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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, 1996............................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 1996 1-10269
ALLERGAN, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
95-1622442
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92715
TELEPHONE NUMBER 714/246-4500
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 30, 1996 there were 64,874,633 shares of common stock outstanding.
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ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) Consolidated Statements of Earnings - 3
Three Months Ended March 31, 1996 and 1995
(B) Consolidated Balance Sheets - 4
March 31, 1996 and December 31, 1995
(C) Consolidated Statements of Cash Flows - 5
Three Months Ended March 31, 1996 and 1995
(D) Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION
ITEM 4 10-11
ITEM 6 11
Signature 12
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,
-----------------------
1996 1995
------ ------
Net Sales $258.1 $228.3
Operating costs and expenses:
Cost of sales 85.7 71.1
Selling, general and
administrative 114.3 103.5
Research and development 26.8 25.6
------ ------
226.8 200.2
------ ------
Operating income 31.3 28.1
Nonoperating income (expense):
Interest income 2.3 3.1
Interest expense (3.3) (2.3)
Other, net 2.2 2.4
------ ------
1.2 3.2
------ ------
Earnings from continuing operations
before income taxes and minority interest 32.5 31.3
Provision for income taxes 9.4 9.2
Minority interest -- 0.4
------ ------
Net Earnings $ 23.1 $ 21.7
====== ======
Net Earnings Per Common Share $ 0.35 $ 0.34
====== ======
Weighted Average Common Shares Outstanding 65.6 64.5
See accompanying notes to consolidated financial statements.
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Allergan, Inc.
Consolidated Balance Sheets
(In millions, except share data)
March 31, December 31,
1996 1995
--------- ------------
ASSETS
Current assets:
Cash and equivalents $ 108.2 $ 102.3
Trade receivables, net 214.0 205.7
Inventories 129.8 120.8
Other current assets 101.6 93.5
-------- --------
Total current assets 553.6 522.3
Investments and other assets 165.0 160.8
Property, plant and equipment, net 353.8 357.5
Goodwill and intangibles, net 264.6 275.7
-------- --------
Total assets $1,337.0 $1,316.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 62.5 $ 58.5
Accounts payable 55.2 58.7
Accrued expenses 158.7 173.1
Income taxes 48.0 41.3
-------- --------
Total current liabilities 324.4 331.6
Long-term debt 271.8 266.7
Other liabilities 48.4 49.1
Commitments and contingencies
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 67,309,000
and 67,319,000 shares 0.7 0.7
Additional paid-in capital 201.8 199.7
Foreign currency translation adjustment 3.8 4.7
Other 0.1 (1.4)
Retained earnings 542.8 527.4
-------- --------
749.2 731.1
Less - treasury stock, at cost
(2,550,000 and 2,786,000 shares) (56.8) (62.2)
-------- --------
Total stockholders' equity 692.4 668.9
-------- --------
Total liabilities and stockholders' equity $1,337.0 $1,316.3
======== ========
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,
------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 23.1 $ 21.7
Non-cash items included in net earnings:
Depreciation and amortization 18.1 13.3
Amortization of prepaid royalties 1.6 2.1
Deferred income taxes (1.2) (0.4)
Loss on sale of assets -- 0.7
Expense of compensation plans 0.4 0.5
Minority interest -- 0.4
Changes in assets and liabilities:
Trade receivables (9.6) 4.9
Inventories (9.4) (3.2)
Accounts payable (2.8) (15.3)
Accrued liabilities (13.1) (18.0)
Income taxes 8.2 (26.0)
Other (6.1) (9.7)
------ ------
Net cash provided by/(used in)
operating activities 9.2 (29.0)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (12.1) (10.0)
Disposals of property, plant and equipment 4.8 0.6
Prepayment of royalties -- (14.6)
Acquisitions of businesses, net of cash acquired -- (18.3)
Other, net (4.3) (5.5)
------ ------
Net cash used in investing activities (11.6) (47.8)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (7.6) (7.0)
Net borrowings under
commercial paper obligations 1.9 39.7
Increase in notes payable 1.9 0.6
Sale of stock to employees 4.6 6.0
Increase in long term debt 11.4 3.8
Decrease in long term debt (4.0) (0.5)
Acquisition of capital leases (0.3) --
------ ------
Net cash provided by financing activities 7.9 42.6
------ ------
Effect of exchange rates on cash and
equivalents 0.4 1.3
------ ------
Net increase/(decrease) in cash and equivalents 5.9 (32.9)
Cash and equivalents at beginning of period 102.3 130.7
------ ------
Cash and equivalents at end of period $108.2 $ 97.8
====== ======
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,
1995. The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996. 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,
1996 1995
--------- ------------
(in millions)
Finished goods $ 86.2 $ 83.0
Work in process 16.5 11.3
Raw materials 27.1 26.5
------ ------
Total $129.8 $120.8
====== ======
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. On April 23, 1996 the Board of Directors declared a quarterly cash
dividend of $0.12 per share, payable June 14, 1996 to stockholders of record on
May 24, 1996.
