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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NO.1-10269
ALLERGAN, INC.
(Exact name of Registrant as Specified in its Charter)
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DELAWARE 95-1622442
(State of Incorporation) (I.R.S. Employer Identification No.)
2525 DUPONT DRIVE
IRVINE, CALIFORNIA 92715-1599
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number: (714) 752-4500
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which each class registered
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $1,800,000,000 on March 6, 1995, based upon
the closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of March 6, 1995 - 63,935,883 shares
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendement to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate certain information by reference from the
registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1994. With the exception of the sections of the Annual Report specifically
incorporated by reference herein, the Annual Report is not deemed filed as part
of this Report on Form 10-K.
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the annual meeting of stockholders
to be held on April 25, 1995, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1994.
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TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . 10
Item I-A. Executive Officers of Allergan, Inc. . . . . . . . . . . . . . . . . . . . . 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 13
PART III
Item 10. Directors and Executive Officers of Allergan, Inc. . . . . . . . . . . . . . 14
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Attached to this
Report on Form 10-K)
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Allergan, Inc. ("Allergan" or the "Company") is a leading provider of
specialty therapeutic eye care products throughout the world with niche
pharmaceutical products in skin care and neural care. Its worldwide
consolidated revenues are principally generated by prescription and
non-prescription pharmaceutical products in the areas of ophthalmology and skin
care, intraocular lenses and other ophthalmic surgical products, and contact
lens care products.
Allergan was incorporated in California in 1948 and reincorporated in
Delaware in 1977. In 1980, the Company was acquired by SmithKline Beckman
Corporation (then known as "SmithKline Corporation" and herein "SmithKline").
The Company operated as a wholly-owned subsidiary of SmithKline from 1980 until
1989 when Allergan again became a stand-alone public company through a spin-off
distribution by SmithKline.
During the fourth quarter of 1991, the Company divested its computer-based
ophthalmic diagnostic instrument business, Allergan Humphrey. In November
1992, the Company sold its contact lens business in North and South America.
In August 1993, the Company sold its contact lens business outside of the
Americas.
ALLERGAN BUSINESSES
The following table sets forth, for the periods indicated, the net sales
from continuing operations for each of the Company's specialty therapeutics
businesses and product lines:
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Year Ended December 31
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1994 1993 1992
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(in millions)
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Eye Care
Pharmaceuticals $390.7 $360.9 $339.7
Surgical 144.3 115.3 111.8
Optical Lens Care 339.4 325.0 322.4
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Total Eye Care 874.4 801.2 773.9
Skin Care 37.3 32.4 37.3
Botox(R) 35.5 25.3 19.5
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Total Net Sales $947.2 $858.9 $830.7
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Domestic 47.3% 47.5% 47.9%
International 52.7% 52.5% 52.1%
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The foregoing table does not include sales of discontinued operations.
See Note 11 of Notes to Consolidated Financial Statements on page 41 of the
1994 Annual Report for further information concerning foreign and domestic
operations.
Ophthalmic Pharmaceuticals Business
Allergan develops, manufactures and markets a broad range of prescription
and non-prescription products designed to treat diseases and disorders of the
eye, including glaucoma,
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inflammation, infection and allergy. In addition, the specialty
over-the-counter product line consists of products designed to treat ocular
surface disease, including artificial tears and ocular decongestants.
The largest segment of the market for ophthalmic prescription drugs is for
the treatment of glaucoma, a sight-threatening disease characterized by
elevated intraocular pressure. Allergan's largest selling pharmaceutical
product is Betagan(R) ophthalmic solution, a beta blocker used in the initial
treatment of glaucoma. Allergan also markets and sells Propine(R) ophthalmic
solution, which is used alone or in combination with other drugs when initial
drug therapy for glaucoma becomes inadequate. Patent protection for both
products expired in the United States in 1991. In 1993, in anticipation of
generic competition, Allergan entered into an agreement with Schein
Pharmaceutical, Inc. ("Schein") whereby Schein will market generic versions of
certain Allergan products that are off-patent in the United States. During
1994, Bausch & Lomb and Alcon Laboratories separately announced receipt of
marketing approval from the FDA for a generic version of Betagan(R) and
Propine(R), respectively. In each instance, Schein began marketing a generic
version of the corresponding Allergan product immediately after each
announcement.
The Company also markets several leading ophthalmic products to treat
ocular inflammation and infection. Allergan holds a major share of the U.S.
market for ophthalmic corticosteroids. Pred Forte(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's major products in the anti-infective market are
Blephamide(R) suspension, a topical anti-inflammatory and anti-infective,
Polytrim(R) solution, a synthetic antimicrobial which treats surface ocular
bacterial infections and Ocuflox(R) solution, a fluroquinolone which treats
bacterial conjunctivitis. Ocuflox(R) solution was first marketed in the U.S.
in August 1993. It is also marketed in many countries internationally and is
awaiting approval in Spain and Canada.
In 1993, Allergan entered into a strategic alliance with Fisons
Corporation to co-promote certain ophthalmic pharmaceuticals in the United
States. The alliance currently involves Allergan's Acular(R)1 ophthalmic
solution for the relief of itch associated with seasonal allergic
conjunctivitis. Later, under the terms of the alliance, co-promotion is
planned to expand to include Fisons' Opticrom(R)2 ophthalmic solution and
nedocromil sodium ophthalmic solution.
Ophthalmic Surgical Business
Allergan's surgical business (known as Allergan Medical Optics or "AMO")
develops, manufactures and markets intraocular lenses ("IOLs"), surgically
related pharmaceuticals, phacoemulsification equipment and other ophthalmic
surgical products.
The largest segment of the surgical market is for the treatment of
cataracts. Cataracts are a condition, usually age related, in which the
natural lens of the eye becomes progressively clouded. This clouding obstructs
the passage of light and can lead to blindness. Most patients blinded by
cataracts can be surgically cured by removing the clouded lens and replacing it
with an IOL. AMO currently offers a full line of products used in the
performance of cataract surgery, including rigid multi-piece, single-piece and
small incision design IOLs. Sales of all models of the Company's IOLs
represented 9.7%, 9.1% and 10% of total Company sales in 1992, 1993 and 1994,
respectively. Intraocular lenses marketed by Allergan for small incision
cataract surgery
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1 Acular(R) is a registered trademark, which is licensed from Syntex (U.S.A.)
Inc.
2 Opticrom(R) is a registered trademark of Fisons Corporation.
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include the AMO(R)Phacoflex(R) small incision IOL, introduced in 1989, the
AMO(R)Foldable Phacoflex(R)II SI-30NB(TM) small incision IOL, introduced in
April 1993, and the AMO(R)DuraLens(TM) IOL which was introduced in various
European countries during 1994. AMO(R)Array(R) multifocal IOL is also
available in several European countries including Germany, France and Spain and
is currently undergoing clinical trials in the U. S. Sales growth of IOLs in
the U.S. has been adversely impacted by price erosion resulting from
competitive pressures and government pricing policies.
Small incision IOLs continue to grow in popularity along with increasing
use of phacoemulsification, a method of cataract extraction that uses
ultrasound waves to break the natural lens into small fragments that can be
removed through a hollow needle. Phacoemulsification requires only a 3 to 4
millimeter incision, compared to incisions of up to 12 millimeters for other
techniques. Phacoemulsification accounts for more than 80 percent of cataract
procedures in the United States. In 1993 Allergan introduced the
AMO(R)Prestige(TM) phacoemulsification machine. AMO(R)Prestige(TM) makes
small-incision cataract surgery easier than other phacoemulsification machines
by using a sophisticated microprocessor that monitors vacuum and fluid in the
eye. Allergan also markets AMO(R)Vitrax(R), a viscoelastic used to maintain
the anterior chamber and protect endothelial cells during cataract surgery.
In September 1994, Allergan acquired the worldwide IOL business of Ioptex
Research Inc., formerly a division of Smith & Nephew. In January 1995,
Allergan acquired Optical Micro Systems ("OMS"). OMS develops and
manufactures phacoemulsification equipment. These two acquisitions provide the
Company with additional IOL and phacoemulsification equipment product offerings
and the capability to manufacture phacoemulsification equipment.
Optical Business
The Company has been in the contact lens care market since 1960. It
develops, manufactures and markets a broad range of products worldwide for use
with every available type of contact lens. These products include disinfecting
solutions to destroy harmful microorganisms on the surface of contact lenses;
daily cleaners to remove undesirable film and deposits from contact lenses; and
enzymatic cleaners to remove protein deposits from contact lenses. The Company
offers products that can be used in each of the three disinfecting systems now
available: hydrogen peroxide systems, convenient chemical systems and heat
systems. UltraCare(R) neutralizer/disinfectant, Allergan's one-step hydrogen
peroxide disinfection system, was approved by the FDA in March 1992 for general
marketing in the United States. In the third quarter of 1994, Allergan
received U.S. marketing approval for UltraCare(R) with a new color indicator.
The new system, which had been previously launched in Germany, relies on a
Vitamin B-12 color indicator which turns the solution pink to indicate complete
neutralization of the peroxide. Allergan's Complete(R) brand Multi-Purpose
convenient chemical disinfection system for soft contact lenses was launched in
Australia, Canada, China Germany and Italy during 1993 and in the United
States, the United Kingdom and Mexico in 1994.
Sales of the Company's proprietary enzymatic cleaners represented 11%, 11%
and 10% of total Company sales in 1992, 1993 and 1994, respectively, and sales
of the Company's hydrogen peroxide disinfection systems represented 13%, 14%
and 14% of total Company sales in 1992, 1993 and 1994, respectively.
Skin Care Business
Building upon its strength in marketing to medical specialties and taking
advantage of synergies in research and development, Allergan's skin care
business (known as Allergan
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Herbert) develops, manufactures and markets a line of therapeutic skin care
products primarily to dermatologists in the United States. Its product line
includes Gris-Peg(R) tablets, a systemic anti-fungal product, Elimite(R) cream
for the treatment of scabies and Naftin(R), a topical anti-fungal gel and
cream.
Botox(R)/Neuromuscular Business
Allergan's Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex
is used in the treatment of certain neuromuscular disorders which are
characterized by involuntary muscle contractions or spasms. Botox(R) purified
neurotoxin complex is marketed in the United States, Canada, Germany, France,
Italy, New Zealand and a number of other countries for the treatment of
blepharospasm (the uncontrollable abnormal contraction of the eyelid muscles
which can force the eye closed) and strabismus (misalignment of the eyes) in
people 12 years of age and over. In May 1994, Botox(R) purified neurotoxin
complex was approved in the United Kingdom for blepharospasm and hemifacial
spasm. In March 1991, an application was filed with the FDA for approval of a
nonophthalmic claim for an indication related to a neck and shoulder
neuromuscular disorder known as cervical dystonia (torticollis). Allergan has
been asked to provide supplemental clinical data to support the torticollis
filing. Botox(R) has been approved in several European countries for the
treatment of cervical dystonia.
EMPLOYEE RELATIONS
At December 31, 1994, the Company employed approximately 4,900 persons
throughout the world, including approximately 2,220 in the United States. None
of the Company's U.S.-based employees are represented by unions. The Company
considers that its relations with its employees are, in general, very good.
INTERNATIONAL OPERATIONS
The Company believes that international markets represent a significant
opportunity for continued growth. International sales have represented
approximately 52.1%, 52.5% and 52.7% of total sales for the years ended
December 31, 1992, 1993 and 1994, respectively. Allergan believes that its
well-established international market presence provides it with a competitive
advantage, enabling the Company to maximize the return on its investment in
research, product development and manufacturing.
Allergan established its first foreign subsidiary in 1964 and currently
sells products in approximately 100 countries. Marketing activities are
coordinated on a worldwide basis and resident management teams provide
leadership and infrastructure for customer focused rapid introduction of new
products in their local markets.
In Japan, the second largest eye care market in the world, certain of
Allergan's eye care pharmaceutical products are licensed to Santen
Pharmaceuticals (the largest eye care pharmaceutical manufacturer in Japan),
and Allergan's contact lens care products are sold through a joint venture
between Santen and Allergan. IOLs and other eye care surgical products are
sold directly in Japan. In 1994, Allergan and Nicholas Piramal India Limited
formed a joint venture to manufacture and market eye care products in India.
Also in 1994, fifteen ophthalmic pharmaceutical products and Botox(R) purified
neurotoxin complex were approved for sale in India. In October 1994, Allergan
launched its first two prescription products, Propine(R) and Betagan(R)
solutions, in the Peoples' Republic of China. This followed the earlier
introduction of its Complete(R) system in 1993. The Company is scheduled to
begin construction of a new manufacturing facility in Hangzhou in 1995.
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SALES AND MARKETING
Allergan maintains global marketing and regional sales organizations.
Supplementing the sales efforts and promotional activities aimed at eye and
skin care professionals, as well as neurologists outside the U.S., who use,
prescribe and recommend its products, Allergan has been shifting its resources
increasingly toward managed care providers. In addition, Allergan advertises
in professional journals and has an extensive direct mail program of
descriptive product literature and scientific information to specialists in the
ophthalmic and dermatological fields. The Company's specialty therapeutic
products are sold to drug wholesalers, independent and chain drug stores,
commercial optical chains, mass merchandisers, food stores, hospitals,
ambulatory surgery centers and medical practitioners, including neurologists.
At December 31, 1994, the Company employed approximately 820 sales
representatives throughout the world.
RESEARCH AND DEVELOPMENT
The Company's global research and development efforts focus on eye care,
skin care and neuromuscular products that are safe, effective, convenient and
have an economic benefit. The Company's own research and development
activities are supplemented by a commitment to identifying and obtaining new
technologies through in-licensing, joint ventures and acquisition efforts
including the establishment of research relationships with academic
institutions and individual researchers.
Research and development efforts for the ophthalmic pharmaceuticals
business focus primarily on new therapeutic products for glaucoma,
inflammation, dry eye, allergy and new anti-infective pharmaceuticals for eye
care. The Company is conducting research on new compounds that control
intraocular pressure by either reducing the inflow or production, or improving
the outflow of aqueous humor. Alpha2 agonists are a new class of glaucoma
treatments currently being tested. They may be used by patients who cannot use
beta-blockers or as an adjunct therapy. Allergan's lead compound in this
category is brimonidine, which has completed Phase III clinical trials for the
control of post-surgical intraocular pressure elevation and is currently
undergoing Phase III trials for ocular hypertension and glaucoma. During the
third quarter of 1994, Allergan filed a drug approval application with the FDA
on brimonidine for acute post-surgical elevated pressure in the eye following
argon laser trabeculoplasty. The Company is also conducting research and
clinical trials on a class of compounds called prostaglandins. Unlike
beta-blockers and alpha2 agonists that decrease the inflow or production of
aqueous humor, prostaglandins reduce intraocular pressure by improving its
outflow. The Company is also developing topical cyclosporine A for the
treatment of severe dry eye.
Research and development activities for the surgical business concentrate
on improved cataract surgical systems, implantation instruments and methods,
and new IOL materials and designs, including the AMO(R)Array(R) multifocal IOL,
designed to allow patients to see well over a range of distances.
Research and development in the optical business is aimed at contact lens
care systems which are effective and more convenient for patients to use, thus
lead to a higher rate of compliance with recommended lens care procedures.
Improved compliance can enhance safety and extend the time a patient will be a
contact lens wearer. The Company believes that continued development and
commercialization of disinfection systems that are both easy-to-use and
efficacious will be important for the future success of this part of the
Company's business.
During the first quarter of 1993, Allergan began Phase III clinical trials
with its proprietary topical retinoid tazarotene (previously known as
AGN190168) for both acne and psoriasis. In July 1994, the Company released
initial Phase III clinical trial results for
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tazarotene for psoriasis, which met expectations based on results of earlier
clinical studies. By mid-1995, the Company intends to file with the FDA an
application for marketing approval for tazarotene in the treatment of psoriasis
and acne, based on the results of this initial trial and six additional trials
with more than 2,000 patients. Also, during the first quarter of 1994, an
application was filed with the FDA seeking approval to market Azelex(TM)
(azelaic acid) cream in the U.S. for the treatment of acne.
During 1992, the Company entered into a joint venture ("Joint Venture")
with Ligand Pharmaceuticals Incorporated ("Ligand") to combine Ligand's
knowledge of intracellular receptor technology with the Company's experience in
receptor-selective retinoids for topical use. The Joint Venture filed an
Investigational New Drug Application ("IND") with the FDA in November 1993 for
the use of 9-cis Retinoic acid (LGD1057) to be given orally for cancer therapy.
In March 1994, the Joint Venture filed an IND for the topical use of LGD 1057
for cancers involving the skin.
In December 1994, the Company and Ligand announced the formation of a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT"), to devote $100 million to the accelerated research and development of
retinoid products. Allergan and Ligand will fund ALRT in part through a public
offering of $32.5 million of ALRT units through a rights offering to their
respective shareholders. ALRT will be the successor to the Joint Venture which
will be dissolved immediately prior to the consummation of the offering.
Allergan and Ligand will contribute all Joint Venture technology and assets to
ALRT. Upon consummation of the transaction, Allergan and Ligand will make cash
payments to ARLT of $50 million and $17.5 million, respectively, and expense
these cash payments as a one-time charge to earnings. A registration statement
relating to the units has been filed with the SEC but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This
disclosure shall not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
The continuing introduction of new products supplied by the Company's
research and development efforts and in-licensing opportunities is critical to
the success of the Company. Delays or failures in one or more significant
research projects could have a material adverse impact on the future operations
of the Company. At December 31, 1994, there were an aggregate of approximately
650 people involved in the Company's research and development efforts. The
Company's research and development expenditures associated with continuing
operations for 1992, 1993 and 1994 were $89.5 million, $102.5 million and
$111.5 million, respectively.
COMPETITION
Allergan faces strong competition in all of its markets worldwide.
Numerous companies are engaged in the development, manufacture and marketing of
health care products competitive with those manufactured by Allergan, although
these companies do not necessarily compete in all of Allergan's product lines.
Major eye care competitors include Alcon Laboratories (a subsidiary of Nestle),
Bausch & Lomb, Ciba Vision Corp. (a subsidiary of Ciba-Geigy), IOLab (a
subsidiary of Johnson & Johnson), Merck, Pharmacia Ophthalmics (a subsidiary of
Kabi Pharmacia), and Sola/Barnes-Hind (a subsidiary of Pilkington plc). These
competitors have equivalent or greater resources than Allergan. The Company's
skin care business competes against a number of companies, including, among
others, Schering-Plough, Johnson & Johnson and Hoffman LaRoche, which have
greater resources than Allergan. In marketing its products to health care
professionals, the Company competes primarily on the basis of product
technology, service and price. The Company believes that it competes favorably
in its product markets.
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GOVERNMENT REGULATION
Drugs, biologics and medical devices, including IOLs and contact lens care
products, are subject to regulation by the FDA, state agencies and, in varying
degrees, by foreign health agencies. Government regulation of many of the
Company's products generally requires extensive testing of new products and
filing applications for approval by the FDA prior to sale in the United States
and by foreign health agencies prior to sale in many international markets.
The FDA and foreign health agencies review these applications and determine
whether the product is safe and effective. The process of developing data to
support a pre-market application and governmental review can be costly and take
many years to complete.
In general, manufacturers of drugs, medical devices and biologics are
operating in an increasingly more rigorous regulatory environment than has been
the case in previous years. The total cost of providing health care services
has been and will continue to be subject to review by governmental agencies and
legislative bodies in the major world markets, including the United States,
which are faced with significant pressure to lower health care costs. Prices
for some of the Company's products, specifically IOLs and pharmaceutical
products, accounting for approximately 52% of the Company's 1994 worldwide
sales, are expected to come under increased pressure as governments and managed
care providers generally increase their efforts to contain health care costs.
Several legislative and administrative measures to strengthen government
regulation of medical devices and drugs have recently been implemented in the
United States, such as the Safe Medical Devices Act of 1990, which among other
things, increased reporting requirements of adverse events associated with
medical devices, and the Prescription Drug User Fee Act of 1992, which requires
payment of substantial fees to the FDA for the review of new drug applications.
