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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(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, 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
JUNE 30, 1996 1-10269
ALLERGAN, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
95-1622442
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612
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
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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, 1996 there were 65,231,226 shares of common stock outstanding.
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ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) Consolidated Statements of Earnings - 3
Three Months and Six Months Ended
June 30, 1996 and 1995
(B) Consolidated Balance Sheets - 4
June 30, 1996 and December 31, 1995
(C) Consolidated Statements of Cash Flows - 5
Six Months Ended June 30, 1996 and 1995
(D) Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-10
PART II - OTHER INFORMATION
ITEM 5 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 Six months
ended June 30, ended June 30,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $289.6 $262.2 $547.7 $490.5
Operating costs and expenses:
Cost of sales 97.3 81.7 183.0 152.8
Selling, general and
administrative 123.2 116.4 237.5 219.9
Research and development 27.5 26.4 54.3 52.0
Restructuring charge 34.2 -- 34.2 --
Asset write-offs 6.7 -- 6.7 --
Contribution to ALRT -- 50.0 -- 50.0
------ ------ ------ ------
288.9 274.5 515.7 474.7
------ ------ ------ ------
Operating income (loss) 0.7 (12.3) 32.0 15.8
Nonoperating income (expense):
Interest income 2.6 1.9 4.9 5.0
Interest expense (3.5) (3.2) (6.8) (5.5)
Other, net 0.7 2.4 2.9 4.8
------ ------ ------ ------
(0.2) 1.1 1.0 4.3
------ ------ ------ ------
Earnings (loss) from operations
before income taxes and
minority interest 0.5 (11.2) 33.0 20.1
Provision for income taxes 0.2 11.4 9.6 20.6
Minority interest (0.4) 0.4 (0.4) 0.8
------ ------ ----- ------
Net Earnings (Loss) $ 0.7 $(23.0) $23.8 $ (1.3)
====== ====== ===== ======
Net Earnings (Loss) Per Common Share $ 0.01 $(0.36) $0.36 $(0.02)
====== ====== ===== ======
Weighted Average Common
Shares Outstanding 65.9 64.1 65.7 64.0
See accompanying notes to consolidated financial statements.
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Allergan, Inc.
Consolidated Balance Sheets
(In millions, except share data)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and equivalents $ 116.7 $ 102.3
Trade receivables, net 217.2 205.7
Inventories 131.0 120.8
Other current assets 102.2 93.5
-------- --------
Total current assets 567.1 522.3
Investments and other assets 167.1 160.8
Property, plant and equipment, net 345.0 357.5
Goodwill and intangibles, net 254.8 275.7
-------- --------
Total assets $1,334.0 $1,316.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 65.1 $ 58.5
Accounts payable 60.8 58.7
Accrued expenses 170.6 173.1
Income taxes 34.2 41.3
-------- --------
Total current liabilities 330.7 331.6
Long-term debt 252.8 266.7
Other liabilities 54.5 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 67,279,000
and 67,336,000 shares 0.7 0.7
Additional paid-in capital 201.0 199.7
Foreign currency translation
adjustment 1.4 4.7
Other 4.1 (1.4)
Retained earnings 536.8 527.4
-------- --------
744.0 731.1
Less - treasury stock, at cost
(2,162,000 and 3,147,000 shares) (48.0) (62.2)
-------- --------
Total stockholders' equity 696.0 668.9
-------- --------
Total liabilities and
stockholders' equity $1,334.0 $1,316.3
======== ========
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,
----------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 23.8 $ (1.3)
Non-cash items included in net earnings:
Depreciation and amortization 33.8 29.0
Amortization of prepaid royalties 4.6 4.6
Deferred income taxes (1.6) 0.1
Loss on sale of assets 4.0 1.1
Expense of compensation plans 2.9 1.9
Minority interest (0.4) 0.8
Restructuring charge 34.2 --
Asset write-offs 6.7 --
Changes in assets and liabilities:
Trade receivables (19.4) (11.1)
Inventories (14.1) (5.5)
Accounts payable 6.0 (7.5)
Accrued liabilities (19.1) (15.6)
Income taxes 0.6 (38.9)
Other (5.3) (15.8)
------ -------
Net cash provided by/(used in)
operating activities 56.7 (58.2)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (24.9) (25.6)
Disposals of property, plant and equipment 5.2 0.3
Prepayments of royalties -- (14.6)
Acquisitions of businesses -- (63.6)
Other, net (12.0) (17.5)
------ -------
Net cash used in investing activities (31.7) (121.0)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (15.3) (14.6)
Net borrowings under commercial paper obligations (14.9) 87.8
Increase/(decrease) in notes payable 4.4 (0.9)
Sale of stock to employees 10.6 8.8
Proceeds from long term debt 16.2 66.1
Repayments of long term debt (8.8) (6.5)
Acquisition of capital leases (0.2) --
------ -------
Net cash provided by/(used in)
financing activities (8.0) 140.7
------ -------
Effect of exchange rates on cash and
equivalents (2.6) 6.4
------ -------
Net increase/(decrease) in cash and equivalents 14.4 (32.1)
Cash and equivalents at beginning of period 102.3 130.7
------ -------
Cash and equivalents at end of period $116.7 $ 98.6
====== =======
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 six months ended June 30, 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:
June 30, December 31,
1996 1995
--------------- ----------------
(in millions)
Finished goods $ 88.0 $ 83.0
Work in process 17.0 11.3
Raw materials 26.0 26.5
------ ------
Total $131.0 $120.8
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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 July 23, 1996 the Board of Directors declared a quarterly
cash dividend of $0.12 per share, payable September 16, 1996 to stockholders of
record on August 26, 1996.