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ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
- ---------------------
The following table compares 1996 and 1995 net sales by Product Line for the
first quarter periods:
Three Months
Ended March 31,
---------------
Net Sales by Product Line ($ millions): 1996 1995
------ ------
Eye Care
Pharmaceuticals $ 98.0 $ 85.6
Surgical 40.5 40.1
Optical Lens Care 91.5 85.0
------ ------
230.0 210.7
Skin Care 13.8 7.5
Botox(R) 14.3 10.1
------ ------
Total Net Sales $258.1 $228.3
====== ======
For the quarter ended March 31, 1996 total net sales increased by $29.8 million
or 13% to $258.1 million as compared to the first quarter of 1995. The impact
of foreign currency fluctuations for the three month period ended March 31,
1996 increased net sales by $2.2 million over the prior comparable period.
Sales growth excluding the impact of foreign exchange between the comparable
quarters was 12%. During 1995, Allergan acquired five businesses. Results in
the first quarter of 1996 include sales of Laboratorios Frumtost S.A.
(Frumtost), Herald Pharmacal, and the Pilkington Barnes Hind contact lens care
product line with no comparable 1995 amounts. Sales from such acquired
businesses account for 80% of the increase in sales in 1996.
For the three months ended March 31, 1996, Eye Care Pharmaceuticals sales
increased 14% from the comparable 1995 period. Sales in the United States
decreased $1.6 million in 1996 primarily as a result of decreases in net
realized prices of eye care products. Price decreases are primarily the result
of increased price discounting to managed care organizations which represent an
increasing portion of sales. Sales in international markets increased by $14.0
million in 1996 primarily as a result of $9.6 million in sales of Frumtost
products.
Surgical sales increased 1% in the first quarter of 1996 compared to the first
quarter of 1995. For the quarter, domestic sales decreased 17% while
international sales increased 19%. Declines in cataract surgeries due to
inclement weather in the United States, together with the initiation of a
limited, voluntary recall of certain AMO(R) PhacoFlex II(R) Model SI-30
intraocular lenses ("IOLs") impacted the first quarter 1996 operating results.
Physicians were advised that the recalled IOLs pose no safety or efficacy
issues. No adverse effects have been reported. The Company now anticipates,
after evaluating the continuing impact of the recall of SI-30 IOLs and the
adverse weather conditions, as well as other factors influencing the surgical
business, that the overall surgical sales volume for the year 1996 may be
essentially flat compared to 1995 surgical sales results. Actual results for
the surgical business for the year 1996 will
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
depend upon the continuing impact of the recall of the SI-30 IOLs on the
Company's operations, as well as other factors affecting the surgical business
such as competitive conditions, including reactions to the recall, downward
pricing pressures on IOLs, the approval and performance of new products,
contributions from acquired businesses, and the results of geographic expansion
efforts. Sales in international markets increased primarily as a result of
increased market penetration in the sales of silicone IOLs, and
phacoemulsification equipment manufactured by Optical Micro Systems (OMS). OMS
was acquired in January 1995.
Optical Lens Care net sales of $91.5 million for the three months ended March
31, 1996 increased by 8% compared to the first quarter of 1995. Domestic sales
increased by 11% while international sales increased by 7%. Sales of Barnes
Hind products contributed $10.1 million to worldwide sales and accounted for
the increases in both domestic and international sales. The decrease in base
international sales, excluding Barnes Hind products, was primarily the result
of decreases in Europe due to new private label competition and the continuing
market shift from traditional peroxide systems to more convenient and lower
priced one-bottle disinfection systems.
Skin Care Pharmaceutical sales increased $6.3 million or 84% in the first
quarter of 1996. Sales of Herald Pharmacal products contributed $4.1 million
to this increase.
Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex sales increased
by 42% compared to 1995 to $14.3 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 1996 was 66.8% of
net sales, which represents a 2.1 percentage point decrease from the 68.9% rate
for the first quarter of 1995. The gross margin percentage declined in the
first quarter of 1996 compared to 1995 primarily as a result of declines in
margins in the contact lens care product line. Such declines were due, in
part, to lower margins in the recently acquired Barnes Hind product line.
Declines in realized sales prices of eye care pharmaceutical products also
contributed to the decline in the gross margin percentage. Gross margin
increased over the first quarter of 1995 by $15.2 million or 10% as a result of
the 13% increase in net sales offset by the 2.1 percentage point decrease in
gross margin percentage.
