to the first quarter of 1994. Domestic
sales increased by 7% while international sales increased by 10%. The sales
increases in both markets were primarily the result of growth in sales of the
Complete(R) brand one bottle disinfecting system. Complete(R) brand was
introduced in international markets beginning in 1993, and in the United States
market in June 1994.
Skin Care Pharmaceuticals first quarter 1995 sales were 3% lower than the
comparable quarter in 1994. The decrease in net sales is primarily the result
of a decrease in wholesaler demand in the United States as a result of a late
fourth quarter 1994 price increase.
Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex sales increased
by 29% compared to 1994 to $10.1 million. The increase was the result of
strong growth in both the United States and international markets.
Allergan's gross margin percentage for the first quarter of 1995 was 68.9% of
net sales, which represents a 0.9 percentage point decrease from the 69.8% rate
for the first quarter of 1994. This decrease is a result of the decreases in
sales of higher margin eye care and skin care pharmaceutical products,
accompanied by a strong increase in sales of lower margin surgical products.
Gross margin increased over the first quarter of 1994 by $10.6 million or 7% as
a result of the 9% increase in net sales offset by the 0.9 percentage point
decrease in gross margin percentage.
Operating income was $28.1 million for the first quarter, a decrease of $5.3
million or 16% from the prior comparable period. The decrease was the result
of a $17.2 million increase in selling, general and administrative expenses
offsetting the $10.6 million increase in gross margin. The increase in
selling, general and administrative expense was the result of increased
promotional expenses related to Complete(R) brand and the surgical business, a
one-time charge of $4.0 million as a result of a product recall, and the impact
of foreign currency changes. In addition, research and development expense
decreased by $1.3 million in 1995 compared to the first quarter of 1994.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1995 (Continued)
RESULTS OF OPERATIONS (Continued)
Net earnings decreased by $0.5 million in the first quarter of 1995 to $21.7
million compared to $22.2 million for the first quarter of 1994. The decrease
in operating income of $5.3 million was offset by an increase in non-operating
income of $4.1 million compared to 1994. The increase in non-operating income
included realization of interest on a note, an increase in royalty income, and
a decrease in currency losses in Brazil.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company had no borrowings against its bank credit
facility. This facility allows for borrowings of up to $225 million on a
revolving basis through September 1999. Borrowings under the credit facility
are subject to certain financial and operating covenants, including a
requirement that the Company maintain certain financial ratios and other
customary covenants for credit facilities of similar kind. As of March 31,
1995, the Company had commercial paper borrowings of $82.5 million including
$52.5 million classified as long- term debt.
The net cash used by operating activities for the three months ended March 31,
1995 was $29.0 million compared with cash used by operating activities of $2.9
million for the respective 1994 period. Operating cash flow in 1995 was
decreased as a result of a significant reduction in income taxes payable. Most
of the Company's existing cash and equivalents are held by its non-U.S.
subsidiaries and will be reinvested in operations outside the United States.
The Company invested $10.0 million in new facilities and equipment during the
three months ended March 31, 1995 compared to $7.1 million during the same
period in 1994.
Cash provided by financing activities was $42.6 million in the three months
ended March 31, 1995 compared to $4.1 million cash provided by financing
activities in 1994. The amounts are net of dividend outflows of $7.0 million
in 1995 and $6.4 million in 1994. The 1994 amount is also net of a $16.2
million outflow for purchases of treasury stock.
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Allergan, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The registrant and its subsidiaries are involved in various litigation and
claims arising in the normal course of business which Allergan considers to be
normal in view of the size and nature of its business. Although the ultimate
outcome of pending litigation cannot be precisely ascertained at this time,
Allergan believes that any liability resulting from the aggregate amount of
uninsured damages for outstanding lawsuits and claims will not have a material
adverse effect on its consolidated financial position. However, in view of the
unpredictable nature of litigation, no assurances can be given in this regard.
The registrant, in cooperation with regulatory authorities in Puerto Rico,
is evaluating and implementing operational improvements to the wastewater
treatment system at the registrant's Hormigueros facility. These improvements,
which will reduce the ecological impact of the registrant's operations, will
not have a material adverse impact on the registrant's business.
In October 1993, the registrant disclosed to the U.S. Department of Commerce
Office of Export Enforcement (the "Commerce Department") that it had been
shipping its medicine, Botox(R) purified neurotoxin complex, under general
license authority to various foreign countries in the period since July 15,
1992, when the active ingredient in Botox(R), an attenuated form of botulinum
toxin, was reclassified to require validated export licensing. It is the
registrant's position that the reclassification did not and could not apply to
medicines, such as Botox(R), that are exempt from validated export licensing by
statute and that have no potential application as biological warfare agents or
other undesired uses. After conducting a field investigation, in which the
registrant cooperated, the Commerce Department advised the registrant in the
first quarter of 1995 that it did not agree with the registrant's position
regarding the export classification of Botox(R) and that it had referred the
case to the office of the U.S. Attorney in order to determine whether criminal
charges might be warranted. The registrant does not believe that the filing of
criminal charges would be warranted.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the registrant was held on April
25, 1995 at which four directors, constituting all of the Class III directors,
were re-elected to serve on the Board of Directors for a three year term until
the annual meeting of stockholders to be held in 1998. The names of the
persons elected as directors are as follows:
Handel E. Evans
Gavin S. Herbert
Leslie G. McCraw
Henry Wendt
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Allergan, Inc.
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
The terms of the following directors continued after the meeting:
Class I (term expires in 1996)
------------------------------
Howard E. Greene, Jr.
Richard M. Haugen
Lester J. Kaplan
Leonard D. Schaeffer
Class II (term expires in 1997)
-------------------------------
Herbert W. Boyer
Tamara J. Erickson
William R. Grant
Louis T. Rosso
William C. Shepherd
A summary of the voting follows:
Directors For Withheld
- --------- --- --------
Handel E. Evans 53,794,130 299,969
Gavin S. Herbert 53,776,515 317,584
Leslie G. McCraw 53,791,284 302,815
Henry Wendt 53,690,751 403,348
No other matters were voted on.
Item 6. Exhibits and Reports on Form 8-K
- Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
(10.1) Restated Allergan, Inc. Employee Stock Ownership Plan
(10.2) Restated Allergan, Inc. Savings and Investment Plan
(10.3) Restated Allergan, Inc. Pension Plan
(10.4) First Amendment to the Restated Allergan, Inc.
Pension Plan
(10.5) Allergan, Inc. Management Bonus Plan
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
- Reports on Form 8-K. None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 11, 1995 ALLERGAN, INC.
/s/ Dwight J. Yoder
-----------------------------------
Dwight J. Yoder
Vice President, Controller and
Principal Accounting Officer
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