1
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 June 30, 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
JUNE 30, 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 July 31, 1995 there were 64,278,789 shares of common stock outstanding.
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ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) Consolidated Statements of Earnings - 3
Three Months and Six Months Ended
June 30, 1995 and 1994
(B) Consolidated Balance Sheets - 4
June 30, 1995 and December 31, 1994
(C) Consolidated Statements of Cash Flows - 5
Six Months Ended June 30, 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 8-11
PART II - OTHER INFORMATION
ITEM 5 12
ITEM 6 12
Signature 13
Exhibits
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3
PART I - FINANCIAL INFORMATION
Allergan, Inc.
Consolidated Statements of Earnings
(In millions, except per share amounts)
Three months Six months
ended June 30, ended June 30,
--------------- ---------------
1995 1994 1995 1994
------ ------ ------ ------
Net Sales $262.2 $224.7 $490.5 $434.8
Operating costs and expenses:
Cost of sales 81.7 67.4 152.8 130.9
Selling, general and
administrative 116.4 96.1 219.9 182.4
Research and development 26.4 26.9 52.0 53.8
Contribution to ALRT 50.0 -- 50.0 --
------ ------ ------ ------
274.5 190.4 474.7 367.1
------ ------ ------ ------
Operating income (loss) (12.3) 34.3 15.8 67.7
Nonoperating income (expense):
Interest income 1.9 2.0 5.0 3.7
Interest expense (3.2) (2.7) (5.5) (5.0)
Other, net 2.4 0.6 4.8 0.3
------ ------ ------ ------
1.1 (0.1) 4.3 (1.0)
------ ------ ------ ------
Earnings (loss) from operations
before income taxes and
minority interest (11.2) 34.2 20.1 66.7
Provision for income taxes 11.4 10.2 20.6 19.8
Minority interest 0.4 0.5 0.8 1.2
------ ------ ------ ------
Net Earnings (Loss) $(23.0) $ 23.5 $(1.3) $ 45.7
====== ====== ====== ======
Net Earnings (Loss) Per Common Share $(0.36) $ 0.37 $(0.02) $ 0.72
====== ====== ====== =======
Weighted Average Common
Shares Outstanding 64.1 63.5 64.0 63.8
See accompanying notes to consolidated financial statements.
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4
Allergan, Inc.
Consolidated Balance Sheets
(In millions, except share data)
June 30, December 31,
1995 1994
------------- ------------
ASSETS
Current assets:
Cash and equivalents $ 98.6 $ 130.7
Trade receivables, net 198.1 179.7
Inventories 106.0 96.8
Other current assets 88.4 78.3
-------- --------
Total current assets 491.1 485.5
Investments and other assets 168.8 133.4
Property, plant and equipment, net 326.6 314.8
Goodwill and intangibles, net 176.1 126.1
-------- --------
Total assets $1,162.6 $1,059.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 45.6 $ 48.6
Accounts payable 53.5 59.9
Accrued expenses 139.2 148.7
Income taxes 27.4 66.5
-------- --------
Total current liabilities 265.7 323.7
Long-term debt 240.0 83.7
Other liabilities 40.9 38.5
Commitments and contingencies
Minority interest 17.1 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 67,336,000
and 67,387,000 shares 0.7 0.7
Additional paid-in capital 196.5 196.7
Foreign currency translation
adjustment 4.4 4.2
Investment market value adjustment (1.4) --
Retained earnings 469.2 485.3
-------- --------
669.4 686.9
Less - treasury stock, at cost
(3,147,000 and 3,724,000 shares) (70.5) (83.6)
-------- --------
Total stockholders' equity 598.9 603.3
-------- --------
Total liabilities and
stockholders' equity $1,162.6 $1,059.8
======== ========
See accompanying notes to consolidated financial statements.
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Allergan, Inc.