Operating income was $31.3 million for the first quarter, an increase of $3.2
million or 11% from the prior comparable period. The increase was the result
of the $15.2 million increase in gross margin offset by a $10.8 million
increase in selling, general and administrative expense. The increase in
selling, general and administrative expense related primarily to acquisitions
in 1995. In addition, research and development expense increased by $1.2
million in 1996 compared to the first quarter of 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, 1996 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
Net earnings increased by $1.4 million in the first quarter of 1996 to $23.1
million compared to $21.7 million for the first quarter of 1995. The increase
in operating income of $3.2 million was offset by a decrease in non-operating
income of $2.0 million compared to 1995. The decrease in non-operating income
was primarily the result of an increase in interest expense resulting from
increased debt incurred in connection with the acquisition of businesses in
1995. In addition, interest income decreased as a result of decreases in
average interest rates earned on invested funds.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of March 31, 1996, the Company had four long-term credit facilities and a
medium term note program. The credit facilities allow for borrowings of up to
$19.0 million through November 1996, and $253.5 million through 1999, and $47.5
million through 2003. The note program allows the Company to issue up to $200
million in notes. Subsequent to March 31, the Company increased one of the
four long-term credit facilities from $225 million to $250 million, and
extended the expiration date from 1999 to 2001. Borrowings under the credit
facilities 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,
1996, the Company had $82.9 million in borrowings under three of the credit
facilities and $85.0 million under the note program. As of March 31, 1996, the
Company has classified $78.4 million of its commercial paper borrowings and
$81.2 million borrowed under the credit facilities as a long-term debt based
upon the Company's ability to maintain such debt under terms of the credit
facilities described above. As of March 31, 1996, the Company had commercial
paper borrowings of $108.4 million.
The net cash provided by operating activities for the three months ended March
31, 1996 was $9.2 million compared with cash used by operating activities of
$29.0 million for the respective 1995 period. Operating cash flow in 1995 was
decreased as a result of significant reductions in accounts payable and 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 $12.1 million in new facilities and equipment during the
three months ended March 31, 1996 compared to $10.0 million during the same
period in 1995. Investing activities in 1995 also included $14.6 million used
to prepay royalties and $18.3 million used for acquisitions of businesses.
Cash provided by financing activities was $7.9 million in the three months
ended March 31, 1996 compared to $42.6 million cash provided by financing
activities in 1995. The amounts are net of dividend outflows of $7.6 million
in 1996 and $7.0 million in 1995.
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Allergan, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the registrant was held on April
23, 1996 at which four directors, constituting all of the Class I 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 1999. The names of the
persons elected as directors are as follows:
Howard E. Greene, Jr.
Richard M. Haugen
Lester J. Kaplan
Leonard D. Schaeffer
The terms of the following directors continued after the meeting:
Class II (term expires in 1997)
-------------------------------
Herbert W. Boyer
Tamara J. Erickson
William R. Grant
Louis T. Rosso
William C. Shepherd
Class III (term expires in 1998)
--------------------------------
Handel E. Evans
Gavin S. Herbert
Leslie G. McCraw
Henry Wendt
Two other matters were voted on and approved, namely, amendment and
restatement of the Allergan, Inc. 1989 Incentive Compensation Plan and
amendment of the Allergan, Inc. 1989 Nonemployee Director Stock Plan.
A summary of the voting follows:
Broker
Directors For Withheld Non-votes
- --------- ---------- -------- ---------
Howard E. Greene, Jr. 54,215,322 675,931
Richard M. Haugen 54,192,445 698,808
Lester J. Kaplan 54,178,706 712,547
Leonard D. Schaeffer 53,977,799 913,454
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Allergan, Inc.
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
Broker
Other Matters For Against Abstain Non-votes
- ------------- ---------- ---------- -------- ---------
Amendment and Restatement 53,401,975 1,268,461 220,817 0
of the 1989 Incentive
Compensation Plan
Amendment to the 1989 44,066,752 10,079,743 744,758 0
Nonemployee Director
Stock Plan
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) Allergan, Inc. 1989 Nonemployee Director Stock Plan
(10.5) Restated Allergan, Inc. Supplemental Retirement
Income Plan
(10.6) Restated Allergan, Inc. Supplemental Executive Benefit
Plan
(10.7) $250,000,000 Credit Agreement dated as of December 22,
1993 and amended and restated as of May 10, 1996 among
Allergan, Inc., as Borrower and Guarantor, the Eligible
Subsidiaries Referred to Therein, the Banks Listed
Therein, Morgan Guaranty Trust Company of New York, as
Agent and Bank of America National Trust and Savings
Association, as Co-Agent
(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 13, 1996 ALLERGAN, INC.
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/s/ A. J. Moyer
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A. J. Moyer
Corporate Vice President and
Chief Financial Officer
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