The United States Congress is expected to consider mandating the application of
user fees to medical device applications as well. Other measures are pending
or have been proposed. In addition, there has been increased scrutiny of drug
and device manufacturers by the FDA as a result of a scandal in the generic
drug industry and controversies surrounding the safety of certain medical
devices. While the Company is not primarily involved in these areas of
business, the impact of increased FDA scrutiny is felt by all companies in the
drug and device industries. Moreover, in Europe and other major Allergan
markets, the regulation of drugs and medical devices is likewise increasing.
The Company is working to ensure that its operations remain in compliance with
the regulatory requirements of the FDA, its foreign counterparts, and other
governmental agencies.
In the United States, a significant percentage of the patients who receive
the Company's IOLs are covered by the federal Medicare program. When a
cataract extraction with IOL implantation is performed in an ambulatory surgery
center ("ASC"), Medicare provides the ASC with a fixed $150 allowance to cover
the cost of the IOL. When the procedure is performed in a hospital outpatient
department, the hospital's reimbursement is determined using a complex formula
that blends the hospital's costs with the $150 allowance paid to ASCs. This
$150 IOL payment could be subject to reduced levels by Congress through various
legislative actions: health care reform; deficit reduction legislation; or
implementation of a balanced budget amendment. The Medicare Technical
Corrections Bill of 1994 directed the U.S. Health Care Financing Administration
("HCFA") to establish a system through which the agency would pay ASCs and
hospitals a rate above $150 for "advanced technology IOLs". HCFA is not
expected to consider applications from manufacturers for preferential "advanced
technology" status before 1996. In November 1990, HCFA issued proposed
regulations under which Medicare would not recognize hospitals' expenditures
for IOLs implanted during outpatient cataract surgery to the extent that those
expenditures exceed the ASC allowance of $150. The Company cannot predict
whether HCFA will promulgate a final regulation imposing this limitation, or
whether limits on IOL payment will be incorporated within a more broadly
sweeping reform of the Medicare outpatient hospital reimbursement system.
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The cost of prescription drugs is likely to receive some continuing
attention in the United States Congress. Legislation enacted in 1990, and
amended and strengthened in 1992, requires pharmaceutical manufacturers to
rebate to the government a portion of their revenues from drugs furnished to
Medicaid patients. In 1992, legislation was enacted that extends these
requirements to covered outpatient pharmaceuticals, and also mandates a
reduction in pharmaceutical prices charged to certain federally-funded
facilities as well as to certain hospitals serving a disproportionate share of
low-income patients. A provision of the Omnibus Budget Reconciliation Act of
1993 limits tax benefits currently realized by U.S. manufacturers as a result
of the manufacture of certain products in Puerto Rico, beginning in 1994. It
is likely that some Congressional attention will continue to focus on the costs
of drugs generally, and particularly on increases in drug prices in excess of
the rate of inflation.
The United States Congress also devoted significant attention in 1994 and
in prior years to proposed amendments to the Orphan Drug Act. Under one
proposal, once cumulative sales of an orphan drug exceed a designated dollar
amount the FDA would be authorized to approve competitors' marketing
applications. The Company currently markets one orphan drug product, Botox(R)
purified neurotoxin complex. While legislation was not enacted in 1994, it is
expected that Congress will consider further amendments to the Orphan Drug Act
in 1995.
As a result of the change in its leadership, the Unites States Congress
may reexamine the regulatory burdens imposed on drug and medical device
manufacturers by the FDA. Congress will also consider less sweeping health
care reform legislation. In Europe, on both a European Union level and at the
local national level, governments have implemented legislation directed at,
among other things, cost containment in the form of reference pricing (i.e.,
setting a fixed level of reimbursement by drug category), removing various
categories of drugs from reimbursement programs, and encouraging generic
prescribing.
The Company cannot predict the likelihood of any significant legislative
action in these areas, nor can it predict whether or in what form health care
legislation being formulated by various governments will be passed. The
Company also cannot predict exactly what effect such governmental measures
would have if they were ultimately enacted into law. However, in general, the
Company believes that such legislative activity will likely continue and the
adoption of such measures can be expected to have some adverse impact on the
Company's business.
PATENTS, TRADEMARKS AND LICENSES
Allergan owns or is licensed under numerous patents relating to its
products, product uses and manufacturing processes. It now has numerous
patents issued in the United States and corresponding foreign patents issued in
the major countries in which it does business. Allergan believes that its
patents and licenses are important to its business, but that with the exception
of those relating to hydrogen peroxide disinfection systems, no one patent or
license is currently of material importance in relation to its business as a
whole. Allergan markets its products under various trademarks and considers
these trademarks to be valuable because of their contribution to the market
identification of the various products.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign environmental
laws and regulations. The Company believes that its operations comply in all
material respects with applicable environmental laws and regulations in each
country where the Company has a business presence. Although Allergan continues
to make capital expenditures for environmental protection, it does not
anticipate any significant expenditures in order to comply with such laws and
regulations which would have a material impact on the Company's capital
expenditures,
8
<PAGE> 11
earnings or competitive position. The Company is not aware of any pending
litigation or significant financial obligations arising from current or past
environmental practices. There can be no assurance, however, that
environmental problems relating to properties owned or operated by the Company
will not develop in the future, and the Company cannot predict whether any such
problems, if they were to develop, could require significant expenditures on
the part of the Company. In addition, the Company is unable to predict what
legislation or regulations may be adopted or enacted in the future with respect
to environmental protection and waste disposal.
ITEM 2. PROPERTIES
Allergan's operations are conducted in owned and leased facilities located
throughout the world. Its primary administrative and research facilities are
located in Irvine, California. The following table describes the general
character of the major existing facilities as of March 6, 1995:
<TABLE>
<CAPTION>
Location Primary Function Interest
- -------- ---------------- --------
<S> <C> <C>
Irvine, California Headquarters, research and development,
manufacturing, administrative Owned
Santa Ana, California Manufacturing, warehousing Owned
Waco, Texas Manufacturing, warehousing Owned
Irwindale, California Manufacturing, warehousing, administrative Leased
Lenoir, North Carolina Manufacturing, administrative, warehousing Owned
Berkeley, California Manufacturing, warehousing, administrative Leased
North Andover, Massachusetts Manufacturing, administrative Leased
Hormigueros, Puerto Rico Manufacturing, warehousing Owned
Anasco, Puerto Rico Manufacturing, warehousing Leased
Buenos Aires, Argentina Administrative, manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
County Mayo, Ireland Administrative, manufacturing, warehousing Owned
High Wycombe, U.K. Administrative, warehousing Leased
Sophia Antipolis, France Administrative, warehousing Leased
Pomezia, Italy Administrative, manufacturing, Owned
research and development, warehousing
Madrid, Spain Administrative, warehousing Owned
Ettlingen, Germany Administrative, warehousing Owned
Zaventem, Belgium Administrative, warehousing Leased
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C> <C>
Sao Paulo, Brazil Administrative, manufacturing, warehousing Owned
Johannesburg, South Africa Administrative, warehousing Leased
Sydney, Australia Administrative, warehousing Owned/Leased
Hong Kong Administrative, warehousing Leased
Tokyo, Japan Administrative, research and development Leased
</TABLE>
The Company believes its present facilities are adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 Company, in cooperation with regulatory authorities in Puerto Rico, is
evaluating and implementing operational improvements to the wastewater
treatment system at the Company's Hormigueros facility. These improvements,
which will reduce the ecological impacts of the Company's operations, will not
have a material adverse impact of the Company's business.
In October 1993, the Company 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
Company'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
Company cooperated, the Commerce Department advised the Company in the first
quarter of 1995 that it did not agree with the Company'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 Company does not believe that the filing of criminal
charges would be warranted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
fiscal year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
10
<PAGE> 13
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 6, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Vicente Anido, Jr., Ph.D. 42 Corporate Vice President and President, Americas Region
Jeffrey B. D'Eliscu 44 Corporate Vice President, Corporate Communications
Michael J. Donohoe 52 Corporate Vice President and President, Europe Region
Richard M. Haugen 42 Executive Vice President and Chief Operating Officer
Richard J. Hilles 52 Corporate Vice President, Human Resources
Lester J. Kaplan, Ph.D. 44 Corporate Vice President, Research and Development
Diethart Reichardt 52 Corporate Vice President, Optical
Jacqueline J. Schiavo 46 Corporate Vice President, Worldwide Operations
William C. Shepherd 56 President and Chief Executive Officer
Francis R. Tunney, Jr. 47 Corporate Vice President, General Counsel and Secretary
Dwight J. Yoder 49 Vice President, Controller, Principal Accounting Officer
</TABLE>
Officers are appointed by and hold office at the pleasure of the Board of
Directors.
Dr. Anido has been Corporate Vice President and President, Americas Region
since 1993. Prior thereto, he had 18 years of experience with pharmaceutical
companies. Dr. Anido was Vice President, Business Management of the U.S.
Prescription Products Division of Marion Merrell Dow, Inc. from 1991 to 1993,
President and General Manager (1990-1991) and Vice President, Sales & Marketing
(1989-1990) of Nordic Laboratories, Inc. He also held various management
positions with Marion Laboratories, Inc.
Mr. D'Eliscu has been Corporate Vice President, Corporate Communications since
1992 and was Vice President, Investor Relations and Public Communications from
1991. Mr. D'Eliscu had been Senior Director, Investor Relations of the Company
from 1989 to 1991 and prior thereto, he had been Director of Business
Development from 1988 and Senior Product Manager from 1985. Mr. D'Eliscu first
joined the Company in 1979.
Mr. Donohoe has been Corporate Vice President and President, Europe Region
since 1992. Prior thereto, he was Corporate Vice President and President,
Optical, Consumer/OTC Group from 1991. Mr. Donohoe was Senior Vice President
and General Manager, Contact Lenses from 1990 to 1991 and Area Vice President,
Northern Europe from 1989 to 1990. Mr. Donohoe held the position of Senior
Vice President, Worldwide Marketing for the Optical Division from 1988 to 1989
and was Vice President, International Marketing from 1987 to 1988. Mr. Donohoe
first joined the Company in 1987.
Mr. Haugen has been Executive Vice President and Chief Operating Officer since
April 1992 and had been Corporate Vice President of the Company and President,
Worldwide Eye Marketing and Sales & Operations since January 1992. Prior
thereto, Mr. Haugen was Corporate Vice President and President, Americas Region
in 1991 and had been President of Allergan Optical and Senior Vice President of
the Company from 1989 to 1991. Prior thereto he was Senior Vice President and
President of Allergan Pharmaceuticals from 1988 to 1989 and was Senior Vice
President, Planning and Business Development since 1987. Mr. Haugen first
joined the Company in 1976.
Mr. Hilles has been Corporate Vice President, Human Resources since 1991 and
prior thereto was Senior Vice President, Human Resources from 1986 to 1991. He
was Vice President, Human
11
<PAGE> 14
Resources from 1981 to 1986. Mr. Hilles first joined SmithKline Beckman
Corporation in 1965.
Dr. Kaplan has been Corporate Vice President, Research and Development since
1992. He had been Senior Vice President, Pharmaceutical Research and
Development since 1991, Senior Vice President, Research and Development since
1989 and Vice President since 1988. Dr. Kaplan had served as Senior Director
in Group Research and Development from 1986 to 1988 and as Associate Director,
Discovery Research from 1984 to 1986. Dr. Kaplan first joined the Company in
1983.
Mr. Reichardt has been Corporate Vice President, Optical since 1992. Prior
thereto, he was Senior Vice President, Marketing/Business Development,
Optical-Europe from 1991 and Senior Vice President, Northern Europe from 1983.
Mr. Reichardt first joined the Company in 1972.
Ms. Schiavo has been Corporate Vice President, Worldwide Operations since 1992.
She was Senior Vice President, Operations from 1991 and Vice President,
Operations from 1989. Prior thereto, she was Senior Director, Operations from
1988 to 1989. Ms. Schiavo first joined the Company in 1980.
Mr. Shepherd has been President and Chief Executive Officer of the Company
since 1992 and prior thereto had been President and Chief Operating Officer
from 1984 to 1991. Prior to 1984, Mr. Shepherd was President of Allergan U.S.,
Senior Vice President, U.S. Operations and Vice President, Operations. Mr.
Shepherd first joined the Company in 1966.
Mr. Tunney has been Corporate Vice President, General Counsel and Secretary of
the Company since 1991 and prior thereto was Senior Vice President, General
Counsel and Secretary from 1989 through 1991. Mr. Tunney had served as Vice
President, General Counsel and Assistant Secretary of the Company since 1986,
and as Associate General Counsel of the Company since 1985. Prior thereto he
was Senior International Attorney for SmithKline Beckman Corporation which he
joined in 1979.
Mr. Yoder has been Vice President and Controller of the Company since 1990.
Prior thereto, Mr. Yoder held various management positions with Del Taco, Inc.
from 1983 to 1989, including Vice President, Finance of Del Taco/Naugles
Restaurants and Vice President, Controller of Del Taco, Inc. Mr. Yoder first
joined the Company in 1990.
The information required by Item 405 of Regulation S-K is included on page
7 of the Proxy Statement and is incorporated herein by reference.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Market Prices of Common Stock and Dividends" on the
inside back cover of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 46 of the Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three Year Period Ended December
31, 1994" on pages 23-28 of the Annual Report is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, together with the
sections entitled "Independent Auditors' Report" and "Quarterly Results
(Unaudited)" of the Annual Report included on pages 44 and 45, respectively,
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The section entitled "Independent Auditors" on page 20 of the Proxy
Statement is incorporated herein by reference.
13
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLERGAN, INC.
Information under this Item is included on pages 2-5 of the Proxy
Statement and such information is incorporated herein by reference.
Information with respect to executive officers is included on pages 10-12 of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation," and the subsection
entitled "Director Compensation" included in the Proxy Statement on pages
11-12, and page 6, respectively, are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Security Ownership
of Certain Beneficial Owners and Management" on pages 8-10 of the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsection entitled "Other Matters" and the section entitled
"Compensation Committee Interlocks and Insider Participation" on pages 7 and 19
of the Proxy Statement are incorporated herein by reference.
14
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Index to Financial Statements
* Page(s) in
Annual Report
-------------
<S> <C> <C>
1. Financial Statements included in Part II of this report:
Independent Auditors' Report 44
Consolidated Balance Sheets at December 31, 1994 and
December 31, 1993 29
Consolidated Statements of Earnings for Each of the
Years in the Three Year Period Ended December 31, 1994 30
Consolidated Statements of Cash Flows for Each of the 31
Years in the Three Year Period Ended December 31, 1994
Notes to Consolidated Financial Statements 32-42
</TABLE>
* Incorporated by reference from the indicated pages of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1994 (and except
for these pages, the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1994, is not deemed filed as part of this report).
<TABLE>
<CAPTION>
2. Schedules Supporting the Consolidated Financial Statements:
Page in
This Report
-----------
<S> <C>
Independent Auditors' Report 21
Schedule numbered in accordance with Rule 5-04 of Regulation S-X:
VIII Allowance for Doubtful Accounts................................ S-1
</TABLE>
All other schedules have been omitted for the reason that the
required information is presented in financial statements or
notes thereto, the amounts involved are not significant or the
schedules are not applicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
last quarter of 1994.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at
page 18 of this report.
(d) Other Financial Statements
There are no financial statements required to be filed by
Regulation S-X which are excluded from the annual report to
shareholders by Rule 14 a-3(b)(1).
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 22, 1995 ALLERGAN, INC.
By /S/ WILLIAM C. SHEPHERD
-------------------------------------
William C. Shepherd
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C>
Date: March 22, 1995 By /S/ WILLIAM C. SHEPHERD
-- -------------------------------------
William C. Shepherd
President and Chief Executive Officer
Date: March 22,1995 By /S/ DWIGHT J. YODER
-- -------------------------------------
Dwight J. Yoder
Vice President and Controller
(Principal Accounting Officer)
Date: March 22, 1995 By /S/ HERBERT W. BOYER
-- -------------------------------------
Herbert W. Boyer, Ph.D., Director
Date: March 22, 1995 By /S/ TAMARA J. ERICKSON
-- -------------------------------------
Tamara J. Erickson Director
Date: March 22, 1995 By /S/ HANDEL E. EVANS
-- -------------------------------------
Handel E. Evans, Director
Date: March 22, 1995 By /S/ WILLIAM R. GRANT
-- -------------------------------------
William R. Grant, Director
Date: March 22, 1995 By /S/ HOWARD E. GREENE, JR
-- -------------------------------------
Howard E. Greene, Jr., Director
Date: March 22, 1995 By /S/ RICHARD M. HAUGEN
-- -------------------------------------
Richard M. Haugen, Director
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
Date: March 22, 1995 By /S/ GAVIN S. HERBERT
-- -------------------------------------
Gavin S. Herbert
Chairman of the Board
Date: March 22, 1995 By /S/ LESTER J. KAPLAN
-- -------------------------------------
Lester J. Kaplan, Ph. D., Director
Date: March 22,1995 By /S/ LESLIE G. MCCRAW
-- -------------------------------------
Leslie G. McCraw, Director
Date: March 22, 1995 By /S/ LOUIS T. ROSSO
-- -------------------------------------
Louis T. Rosso, Director
Date: March 22, 1995 By /S/ LEONARD D. SCHAFFER
-- -------------------------------------
Leonard D. Schaeffer, Director
Date: March 22, 1995 By /S/ HENRY WENDT
-- -------------------------------------
Henry Wendt, Director
</TABLE>
17
<PAGE> 20
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company as
filed with the State of Delaware on May 22, 1989
(incorporated by reference to Exhibit 3.1 to Registration
Statement on Form S-1 No. 33-28855, filed May 24, 1989) . . . . . . . .
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3 to Form 8-K filed March 3, 1994) . . . . . . . . . . . . . . .
4.1 Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock as filed with the
State of Delaware on May 22, 1989 (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-1
No. 33-28855, filed May 24, 1989) . . . . . . . . . . . . . . . . . . .
4.2 Rights Agreement, dated as of May 18, 1989, between
Allergan, Inc. and First Chicago Trust Company of
New York (as successor Rights Agent to Morgan Shareholder
Services Trust Company (incorporated by reference to
Exhibit 4.2 to Registration Statement on Form S-1
No. 33-28855, filed May 24, 1989) . . . . . . . . . . . . . . . . . . .
4.3 Amendment to Rights Agreement, dated as of September 28, 1993
between Allergan, Inc. and First Chicago Trust Company of
New York (as successor Rights Agent to Morgan Shareholder
Services Trust Company) (incorporated by reference to Exhibit 4
to Form 8-K, filed March 3, 1994) . . . . . . . . . . . . . . . . . . .
10.1 Form of director and executive officer Indemnity Agreement
(incorporated by reference to Exhibit 10.4 to the
Company's Report on Form 10-K for the Fiscal Year ended
December 31, 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.2 Allergan, Inc. 1989 Nonemployee Director Stock Plan, as amended
and restated (incorporated by reference to Exhibit A to the
Company's Proxy Statement dated March 17, 1994, filed in definitive
form on March 16, 1994) . . . . . . . . . . . . . . . . . . . . . . . .
10.3 Allergan, Inc. Deferred Directors' Fee Program (incorporated
by reference to Exhibit 10.6 to the Company's Report on Form
10-K for the Fiscal Year ended December 31, 1991) . . . . . . . . . . .
10.4 Allergan, Inc. 1989 Incentive Compensation Plan , as
amended April 1992 (incorporated by reference to Exhibit 10.2
to the Company's Report on Form 10-Q for the Quarter ended
March 31, 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Restated Allergan, Inc. Employee Stock Ownership Plan ("ESOP")
(incorporated by reference to Exhibit 10.1 to the Company's Report
on Form 10-Q for the Quarter ended June 30, 1993) . . . . . . . . . . .
</TABLE>
18
<PAGE> 21
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
10.6 Restated Allergan, Inc. Savings and Investment Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the Quarter
ended June 30, 1993) . . . . . . . . . . . . . . . . . . . . . . . . . .
10.7 Form of Allergan change in control severance agreement
(replaces the document filed as Exhibit 10.8 to
Registration Statement on Form S-1 No. 33-28855)
(incorporated by reference to Exhibit 10.13 to the
Company's Report on Form 10-K for the Fiscal Year
ended December 31, 1989) . . . . . . . . . . . . . . . . . . . . . . . .