Consolidated Statements of Cash Flows
(In millions)
Six months
ended June 30,
--------------
1995 1994
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1.3) $45.7
Non-cash items included in net earnings:
Depreciation and amortization 29.0 22.5
Amortization of prepaid royalties 4.6 2.1
Deferred income taxes 0.1 (0.3)
Loss on sale of assets 1.1 1.5
Expense of compensation plans 1.9 2.7
Minority interest 0.8 1.2
Changes in assets and liabilities:
Trade receivables (11.1) (3.4)
Inventories (5.5) (3.0)
Accounts payable (7.5) (16.1)
Accrued liabilities (15.6) (11.2)
Income taxes (38.9) 1.4
Other (15.8) (5.4)
------ ------
Net cash provided by/(used in)
operating activities (58.2) 37.7
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (25.6) (19.4)
Disposals of property, plant and equipment 0.3 0.4
Prepayments of royalties (14.6) (5.5)
Acquisitions of businesses (63.6) --
Other, net (17.5) (9.3)
------ ------
Net cash used in investing activities (121.0) (33.8)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (14.6) (12.7)
Net borrowings under commercial paper obligations 87.8 22.5
Increase/(decrease) in notes payable (0.9) 0.9
Sale of stock to employees 8.8 2.6
Proceeds from long term debt 66.1 --
Repayments of long term debt (6.5) (0.9)
Payments to acquire treasury stock -- (21.6)
------ ------
Net cash provided by/(used in)
financing activities 140.7 (9.2)
------ ------
Effect of exchange rates on cash and
equivalents 6.4 3.4
------ ------
Net decrease in cash and equivalents (32.1) (1.9)
Cash and equivalents at beginning of period 130.7 141.8
------ ------
Cash and equivalents at end of period $ 98.6 $139.9
====== ======
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 six months ended June 30, 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:
June 30, December 31,
1995 1994
-------- ------------
(in millions)
Finished goods $ 72.0 $ 69.7
Work in process 13.6 8.4
Raw materials 20.4 18.7
------ ------
Total $106.0 $ 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)
operated 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) to function as the successor to the joint venture between the Company
and Ligand. During the quarter ended June 30, 1995, ALRT raised $32.5 million
in a public offering of units consisting of shares of ALRT stock and
Ligand warrants. At the completion of the offering in June 1995, Ligand
contributed $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
contributed $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets in the event Ligand exercises its right to
acquire all of the stock of ALRT, or a similar right to acquire all of the
stock of ALRT if Ligand does not exercise its right. The Company also
purchased $6.0 million of Ligand
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Allergan, Inc.
Notes to Consolidated Financial Statements (Continued)
common stock at the time of its contribution to ALRT. The Company accounted
for its $50.0 million contribution as a charge to operating expense at the time
of the contribution.
6. On July 25, 1995 the Board of Directors declared a quarterly cash
dividend of $0.12 per share, payable September 15, 1995 to stockholders of
record on August 25, 1995.
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ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1995
RESULTS OF OPERATIONS
The following table compares 1995 and 1994 net sales by Product Line for the
second quarter and year-to-date periods:
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ------------------
(in millions)
Net Sales by Product Line: 1995 1994 1995 1994
------ ------ ------ ------
Eye Care
Pharmaceuticals $ 99.3 $ 92.2 $184.9 $181.9
Surgical 48.4 33.9 88.5 61.2
Optical Lens Care 93.6 81.8 178.6 159.4
------ ------ ------ ------
241.3 207.9 452.0 402.5
Skin Care 8.8 8.1 16.3 15.8
Botox(R) 12.1 8.7 22.2 16.5
------ ------ ------ ------
Total Net Sales $262.2 $224.7 $490.5 $434.8
====== ====== ====== ======
For the quarter ended June 30, 1995 total net sales increased 17% to $262.2
million as compared to the second quarter of 1994. Net sales for the six
months ended June 30, 1995 were $490.5 million, or 13% greater than the
comparable 1994 amount. The impact of foreign currency fluctuations for the
three month period ended June 30, 1995 increased sales by $13.6 million over
the prior comparable period. For the six months ended June 30, 1995, the
impact of foreign currency fluctuations increased sales by $21.7 million over
the prior comparable period. Sales growth excluding the impact of foreign
exchange between comparable periods was 11% for the second quarter and 8% for
the six months ended June 30, 1995. These sales growth rates are affected, in
part, by 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. An 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 June 30, 1995, Eye Care Pharmaceuticals sales
increased 8% over the comparable 1994 period. For the six months ended June
30, 1995, such sales increased by 2% over the comparable 1994 period. Growth
in sales has been negatively impacted primarily as a result of a decrease in
wholesaler demand in the United States as a result of a late fourth quarter
1994 price increase. Sales growth has also been negatively impacted by
governmental pressure to restrict price increases in the United States,
governmental actions to control or reduce prices in many international markets,
customer demands and the introduction of lower cost generic products. 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 Betagan(R)
(levobunolol) and Propine(R) (dipivefrin). 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 JUNE 30, 1995 (Continued)
RESULTS OF OPERATIONS (Continued)
Surgical sales increased 43% in the second quarter of 1995 compared to the
second quarter of 1994. For the first six months of 1995, surgical sales were
45% greater than the comparable period in 1994. For the second quarter,
domestic sales increased 29% while international sales increased 59% over the
prior comparable quarter. For the six month period ended June 30, 1995,
domestic sales increased 32% and international sales increased 60% compared to
the first six months of 1994. Increases in both silicone and PMMA intraocular
lens (IOLs) 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 $6.7 million in the second
quarter and $12.1 million for the first six months of 1995 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 sales of $93.6 million for the three months ended June 30,
1995 were 14% higher than the second quarter of 1994. Sales for the six months
ended June 30, 1995 of $178.6 million increased by 12% compared to 1994 sales.