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ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
RESULTS OF OPERATIONS
- ---------------------
The following table compares 1996 and 1995 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: 1996 1995 1996 1995
---- ---- ---- ----
Eye Care
Pharmaceuticals $108.1 $ 99.3 $206.1 $184.9
Surgical 47.1 48.4 87.6 88.5
Optical Lens Care 103.6 93.6 195.1 178.6
------ ------ ------ ------
258.8 241.3 488.8 452.0
Skin Care 14.4 8.8 28.2 16.3
Botox(R) 16.4 12.1 30.7 22.2
------ ------ ------ ------
Total Net Sales $289.6 $262.2 $547.7 $490.5
====== ====== ====== ======
For the quarter ended June 30, 1996 total net sales increased 10% to $289.6
million as compared to the second quarter of 1995. Net sales for the six
months ended June 30, 1996 were $547.7 million, or 12% greater than the
comparable 1995 amount. Sales growth excluding the impact of foreign exchange
between comparable periods was 13% for the second quarter and the six months
ended June 30, 1996. Net sales in international markets were $176.3 million or
61% of total net sales for the second quarter, and $325.0 million or 59% of
total net sales for the six months ended June 30, 1996. In 1995, net sales in
international markets were $148.2 million or 57% of total net sales for the
second quarter, and $274.1 million or 56% of total net sales for the six months
ended June 30,1995.
During 1995, Allergan acquired five businesses. Results in the second 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
the entire increase in sales in the second quarter of 1996, and 91% of the
increase for the six months ended June 30, 1996.
For the three months ended June 30, 1996, Eye Care Pharmaceuticals sales
increased 9% over the comparable 1995 period. For the six months ended June
30, 1996, such sales increased by 11% over the comparable 1995 period. Sales
in the United States decreased $8.5 million in the quarter and $10.1 million in
the first six months of 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 $17.3
million in the quarter and $31.3 million in the first six months of 1996
primarily as a result of sales of Frumtost products totaling $11.7 million for
the second quarter and $21.3 million for the first six months of 1996.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
Surgical sales decreased 3% in the second quarter of 1996 compared to the
second quarter of 1995. For the first six months of 1996, surgical sales were
1% less than the comparable period in 1995. For the second quarter, domestic
sales decreased 16% while international sales increased 10% over the second
quarter of 1995. For the six month period ended June 30, 1996, domestic sales
decreased 16% and international sales increased 14% compared to the first six
months of 1995. Declines in cataract surgeries due to inclement weather in the
first quarter 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 1996 operating results. 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 sales of $103.6 million for the three months ended June 30,
1996 were 11% higher than the second quarter of 1995. Sales for the six months
ended June 30, 1996 of $195.1 million increased by 9% compared to 1995 sales.
Domestic optical sales increased by 15% in the second quarter and by 13% in the
first six months of 1996 compared to comparable 1995 amounts. Optical sales in
international markets increased by 9% in the second quarter and 8% in the first
six months of 1996 compared to comparable 1995 results. Worldwide sales of
Barnes Hind products contributed $11.3 million in the quarter and $21.4 million
in the first six months of 1996, and accounted for the increases in both
domestic and international sales. Decreases in base business sales, excluding
Barnes Hind products, were 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 Pharmaceuticals second quarter 1996 sales were 64% higher than the
comparable quarter in 1995. Sales for the six months ended June 30, 1996 were
73% higher than the comparable period in 1995. Sales of Herald Pharmacal
products contributed the majority of the 1996 increases.
Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex sales increased
by 36% in the second quarter and 38% in the first six months of 1996 compared
to 1995 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 1996 was 66.4% of
net sales, which represents a 2.4 percentage point decrease from the second
quarter of 1995. The gross margin percentage for the six months ended June 30,
1996 was 66.6% representing a 2.2 percentage point decrease from the comparable
1995 percentage. The gross margin percentage declined in 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 eye care pharmaceutical
margins, due in part to lower margins in Frumtost products, also contributed to
the decline in gross margin percentage. Gross margin increased in the second
quarter of 1996 and for
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
the first six months of 1996 over comparable 1995 periods as a result of
increases in net sales offset by the decreases in gross margin percentage.
Operating income was $0.7 million for the second quarter and $32.0 million for
the six months ended June 30, 1996. Second quarter results in 1996 include
special charges for restructuring costs of $34.2 million and asset write-offs
of $6.7 million. Results for the second quarter of 1995 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 special charges in 1996 and the contribution to ALRT in 1995, operating
income was $41.6 million for the second quarter and $72.9 million for the six
months ended June 30, 1996, compared to $37.7 million for the second quarter
and $65.8 million for the first six months of 1995. The second quarter 1996
amount represents a 10% increase while the six month result reflects an 11%
increase in operating income compared to 1995 results. Operating income for
the second quarter and six months ended June 30, 1996, excluding the special
charges in 1996 and 1995, increased as a result of increased gross margin from
increased sales. Offsetting these increases were increased SG&A expenses
relating primarily to promotional activities and goodwill amortization related
to acquired businesses.
Net earnings were $0.7 million in the second quarter and $23.8 million for the
first six months of 1996. The Company incurred net losses of $23.0 million for
the second quarter and $1.3 million for the first six months of 1995. The
impact on 1996 amounts from the restructuring charge was $24.3 million net of
applicable income taxes, and from the asset write-offs was $4.8 million net of
applicable income taxes. The 1995 amounts include the $50.0 million charge for
the contribution to ALRT. Excluding the impact on net earnings from the
restructuring charge and asset write-offs in 1996 and the contribution to ALRT
in 1995, net earnings for the second quarter were $29.8 million compared to
$27.0 million in 1995, and for the six months ended June 30, 1996, net earnings
were $52.9 million compared to $48.7 million in 1995. Net earnings, excluding
the special charges in 1995 and 1996, increased in the second quarter as a
result of the increase in operating income offset by increased currency
translation losses and income taxes. For the six months ended June 30, 1996,
net earnings, excluding the special charges in 1995 and 1996, increased as a
result of an increase in operating income offset by increases in currency
translation losses, interest expense and income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1996, the Company had four long-term credit facilities and a
medium term note program. The credit facilities allow for borrowings of up to
$18.5 million through November 1996, and $27.7 million through 1999, $250.0
million through 2001, and $46.3 million through 2003. The note program allows
the Company to issue up to $200 million in notes. 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 June 30,
1996, the Company had $81.5 million in borrowings under three of the credit
facilities and $85.0
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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)
- -------------------------------------------
million under the note program. As of June 30, 1996, the Company has
classified $61.6 million of its commercial paper borrowings and $81.5 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 June 30, 1996, the Company had commercial paper
borrowings of $91.6 million.
The net cash provided by operating activities for the six months ended June 30,
1996 was $56.7 million compared with $58.2 million used in operating activities
for the respective 1995 period. Operating cash flow in 1995 was reduced
primarily by the $50 million charge for the contribution to ALRT. 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 $24.9 million in new facilities and equipment during the
six months ended June 30, 1996 compared to $25.6 million during the same period
in 1995. In 1995, the Company invested $63.6 million in the acquisition of
businesses including OMS and a pharmaceutical business in Brazil.
Cash used in financing activities was $8.0 million in the six months ended June
30, 1996 compared to $140.7 million cash provided by financing activities in
1995. The amounts include dividend outflows of $15.3 million in 1996 and $14.6
million in 1995. 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.
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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)
10.1 Form of Allergan change in control severance agreement
10.2 First Amendment to Allergan, Inc. Executive Deferred
Compensation Plan
10.3 First Amendment to Allergan, Inc. Employee Stock
Ownership Plan
10.4 First Amendment to Allergan, Inc. Savings and
Investment 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: August 12, 1996 ALLERGAN, INC.
/s/ A. J. Moyer
------------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
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