10.8 Credit Agreement dated as of December 22, 1993 among
the Company, 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 in the original
aggregate principal amount of $150,000,000 (the "Credit Agreement")
(incorporated by reference to Exhibit 10.8 to the Company's Report on
Form 10-K for the fiscal year ended December 31, 1993) . . . . . . . . .
10.9 Amendment No. 1 to the Credit Agreement dated as of September 30, 1994
increasing the aggregate principal amount to $225,000,000 . . . . . . .
10.10 Restated Allergan, Inc. Pension Plan ("Pension Plan) (incorporated
by reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the Quarter ended June 30, 1993) . . . . . . . . . . . . .
10.11 Allergan, Inc. Supplemental Retirement Income Plan
(incorporated by reference to Exhibit 10.16 to the
Company's Report on Form 10-K for the Fiscal Year
ended December 31, 1989) . . . . . . . . . . . . . . . . . . . . . . . .
10.12 Allergan, Inc. Supplemental Executive Benefit Plan
(incorporated by reference to Exhibit 10.17 to the
Company's Report on Form 10-K for the Fiscal Year
ended December 31, 1989) . . . . . . . . . . . . . . . . . . . . . . . .
10.13 Allergan, Inc. Management Bonus Plan (incorporated by reference
to Exhibit 10.4 to the Company's Report on Form 10-Q for
the Quarter ended June 30, 1993) . . . . . . . . . . . . . . . . . . . .
10.14 Distribution Agreement dated March 4, 1994 between Allergan, Inc.
and Merrill Lynch & Co. and J.P. Morgan Securities Inc (incorporated by
reference to Exhibit 10.14 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993) . . . . . . . . . . . . . . . . . .
10.15 Allergan, Inc. Executive Deferred Compensation Plan
dated as of January 1, 1995 . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
19
<PAGE> 22
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
11 Statement re Computation of Earnings Per Share . . . . . . . . . . . . .
13 The Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1994 (with the exception
of the information incorporated by reference into
Items 5, 6, 7, 8 and 14 of this report, the Annual Report to
Shareholders is not deemed to be filed as part of this report) . . . . .
21 List of Subsidiaries of the Company . . . . . . . . . . . . . . . . . .
23 Consent of KPMG Peat Marwick to the incorporation
of their reports herein to Registration Statements
Nos. 33-29528, 33-29527, 33-44770, 33-48908 and 33-66874 . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
20
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
Under date of January 23, 1995, we reported on the consolidated balance sheets
of Allergan, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings and cash flows for each of the
years in the three-year period ended December 31, 1994, as contained in the
1994 Annual Report to Stockholders. These consolidated financial statements
and our report thereon are incorporated by reference in the Annual Report on
Form 10-K for the year 1994. In connection with our audit of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, this schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in note 6 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." As discussed in
note 8 to the consolidated financial statement, the Company also adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," in 1992.
KPMG PEAT MARWICK LLP
Costa Mesa, California
January 23, 1995
21
<PAGE> 24
SCHEDULE VIII
ALLERGAN, INC.
Allowance for Doubtful Accounts
Years Ended December 31, 1994, 1993 and 1992
(Dollars in millions)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
========== ========= ========== =======
<S> <C> <C> <C> <C>
1994 $5.8 $3.5(a) $2.1(b) $7.2
==== ==== ==== ====
1993 $0.4(c)
2.5(b)
-----
$7.0 $1.7(a) $2.9 $5.8
==== ==== ==== ====
1992 $0.5(c)
3.3(b)
-----
$10.4 $0.4(a) $3.8 $7.0
===== ==== ==== ====
</TABLE>
_________________________
(a) Provision charged to earnings.
(b) Accounts written off.
(c) Allowance of business sold.
S-4
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 1
TO CREDIT AGREEMENT
Amendment, dated as of September 30, 1994 to the Credit Agreement
dated as of December 22, 1993 (the "Agreement") among Allergan, Inc. (the
"Borrower"), the Banks listed on the signature pages hereof, Morgan Guaranty
Trust Company of New York (the "Agent") and Bank of America National Trust and
Savings Association (the "Co-Agent") in the original aggregate principal amount
of $150,000,000.
The parties hereto desire to amend the Agreement subject to the terms
and conditions of this Amendment, as hereinafter provided. Accordingly, the
parties hereto agree as follows:
1. Definitions. Except as otherwise defined herein, capitalized terms
used herein have the respective meanings assigned to them in the Agreement.
2. Amendments.
(A) The definition of "Commitment" set forth in Section 1.01
of the Agreement is amended to read in its entirety as follows:
"Commitment" means, with respect to each Bank, the
amount set forth opposite the name of such Bank on the
signature pages of Amendment No. 1 dated September 30, 1994 to
the Agreement, as such amount may be reduced from time to time
pursuant to Section 2.09.
(B) The definition of "Commitment Fee Rate" set forth in
Section 1.01 of the Agreement is deleted.
(C) The definition of "Level III Status" set forth in Section
1.01 of the Agreement is amended to read in its entirety as follows:
"Level III Status" exists at any date if, at such
date, (i) the Borrower's outstanding senior unsecured
long-term debt securities are rated BBB+ or higher by S&P and
Baa1 or higher by Moody's and (ii) neither Level I Status nor
Level II Status exists.
(D) The definition of "Level IV Status" set forth in Section
1.01 of the Agreement is amended to read in its entirety as follows:
"Level IV Status" exists at any date if, at such
date, (i) the Borrower's outstanding senior unsecured
long-term debt securities are rated BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) none of Level I Status,
Level II Status or Level III Status exists.
<PAGE> 2
(E) Section 1.01 of the Agreement is amended by
alphabetically inserting the term "Level V Status", which shall read in its
entirety as follows:
"Level V Status" exists at any date if, at such date,
none of Level I Status, Level II Status, Level III Status or
Level IV Status exists.
(F) The definition of "Termination Date" set forth in Section
1.01 of the Agreement is amended by deleting the reference to "December 22,
1998" and by inserting "September 30, 1999" in lieu thereof.
(G) The definition of "CD Margin" set forth in Section
2.07(b) of the Agreement is amended to read in its entirety as follows:
"CD Margin" means (i) 0.295% for any day on which
Level I Status exists, (ii) 0.325% for any day on which Level
II Status exists, (iii) 0.375% for any day on which Level III
Status exists, (iv) 0.425% for any day on which Level IV
Status exists and (v) 0.500% for any day on which Level V
Status exists.
(H) The definition of "Euro-Dollar Margin" set forth in
Section 2.07(c) of the Agreement is amended to read in its entirety as follows:
"Euro-Dollar Margin" means (i) 0.170% for any day on
which Level I Status exists, (ii) 0.20% for any day on which
Level II Status exists, (iii) 0.250% for any day on which
Level III Status exists, (iv) 0.30% for any day on which Level
IV Status exists and (v) 0.375% for any day on which Level V
Status exists.
(I) The definition of "Facility Fee Rate" set forth in Section
2.08(a) of the Agreement is amended to read in its entirety as follows:
"Facility Fee Rate" means (i) 0.080% per annum for
any day on which Level I Status exists, (ii) 0.10% per annum
for any day on which Level II Status exists, (iii) 0.125% per
annum for any day on which Level III Status exists, (iv)
0.175% per annum for any day on which Level IV Status exists
and (v) 0.250% per annum for any day on which Level V Status
exists.
(J) Section 2.08(b) of the Agreement is deleted and left
intentionally blank.
(K) Section 5.07 of the Agreement is amended to read in its
entirety as follows:
SECTION 5.07 Subsidiary Debt. The Borrower will not
<PAGE> 3
permit any Subsidiary to incur or suffer to exist any Debt
(excluding Debt owed to the Borrower or a Wholly-Owned
Subsidiary) in excess of 20% of Consolidated Net Worth at any
time in the aggregate for all Subsidiaries.
3. Representations. The Borrower hereby confirms and repeats
each of the representations and warranties set forth in the Agreement on
and as of the date of this Amendment as if made on and as of such date and
as if each reference therein to the Agreement referred to the Agreement as
modified hereby, and represents and warrants that no Event of Default or other
event which, with the giving of notice or the lapse of time, or both, would
constitute such an Event of Default has occurred and is continuing.
4. Agreement as Amended. Except as expressly amended hereby, the
Agreement shall continue in full force and effect in accordance with the terms
thereof.
5. Governing Law. This Amendment, and the Agreement as amended
hereby, shall be construed in accordance with and governed by the laws of the
State of New York.
6. Severability. In case any one or more of the provisions
contained in this Amendment would be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
7.Counterparts; Effective Date. This amendment may be executed in
any number of counterparts, each of which shall constitute an original but all
of which when taken together shall constitute one and the same instrument.
This Amendment shall become effective as of the date first above written upon
receipt by the Agent of (i) counterparts hereof executed by each of the parties
hereto and (ii) the Notes, duly executed and delivered by the Borrower,
evidencing the increased Commitments of the Banks and the obligation of the
Borrower to repay any Loans.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers as of the day and year first
above written.
ALLERGAN, INC.
By: /s/ JEFFREY L. EDWARDS
---------------------------------
Vice President & Treasurer
<PAGE> 4
Commitments
$48,375,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ ADAM J. SILVER
----------------------------------
Adam J. Silver
Title: Associate
$46,125,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ MARK F. MILNER
----------------------------------
Mark F. Milner
Title: Managing Director
$46,125,000 CITICORP USA, INC.
By: /s/ BARBARA A. COHEN
----------------------------------
Barbara A. Cohen
Title: Vice President
$28,125,000 ABN AMRO BANK N.V.
LOS ANGELES INTERNATIONAL
BRANCH
By: /s/ JOHN A. MILLER
----------------------------------
John A. Miller
Title: Vice President
By: /s/ ELLEN M. COLEMAN
----------------------------------
Ellen M. Coleman
Title: Assistant Vice President
<PAGE> 5
$28,125,000 UNION BANK OF SWITZERLAND
By: /s/ THOMAS G. JACKSON
----------------------------------
Thomas G. Jackson
Title: First Vice President
By: /s/ PETER S. HUMBER
----------------------------------
Peter S. Humber
Title: Vice President
$28,125,000 WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ TERRY L. AKINS
----------------------------------
Terry L. Akins
Title: Senior Vice President
Total Commitments
$225,000,000
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, As Agent
By: /s/ ADAM J. SILVER
----------------------------------
Adam J. Silver
Title: Associate
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
As Co-Agent
By: /s/ MARK F. MILNER
----------------------------------
Mark F. Milner
Title: Managing Director
<PAGE> 1
EXHIBIT 10.15
ALLERGAN, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
As of January 1, 1995
<PAGE> 2
DRAFT 10/19/94
ALLERGAN, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
INTRODUCTION
1.1 Purpose. The Allergan, Inc. Executive Deferred Compensation Plan is
hereby established by the Board of Directors of Allergan, Inc., a Delaware
corporation, to provide deferred compensation benefits to selected executive
and management employees of the Company as more fully provided herein. The
benefits provided under this Plan are intended to be in addition to other
employee benefit programs offered by the Company, including but not limited to
tax-qualified employee benefit plans.
1.2 Effective Date and Term. This Plan is adopted effective as of January
1, 1995 and shall continue in effect until terminated by the Board of
Directors.
1.3 Applicability of ERISA. This Plan is intended to be a "top-hat" plan
- -- that is, an unfunded plan maintained primarily for the purpose of providing
deferred compensation to a select group of management or highly compensated
employees within the meaning of ERISA.
ARTICLE II
DEFINITIONS
2.1 Annual Deferral. "Annual Deferral" means the amount of Base Salary or
Bonuses which the Participant elects to defer in each Deferral Period pursuant
to Article 3.1 of the Plan.
2.2 Base Salary. "Base Salary" means the Participant's annual basic rate
of pay from the Company (excluding Bonuses, commissions, and other non-
<PAGE> 3
DRAFT 10/19/94
regular forms of compensation) before reductions for deferrals under this Plan,
the Savings and Investment Plan, or "cafeteria plan" under Section 125 of the
Code.
2.3 Beneficiary. "Beneficiary" means the person or persons or entity
designated as such in accordance with Article XVI of the Plan.
2.4 Board; Board of Directors. "Board" and "Board of Directors" each mean
the Board of Directors of the Company. The Organization and Compensation
Committee of the Board, or any successor thereto, shall exercise any and all
rights, duties and obligations that are retained by or assigned to the Board
under the Plan.
2.5 Bonuses. "Bonuses" means non-salary amounts earned by the Participant
that are designated as bonuses. Bonuses shall be treated as earned in the
Deferral Period designated by the Committee even though they may be paid in the
subsequent Deferral Period in accordance with Company policy or practice.
2.6 Code. "Code" means the Internal Revenue Code of 1986, as amended.
2.7 Committee. "Committee" means the committee authorized to administer
this Plan as set forth in Section 13.1 hereof.
2.8 Company. "Company" means Allergan, Inc., a Delaware corporation, and
each Affiliated Company (as defined in the Savings and Investment Plan)
designated by the Board of Directors.
2.9 Declared Rate. "Declared Rate" means one hundred percent (100%) of
the ten-year Treasury Note one hundred twenty (120) month rolling average to be
determined on December 15 of each Plan Year and made applicable for the next
following Plan Year.
2.10 Deferral Account. "Deferral Account" means the account established
for a Participant pursuant to Section 5.1 of the Plan.
2.11 Deferral Election. "Deferral Election" means the election made by the
Participant pursuant to the terms of Section 4.1 of the Plan.
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DRAFT 10/19/94
2.12 Deferral Election Form. "Deferral Election Form" means the written
agreement to defer Salary or Bonuses made by the Participant. Such written
agreement shall be in a format designated by the Committee.
2.13 Deferral Period. "Deferral Period" means the Plan Year or, in the
case of a newly hired or promoted employee who becomes an Eligible Employee
during a Plan Year, the remaining portion of the Plan Year.
2.14 Disability. "Disability" means any injury, illness or condition that
constitutes a disability that qualifies for payment under the Company's
Long-Term Disability Plan.
2.15 Early Retirement Date. "Early Retirement Date" means the
Participant's fifty-fifth (55th) birthday or, if later, the date on which the
Participant completes at least five (5) years of Credited Service (as defined
in the Savings and Investment Plan).
2.16 Effective Date. "Effective Date" means January 1, 1995.
2.17 Eligible Employee. "Eligible Employee" means an employee of the
Company who is a U.S. local or U.S. based expatriate that is either exempt
grade 9E and above or is employed in another executive or management position
as approved by the Committee. An employee shall be treated as an Eligible
Employee only upon selection and notification in writing of such status by the
Committee. An employee shall cease to be an Eligible Employee if he or she is
demoted below exempt grade 9E, except that any Deferral Election which has been
made (and deferrals having commenced) may be completed.
2.18 Employee Stock Ownership Plan. "Employee Stock Ownership Plan" means
the Allergan, Inc. Employee Stock Ownership Plan, as amended.
2.19 ERISA. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.20 Financial Hardship. "Financial Hardship" means an unexpected and
significant need for cash (which cannot be met reasonably and contemporaneously
from other sources) arising from an illness, casualty loss, sudden financial
reversal, or other such unforeseeable occurrence as determined by the Committee
in its sole
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<PAGE> 5
DRAFT 10/19/94
discretion. Cash needs arising from foreseeable events or discretionary
expenditures such as the purchase of a residence or education expenses for
children shall not, alone, be considered a Financial Hardship.
2.21 In-Service Distribution. "In-Service Distribution" means a
distribution elected by the Participant pursuant to Article X of the Plan.
2.22 Normal Retirement Date. "Normal Retirement Date" means the last day
of the calendar month in which Participant's sixty-fifth (65th) birthday occurs
or, if later, the date on which the Participant completes at least one (1) year
of Credited Service (as defined in the Savings and Investment Plan).
2.23 Participant. "Participant" means any Eligible Employee who commences
participation in this Plan as provided under Section 3.1 hereof.
2.24 Participation Agreement. "Participation Agreement" means the written
agreement that an Eligible Employee must complete and submit in order to
commence participation in the Plan. Such written agreement shall be in a
format designated by the Committee.
2.25 Pension Plan. "Pension Plan" means the Allergan, Inc. Pension Plan as
amended.
2.26 Plan. "Plan" means this Allergan, Inc. Executive Deferred
Compensation Plan adopted as of the Effective Date hereof and as it may be
amended from time to time.
2.27 Plan Year. "Plan Year" means the calendar year.
2.28 Retirement Rate. "Retirement Rate" means one hundred twenty percent
(120%) of the ten-year Treasury Note one hundred twenty (120) month rolling
average to be determined on December 15 of each Plan Year and made applicable
for the next following Plan Year.
2.29 Savings and Investment Plan. "Savings and Investment Plan" means the
Allergan, Inc. Savings and Investment Plan, as amended.
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<PAGE> 6
DRAFT 10/19/94
2.30 Termination; Termination of Employment. "Termination" or "Termination
of Employment" means the termination of a Participant's employment with the
Company for any reason whatsoever, whether voluntary or involuntary.
2.31 Unscheduled Withdrawal. "Unscheduled Withdrawal" means a distribution
requested by the Participant and approved by the Committee pursuant to Article
XI of the Plan.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Participation - Eligibility and Initial Period. Participation in this
Plan is open only to Eligible Employees of the Company (as defined in Section
2.17). Each Eligible Employee of the Company, as of the Effective Date hereof,
may become a Participant for the Deferral Period commencing on the Effective
Date if he or she submits a properly completed Participation Agreement and
Deferral Election Form to the Committee prior to January 1, 1995. Any employee
of the Company who becomes, subsequent to the Effective Date hereof, an
Eligible Employee, e.g., newly hired or promoted employees in an eligible
category, shall become a Participant commencing thirty (30) days after
attaining eligibility if he or she submits a properly completed Participation
Agreement and Deferral Election Form (for the remainder of the Deferral Period
in progress) to the Committee within such thirty (30) day period.
3.2 Participation - Subsequent Entry into Plan. An Eligible Employee who
does not elect to become a Participant at the time of initial eligibility as
set forth in Section 3.1 shall remain eligible to become a Participant
subsequently as long as he or she continues his or her status as an Eligible
Employee. In such event, the Eligible Employee may become a Participant if he
or she submits a properly completed Participant Agreement and Deferral Election
Form prior to January 1 of the Deferral Period for which it is effective.
-5-
<PAGE> 7
DRAFT 10/19/94
ARTICLE IV
DEFERRAL ELECTIONS
4.1 Deferral Election. For each Deferral Period after initial
participation commences, a Participant may make a Deferral Election on a
voluntary basis by properly completing and submitting a Deferral Election Form
prior to the first day (January 1) of the Deferral Period for which the
Deferral Election is effective. A Participant shall not be obligated to make a
Deferral Election in each Deferral Period, and (subject to the requirements set
forth in Sections 4.2 and 4.3 below) a Participant may change the amount of
each future Deferral Election. Once a Deferral Period commences for which a
Deferral Election is made, such Deferral Election shall continue for the entire
Deferral Period except that it shall terminate on Termination of Employment or
as otherwise provided in Section 4.4 or Article XI.
4.2 Maximum Deferral Election. A Participant may elect in the Deferral
Election Form to defer up to fifty percent (50%) of Base Salary or one hundred
percent (100%) of Bonuses earned during the Deferral Period. The Participant
may also elect to defer a specified dollar amount or a percentage of Bonuses
earned during the Deferral Period but limited to the extent such Bonuses exceed
a specified dollar amount. A Deferral Election shall be automatically reduced
or adjusted if the Committee determines that such action is necessary or
appropriate to meet Federal or State tax withholding obligations.
4.3 Minimum Deferral Election. In order for a Deferral Election Form to
be valid, the Participant must elect to defer at least five thousand dollars
($5,000) (or such other amount as may be designated by the Committee) in the
Deferral Period from either Base Salary or Bonuses or a combination of Base
Salary and Bonuses. Thus, Deferral Elections of Base Salary and Bonuses for
the same Deferral Period shall be aggregated for the purpose of determining
whether the Participant has elected at least the minimum Deferral Election.