Domestic optical sales increased by 9% in the second quarter and by 8% in the
first six months of 1995 compared to comparable 1994 amounts. Optical sales in
international markets increased by 16% in the second quarter and 14% in the
first six months of 1995 compared to comparable 1994 results. 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 second quarter 1995 sales were 9% higher than the
comparable quarter in 1994. Sales for the six months ended June 30, 1995 were
3% higher than the comparable period in 1994. Sales growth in both periods was
primarily the result of growth in sales of Elimite(R) cream. During the first
six months of 1995, growth in net sales was negatively impacted by 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 39% in the second quarter and 35% in the first six months of 1995 compared
to 1994 results. The increase was the result of strong growth in both the
United States and international markets.
Allergan's gross margin percentage for the second quarter of 1995 was 68.8% of
net sales, which represents a 1.2 percentage point decrease from the second
quarter of 1994. The gross margin percentage for the six months ended June 30,
1995 was 68.8% representing a 1.1 percentage point decrease from the comparable
1994 percentage. These decreases are a result of, among other things, the net
unfavorable impact of pressures on certain unit average selling prices and
product mix shifts. Gross margin increased in the second quarter of 1995 and
for the first six months of 1995 over 1994 periods as a result of increases in
net sales offset by the decreases in gross margin percentage.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1995 (Continued)
RESULTS OF OPERATIONS (Continued)
Operating income was a loss of $12.3 million for the second quarter and income
of $15.8 million for the six months ended June 30, 1995. Results for the
second quarter include a charge of $50.0 million for a contribution to a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
(ALRT). Excluding the impact of the charge, operating income was $37.7 million
for the second quarter and $65.8 million for the six months ended June 30,
1995. The second quarter amount of $37.7 million represents a 10% increase
while the six month result of $65.8 million reflects a 3% decrease in operating
income compared to 1994 results. The increase in the second quarter was the
result of increased gross margin from increased sales, favorable impact of
foreign currency changes, and a decrease in research and development, offset by
an increase in selling, general and administrative expense. Research and
development costs were reduced by $1.8 million in the second quarter as costs
of retinoid research incurred in the first quarter were recovered from ALRT.
For the six month period, the decrease in operating income was the result of an
increase in selling, general and administrative expense offsetting an increase
in gross margin. Selling, general and administrative expense includes a
one-time charge of $4.0 million as a result of a product recall. The increases
in selling, general and administrative expense in 1995 were also the result of
promotional expenses related to Complete(R) brand and the surgical business,
and the impact of foreign currency changes.
The Company incurred a net loss of $23.0 million for the second quarter and a
$1.3 million loss for the six months ended June 30, 1995. Such amounts include
the $50.0 million charge for the contribution to ALRT. Excluding such charge,
net earnings for the second quarter were $27.0 million compared to $23.5
million in 1994, and for the six months ended June 30, 1995, net earnings were
$48.7 million compared to $45.7 million in 1994. Net earnings, excluding the
$50.0 million charge, increased in the second quarter as a result of the
increase in operating income and currency exchange gains included in
non-operating income. For the six months ended June 30, 1995, net earnings,
excluding the $50.0 million charge, increased as a result of an increase in
non-operating income offsetting the decrease in operating income.
Non-operating income increased as a result of currency exchange gains, an
increase in royalty income and realization of interest on a note.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 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 June 30,
1995, the Company had commercial paper borrowings of $131 million including
$101 million classified as long-term debt.
The net cash used in operating activities for the six months ended June 30,
1995 was $58.2 million compared with $37.7 million provided by operating
activities for the respective 1994 period. Operating cash flow in 1995 was
reduced primarily by the $50 million charge for the contribution to ALRT.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1995 (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
In addition, 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 $25.6 million in new facilities and equipment during the
six months ended June 30, 1995 compared to $19.4 million during the same period
in 1994. In 1995, the Company invested $63.6 million in the acquisition of
businesses including OMS and a pharmaceutical business in Brazil.
Cash provided by financing activities was $140.7 million in the six months
ended June 30, 1995 compared to $9.2 million cash used in financing activities
in 1994. The amounts include dividend outflows of $14.6 million in 1995 and
$12.7 million in 1994. The 1995 amount includes proceeds from commercial paper
and long-term debt to provide cash to fund acquisitions of businesses, the
contribution to ALRT, and prepayments of royalties. The 1994 amount also
includes $21.6 million outflow for purchases of treasury stock.
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Allergan, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
- Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
3 Bylaws of the Company
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: August 10, 1995 ALLERGAN, INC.
/s/ A. J. Moyer
----------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
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