In determining whether the Participant has made the minimum Deferral
Election, if the amount is stated in the form of a percentage of Base Salary or
Bonuses, the adequacy of the deferral shall be based on the Base Salary and
Bonuses earned by the Participant in the Plan Year immediately preceding the
Deferral Period. The Committee may, in its sole discretion, permit
Participants to elect to defer amounts in the form of a percentage based on
anticipated Base Salary and Bonuses.
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<PAGE> 8
DRAFT 10/19/94
4.4 Termination of Deferral. If it is evident that a Participant has not
or will not actually defer the minimum Deferral Election required by Section
4.3 (whether due to Termination of Employment or otherwise), the Committee may,
in its sole discretion, terminate the Deferral Election and distribute the
portion of the Participant's Deferral Account attributable to such Deferral
Election in a single lump sum payment with interest credited to the last day of
the month preceding distribution at the prime rate announced by Bank of
America, N.A.
ARTICLE V
DEFERRAL ACCOUNTS
5.1 Deferral Accounts. Solely for record keeping purposes, a Deferral
Account shall be maintained for each Participant. The Deferral Account shall
be credited with (i) the Annual Deferrals at the time such amounts would
otherwise have been paid to the Participant, and (ii) a Plan Restoration
Credit. The "Plan Restoration Credit" shall be equal to the dollar amount of
the employer contributions to, or allocations (other than trust income or
earnings) made under, the Savings and Investment Plan and the Employee Stock
Ownership Plan, if any, that would have been contributed or allocated on behalf
of the Participant but that are otherwise not contributed or allocated because
of Deferral Elections made under this Plan. In applying the preceding
sentence, (i) the Committee shall make the Plan Restoration Credit contingent
on vesting in such amounts under the Savings and Investment Plan and the
Employee Stock Ownership Plan, and (ii) the contribution or allocation rate for
purposes of the Employee Stock Ownership Plan shall be deemed to be one and
one-half percent (1 1/2%).
5.2 Interest on Deferral Accounts. The Deferral Account of a Participant
shall be credited each month with interest which shall be compounded on an
annual basis. The rate of interest shall be calculated on two methods -- the
Declared Rate and the Retirement Rate. The Declared Rate shall apply to the
payment of designated benefits under the Plan, except in cases where this Plan
otherwise specifically provides for the crediting of interest at the Retirement
Rate, e.g., Article VI (Retirement Benefits), Article VIII (Death Benefits), or
Article XIV (Change in Control).
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<PAGE> 9
DRAFT 10/19/94
5.3 Statement of Accounts. The Committee shall provide to each
Participant a quarterly statement setting forth the balance of the Deferral
Account maintained for such Participant. While the quarterly statement shall
present the Deferral Account with interest at both the Declared Rate and the
Retirement Rate, the provisions of the Plan shall govern exclusively the actual
rate of interest to be credited and paid.
ARTICLE VI
RETIREMENT BENEFITS
6.1 Entitlement to Deferral Accounts. Upon Termination of Employment on
or after Early Retirement Date or Normal Retirement Date, the Company shall pay
to the Participant a retirement benefit, in the form and manner provided in
Section 6.2 below, equal to the balance of the Participant's Deferral Account
with interest credited at the Retirement Rate.
6.2 Form of Retirement Benefits. The retirement benefit shall be paid in
one hundred eighty (180) substantially equal monthly installments unless the
Participant elects in the Participation Agreement to have the retirement
benefit paid in either a single lump sum or in sixty (60) or one hundred twenty
(120) substantially equal monthly installments.
6.3 Time of Commencement. A Participant may elect in the Participation
Agreement to have payments begin within sixty (60) days following the date of
Termination of Employment or, alternatively, (a) on the first business day of
January of the next following calendar year or (b) on the first business day of
January of a later year (not to exceed ten (10) years from the date of
Termination of Employment or, if earlier, the year in which the Participant
attains age seventy (70)).
6.4 Change in Payout Timing. A Participant may change his or her
Participation Agreement at any time prior to Termination of Employment in order
to revise the timing of retirement benefits to another method (or over another
period) permitted under Sections 6.2 and 6.3 above. If such a change is made
within thirteen (13) months prior to Termination of Employment (unless
Termination of Employment is on account of Disability), there shall be a ten
percent (10%) penalty charged at the time of change against the Participant's
Deferral Account.
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<PAGE> 10
DRAFT 10/19/94
ARTICLE VII
TERMINATION BENEFITS
7.1 Entitlement to Deferral Accounts. Upon Termination of Employment
prior to Early Retirement Date or Normal Retirement Date, the Company shall pay
to the Participant a termination benefit, in the form and manner provided in
Section 7.2 below, equal to the balance of the Participant's Deferral Account
with interest credited at the Declared Rate.
7.2 Form of Termination Benefits. The termination benefit shall be paid
in a single lump sum payment within sixty (60) days following the date of
Termination of Employment or, if otherwise elected in the Participation
Agreement, either (a) on the first business day of January following
Termination of Employment or (b) if at least ten (10) years has elapsed since
the first day of the first Deferral Period in which participation commences, in
five (5) substantially equal annual installments. If installments are to be
paid under this Section 7.2, they shall commence within sixty (60) days
following the date of Termination of Employment. If (a) or (b) is elected, the
only interest to be credited after the date of Termination of Employment shall
be at eighty percent (80%) of the Declared Rate. Notwithstanding the
foregoing, the Company may, in its sole discretion (except following a Change
in Control as defined in Section 14.2), elect to revise the payment of a single
lump sum and instead to pay the termination benefits over a period of three (3)
years in substantially equal annual installments.
ARTICLE VIII
DEATH BENEFITS
8.1 Death of Employee Prior to Early Retirement Date. If a Participant
dies prior to Termination of Employment and before reaching Early Retirement
Date or Normal Retirement Date, the Participant's Beneficiary will receive
payment of the Participant's Deferral Account in a single lump sum if the
balance is less than fifty thousand dollars ($50,000), and in either a single
lump sum or in sixty (60) substantially equal monthly installments (as elected
by the Participant in his or her
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<PAGE> 11
DRAFT 10/19/94
Participation Agreement) if the balance is fifty thousand dollars ($50,000) or
more. Interest on the Deferral Account not yet paid at death shall be credited
at the Declared Rate.
8.2 Death of Employee on or After Early Retirement Date. If a Participant
dies prior to Termination of Employment and on or after reaching Early
Retirement Date or Normal Retirement Date, the Participant's Beneficiary will
receive payment of the Participant's Deferral Account in a single lump sum
payment or in sixty (60), one hundred twenty (120), or one hundred eighty (180)
substantially equal monthly installments (as elected by the Participant in his
or her Participation Agreement). The Beneficiary may request that the
Committee accelerate installment payments into a single lump sum payment and
the Committee shall decide, in its sole discretion, whether to so accelerate
based on factors, such as the Beneficiary's needs and Plan liquidity, deemed
appropriate under the circumstances by the Committee. Interest on the Deferral
Account not yet paid at death shall be credited at the Retirement Rate.
8.3 Death After Termination of Employment. If a Participant dies after
Termination of Employment, the Participant's Beneficiary will receive payment
of the Participant's Deferral Account (or remaining unpaid portion if
distributions have already begun) in the same manner and in all respects as the
Participant was entitled to receive (if the Participant continued to live)
pursuant to the terms of Article VI (Retirement Benefits) or Article VII
(Termination Benefits) whichever is applicable. Notwithstanding the foregoing,
if, and only if, the Participant dies after having reached Early Retirement
Date or Normal Retirement Date at the time of Termination of Employment, the
Beneficiary may request that the Committee accelerate any remaining installment
payments into a single lump sum payment and the Committee shall decide, in its
sole discretion, whether to so accelerate based on factors, such as the
Beneficiary's needs and Plan liquidity, deemed appropriate under the
circumstances by the Committee.
ARTICLE IX
DISABILITY
9.1 Continuation of Participation. If a Participant suffers a Disability,
the Participant shall be deemed not to incur a Termination of Employment if,
and only
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<PAGE> 12
DRAFT 10/19/94
as long as, he or she continues on the payroll of the Company for Salary or
Bonuses. In such event, the Participant may continue participation in the Plan
on the same basis as other Participants, provided that payments to the
Participant made under programs of the Company for Short-Term Disability,
Long-Term Disability, or sick pay may not be treated as Salary or Bonuses for
purposes of a Deferral Election.
9.2 Crediting of Interest and Financial Hardship Withdrawals. Consistent
with Section 9.1, in determining whether the applicable rate of interest to be
credited is the Declared Rate or the Retirement Rate, and in determining the
availability of a Financial Hardship withdrawal, a Participant who suffers a
Disability shall not be deemed to incur a Termination of Employment until the
time that he or she ceases to receive Salary or Bonuses on the payroll of the
Company.
ARTICLE X
IN-SERVICE DISTRIBUTIONS
10.1 Election to Take In-Service Distributions. A Participant may elect in
each Deferral Election Form, for that particular Deferral Election, to receive
in the future an In-Service Distribution from his or her Deferral Account.
10.2 Maximum In-Service Distribution. An In-Service Distribution may be
stated as a specified dollar amount or as a percentage of up to one hundred
percent (100%) of the amount of the particular Deferral Election. Interest on
any In-Service Distributions shall be credited at the Declared Rate if the
distribution is made prior to the Participant reaching Early Retirement Date or
Normal Retirement Date, and at the Retirement Rate if the distribution is made
on or after the Participant reaches the Early Retirement Date or Normal
Retirement Date. Notwithstanding the election under this Section, if benefit
payments with respect to a Deferral Election are otherwise made at a time
earlier than elected under an In-Service Distribution, for example due to an
Unscheduled Withdrawal, the In-Service Distribution shall be superseded by such
earlier distribution event and shall be reduced or eliminated to such extent.
10.3 Timing of In-Service Distribution. The In-Service Distribution shall
be paid to the Participant in a single lump sum or in four (4) substantially
equal annual
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DRAFT 10/19/94
installments as elected by the Participant in the Deferral Election Form.
However, in no event shall the In-Service Distribution be paid or commence at
the time before the fifth (5th) year following the first business day of the
Deferral Period to which the In-Service Distribution relates.
ARTICLE XI
UNSCHEDULED AND FINANCIAL HARDSHIP WITHDRAWALS
11.1 Unscheduled Withdrawals. A Participant may take Unscheduled
Withdrawals (but no more than one in any Plan Year) from his or her Deferral
Account. The amount of any Unscheduled Withdrawal shall be equal to the
portion of the Deferral Account attributable to one or more Deferral Elections
that have been previously completed and shall include interest credited at the
Declared Rate.
11.2 Financial Hardship Withdrawal. A Participant may request that the
Committee permit him or her to take a withdrawal or withdrawals on account of
Financial Hardship (as defined in Section 2.20). In such event, the Committee
shall determine in its sole discretion whether a Financial Hardship exists and,
if it so determines, whether the Participant should be permitted to take such a
withdrawal. The Committee shall also determine the amount of the permitted
withdrawal, which shall not exceed the amount necessary to address the
Financial Hardship, and whether the Participant must reduce or cease a current
Deferral Election, if any, as a condition for a Financial Hardship withdrawal.
11.3 Penalty for Unscheduled Withdrawals. There shall be a penalty charged
against the Deferral Account of a Participant at the time of an Unscheduled
Withdrawal. The penalty shall be equal to ten percent (10%) of the Unscheduled
Withdrawal, except the penalty shall be five percent (5%) if the Unscheduled
Withdrawal is made within two (2) years following a Change in Control (as
defined in Section 14.2). In addition to the foregoing penalty, upon taking an
Unscheduled Withdrawal a Participant's current Deferral Election, if any, shall
automatically be deemed terminated and the Participant may not make a new
Deferral Election for the next following Deferral Period.
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DRAFT 10/19/94
ARTICLE XII
ADDITIONAL BENEFIT PAYMENT RULES
12.1 Small Benefit Payments. Notwithstanding any other provision of the
Plan, in the event that the payment of a Deferral Account (or total remaining
installments under any method) to a Participant or Beneficiary is ten thousand
dollars ($10,000) or less, the Company may, in its sole discretion, elect to
make such payment(s) in a single lump sum payment as soon as administratively
practicable.
12.2 Constructive Receipt. The Committee may change any election or option
available under the Plan, or the form or timing of any benefit payment, if the
Committee determines, based on the advice of counsel or other consultants to
the Company, that such a change is necessary or advisable in order to avoid or
limit the risk of adverse tax consequences to Participants or Beneficiaries
based on application of the doctrine of "constructive receipt" or a similar
Federal or State tax principle.
12.3 Postponement of Payment. If a distribution of all or part of a
Deferral Account would not be deductible to the Company because of the
restrictions imposed by Section 162(m) of the Code (or any successor
provision), such distribution shall be postponed (to the extent necessary) to
the first business day of the first Plan Year in which the limitation on
deductibility would not apply. Any postponed distribution under this Section
shall be credited with interest at the rate otherwise applicable to the
Deferral Account at the time when the distribution was originally scheduled for
payment.
12.4 Commencement Date and Interest Crediting for Benefit Payments. Unless
the Plan specifically provides otherwise, benefit payments (whether a single
lump sum payment or installments) shall commence to a Participant or
Beneficiary no later than sixty (60) days from the date of the event, e.g.,
Termination of Employment or request for Unscheduled Withdrawal, that gives
rise to such payments. Installment payments shall be made on the same day of
each month or year (depending on whether monthly or annual installments apply)
following the initial payment. Interest on a single lump sum payment or on a
first installment payment shall be credited through the end of the month in
which the date of the event that gives rise to such payment occurs. Interest
on subsequent installment payments shall be credited through the end of the
month preceding payment.
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<PAGE> 15
DRAFT 10/19/94
ARTICLE XIII
ADMINISTRATION OF THE PLAN
13.1 Administration by Committee. This Plan shall be administered by the
same committee (the "Committee") which is appointed to administer the Pension
Plan. A member of the Committee may be a Participant in this Plan; provided,
however, that any action to be taken by the Committee solely with respect to
the particular interest in this Plan of a Committee member shall be taken by
the remaining members of the Committee.
13.2 Committee Authority; Rules and Regulations. The Committee shall have
discretionary authority to (a) make, amend, interpret and enforce all
appropriate rules and regulations for the administration of the Plan, (b)
decide or resolve any and all questions, including interpretations of the Plan,
as may arise in connection with the Plan, and (c) take or approve all such
other actions relating to the Plan (other than amending or terminating the Plan
or making a final determination concerning an application for Plan benefits as
set forth in Section 13.6 hereof); provided, however, that the Board may, by
written notice to the Committee, withdraw all or any part of the Committee's
authority at any time, in which case such withdrawn authority shall immediately
revest in the Board. Subject to Section 13.6 hereof, the decision or action of
the Committee in respect of any question arising out of or in connection with
the administration, interpretation and application of this Plan and the rules
and regulations promulgated hereunder shall be final, conclusive and binding
upon all persons having any interest in the Plan.
13.3 Appointment of Agents. In the administration of the Plan, the Board
and the Committee may from time to time employ agents (which may include
officers and employees of the Company) and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel who may be
counsel to the Company.
13.4 Application for Benefits. The Committee may require any person
claiming benefits under the Plan to submit an application therefor, together
with such documents and information as the Committee may require. In the case
of any person suffering from a disability or other condition which prevents
such person from making personal application for benefits, the Committee may,
in its discretion, permit application to be made by another person acting on
his or her behalf. Notwithstanding
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<PAGE> 16
DRAFT 10/19/94
the foregoing, if the Committee shall have all information necessary to
determine the amount and form of Plan benefits payable to a Participant or
Beneficiary who is entitled to benefit payments under this Plan (including, to
the extent applicable and without limiting the generality of the foregoing, the
name, age, sex and proper mailing address of all parties entitled to benefit
payments), then the failure of a Participant or Beneficiary to file an
application for benefits shall not cause the Committee to defer the
commencement of benefit payments beyond the benefit commencement date required
under this Plan.
13.5 Action on Application. Within sixty (60) days following receipt of an
application and all necessary documents and information, the Committee shall
furnish the claimant with written notice of the decision rendered with respect
to such application. Should special circumstances require an extension of time
for processing the claim, written notice of the extension shall be furnished to
the claimant prior to the expiration of the initial sixty (60) day period. The
notice shall indicate the special circumstances requiring an extension of time
and the date by which a final decision is expected to be rendered. In no event
shall the period of the extension exceed ninety (90) days from the end of the
initial sixty (60) day period. In the case of a denial of the claimant's
application, the written notice thereof shall set forth specific reasons for
the denial, with references to the Plan provisions upon which the denial is
based, a description of any additional information or material necessary to
perfect the application (together with an explanation why such material or
information is necessary), and an explanation of the Plan's claim review
procedure.
13.6 Appeal of Committee Decision.
(a) A claimant who does not agree with the decision rendered by the
Committee with respect to his application may appeal such decision to the
Board. The appeal must be in writing and must be filed with the Board within
sixty-five (65) days after the date of notice of the Committee's decision with
respect to the application, or, if the application has neither been approved
nor denied within the applicable period provided in Section 13.5 hereof, then
the appeal must be filed within sixty-five (65) days after the expiration of
such applicable period.
(b) The claimant may request that his or her application be given full
and fair review by the Board. The claimant may review all pertinent documents
and submit issues and comments to the Board in writing in connection with the
appeal. The decision of the Board shall be made promptly, and not later than
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<PAGE> 17
DRAFT 10/19/94
sixty (60) days after the Board's receipt of a request for review and all
supporting documentation and information to be submitted by the claimant,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of a request for review and such
supporting documentation and information. The Board's decision on review shall
be in writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, with specific reference to
the pertinent Plan provisions upon which the decision is based.
ARTICLE XIV
CHANGE IN CONTROL
14.1 Effect of a Change in Control. Notwithstanding any other provision of
the Plan, in the event that a Change in Control (as defined in Section 14.2)
occurs on or after the Effective Date hereof, each Participant shall be
entitled to have interest credited for all purposes under the Plan at the
Retirement Rate if (a) he or she has a Termination of Employment within
twenty-four (24) months after the date such Change in Control occurs and (b)
the Termination of Employment constitutes a "Qualified Termination" under the
Company's Change in Control policies in effect immediately prior to the Change
in Control. In addition, notwithstanding Section 16.6, the Company may not,
after a Change in Control, amend the Plan to change downward the method of
determining the interest rate to be credited to the Deferral Accounts of
Participants thereafter without the written consent of such Participants.
14.2 Change in Control. As used in this Plan, "Change in Control" shall
mean the following and shall be deemed to occur if any of the following events
occur:
(a) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding voting securities;
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<PAGE> 18
DRAFT 10/19/94
(b) Individuals who, as of the Effective Date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors, provided that any person
becoming a director subsequent to the Effective Date hereof whose election, or
nomination for election by the Company's stockholders, is approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for the
purposes of this Plan, be considered as though such person were a member of the
Incumbent Board of the Company;
(c) The stockholders of the Company approve a merger or
consolidation with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another entity) more than eighty
percent (80%) of the combined voting power of the voting securities
of the Company or such other entity outstanding immediately after
such merger or consolidation, and
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no person acquires twenty percent (20%) or more of the combined
voting power of the Company's then outstanding voting securities; or
(d) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or other disposition by
the Company of all or substantially all of the Company's assets.
Notwithstanding the preceding provisions of this Section 14.2, a Change in
Control shall not be deemed to have occurred (1) if the "person" described in
the preceding provisions of this Section 14.2 is an underwriter or underwriting
syndicate that has acquired the ownership of twenty percent (20%) or more of
the combined voting power of the Company's then outstanding voting securities
solely in connection with
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<PAGE> 19
DRAFT 10/19/94
a public offering of the Company's securities, or (2) if the "person" described
in the preceding provisions of this Section 14.2 is an employee stock ownership
plan or other employee benefit plan maintained by the Company (or any of its
affiliated companies) that is qualified under the provisions of the Code.
ARTICLE XV
ESTABLISHMENT OF TRUST AND INSURANCE CONTRACTS
15.1 Establishment of Trust. Contemporaneous with the adoption of this
Plan, the Company has established the Trust Agreement for Allergan, Inc.
Executive Deferred Compensation Plan (the "Trust" or "Trust Agreement"). The
Trust created thereunder is a grantor trust within the meaning of subpart E,
part I, subchapter J, chapter 1, subtitle A of the Code. Mellon Bank, N.A. has
been named as Trustee under such Trust Agreement. The provisions of the Trust
Agreement are incorporated herein by reference.
15.2 Funding of Trust. All amounts of Base Salary or Bonuses that are
subject to Deferral Elections by Participants under this Plan shall be
contributed by the Company to the Trust at or about the same time as such
amounts are credited to the Deferral Accounts of Participants.
15.3 Investment in Insurance Contracts. The Committee shall direct the
Trustee to invest the majority or all of the assets of the Trust in life
insurance contracts, to be selected by the Committee, on the lives of
Participants. In order for a Participant's Participation Agreement to be
effective, the Committee may require that each Participant cooperate in signing
an insurance application, submit to medical examination, and provide any
relevant information to third parties, including the insurance company(ies) or
outside consultants. Such information shall be held in confidence by those who
receive it and such information shall not be provided to the Committee or the
Company. Participation shall not be denied to an Eligible Employee because he
or she is not insurable or must be rated in order for insurance to be issued.
Notwithstanding any other provision in this Plan, if insurance is denied or
discontinued because a Participant fails to disclose (or makes a material
misrepresentation) of medical or other information, or if the Participant
commits suicide during the first two (2) years of participation in the Plan,
any amounts which are deferred by the Participant under a Deferral Election
shall be repaid to the Participant with interest
-18-
<PAGE> 20
DRAFT 10/19/94
credited at eighty percent (80%) of the Declared Rate and no other benefits
shall be due to Participant.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 Designation of Beneficiary. A Participant shall be entitled to
designate one or more individuals or entities, in any combination, as his or
her "Beneficiary" or "Beneficiaries" to receive any Plan payments to which such
Participant is entitled as of, or by reason of, his or her death. Any such
designation may be made or changed at any time prior to the Participant's death
by written notice filed with the Committee, with such written notice to be in
such form and contain such information as the Committee may from time to time
determine. In the event that either (a) a Beneficiary designation is not on
file at the date of a Participant's death, (b) no Beneficiary survives the
Participant, or (c) no Beneficiary is living at the time any payment becomes
payable under this Plan, then, for purposes of making any further payment of
any unpaid benefits under this Plan, such Participant's Beneficiary or
Beneficiaries shall be deemed to be the estate of the Participant.
16.2 Payments During Incapacity. In the event a Participant (or
Beneficiary) is under mental or physical incapacity at the time of any payment
to be made to such Participant (or Beneficiary) pursuant to this Plan, any such
payment may be made to the conservator or other legally appointed personal
representative having authority over and responsibility for the person or
estate of such Participant (or Beneficiary), as the case may be, and for
purposes of such payment references in this Plan to the Participant (or
Beneficiary) shall mean and refer to such conservator or other personal
representative, whichever is applicable. In the absence of any lawfully
appointed conservator or other personal representative of the person or estate
of the Participant (or Beneficiary), any such payment may be made to any person
or institution that has apparent responsibility for the person and/or estate of
the Participant (or Beneficiary) as determined by the Committee. Any payment
made in accordance with the provisions of this Section 16.2 to a person or
institution other than the Participant (or Beneficiary) shall be deemed for all
purposes of this Plan as the equivalent of a payment to such Participant (or
Beneficiary), and the Company shall have no further obligation or
responsibility with respect to such payment.
-19-
<PAGE> 21
DRAFT 10/19/94
16.3 Prohibition Against Assignment. Except as otherwise expressly
provided in Sections 16.1 and 16.2 hereof, the rights, interests and benefits
of a Participant under this Plan (a) may not be sold, assigned, transferred,
pledged, hypothecated, gifted, bequeathed or otherwise disposed of to any other
party by such Participant or any Beneficiary, executor, administrator, heir,
distributee or other person claiming under such Participant, and (b) shall not
be subject to execution, attachment or similar process. Any attempted sale,
assignment, transfer, pledge, hypothecation, gift, bequest or other disposition
of such rights, interests or benefits contrary to the foregoing provisions of
this Section 16.3 shall be null and void and without effect.
16.4 Binding Effect. The provisions of this Plan shall be binding upon the
Company, the Participants and any successor-in-interest to the Company or to
any Participant.
16.5 No Transfer of Interest. Other than as provided in Article XV and in
the Trust Agreement, benefits under this Plan shall be payable solely from the
general assets of the Company and no person shall be entitled to look to any
source for payment of such benefits other than the general assets of the
Company. The Company shall have and possess all title to, and beneficial
interest in, any and all funds or reserves maintained or held by the Company on
account of any obligation to pay benefits as required under this Plan, whether
or not earmarked by the Company as a fund or reserve for such purpose; any such
funds or reserves shall be subject to the claims of the creditors of the
Company, and the provisions of this Plan are not intended to create, and shall
not be interpreted as vesting, in any Participant, Beneficiary or other person,
any right to or beneficial interest in any such funds or reserves.
16.6 Amendment or Termination of the Plan. The Company, by action of its
Board of Directors, may amend this Plan from time to time in any respect that
it deems appropriate or desirable, and may terminate this Plan at any time;
provided, however, that any such Plan amendment or Plan termination shall not,
without a Participant's written consent, be given effect with respect to such
Participant to the extent such Plan amendment or Plan termination operates to
reduce or eliminate (except to the extent that amounts are distributed under
the Plan) such Participant's Deferral Account as of the date of such amendment
or termination. In addition, if the Board amends the Plan so as to make a
change in the formula for determining the interest rate to be credited under
the Plan, such amendment shall not become effective until thirty (30) days
advance written notice is given to Participants.
-20-
<PAGE> 22
DRAFT 10/19/94
16.7 No Right to Employment. This Plan is voluntary on the part of the
Company, and the Plan shall not be deemed to constitute an employment contract
between the Company and any Participant, nor shall the adoption or existence of
the Plan or any provision contained in the Plan be deemed to be a required
condition of the employment of any Participant. Nothing contained in this Plan
shall be deemed to give any Participant the right to continued employment with
the Company, and the Company may terminate any Participant at any time, in
which case the Participant's rights arising under this Plan shall be only those
expressly provided under the terms of this Plan.
16.8 Notices. All notices, requests, or other communications (hereinafter
collectively referred to as "Notices") required or permitted to be given
hereunder or which are given with respect to this Plan shall be in writing and
may be personally delivered, or may be deposited in the United States mail,
postage prepaid and addressed as follows:
To the Company Allergan, Inc.
or the Committee at: Attention: Administrative Committee
(Executive Deferred Compensation Plan)
2525 Dupont Drive
Irvine, CA 92715-1599
To Participant at: The Participant's residential mailing address as
reflected in the Company's employment records
A Notice which is delivered personally shall be deemed given as of the date of
personal delivery, and a Notice mailed as provided herein shall be deemed given
on the second business day following the date so mailed. Any Participant may
change his or her address for purposes of Notices hereunder pursuant to a
Notice to the Committee, given as provided herein, advising the Committee of
such change. The Company and/or the Committee may at any time change its
address for purposes of Notices hereunder pursuant to a Notice to all
Participants, given as provided herein, advising the Participants of such
change.
16.9 Governing Law. This Plan shall be governed by, interpreted under, and
construed and enforced in accordance with ERISA and, to the extent applicable,
the internal laws (and not the laws pertaining to conflicts or choice of laws),
of the
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<PAGE> 23
DRAFT 10/19/94
State of California applicable to agreements made and to be performed wholly
within the State of California.
16.10 Titles and Headings; Gender of Terms. Article and Section headings
herein are for reference purposes only and shall not be deemed to be part of
the substance of this Plan or in any way to enlarge or limit the meaning or
interpretation of any provision in this Plan. Use in this Plan of the
masculine, feminine or neuter gender shall be deemed to include each of the
omitted genders if the context so requires.
16.11 Severability. In the event that any provision of this Plan is found
to be invalid or otherwise unenforceable by a court or other tribunal of
competent jurisdiction, such invalidity or unenforceability shall not be
construed as rendering any other provision contained herein invalid or
unenforceable, and all such other provisions shall be given full force and
effect to the same extent as though the invalid and unenforceable provision was
not contained herein.
16.12 Tax Effect of Plan. The Company does not warrant any tax benefit nor
any financial benefit under the Plan. Without limiting the foregoing,
directors, officers, and employees of the Company (other than in their capacity
as Participants) shall be held harmless by the Company from, and shall not be
subject to any liability on account of, any Federal or State tax consequences
or any consequences under ERISA of any determination as to the amount of Plan
benefits to be paid, the method by which Plan benefits are paid, the persons to
whom Plan benefits are paid, or the commencement or termination of the payment
of Plan benefits.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer effective as of the Effective Date hereof.
ALLERGAN, INC.,
a Delaware corporation
By: _____________________________________
Its: _____________________________________
-22-
<PAGE> 1
ALLERGAN, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Earnings per share of common stock, including common stock equivalents, have
been computed based on the following weighted average number of shares and net
earnings:
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------
(000's, except per share amounts) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the period 63,499 65,953 67,310
Weighted average number of additional shares
issuable in connection with dilutive stock options
based upon use of the treasury stock method
and average market prices 443 204 365
-------- -------- --------
Weighted average number of common shares
including common stock equivalents 63,942 66,157 67,675
======== ======== ========
Net earnings for the year $110,685 $108,877 $103,583
======== ======== ========
Primary earnings per common share $1.73 $1.65 $1.53
===== ===== =====
</TABLE>
In 1994, 1993 and 1992, the difference between shares for primary and fully
diluted earnings per share was not significant.
<PAGE> 1
EXHIBIT 13
ALLERGAN FINANCIAL OVERVIEW
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1994 1993 % Inc.
- ------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Highlights
Net Sales $947.2 $858.9 10%
Earnings from continuing operations 110.7 104.5 6%
Net earnings 110.7 108.9 2%
Per share
Continuing operations 1.73 1.58
Net earnings 1.73 1.65
Dividends 0.42 0.40
Net Sales by Product Line
Eye Care
Pharmaceuticals $390.7 $360.9 8%
Surgical 144.3 115.3 25%
Optical Lens Care 339.4 325.0 4%
------ ------
874.4 801.2 9%
Skin Care 37.3 32.4 15%
Botox 35.5 25.3 40%
------ ------
Total Net Sales $947.2 $858.9 10%
====== ======
Domestic 47.3% 47.5%
International 52.7% 52.5%
Employee Data
Number of employees 4,903 4,749 3%
</TABLE>
Net Sales Earnings per Share from
$ in millions Continuing Operations
947.2 1.73
858.9 1.58
830.7 1.42
761.7 1.31
713.5 1.26
[CHART] [CHART]
- --------------------------------- -----------------------------
1990 1991 1992 1993 1994 1990 1991 1992 1993 1994
Research & Development Expenditures SG&A Expenses as a Percentage of Sales
$ in millions
111.5 46.8
102.5 44.0 43.7
89.5 42.2
70.4 41.4
62.5
[CHART] [CHART]
- ------------------------------ ----------------------------
1990 1991 1992 1993 1994 1990 1991 1992 1993 1994
<PAGE> 2
ALLERGAN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1994
This financial review presents the Company's operating results for each of the
three years in the period ended December 31, 1994, and its financial condition
at December 31, 1994. This review should be read in connection with the
information presented in the Consolidated Financial Statements and the related
Notes to the Consolidated Financial Statements. In the fourth quarter of 1992,
the Company sold its North and South American contact lens business. In the
third quarter of 1993, the Company sold the remainder of the contact lens
business. The divestiture of the contact lens business, together with the prior
operating results of that division are presented in the Company's financial
results as a discontinued operation. In September 1994, the Company acquired
the assets of Ioptex Research Inc. (Ioptex), a producer of intraocular lenses
(IOLs). See Notes 2 and 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Net Sales
Net sales for 1994 were $947.2 million, which was an increase of $88.3 million
or 10% over 1993. Sales of Ioptex products contributed $6.9 million to 1994
sales. Net sales for 1993 were $858.9 million, which was an increase of 3% over
1992. On a geographical basis, Company-wide sales in markets outside the United
States continue to represent an increasing portion of the Company's sales,
growing from 52% in 1992 to 53% in 1993 and 1994. Foreign currency fluctuations
in 1994 increased sales by $2.0 million as compared to average rates in effect
throughout 1993. Foreign currency fluctuations in 1993 decreased sales by $38.5
million or 5% as compared to average rates in effect throughout 1992. Sales
growth rates on a comparable exchange rate basis were 10% in 1994 and 8% in
1993.
The following table sets forth, for the periods indicated, net sales by major
product line.
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1994 1993 1992
- ------------------------------------------------
<S> <C> <C> <C>
Eye Care
Pharmaceuticals $390.7 $360.9 $339.7
Surgical 144.3 115.3 111.8
Optical Lens Care 339.4 325.0 322.4
------ ------ ------
874.4 801.2 773.9
Skin Care 37.3 32.4 37.3
Botox 35.5 25.3 19.5
------ ------ ------
Total Net Sales $947.2 $858.9 $830.7
====== ====== ======
Domestic 47.3% 47.5% 47.9%
International 52.7% 52.5% 52.1%
</TABLE>
Eye Care Pharmaceutical Sales
$ in millions
390.7
360.9
339.7
305.1
277.4
[CHART]
---------------------------------
1990 1991 1992 1993 1994
Eye Care pharmaceutical sales include a broad range of products for glaucoma
therapy, ocular inflammation, infection, allergy and dry eye. Eye Care
pharmaceutical sales increased by 8% in 1994 compared to 1993 and by 6% in 1993
compared to 1992. The largest sales volume products in this product line are
glaucoma therapy products, including Betagan and Propine ophthalmic solutions.
Sales of Betagan and Propine were comparable to the prior year due to the
introduction of generic versions of these products by the Company and others in
1994 in the United States. U.S. sales growth in 1994 in glaucoma therapy
products was the result of sales of generic versions of these products
introduced in 1994. Sales growth in 1993 was primarily the result of the
introduction of Acular solution in the United States. Price increases in the
U.S. market in 1994 and 1993 have also contributed to sales growth. In the
international markets, expansion into new markets, continuing introductions of
new products and sales of existing products favorably impacted sales in 1994
and 1993.
Surgical Sales
$ in millions
144.3
115.3
111.1 111.8
108.2
[CHART]
-------------------------------
1990 1991 1992 1993 1994
Surgical sales represent products for the ophthalmic surgical market, including
IOLs, pharmaceuticals and other products related to cataract surgery. Surgical
sales
<PAGE> 3
increased 25% in 1994 compared to 1993 and by 3% in 1993 compared to 1992.
Domestic sales increased by 18% in 1994 after declining 3% in 1993, while sales
in international markets increased by 36% in 1994 and 14% in 1993. Total IOL
unit sales in the U.S. market increased 42% in 1994 after decreasing 5% in
1993. Silicone IOL unit sales in the U.S. market increased by 48% in 1994 and
12% in 1993, offsetting the weakness in the PMMA IOL market in 1993. The
Company introduced a new silicone IOL, the SI-30NB, in 1993. Strong market
demand for this new product was a significant contributor to sales growth in
1994, particularly in international markets. Four months of sales of Ioptex
products totaling $6.9 million are also included in 1994 results. The decline
in U.S. sales in 1993 was primarily the result of a decline in PMMA IOL sales
offset by growth in sales of surgical adjunct products. Competitive pressures
in the U.S. market have resulted in declines in average selling prices of IOLs
in both 1994 and 1993.
Optical Lens Care Sales
$ in millions
339.4
325.0
322.4
299.3
291.8
[CHART]
---------------------------------
1990 1991 1992 1993 1994
Optical Lens Care sales increased by 4% from 1993 to 1994 and by 1% from 1992
to 1993. Increased sales in international markets were offset by declines in
sales in U.S. markets in both 1994 and 1993. Domestic sales decreased by 4% in
both 1994 and 1993. Such decreases were the result of continuing competitive
pressures within the U.S. contact lens care market including, among other
things, the introduction of disposable contact lenses and lens disinfection
systems that are easier to use. In 1992, the Company introduced a new contact
lens disinfection system marketed in the United States under the name
UltraCare, which slowed the overall decrease in U.S. sales in 1993. In 1994,
the Company introduced Complete brand multi-purpose one-bottle lens
disinfection system in the United States. Sales of Complete and growth in sales
of UltraCare in 1994 partially offset declines in sales of other optical lens
care products. International lens care product sales increased by 7% in 1994
compared to 1993 and by 3% in 1993 compared to 1992. International sales
increases were the result of the introduction of UltraCare in 1992,
introduction of Complete in 1993 and increased market penetration. Currency
fluctuations had a strong negative impact on 1993 international sales growth.
Excluding currency fluctuations, international sales increased by 12% from 1992
to 1993.
Skin Care Sales
$ in millions
37.3 37.3
36.5
33.2 32.4
[CHART]
----------------------------
1990 1991 1992 1993 1994
Skin Care sales represent the Company's line of dermatological products. Sales
growth in 1994 was 15% compared to 1993. Such growth was the result of strong
growth in Elimite cream, offset by declines in sales of other products. Sales
in 1993 declined by 13% compared to 1992 as a result of declines in sales of
most skin care products and a decline in contract manufacturing sales, offset
by an increase in sales of Elimite cream. Medicaid rebate costs also increased
in 1993 compared to the prior year.
<PAGE> 4
Botox Sales
$ in millions
35.5
25.3
19.5
12.6
0.0
[CHART]
----------------------------
1990 1991 1992 1993 1994
Botox (Botulinum Toxin Type A) purified neurotoxin complex is the Company's
neuromuscular product. Botox sales growth was 40% in 1994 and 30% in 1993.
Sales growth in both years was the result of increased market penetration in
both the U.S. and international markets.
Income and Expenses
The following table sets forth the relationship to sales of various income
statement items:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 30.3 29.1 29.1
----- ----- -----
Gross margin 69.7 70.9 70.9
Other operating costs and
expenses:
Selling, general and
administrative 41.4 42.2 43.7
Research and development 11.8 11.9 10.8
------ ----- -----
Operating income 16.5 16.8 16.4
Nonoperating income (expense) 0.3 (0.1) (0.6)
----- ----- -----
Earnings from continuing
operations before income
taxes and minority interest 16.8 16.7 15.8
===== ===== =====
Earnings from continuing
operations before cumulative
effect of accounting changes 11.7% 12.2% 11.5%
===== ===== =====
</TABLE>
Gross Margins
The Company's gross margin percentage decreased by 1.2 percentage points from
70.9% in 1993 to 69.7% in 1994. The decline in gross margin percentage was
primarily the result of shifts in product sales mix accompanied by declines in
both IOL unit prices and margins on optical lens care product sales. The gross
margin percentage was unchanged at 70.9% in 1993 and 1992 as a result of
various offsetting changes in prices and costs. Margins decreased as a result
of declines in the average selling price of IOLs and lower average price
increases for pharmaceutical products in 1993 in the U.S. and various European
markets compared to price increases in the prior year. Such decreases were
offset by an overall gross margin percentage increase resulting from a shift in
the mix of sales to higher margin product lines.
Selling, General and Administrative
Selling, general and administrative expenses as a percentage of net sales
decreased in 1994 to 41.4% from 42.2% in 1993 and 43.7% in 1992. Such decreases
are primarily the result of continuing cost reductions and efficiencies
resulting from the realignment of the Company's organization in 1991 and
continued growth in net sales.
Research and Development
Research and development expenses increased by 9% in 1994 to $111.5 million
compared to $102.5 million in 1993. Such expenses in 1993 were $13.0 million or
15% greater than the $89.5 million spent on research and development in 1992.
The 1993 and 1994 increases in research and development expenditures were
primarily in the areas of emerging technologies, such as Botox and
receptor-selective retinoid research. The 1993 and 1994 increases are the
result of increased spending on selected research opportunities in line with
the Company's intent since 1991 to increase research and development and
decrease selling, general and administrative expenses as a percentage of sales.
Research and development expenditures are allocated to each product line, with
higher rates of investments allocated to Eye Care, Botox and Skin Care
pharmaceuticals.
<PAGE> 5
In 1995, the Company anticipates that it will contribute $50.0 million
to a new company that will research and develop drugs based on retinoids. In
exchange, the Company will receive rights to acquire one half of all
technologies and other assets, or all of the stock of such company. The Company
will account for its $50.0 million contribution as a charge to operating expense
at the time of the contribution. See Note 12 to the Consolidated Financial
Statements.
Operating Income
Operating income in 1994 of $156.6 million or 16.5% of sales was $12.0 million
greater than 1993 operating income of $144.6 million or 16.8% of sales. The
increase in operating income from 1993 to 1994 was primarily the result of the
increase in sales. Such increase was offset by the decline in the gross margin
percentage from 70.9% in 1993 to 69.7% in 1994 and the increase in research and
development and selling, general and administrative expenses. The decline in
operating income percentage from 1993 to 1994 was primarily the result of the
decrease in gross margin percentage offset by the decrease in selling, general
and administrative expense as a percent of net sales.
Operating income in 1993 was $144.6 million or 16.8% of net sales compared to
$136.5 million or 16.4% of net sales in 1992. The increase in operating income
from 1992 to 1993 was primarily the result of the increase in sales offset by
the increase in research and development expenses. The increase in the
operating income percentage from 1992 to 1993 was primarily the result of the
decrease in the selling, general and administrative expense percentage offset
by an increase in research and development costs as a percent of net sales.
Earnings from Continuing Operations
Earnings from continuing operations in 1994 were $110.7 million or 11.7% of net
sales compared to $104.5 million or 12.2% of net sales in 1993. The increase in
earnings from continuing operations was primarily the result of the increase in
operating income in 1994 offset by an increase in income taxes. Income taxes
increased as a result of the increase in operating income and an increase in
the effective tax rate from 25% in 1993 to 29% in 1994. The effective tax rate
increased in 1994 as a result of changes in the U.S. tax laws enacted in 1993,
governing taxation of Puerto Rican operations. Earnings from continuing
operations in 1993 were $104.5 million or 12.2% of net sales compared to $95.8
million or 11.5% of net sales in 1992. The increase in 1993 was primarily the
result of the increase in operating income and a $3.6 million decrease in
interest expense, offset by an increase in income taxes resulting from the
increase in income before income taxes. The effective tax rate was unchanged
from 1992 at 25% in 1993.
Net Earnings
Net earnings were $110.7 million in 1994 compared to $108.9 million in 1993.
The 1993 earnings include $4.0 million of earnings from discontinued operations
and $0.4 million from gain on disposal of the discontinued contact lens
business.
Net earnings were $108.9 million in 1993 compared to $103.6 million in 1992.
The increase in net earnings in 1993 was the result of the increase in earnings
from continuing operations offset by decreases in earnings from discontinued
operations and gain on disposal of discontinued operations. In the fourth
quarter of 1992, the Company sold its North and South American contact lens
business and recognized a gain on such sale of $2.3 million. In the third
quarter of 1993, the Company sold the remainder of the contact lens business
and recognized a gain of $0.4 million. As a result, 1992 earnings from
discontinued operations include the operation of the entire contact lens
business for substantially all of 1992. The 1993 results from discontinued
operations relate to the remaining operations outside North and South America
for the first three quarters of the year.
The Company purchased treasury stock totaling $21.6 million in 1994 and $71.0
million in 1993. Such purchases were the primary cause of a decrease in
weighted average common shares outstanding from 67.7 million in 1992 to 66.2
million in 1993 and 63.9 million in 1994. Net earnings per common share
increased by $.08 or 5% from $1.65 in 1993 to $1.73 in 1994 and by $0.12 or 8%
from $1.53 in 1992 to $1.65 in 1993. The decrease in weighted average common
shares outstanding resulting primarily from the purchase of treasury stock
resulted in $0.06 of the increase in net earnings per common share from 1993 to
1994, and $0.04 of such increase from 1992 to 1993.
<PAGE> 6
Liquidity and Capital Resources
Management assesses the Company's liquidity by its ability to generate cash to
fund its operations. Significant factors in the management of liquidity are:
funds generated by operations; levels of accounts receivable, inventories,
accounts payable and capital expenditures; the extent of the Company's stock
repurchase program; adequate lines of credit; and financial flexibility to
attract long-term capital on satisfactory terms.
Historically, the Company has generated cash from operations in excess of
working capital requirements. The net cash provided by operating activities in
1994 was $166.4 million compared to $156.0 million in 1993. The increase in
cash provided from operations was primarily the result of a decrease in
inventories and increases in income taxes payable and accrued liabilities,
offset by an increase in accounts receivable and other current assets. In 1995,
the Company anticipates that it will contribute $50.0 million to a new research
and development company. The Company will account for the $50.0 million
contribution as a one-time charge to operating expense. See Note 12 to the
Consolidated Financial Statements.
Cash utilized for investing activities in 1994 includes $58.3 million of
expenditures for plant and equipment more fully described under "Capital
Expenditures," below. Cash utilized for investing activities in 1994 also
includes $35.5 million used to prepay product royalties, and $25.3 million to
acquire product licenses and rights, marketing rights and software. In
addition, $17.5 million was utilized to acquire businesses including the
acquisition of the assets of Ioptex.
Net cash used in financing activities was $49.4 million in 1994, composed
primarily of $21.6 million for purchases of treasury stock and $26.5 million
for payments of dividends. Net cash used in financing activities was $70.2
million in 1993, composed primarily of $71.0 million for purchases of treasury
stock and $26.4 million for payments of dividends, offset by $30.2 million in
net borrowings under commercial paper obligations. Net cash used in financing
activities was $66.9 million in 1992, composed primarily of $25.6 million for
payments of dividends, $24.0 million for purchases of treasury stock and $24.0
million for reductions in debt. Purchases of treasury stock in 1994 and 1993
have been the primary cause of a decrease in common stock outstanding from 66.8
million shares at December 31, 1992, to 64.0 million shares at December 31,
1993 and 63.7 million shares at December 31, 1994.
Cash vs. Debt
$ in millions
200----------------------------------
*190.1
150----------------------------------
*145.1
*142.6
-141.8
*132.3
-130.7
-127.4
-121.3
*119.8
100----------------------------------
-84.4
50----------------------------------
1990 1991 1992 1993 1994
-Cash *Debt
As of December 31, 1994, the Company had two credit facilities and a medium
term note program. The credit facilities allow for aggregate borrowings on a
revolving basis of up to $260 million through 1999. 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 December 31,
1994, the Company had $32.4 million in borrowings under one of the credit
facilities and $10.0 million under the note program. As of December 31, 1994,
the Company has classified $12.8 million of its commercial paper borrowings and
the $32.4 million borrowed under one of the facilities as long-term debt based
upon the Company's ability to maintain such debt under terms of the credit
facilities described above. As of December 31, 1994, the Company had commercial
paper borrowings of $42.8 million.
A substantial portion of the Company's existing cash and equivalents are held
by non-U.S. subsidiaries. These funds are planned to be utilized in the
Company's operations outside the United States. Tax considerations could limit
the use of these funds for domestic purposes.
The Company believes that the net cash provided by operating activities,
supplemented as necessary with borrowings available under the Company's
existing credit facilities, will provide it with sufficient resources to meet
current and long-term working capital requirements, debt service and other cash
needs.
<PAGE> 7
Capital Expenditures
Expenditures for property, plant and equipment totaled $58.3 million for 1994,
$59.9 million for 1993 and $65.6 million for 1992. Expenditures for 1994
include expansion of manufacturing facilities in Ireland and a variety of other
projects designed to improve productivity. The Company expects to invest
approximately $55.0 to $60.0 million in property, plant and equipment in 1995.
Inflation
Although at reduced levels in recent years, inflation continues to apply upward
pressure on the cost of goods and services used by the Company. The competitive
and regulatory environments in many markets substantially limit the Company's
ability to fully recover these higher costs through increased selling prices.
The Company continually seeks to mitigate the adverse effects of inflation
through cost containment and improved productivity and manufacturing processes.
Foreign Currency Fluctuations
Approximately 53% of the Company's revenues in 1994 were derived from
operations outside the U.S., and a portion of the Company's international cost
structure is denominated in currencies other than the U.S. dollar. As a result,
the Company is subject to fluctuations in sales and earnings reported in U.S.
dollars as a result of changing currency exchange rates. The Company routinely
monitors its transaction exposure to currency rates and implements certain
hedging strategies to limit such exposure, as appropriate. The impact of
foreign currency fluctuations on the Company's sales has been as follows: a
$2.0 million increase in 1994; a $38.5 million decrease in 1993; and a $10.4
million increase in 1992. See Note 1 to the Consolidated Financial Statements.
Accounting Changes
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS
109 generally provides that deferred tax assets and liabilities be recognized
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss and credit carryforwards. The impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period of enactment. The cumulative effect of the
adoption of SFAS 109 increased net earnings by $2.3 million. The effect of
adoption of SFAS 109 on 1992 earnings was not material.
In 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The cumulative effect of adoption
of the new standard on postretirement benefits other than pensions decreased
net earnings by $4.5 million in 1992. In 1992, adoption of SFAS 106 decreased
1992 operating income and net earnings by $1.5 million and $0.9 million,
respectively.
<PAGE> 8
ALLERGAN
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
In millions, except share data 1994 1993
- ---------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 130.7 $141.8
Trade receivables, net 179.7 146.8
Inventories 96.8 90.2
Other current assets 78.3 65.1
-------- ------
Total current assets 485.5 443.9
Investments and other assets 133.4 89.9
Property, plant and equipment,
net 314.8 288.1
Goodwill and intangibles, net 126.1 117.9
-------- ------
Total assets $1,059.8 $939.8
======== ======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 48.6 $ 38.0
Accounts payable 59.9 59.1
Accrued compensation 46.6 42.8
Other accrued expenses 102.1 89.8
Income taxes 66.5 46.7
------- ------
Total current liabilities 323.7 276.4
Long-term debt 83.7 104.6
Other liabilities 38.5 29.6
Commitments and contingencies
Minority interest 10.6 14.7
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 67,387,000 and
67,495,000 shares 0.7 0.7
Additional paid-in capital 196.7 194.5
Foreign currency translation
adjustment 4.2 (5.0)
Retained earnings 485.3 403.2
686.9 593.4
-------- ------
Less treasury stock, at
cost (3,724,000 and
3,512,000 shares) (83.6) (78.9)
Total stockholders' equity 603.3 514.5
Total liabilities and -------- ------
stockholders' equity $1,059.8 $939.8
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
ALLERGAN
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net sales $947.2 $858.9 $830.7
Operating costs and expenses
Cost of sales 286.6 249.6 241.8
Selling, general and administrative 392.5 362.2 362.9
Research and development 111.5 102.5 89.5
------ ------ ------
790.6 714.3 694.2
------ ------ ------
Operating income 156.6 144.6 136.5
Nonoperating income (expense)
Interest income 8.2 6.7 7.7
Interest expense (11.0) (8.1) (11.7)
Other, net 5.1 0.4 (0.9)
------ ------ ------
2.3 (1.0) (4.9)
------ ------ ------
Earnings from continuing operations
before income taxes and minority
interest 158.9 143.6 131.6
Provision for income taxes 46.2 36.5 33.3
Minority interest 2.0 2.6 2.5
------ ------ ------
Earnings from continuing operations
before cumulative effect of
accounting changes 110.7 104.5 95.8
Discontinued operations
Earnings from operations, net of
income taxes - 4.0 7.7
Gain on disposal, net of income taxes - 0.4 2.3
------ ------ ------
Earnings before cumulative effect of
accounting changes 110.7 108.9 105.8
Cumulative effect of accounting changes - - (2.2)
------ ------ ------
Net earnings $110.7 $108.9 $103.6
====== ====== ======
Net earnings (loss) per common share
Continuing operations $1.73 $1.58 $1.42
Discontinued operations
Earnings from operations - 0.06 0.11
Gain on disposal - 0.01 0.03
Cumulative effect of accounting
changes - - (0.03)
------ ------ ------
$1.73 $1.65 $1.53
====== ====== ======
Weighted average common shares
outstanding 63.9 66.2 67.7
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
ALLERGAN CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by
operating activities
Net earnings $110.7 $108.9 $103.6
Non-cash items included in net
earnings
Cumulative effect of accounting
changes - - 2.2
Depreciation and amortization 52.3 46.8 42.9
Amortization of prepaid royalties 5.5 - -
Deferred income taxes (2.9) (6.5) (0.1)
Gain on disposal of business - (0.9) (3.7)
Loss on sale of assets 3.7 4.1 1.0
Expense of compensation plans 1.8 6.6 4.4
Minority interest 2.0 2.6 2.5
Changes in assets and liabilities
Trade receivables (25.8) (15.3) 6.7
Inventories 2.7 (8.3) 0.7
Accounts payable (0.5) 6.9 7.6
Income taxes 20.6 5.3 (6.1)
Accrued liabilities 10.6 1.0 10.7
Other (14.3) 4.8 (2.9)
------ ------ ------
Net cash provided by operating
activitie 166.4 156.0 169.5
------ ------ ------
Cash flows from investing activities
Additions to property, plant and
equipment (58.3) (59.9) (65.6)
Disposals 1.5 25.1 2.6
Investment in Ligand Pharmaceuticals - (4.0) (20.0)
Prepayment of royalties (35.5) (9.8) -
Acquisitions of businesses (17.5) - (8.1)
Other (25.3) (17.2) (12.8)
------ ------ ------
Net cash used in investing
activities (135.1) (65.8) (103.9)
------ ------ ------
Cash flows from financing activities
Dividends to stockholders (26.5) (26.4) (25.6)
Increase (decrease) in notes payable 8.4 (2.1) (11.8)
Sale of stock to employees 10.3 3.5 6.6
Net borrowings (repayments) under
commercial paper obligations (60.1) 30.2 -
Long-term debt borrowings 42.4 - 0.1
Repayments of long-term debt (2.3) (4.4) (12.2)
Payments to acquire treasury stock (21.6) (71.0) (24.0)
------ ------ ------
Net cash used in financing activities (49.4) (70.2) (66.9)
------ ------ ------
Effect of exchange rates on cash and
equivalents 7.0 0.5 (4.8)
------ ------ ------
Net increase (decrease) in cash and
equivalents (11.1) 20.5 (6.1)
Cash and equivalents at beginning
of year 141.8 121.3 127.4
------ ------ ------
Cash and equivalents at end of year $130.7 $141.8 $121.3
====== ====== ======
Supplemental disclosure of cash
flow information
Cash paid during the year for
Interest (net of amount
capitalized) $10.1 $6.2 $9.3
====== ====== ======
Income taxes $29.7 $39.9 $39.7
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
ALLERGAN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Allergan and all
of its subsidiaries. Results of operations of businesses sold have been
reported as discontinued operations, and the consolidated statements of
earnings exclude sales and expenses of such businesses from results of
continuing operations. All significant transactions among the consolidated
entities have been eliminated from the financial statements. The Company's
financial position and results of operations include amounts for a joint
venture in Japan on a consolidated basis. The accounts of non-U.S. subsidiaries
are included on the basis of their fiscal years ended November 30.
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries are generally determined using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment account
in stockholders' equity. Gains and losses resulting from foreign currency
transactions and translation adjustments relating to foreign entities deemed to
be operating in U.S. dollar functional currency or in highly inflationary
economies are included in earnings. Foreign currency transaction and
translation losses were $2.0 million in 1994, $3.1 million in 1993 and $3.8
million in 1992.
Cash and Equivalents
The Company considers cash and equivalents to include cash in banks and
deposits with financial institutions which can be liquidated without prior
notice or penalty.
Inventories
Inventories are valued at the lower of cost or market (net realizable value).
Cost is determined by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions, major renewals and
improvements are capitalized, while maintenance and repairs are expensed. Upon
disposition, the net book value of assets is relieved and resulting gains or
losses are reflected in earnings.
Depreciation
For financial reporting purposes, depreciation is generally provided on the
straight-line method over the useful life of the related asset. Accelerated
depreciation methods are generally used for income tax purposes.
Goodwill and Intangibles
Goodwill represents the excess of acquisition costs over the fair value of net
assets of purchased businesses and is being amortized on a straight-line basis
over periods from ten to thirty years. Intangibles include patents, licensing
agreements and marketing rights which are being amortized over their estimated
useful lives. The Company periodically evaluates the recoverability of goodwill
and other intangible assets based upon future cash flows. Amortization expense
was $10.2 million in 1994, $9.8 million in 1993 and $10.4 million in 1992.
Income Taxes
Effective January 1, 1992, Allergan adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes" (see Note 6). SFAS
109 generally provides that deferred tax assets and liabilities be recognized
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss and credit carryforwards. The impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period of enactment. No provision is made for taxes
on unremitted earnings of certain non-U.S. subsidiaries which are or will be
reinvested indefinitely in such operations.
Postretirement Benefits Other Than Pensions
In 1992, the Company adopted Statement of Financial Accounting Standards No.
106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires the Company to accrue, during the years of employee
service, the expected costs of providing postretirement benefits other than
pensions to retired employees, employees' beneficiaries and covered dependents
(see Note 8).
<PAGE> 12
NOTE 2
ACQUISITIONS
During 1994, certain businesses were acquired for a total of $17.5 million and
accounted for using the purchase method. These acquisitions included the
purchase of the assets of Ioptex Research Inc., a producer of intraocular
lenses, in September 1994. Pro forma results, assuming the acquisitions had
been made at the beginning of each year presented, would not be materially
different from the results reported. Goodwill resulting from the acquisitions
was $9.6 million.
NOTE 3
DISCONTINUED OPERATIONS
In the fourth quarter of 1992, the Company sold its contact lens business in
North and South America and recognized a gain on the sale of $2.3 million, net
of $1.4 million of income taxes. In the third quarter of 1993, the Company
divested its contact lens business outside of the Americas and recognized a
gain on the sale of $0.4 million, net of income taxes of $0.5 million. The
results of operations of the contact lens business are as follows:
<TABLE>
<CAPTION>
In millions 1993 1992
- ---------------------------------------------------------------
<S> <C> <C>
Net sales $29.1 $67.0
Earnings from operations before income taxes 6.7 8.7
Earnings from operations, net of income taxes 4.0 7.7
</TABLE>
NOTE 4
COMPOSITION OF CERTAIN FINANCIAL
STATEMENT CAPTIONS
<TABLE>
<CAPTION>
December 31,
In millions 1994 1993
- -------------------------------------------------------
<S> <C> <C>
Trade receivables, net
Trade receivables $186.9 $152.6
Less allowance for doubtful accounts 7.2 5.8
------ ------
$179.7 $146.8
====== ======
Inventories
Finished products $ 69.7 $ 58.7
Work in process 8.4 13.8
Raw materials 18.7 17.7
------ ------
$ 96.8 $ 90.2
====== ======
Property, plant and equipment, net
Land $ 15.9 $ 14.0
Buildings 237.8 220.7
Machinery and equipment 247.7 206.3
------ ------
501.4 441.0
Less accumulated depreciation 186.6 152.9
------ ------
$314.8 $288.1
====== ======
Goodwill and intangibles, net
Goodwill $151.3 $139.9
Intangibles 39.9 30.9
------ ------
191.2 170.8
Less accumulated amortization 65.1 52.9
------ ------
$126.1 $117.9
====== ======
</TABLE>
NOTE 5
NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
In millions 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Notes payable
Bank loans $10.7 $ 4.0
Commercial paper 30.0 30.0
Current maturities of long-term debt 7.9 4.0
----- -----
Total notes payable $48.6 $38.0
===== =====
Long-term debt
Bank loans $32.4 $ -
Commercial paper 12.8 72.9
ESOP loan 22.6 24.6
Medium term notes 10.0 -
Capitalized leases 8.6 8.7
Other 5.2 2.4
----- -----
91.6 108.6
Less current maturities 7.9 4.0
----- -----
Total long-term debt $83.7 $104.6
===== ======
</TABLE>
<PAGE> 13
In December 1993, the Company entered into a domestic $200 million revolving
credit facility with several banks. This credit facility replaced a similar
facility entered into in July 1989. This new facility was amended in September
1994 to $225 million expiring in September 1999. The facility offers various
interest rates at the Company's option based on a percentage of prime or the
London interbank borrowing rates (LIBOR), or other negotiated rates, and is
used to support general corporate purposes and the issuance of commercial paper
in the United States. The facility provides that the Company will maintain
certain financial and operating covenants which include, among other
provisions, maintaining minimum debt to capitalization ratios and minimum
consolidated net worth. The facility also limits subsidiary debt and restricts
dividend payments. The Company was in compliance with these covenants as of
December 31, 1994. At December 31, 1994 and 1993, there was no debt outstanding
under the revolving credit facilities.
In November 1994, a subsidiary of the Company entered into a $35 million
revolving credit facility. This facility, which expires in December 1999, is
guaranteed by the Company. This facility offers various interest rates based on
the Yen LIBOR and is used to support working capital and general corporate
purposes. The facility provides that the Company will maintain the same
financial and operating covenants as contained in the domestic credit facility
discussed above. The Company was in compliance with these covenants as of
December 31, 1994. At December 31, 1994, the Company had $32.4 million
outstanding under the credit facility. Such amount is classified as long-term
debt because the Company has the ability to refinance this debt on a long-term
basis under the terms of the facility.
In September 1994, the Company entered into a $200 million medium term note
program. This program ends in September 1997. This program allows the Company
to issue notes at various interest rates and maturities in various currencies
at the Company's option based on a percentage of prime, the LIBOR or other
negotiated rates as defined in the program agreement. This program is intended
to be used to support general corporate purposes. At December 31, 1994, the
Company had $10.0 million outstanding under this program at a fixed rate of
6.8% with interest due semi-annually and principal due upon maturity. In
conjunction with this amount, the Company entered into a $10.0 million swap
agreement. The swap agreement terminates in September 1996, but can be extended
to September 1997 at the discretion of the other party. Under the swap
agreement, the other party is obligated to pay a fixed rate while the Company
is obligated to pay a floating rate based upon the LIBOR. Any gains or losses
incurred as a result of the swap agreement are recorded as interest expense.
The Company would be required to pay $0.4 million to terminate the swap
agreement based upon its fair value at December 31, 1994. The Company is
exposed to credit loss in the event of nonperformance by the other party to the
swap. Management believes such risk is remote.
At December 31, 1994 and 1993, the Company classified $12.8 million and $72.9
million, respectively, of commercial paper as long-term debt because the
Company has the ability to refinance this debt on a long-term basis under the
terms of the revolving credit facility. The commercial paper is issued at
current market rates and the carrying value approximates the fair value. The
Employee Stock Ownership Plan is discussed in Note 8.
The aggregate maturities of long-term debt are $7.9 million in 1995, $2.9
million in 1996, $12.9 million in 1997, $3.0 million in 1998, $48.3 million in
1999 and $16.6 million thereafter. For purposes of summarizing the maturities
of long-term debt, the commercial paper outstanding of $12.8 million at
December 31, 1994 was treated as maturing in 1999 upon expiration of the
current credit facility. Interest incurred of $0.3 million in 1994, $1.3
million in 1993 and $2.3 million in 1992 has been capitalized and included in
property, plant and equipment. Noncash additions to capitalized leases and
capital lease obligations of $0.4 million in 1994 and $0.6 million in 1993 were
recorded on the Company's balance sheet and excluded from the Consolidated
Statements of Cash Flows.
NOTE 6
INCOME TAXES
As discussed in Note 1, the Company adopted SFAS 109 as of January 1, 1992. The
cumulative effect of the adoption of SFAS 109 increased net earnings by $2.3
million in 1992. The effect of adoption of SFAS 109 on 1992 earnings was not
material.
<PAGE> 14
The components of earnings before income taxes and minority interest were:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing operations before
income taxes and minority interest
U.S. $ 76.0 $ 62.1 $ 57.0
Non-U.S. 82.9 81.5 74.6
------ ------ ------
158.9 143.6 131.6
Discontinued operations
Earnings from operations - 6.7 8.7
Gain on disposal - 0.9 3.7
------ ------ ------
Earnings before income taxes and
minority interest $158.9 $151.2 $144.0
====== ====== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1994 1993 1992
- ---------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit)
Continuing operations $46.2 $36.5 $33.3
Discontinued operations - 3.2 2.4
----- ----- -----
$46.2 $39.7 $35.7
===== ===== =====
Current
U.S. federal $21.0 $9.8 $2.0
Non-U.S. 18.6 27.6 26.1
U.S. state and Puerto Rico 9.5 8.6 7.7
----- ----- -----
Total current 49.1 46.0 35.8
Deferred
U.S. federal (6.1) (2.3) 1.1
Non-U.S. 3.2 (0.2) (2.0)
U.S. state and Puerto Rico - (3.8) 0.8
----- ----- -----
Total deferred (2.9) (6.3) (0.1)
----- ----- -----
Total $46.2 $39.7 $35.7
===== ===== =====
</TABLE>
The balances of net current deferred tax assets and net non-current deferred
tax assets at December 31, 1994 were $32.7 million and $7.4 million,
respectively. The balances of net current deferred tax assets and net
non-current deferred tax assets at December 31, 1993 were $29.2 million and
$8.0 million, respectively. Such amounts are included in other current assets
and investments and other assets in the consolidated balance sheets.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 1994, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards
(foreign) $12.5 $10.3 $20.6
Accrued expenses 18.2 21.9 18.5
Foreign tax credit carryforwards 1.7 14.5 9.8
Capitalized expenses 9.6 7.2 3.8
Pension expense 5.3 4.0 3.7
Medicaid rebate 4.9 4.0 3.6
Postretirement medical benefits 5.4 4.3 3.4
Intercompany profit in inventory 2.8 4.0 3.1
Alternative minimum tax credit - - 1.4
All other 10.9 11.0 12.3
----- ----- -----
71.3 81.2 80.2
----- ----- -----
Less: valuation allowance (17.9) (32.6) (36.5)
----- ----- -----
Total deferred tax asset 53.4 48.6 43.7
----- ----- -----
Deferred tax liabilities
Depreciation 10.7 7.9 7.5
All other 2.6 3.5 5.5
----- ----- -----
Total deferred tax liabilities 13.3 11.4 13.0
----- ----- -----
Net deferred tax asset $40.1 $37.2 $30.7
===== ===== =====
</TABLE>
The 1994 decrease in the valuation allowance results from the utilization of
foreign tax credit carryforwards and utilization of certain foreign net
operating loss benefits. The 1993 decrease is comprised of a reversal of
allowance for state tax assets, an increase in the allowance related to foreign
tax credit carryforwards and a change in the allowance related to foreign net
operating loss benefits.
<PAGE> 15
Based on the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit
of the existing net deferred tax asset at December 31, 1994. Management
believes the existing net deductible temporary differences will reverse during
periods in which the Company generates net taxable income, however, there can
be no assurance that the Company will generate any earnings or any specific
level of continuing earnings in future years. Certain tax planning or other
strategies could be implemented, if necessary, to supplement income from
operations to fully realize recorded tax benefits.
The reconciliations of the U.S. federal statutory tax rate to the combined
effective tax rate follow:
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
State taxes, net of U.S. tax benefit 1.4 - 1.6
Ireland and Puerto Rico income (12.8) (13.1) (14.0)
U.S. tax effect of foreign
earnings and dividends,
net of foreign tax credits 1.9 2.7 0.2
Other credits (2.2) (4.0) -
Taxes on unremitted earnings
of subsidiaries 2.0 6.6 6.7
Other 3.8 (0.9) (3.7)
----- ----- -----
Effective tax rate 29.1% 26.3% 24.8%
===== ===== =====
</TABLE>
Certain income of subsidiaries operating in Puerto Rico and Ireland is
substantially exempt from income taxes. The exemptions reduced expected income
taxes and increased net earnings by approximately $20.3 million ($0.32 per
share) in 1994, $19.8 million ($0.30 per share) in 1993 and $20.1 million
($0.30 per share) in 1992. The Puerto Rico exemption expires December 31, 2007.
Withholding and U.S. taxes have not been provided on approximately $162.1
million of unremitted earnings of certain non-U.S. subsidiaries because such
earnings are or will be reinvested in operations or will be offset by
appropriate credits for foreign income taxes paid. Such earnings would become
taxable upon the sale or liquidation of these non-U.S. subsidiaries or upon the
remittance of dividends. It is not practicable to estimate the amount of the
deferred tax liability on such unremitted earnings. Upon remittance, certain
foreign countries impose withholding taxes that are then available, subject to
certain limitations, for use as credits against the Company's U.S. tax
liability, if any.
The Company and its former parent through July 26, 1989, SmithKline Beckman
Corporation (SmithKline), entered into a Tax Agreement dated April 11, 1989,
which provides for the allocation of tax liabilities between SmithKline, the
Company, and their respective subsidiaries for the period during which
SmithKline was the parent of the Company. The Company and its domestic
subsidiaries file a consolidated U.S. federal income tax return. Such returns
have been audited and settled through the year 1986. SmithKline and its
consolidated subsidiaries (including the Company) are under examination for the
years 1987-1989. The Company and its consolidated subsidiaries are under
examination for the years 1989-90. The Company believes the additional tax
liability, if any, for such years and subsequent years will not have a material
effect on the financial position of the Company.
At December 31, 1994, the Company has foreign tax credit carryforwards for
federal income tax purposes of approximately $1.7 million which are available
to reduce future federal income taxes, if any, through 1998.
At December 31, 1994, the Company has net operating loss carryforwards of
certain non-U.S. subsidiaries, with various expiration dates, of approximately
$54.9 million.
<PAGE> 16
NOTE 7
STOCKHOLDERS' EQUITY
An analysis of activity in stockholders' equity for the three years ended
December 31, 1994 follows:
<TABLE>
<CAPTION>
Common Stock Foreign
------------ Additional Unearned Currency Treasury Stock
Par Paid-In Compen- Translation Retained ---------------
In millions Shares Value Capital sation Adjustment Earnings Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 67.6 $0.7 $223.6 $(33.0) $14.2 $242.8 (0.2) $ (3.4)
Net earnings 103.6
Translation adjustment (12.2)
Dividends ($0.38 per share) (25.6)
Issuance of shares under stock plans 1.6 (2.0) 0.1 2.8
Stock options exercised 0.6 0.4 6.7
Purchase of treasury stock (1.1) (24.0)
Expense of compensation plans 3.4
---------------------------------------------------------------------------------
Balance December 31, 1992 67.6 0.7 225.8 (31.6) 2.0 320.8 (0.8) (17.9)
Net earnings 108.9
Translation adjustment (7.0)
Dividends ($0.40 per share) (26.4)
Issuance of shares under stock plans (0.1) (1.3) (1.3) 0.3 5.3
Stock options exercised (0.9) (0.1) 0.2 4.7
Purchase of treasury stock (3.2) (71.0)
Expense of compensation plans 3.8
---------------------------------------------------------------------------------
Balance December 31, 1993 67.5 0.7 223.6 (29.1) (5.0) 403.2 (3.5) (78.9)
Net earnings 110.7
Translation adjustment 9.2
Dividends ($0.42 per share) (26.7)
Issuance of shares under stock plans (0.1) (1.8) (1.0) (0.2) 0.3 4.5
Stock options exercised 1.3 (1.7) 0.5 12.4
Purchase of treasury stock (1.0) (21.6)
Expense of compensation plans 3.7
---------------------------------------------------------------------------------
Balance December 31, 1994 67.4 $0.7 $223.1 $(26.4) $ 4.2 $485.3 (3.7) $(83.6)
==================================================================================
</TABLE>
In May 1989, the Board of Directors adopted a Stockholder Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
Common Stock of the Company. Each Right entitles a holder to purchase one
one-hundredth of a share of Series A Participating Preferred Stock at an
exercise price of $115, subject to adjustment. The Rights do not become
exercisable or transferable apart from the Common Stock until the earlier of
(i) any person or group becoming the beneficial owner of 20% or more of the
voting power of the outstanding voting securities of the Company (Acquiring
Person) other than an employee benefit plan of the Company or pursuant to a
"permitted offer" (i.e., an offer for all outstanding shares at a price and
terms determined by a majority of the independent directors to be adequate and
in the best interests of the Company and its stockholders), or (ii) ten days
after the commencement of a tender or exchange offer which would result in any
person or group becoming an Acquiring Person.
If any person or group becomes a 20% or more beneficial owner of Company voting
securities, except pursuant to a "permitted offer," then each Rightholder
(other than the Acquiring Person and related persons) will be entitled to
receive upon exercise Common Stock (or, in certain circumstances, other
consideration) having a value equal to two times the exercise price of the
Right. If, after the Rights have become exercisable, the Company is acquired in
a merger or other business combination in which the Company is not the
surviving corporation or in which 50% or more
<PAGE> 17
of the assets or earning power is sold, each Rightholder (other than the
Acquiring Person and related persons) will then be entitled to receive, upon
exercise, common stock of the acquiring company having a value of two times the
exercise price of the Right.
The Board may redeem the Rights at any time prior to a person becoming an
Acquiring Person. Pursuant to an amendment adopted by the Board in September
1993 and approved by the stockholders in April 1994 (the Amendment), if, within
60 days after receiving an offer meeting certain conditions (i.e., an offer for
all outstanding shares at the same price which is not subject to financing,
funding or due diligence conditions and, if for cash, is fully financed or, if
not for cash, is for New York Stock Exchange-listed securities and will provide
tax-deferred treatment for stockholders), the Board has not either redeemed all
of the outstanding Rights or approved a financially superior transaction, then
the Board is required to call a special meeting of stockholders for the purpose
of allowing the stockholders to vote on the acceptance of such offer.
Pursuant to the Amendment, the Rights will expire on the date of the Annual
Meeting of stockholders in 1997 unless stockholders vote at such meeting to
extend the Plan, in which case the Rights will expire at the Annual Meeting of
stockholders in 2000.
NOTE 8
EMPLOYEE RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors qualified defined benefit pension plans covering
substantially all of its employees. In addition, the Company sponsors two
supplemental nonqualified plans, covering certain management employees and
officers. U.S. pension benefits are based on years of service and compensation
during the five highest consecutive earnings years. Combined pension expense
was $9.3 million in 1994, $7.3 million in 1993 and $5.7 million in 1992.
Components of pension expense under the Company's U.S. and major non-U.S. plans
for 1994, 1993 and 1992 were:
<TABLE>
<CAPTION>
In millions 1994 1993 1992
- ---------------------------------------------------------
<S> <C> <C> <C>
Service cost $7.1 $6.2 $5.4
Interest cost 7.1 6.4 5.7
Actual return on assets (0.5) (4.5) (3.4)
Net amortization and deferral (4.4) (0.8) (2.0)
---- ---- ----
Total pension expense $9.3 $7.3 $5.7
==== ==== ====
</TABLE>
The Company's funding policy for its U.S. qualified plan is to provide
currently for accumulated benefits, subject to federal regulations. Plan assets
of the qualified plan consist primarily of fixed income and equity securities.
Benefits for the nonqualified plans are paid as they come due. Funded status of
the Company's U.S. and major non-U.S. plans' pension liabilities and assets at
December 31 was:
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
Non- Non-
In millions Qualified Qualified Qualified Qualified
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $51.5 $ 5.5 $55.0 $ 5.5
===== ===== ===== =====
Accumulated benefit obligation $56.6 $ 5.5 $60.1 $ 5.6
Projected compensation increases 23.4 4.5 26.8 1.1
----- ----- ----- -----
Projected benefit obligation 80.0 10.0 86.9 6.7
Plan assets at fair market value 67.8 - 62.5 -
----- ----- ----- -----
Projected benefit obligation in
excess of plan assets (12.2) (10.0) (24.4) (6.7)
Unrecognized transition asset (3.7) - (4.3) -
Unrecognized net loss 7.3 1.2 20.3 0.8
Unrecognized prior service cost (0.6) 2.1 1.4 0.2
Adjustment to recognize minimum
liability (0.2) - - -
----- ----- ----- -----
Accrued pension cost $(9.4) $(6.7) $(7.0) $(5.7)
===== ===== ===== =====
</TABLE>
The expected long-term rate of return on plan assets ranged from 5.5% to 10% in
1994 and from 6% to 9.5% in 1993. The discount rate used in determining
obligations ranged from 5% to 9% in 1994 and from 5% to 8% in 1993, and the
assumed average rate of increase in future compensation levels ranged from 3.5%
to 6.1% in 1994 and from 4% to 6% in 1993.
<PAGE> 18
Postretirement Benefits
The Company has one retiree health plan that covers United States retirees and
dependents. As of January 1, 1992, the Company adopted SFAS 106 and recognized
the full amount of its estimated liability for postretirement benefits of $7.5
million. The recognition of such liability, net of estimated deferred tax
benefits of $3.0 million amounted to a $4.5 million charge to earnings in 1992
reflected in the Statement of Earnings as the cumulative effect of an
accounting change. The adoption of SFAS 106 resulted in additional
postretirement benefit expense in 1992 of $1.5 million.
Retiree contributions are required depending on the year of retirement and the
number of years of service at the time of retirement. Disbursements exceed
retiree contributions and the plan currently has no assets. The accounting for
the health care plan anticipates future cost-sharing changes to the written
plan that are consistent with the Company's past practice and management's
intent to manage plan costs. The Company's history of retiree medical plan
modification indicates a consistent approach to increasing the cost sharing
provisions of the plan.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
In millions 1994 1993
- ---------------------------------------------------------
<S> <C> <C>
Retirees $ 2.6 $ 3.7
Fully eligible plan participants - -
Other active plan participants 8.1 10.9
----- -----
Accumulated postretirement
benefit obligation $10.7 $14.6
----- -----
Plan assets at fair value $ - $ -
Accumulated postretirement
benefit obligation in
excess of plan assets 10.7 14.6
Unrecognized net income
(loss) from past experience
different from that assumed
and from changes in
assumptions 0.6 (3.8)
Past service costs 1.9 -
----- -----
Accrued postretirement benefit cost $13.2 $10.8
===== =====
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
In millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed
to service during the period $ 1.5 $ 1.1
Interest cost on accumulated
postretirement benefit obligation 1.0 0.9
Net amortization and deferral 0.1 -
----- -----
Net periodic postretirement benefit cost $ 2.6 $ 2.0
===== =====
</TABLE>
For measurement purposes, a 7.5% annual rate of increase for 1994 in the per
capita cost of covered health care benefits was assumed for the medical plan
for retirees and dependents, and a 5.5% increase for all participants in the
dental plan. The medical trend rate was assumed to decrease gradually to 5.5%
by 2003 and remain at that level thereafter. The dental trend rate was assumed
to decrease to 5.0% by 1996 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. A one percentage point increase in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1994 by $2.8
million and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $0.6 million.
The discount rates used in determining the accumulated postretirement benefit
obligation and the net periodic postretirement benefit cost were 8.9% and 7.3%,
respectively.
Savings and Investment Plans
In May 1989, the Company established Savings and Investment Plans, which
provide for most U.S. and Puerto Rico employees to become participants after
six months of employment. In general, participants' contributions, up to 5% of
compensation, qualify for a 50% Company match. Company contributions are
generally used to purchase Allergan common stock. The Company's costs of the
Plans were $2.7 million in 1994, $2.9 million in 1993 and $2.1 million in 1992.
<PAGE> 19
NOTE 9
EMPLOYEE STOCK OWNERSHIP PLAN AND
INCENTIVE COMPENSATION PLANS
In May 1989, the Company established an Employee Stock Ownership Plan (ESOP)
for U.S. employees. The ESOP was funded by a $31.7 million loan borrowed by the
ESOP in July 1989. The ESOP trust purchased 1,335,000 shares from the Company
using the proceeds of the loan. Participants receive an allocation of shares
held in the plan based on the amortization schedule of the loan borrowed by the
ESOP to purchase the shares, and generally become vested over five years of
Company service. Allocated and unallocated shares in the ESOP as of December
31, 1994 and 1993 are:
<TABLE>
<CAPTION>
Number of Shares
In thousands 1994 1993
- -----------------------------------------------------
<S> <C> <C>
Allocated shares 398 312
Shares committed to be allocated 85 86
Unallocated shares 852 937
----- -----
Total ESOP shares 1,335 1,335
===== =====
</TABLE>
The loan has a fifteen year maturity ending in July 2004, with quarterly
principal and interest payments. Interest rates are determined at the Company's
option based upon a percent of prime or the LIBOR and the Company's
consolidated debt to capitalization ratio. The Company has entered into
interest rate swap agreements to reduce the impact that interest rate changes
have on the loan. These agreements effectively fix the interest rate on $20.0
million of the loan at 6.03%. The agreements mature in 1996 and 1999. The
Company is exposed to credit loss in the event of nonperformance by the other
parties to the swaps. Management believes such risk is remote.
The loan is guaranteed by the Company as to payment of principal and interest
and, accordingly, the unpaid balance of the loan is included in the Company's
financial statements as debt, offset by unearned compensation included in
stockholders' equity. Dividends accrued on unallocated shares held by the ESOP
are used to repay the loan and totaled $0.4 million for each of the three years
presented. Dividends received on allocated shares held by the ESOP are
allocated directly to participants' accounts. Interest incurred on ESOP debt in
1994, 1993 and 1992 was $1.6 million, $1.7 million and $1.9 million,
respectively. Compensation expense is recognized based on the amortization of
the related loan. Compensation expense for 1994, 1993 and 1992 was $1.7
million, $1.6 million and $1.4 million, respectively.
Incentive Compensation Plans
The Company has an incentive compensation plan and a nonemployee director stock
plan. The incentive compensation plan provides for the issuance of
non-qualified stock options, restricted stock and other stock-based incentive
awards for officers and key employees. Options become exercisable 25% per year
beginning twelve months after the date of grant. All options expire ten years
after their original date of grant. As of December 31, 1994, a total of 363,000
shares of restricted stock and options to purchase 4,189,000 shares of common
stock were issued and outstanding.
Stock option activity in 1994, 1993 and 1992 under the Company's incentive
plan was as follows:
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------------
In thousands 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 4,137 3,604 3,277
Options granted at fair market value 778 858 857
Options exercised (548) (208) (361)
Options cancelled (178) (117) (169)
----- ----- -----
Outstanding, end of year 4,189 4,137 3,604
===== ===== =====
Exercisable, end of year 2,051 2,287 1,812
===== ===== =====
Price range of options outstanding, end of year $11.57 - $26.41 $11.57 - $26.41 $11.41 - $26.41
=============== ================ ===============
Price range of options exercised $11.85 - $24.83 $11.41 - $24.83 $11.36 - $23.43
=============== ================ ===============
</TABLE>
<PAGE> 20
Options granted under the Company's incentive compensation plan provide that an
employee holding a stock option may exchange stock which the employee already
owns as payment against the exercise of their option. This provision applies to
all options outstanding at December 31, 1994.
Under the terms of the nonemployee director stock plan, each eligible director
received an initial grant of restricted stock and will receive additional
grants upon re-election to the Board. As of December 31, 1994, there were
20,000 shares issued and outstanding.
NOTE 10
COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, equipment and automobiles. Certain of
the leases provide for payment of taxes, insurance and other charges by the
lessee. Rental expense was $12.0 million in 1994, $12.6 million in 1993 and
$12.4 million in 1992.
Minimum rentals payable under noncancelable operating leases, net of minimum
sublease rentals, as of December 31, 1994, aggregate $34.0 million and for each
of the next five years are $11.0 million in 1995, $6.2 million in 1996, $3.0
million in 1997, $2.3 million in 1998, $1.8 million in 1999 and $9.7 million
thereafter.
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.
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Derivative financial instrument
arrangements are used to manage well-defined interest rate and foreign currency
fluctuation risks. The Company enters into forward exchange contracts to
eliminate the impact that exchange rate changes have on certain foreign
currency transactions. Actual gains and losses realized on the settlement of
the forward exchange contracts are anticipated to be offset by gains and losses
on the related foreign currency transactions. At December 31, 1994, the Company
had forward exchange contracts outstanding, with maturities not exceeding six
months, which require the Company to exchange foreign currencies for $29.6
million which approximates fair value.
NOTE 11
BUSINESS SEGMENT INFORMATION
The Company operates primarily in one business segment engaged in the
development, manufacture and marketing of a broad range of eye care products
that are used to treat diseases of the eye and to correct and enhance vision.
Geographic Areas
<TABLE>
<CAPTION>
For the Year Ended December 31,
In millions 1994 1993 1992
- -------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $ 501.4 $458.8 $432.0
-------- ------ ------
Europe 370.1 340.9 329.4
Other 173.1 142.7 121.5
-------- ------ ------
Total international 543.2 483.6 450.9
-------- ------ ------
Transfers between areas(a)
United States (52.2) (43.7) (26.0)
Europe (45.2) (39.8) (26.2)
-------- ------ ------
Total transfers between areas (97.4) (83.5) (52.2)
-------- ------ ------
Total net sales $ 947.2 $858.9 $830.7
======== ====== ======
Operating income
United States before
research and development $ 194.1 $180.9 $169.6
Research and development
expenses(b) (93.3) (87.6) (77.3)
-------- ------ ------
United States 100.8 93.3 92.3
-------- ------ ------
Europe 108.5 97.9 93.2
Other 6.4 12.3 14.2
-------- ------ ------
Total international 114.9 110.2 107.4
-------- ------ ------
215.7 203.5 199.7
Corporate expenses (59.1) (58.9) (63.2)
-------- ------ ------
Total operating income $ 156.6 $144.6 $136.5
======== ====== ======
Identifiable assets(c)
United States $ 529.7 $482.6 $470.5
-------- ------ ------
Europe 301.6 242.5 236.2
Other 97.8 72.9 57.8
-------- ------ ------
Total international 399.4 315.4 294.0
Corporate 130.7 141.8 121.3
-------- ------ ------
Total assets $1,059.8 $939.8 $885.8
======== ====== ======
</TABLE>
a) Net sales include both sales to unaffiliated customers and transfers between
geographic areas. Transfers between geographic areas are made at terms that
allow for a reasonable profit to the seller.
b) The Company's principal research and development efforts are performed in
the United States.
c) Identifiable assets are those used by the operations in each geographic
location. Corporate assets consist of cash, time deposits and short-term
investments.
<PAGE> 21
NOTE 12
SUBSEQUENT EVENTS
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 including regulatory
approval, 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.
On January 24, 1995, the Board of Directors declared a cash dividend of $0.11
per share, payable March 10, 1995, to stockholders of record on February 17,
1995.
NOTE 13
EARNINGS PER SHARE
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 year. All shares held by the Employee Stock
Ownership Plan have been included as common shares outstanding. Common
equivalent shares consist of shares issuable upon exercise of stock options,
calculated using the treasury stock method. For all years presented, fully
diluted earnings per share approximates primary earnings per share.
<PAGE> 22
ALLERGAN
REPORT OF MANAGEMENT
Management is responsible for the preparation and integrity of the consolidated
financial statements appearing in this Annual Report. The financial statements
were prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and, accordingly, include some amounts based
on management's best judgments and estimates. Financial information in this
Annual Report is consistent with that in the financial statements.
Management is responsible for maintaining a system of internal control and
procedures to provide reasonable assurance, at an appropriate cost/benefit
relationship, that assets are safeguarded and that transactions are authorized,
recorded and reported properly. The internal control system is augmented by a
program of internal audits and appropriate reviews by management, written
policies and guidelines, careful selection and training of qualified personnel
and a written Business Ethics Policy adopted by the Board of Directors,
applicable to all employees of the Company and its subsidiaries. Management
believes that the Company's system of internal control provides reasonable
assurance that assets are safeguarded against material loss from unauthorized
use or disposition and that the financial records are reliable for preparing
financial statements and other data and maintaining accountability for assets.
The Audit Committee of the Board of Directors, composed solely of Directors who
are not officers or employees of the Company, meets with the independent
auditors, management and internal auditors periodically to discuss internal
accounting controls, auditing and financial reporting matters. The Committee
reviews with the independent auditors the scope and results of the audit
effort. The Committee also meets with the independent auditors and the chief
internal auditor without management present to ensure that the independent
auditors and the chief internal auditor have free access to the Committee.
The independent auditors, KPMG Peat Marwick LLP, were recommended by the Audit
Committee of the Board of Directors and selected by the Board of Directors.
KPMG Peat Marwick LLP was engaged to audit the 1994, 1993 and 1992 consolidated
financial statements of Allergan, Inc. and subsidiaries and conduct such tests
and related procedures as they deemed necessary in conformity with generally
accepted auditing standards. The opinion of the independent auditors, based
upon their audits of the consolidated financial statements, is contained in
this Annual Report.
Gavin S. Herbert
Chairman of the Board of Directors
William C. Shepherd
President and Chief Executive Officer
Dwight J. Yoder
Vice President, Controller
and Principal Accounting Officer
<PAGE> 23
ALLERGAN
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
We have audited the accompanying consolidated balance sheets of Allergan, Inc.
and subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of earnings and cash flows for each of the years in the three year
period ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allergan, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 6 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." As discussed in
Note 8 to the consolidated financial statements, the Company also adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," in 1992.
Costa Mesa, California
January 23, 1995
<PAGE> 24
ALLERGAN
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
In millions, First Second Third Fourth Total
except per share data Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Net sales $210.1 $224.7 $242.2 $270.2 $947.2
Gross margin 146.6 157.3 167.3 189.4 660.6
Operating income 33.4 34.3 41.6 47.3 156.6
Net earnings 22.2 23.5 30.2 34.8 110.7
Net earnings per share 0.35 0.37 0.47 0.54 1.73
1993
Net sales $202.8 $207.9 $216.9 $231.3 $858.9
Gross margin 145.2 146.9 153.8 163.4 609.3
Operating income 30.7 33.0 38.7 42.2
144.6
Earnings from continuing
operations 22.3 23.4 28.3 30.5 104.5
Earnings from discontinued
operations 1.4 1.2 1.8 - 4.4
Net earnings 23.7 24.6 30.1 30.5 108.9
Earnings per share from
continuing operations 0.33 0.35 0.43 0.47 1.58
Earnings per share from
discontinued operations 0.02 0.02 0.03 - 0.07
Net earnings per share 0.35 0.37 0.46 0.47 1.65
</TABLE>
Amounts previously reported on Form 10-Q for the first quarter of 1993 have
been restated to present the Company's contact lens business as a discontinued
operation.
<PAGE> 25
ALLERGAN
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $ 947.2 $858.9 $830.7 $761.7 $713.5
Operating costs and expenses:
Cost of sales 286.6 249.6 241.8 212.1 217.2
Selling, general & administrative 392.5 362.2 362.9 356.2 313.8
Research and development 111.5 102.5 89.5 70.4 62.5
Operating income 156.6 144.6 136.5 123.0 120.0
Nonoperating income (expense) 2.3 (1.0) (4.9) (6.6) (10.2)
Earnings from continuing operations before
income taxes and minority interest 158.9 143.6 131.6 116.4 109.8
Earnings from continuing operations 110.7 104.5 95.8 88.3 84.8
Earnings (loss) from discontinued operations - 4.4 10.0 (147.8) (3.4)
Cumulative effect of accounting changes - - (2.2) - -
Net earnings (loss) 110.7 108.9 103.6 (59.5) 81.4
Earnings per share from continuing operations 1.73 1.58 1.42 1.31 1.26
Earnings (loss) per share from discontinued
operations - 0.07 0.14 (2.20) (0.05)
Cumulative effect per share of accounting
changes - - (0.03) - -
Net earnings (loss) per share 1.73 1.65 1.53 (0.89) 1.21
Cash dividends per share 0.42 0.40 0.38 0.33 0.28
Financial Position
Current assets $ 485.5 $443.9 $422.8 $448.2 $431.2
Working capital 161.8 167.5 155.2 179.1 175.4
Total assets 1,059.8 939.8 885.8 833.6 947.1
Long-term debt 83.7 104.6 82.0 97.2 148.0
Total stockholders' equity 603.3 514.5 499.8 444.9 523.9
</TABLE>
<PAGE> 26
ALLERGAN CORPORATE OVERVIEW AND SHAREHOLDER INFORMATION
Corporate Headquarters
2525 Dupont Drive
P.O. Box 19534
Irvine, California 92713-9534
(714) 752-4500
Transfer Agent, Registrar and Dividend Disbursing Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
Independent Public Accountants
KPMG Peat Marwick LLP
Costa Mesa, CA
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Allergan, Inc. will be held at Allergan's
corporate headquarters, 2525 Dupont Drive, Irvine, California, on April 25,
1995, at 10:00 a.m.
Form 10-K
A copy of Allergan, Inc.'s Form 10-K Annual Report as filed with the Securities
and Exchange Commission is available without charge by contacting:
Corporate Communications
P.O. Box 19534
Irvine, California 92713-9534
(714) 752-4500 ext. 4284
Dividend Reinvestment and Stock Purchase Plan
The plan allows Allergan stockholders to reinvest their dividends or invest
cash in Allergan stock without brokerage commissions or service charges. If you
are interested in joining the plan or would like more information, you may
write for a prospectus to:
First Chicago Trust Company of New York
Dividend Reinvestment Plan/Allergan, Inc.
P.O. Box 2500
Jersey City, NJ 07303-2500
Investor Relations
Security analysts, investment professionals, shareholders and the media should
direct their inquiries to:
Jeffrey B. D'Eliscu
Corporate Vice President,
Corporate Communications
(714) 752-4500 ext. 4636
Trademarks
All product names appearing in italics are trademarks or service marks that are
owned by, licensed to, promoted or distributed by Allergan, Inc., its
subsidiaries or affiliates. The following Allergan trademarks appear in this
report:
AcryFlex AMO
Array Azelex
Betagan Botox
C-Cap Complete
DuraLens Elimite
Ocuflox Prestige
Propine UltraCare
Foldable PhacoFlex II SI-30NB
Foldable PhacoFlex II SI-40NB
Acular(R) is a registered trademark licensed from Syntex (U.S.A.) Inc.
Duplicate Mailings
When shareholders own shares under different names, in more than one account,
or when several shareholders live at the same address, they may receive
duplicate mailings of shareholder information. For information on how to
eliminate multiple mailings, contact the First Chicago Trust Company of New
York at (201) 324-0498.
Environmental Commitment
Allergan is strongly committed to preserving the environment by developing
business practices that enhance the welfare of our customers, employees and the
communities in which we operate.
To receive a copy of Allergan's Environmental Health and Safety Performance
Report, call or write:
Corporate Communications
P.O. Box 19534
Irvine, CA 92713-9534
(714) 752-4500 ext. 4284
This annual report is printed entirely on recycled paper.
Market Prices of Common Stock and Dividends
The following table shows the quarterly price range of the common stock and the
cash dividends declared per share during the period listed.
<TABLE>
<CAPTION>
1994 1993
------------------------- --------------------------
Quarter Low High Div. Low High Div.
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 20-1/4 25-1/4 $.10 21-1/4 26-3/8 $.10
Second 20 25 $.10 21-1/2 25-1/4 $.10
Third 21-5/8 28 $.11 21-1/2 24-1/2 $.10
Fourth 24-7/8 30-7/8 $.11 20-3/4 23-3/4 $.10
</TABLE>
Allergan Common Stock is listed on the New York Stock Exchange and is traded
under the symbol "AGN." In newspapers, stock information is frequently listed
as "Alergn."
The approximate number of shareholders of record was 15,000 as of January 24,
1995.
For the fourth quarter of 1994, the Board declared a cash dividend of $0.11 per
share, payable March 10, 1995 to shareholders of record on February 17, 1995.
See Note 5 to the Consolidated Financial Statements relative to restrictions on
dividend payments.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ALLERGAN, INC.
A DELAWARE CORPORATION
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
------------------ ----------------------
<S> <C>
Allergan S.A.I.C. y F. Argentina
ALLERGAN-LOA S.A. Argentina
Cosmo S.A. Argentina
Lorsen S.A. Argentina
Allergan Australia Pty. Ltd. Australia
Allergan Holdings Pty. Ltd. Australia
Amawind Pty. Limited Australia
Allergan Warenvertriebsgesellschaft MbH Austria
Allergan NV/SA Belgium
Optical Micro Systems Europe N.V. Belgium
Allergan-Lok Produtos Farmaceuticos Ltda. Brazil
Allergan Inc. Canada
Allergan Laboratorios Limitada Chile
Allergan de Colombia S.A. Colombia
Allergan ApS Denmark
Allergan France S.A. France
Allergan Sophia S.A. France
Pharm-Allergan GmbH Germany
Allergan Optical GmbH Germany
Allergan Asia Limited Hong Kong
Allergan Botox Limited Ireland
Allergan Ireland (Sales) Limited Ireland
CrownPharma Limited Ireland
Allergan S.p.A. Italy
Allergan K.K. Japan
Allergan Hydron K.K. Japan
Allergan Afrasia Limited Malta
Allergan S.A. de C.V. Mexico
Laboratoires Allergan Dulcis S.A.M. Monaco
Pharmac, S.A.M. Monaco
Allergan BV Netherlands
Allergan New Zealand Limited New Zealand
Allergan A/S Norway
Allergan Pakistan (Private) Limited Pakistan
Allergan Inter America, S.A. Panama
Allergan Pharmaceuticals (Ireland) Ltd., Inc. Panama
Allergan Pte., Ltd. Singapore
Allergan South Africa (Pty.) Ltd. South Africa
Allergan Pharmaceuticals (Pty.) Ltd. South Africa
Allergan S.A.E. Spain
Corlens S.A. Spain
Allergan Norden AB Sweden
Allergan AG Switzerland
Allergan Optik Mamulleri Ve Ticaret Limited Sirketi Turkey
Allergan Limited United Kingdom
Allergan Holdings Limited United Kingdom
Allergan Farnborough Limited United Kingdom
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Allergan Research Centre Ltd. United Kingdom
AMO Puerto Rico, Inc. United States/CA
Allergan Medical Optics United States/CA
Herbert Laboratories United States/CA
Allergan America, Inc. United States/DE
Allergan Optical Inc. United States/DE
Allergan Puerto Rico, Inc. United States/DE
Allergan Retinoid Corporation United States/DE
Pacific Pharma Inc. United States/DE
Allergan Holdings, Inc. United States/DE
AMO Holdings, Inc. United States/DE
Optical Micro Systems, Inc. United States/DE
Allergan International Limited U.S. Virgin Islands
Allergan de Venezuela, S.A. Venezuela
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Allergan, Inc.:
We consent to incorporation by reference in the registration
statements Nos. 33-29528, 33-29527, 33-44770, 33-48908 and 33-66874 on Form S-8
of Allergan, Inc. of our reports dated January 23, 1995, relating to the
consolidated balance sheets of Allergan, Inc. and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended December 31, 1994,
and the related schedule, which reports appear in the December 31, 1994 annual
report on Form 10-K of Allergan, Inc.
Our reports refer to a change in accounting principles for the
adoption of Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other than Pensions," and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1992
by the Company.
/S/ KPMG PEAT MARWICK LLP
Costa Mesa, California
March 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF ALLERGAN, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1994 ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 130,700
<SECURITIES> 0
<RECEIVABLES> 186,900
<ALLOWANCES> 7,200
<INVENTORY> 96,800
<CURRENT-ASSETS> 485,500
<PP&E> 501,400
<DEPRECIATION> 186,600
<TOTAL-ASSETS> 1,059,800
<CURRENT-LIABILITIES> 323,700
<BONDS> 83,700
<COMMON> 700
0
0
<OTHER-SE> 602,600
<TOTAL-LIABILITY-AND-EQUITY> 1,059,800
<SALES> 947,200
<TOTAL-REVENUES> 947,200
<CGS> 286,600
<TOTAL-COSTS> 286,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,500
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> 158,900
<INCOME-TAX> 46,200
<INCOME-CONTINUING> 110,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,700
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
