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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, 1995
COMMISSION FILE NO. 1-10269
ALLERGAN, INC.
(Exact name of Registrant as Specified in its Charter)
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)
Registrant's telephone number: (714) 752-4500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on
which each class registered
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights
</TABLE>
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 $2,300,000,000 on March 4, 1996, based upon the
closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of March 4, 1996 - 64,705,757 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. [x]
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, 1995. 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 23, 1996, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1995.
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TABLE OF CONTENTS
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PART I PAGE
<S> <C> <C>
Item 1. Business................................................... 1
Item 2. Properties................................................. 10
Item 3. Legal Proceedings.......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........ 12
Item I-A. Executive Officers of Allergan, Inc. ...................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 15
Item 6. Selected Financial Data....................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 15
Item 8. Financial Statements and Supplementary Data................... 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 15
PART III
Item 10. Directors and Executive Officers of Allergan, Inc. ........... 16
Item 11. Executive Compensation........................................ 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 16
Item 13. Certain Relationships and Related Transactions................ 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 17
SIGNATURES................................................................... 18
INDEX OF EXHIBITS............................................................ 20
INDEPENDENT AUDITORS' REPORT ................................................ 23
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 movement disorders. 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.
During 1994, the Company acquired the Ioptex Research worldwide
intraocular lens product line and Lorsen SA, a manufacturer of skin care
products in Argentina. During 1995, the Company completed four acquisitions. In
January 1995, the Company acquired Optical Micro Systems, Inc., a U.S.-based
developer and manufacturer of phacoemulsification surgical equipment. In June
1995, the Company acquired Laboratorios Frumtost, S.A., a manufacturer of
ophthalmic and other pharmaceutical products in Brazil. In August 1995, the
Company purchased the assets of Herald Pharmacal, Inc., a U.S.-based developer
and manufacturer of glycolic acid-based, aesthetic skin care products. In
November 1995, the Company purchased the worldwide contact lens care product
business of Pilkington Barnes Hind. Also in 1995, Allergan acquired 100%
ownership interest in Santen-Allergan, its Japanese contact lens care joint
venture.
On February 12, 1996, the Company announced that weather related
declines in cataract surgeries, together with the initiation of a limited,
voluntary recall of certain AMO(R)PhacoFlex II(R) Model SI-30 IOLs will have an
impact on the first quarter 1996 operating results. Physicians were advised
that the recalled IOLs pose no safety or efficacy issues. No adverse effects
have been reported. The Company now anticipates, after evaluating the
continuing impact of the recall of SI-30 IOLs and the adverse weather
conditions, as well as other factors influencing the surgical business, that
the overall surgical sales volume for the year 1996 may be essentially flat
compared to 1995 surgical sales results. Actual results for the surgical
business for the year 1996 will depend upon the continuing impact of the recall
of the SI-30 IOLs on the Company's operations, as well as other factors
affecting the surgical business such as competitive conditions, including
reactions to the recall, downward pricing pressures on IOLs, the approval and
performance of new products, contributions from acquired businesses, and the
results of geographic expansion efforts.
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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1995 1994 1993
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(in millions)
<S> <C> <C> <C>
Eye Care
Pharmaceuticals $ 415.1 $390.7 $360.9
Surgical 188.7 144.3 115.3
Optical Lens Care 369.8 339.4 325.0
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Total Eye Care 973.6 874.4 801.2
Skin Care 44.7 37.3 32.4
Botox(R) 48.9 35.5 25.3
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Total Net Sales $1,067.2 $947.2 $858.9
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Domestic 43.6% 47.3% 47.5%
International 56.4% 52.7% 52.5%
</TABLE>
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The foregoing table does not include sales of discontinued operations.
See Note 12 of Notes to Consolidated Financial Statements on page 44 of the 1995
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, 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 topical 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, Allergan entered into an
agreement with Schein Pharmaceutical, Inc. ("Schein") whereby Schein markets
generic versions of Allergan's Betagan(R) and Propine(R) products in the United
States. Both Betagan(R) and Propine(R) currently face generic competition from
several companies including Bausch & Lomb and Alcon Laboratories, Inc. (a
division of Nestle').
The Company also markets several leading ophthalmic products to treat
ocular inflammation and infection. Pred Forte(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's Acular(R)(1) ophthalmic solution is indicated for the
relief of itch associated with seasonal allergic conjunctivitis. Applications
for U.S. marketing approval for Acular(R) solution for post-operative
inflammation and for corneal pain are currently anticipated to be filed with the
U.S. Food and Drug Administration ("FDA") during the second and fourth quarters
of 1996, respectively. 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. A U.S. marketing approval application for Ocuflox(R)
solution in the treatment of corneal ulcers was filed with the FDA in March
1995.
Ophthalmic Surgical Business
Allergan's ophthalmic 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. The Company currently offers a full line of AMO products used in the
performance of cataract surgery, including rigid multi-piece, single-piece and
small incision design IOLs. In September 1994, Allergan acquired the worldwide
IOL business of Ioptex Research Inc., formerly a division of Smith & Nephew,
plc.
- --------
(1)Acular(R), a registered trademark, is licensed from its developer Syntex
(U.S.A.) Inc.
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Sales of all models of the Company's IOLs represented 9%, 10% and 12%
of total Company sales in 1993, 1994 and 1995, respectively. Intraocular lenses
marketed by Allergan for small incision cataract surgery include the
AMO(R)Phacoflex(R) small incision IOL, introduced in 1989, the AMO(R)Foldable
PhacoflexII(R) SI-30NB(TM) small incision IOL, introduced in April 1993, the
AMO(R) SI-40NB(TM) small incision IOL introduced in 1995, and the
AMO(R)DuraLens(TM) IOL , the Company's new Perspex(R) (PMMA) IOL, which was
also introduced in 1995. AMO(R)Array(R) multifocal IOL is available in Brazil
and several European countries including Germany, France and Italy and is
currently undergoing clinical trials in the U.S.
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 is currently utilized in more than 80 percent of
cataract procedures in the United States. In 1993 Allergan introduced the
AMO(R)Prestige(R) phacoemulsification machine. AMO(R)Prestige(R) makes
small-incision cataract surgery easier than other phacoemulsification machines
by using a sophisticated microprocessor that monitors vacuum and fluid in the
eye. In January 1995, Allergan acquired Optical Micro Systems, Inc. ("OMS"). OMS
develops and manufactures phacoemulsification equipment. This acquisition, along
with the acquisition of the Ioptex business in 1994, provides the Company with
additional IOL and phacoemulsification equipment product offerings and the
capability to manufacture phacoemulsification equipment. The AMO(R)Diplomax(TM)
phacoemulsification machine, launched in the U.S. by the Company in November
1995, is the first OMS phaco-technology system introduced since the acquisition.
Allergan also markets AMO(R)Vitrax(R), a viscoelastic used to maintain the
anterior chamber and protect endothelial cells during cataract surgery.
Optical Business
The Company has been doing business in the contact lens care market
since 1960. On a worldwide basis, it develops, manufactures and markets a broad
range of products for use with every available type of contact lens. These
products include disinfecting solutions to destroy harmful microorganisms in and
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. In the area of disinfecting products, the Company offers
products that can be used in each of the three disinfecting systems: hydrogen
peroxide systems, convenient chemical systems and thermal systems. Allergan's
leading hydrogen peroxide system products are the UltraCare(R) one-step hydrogen
peroxide neutralizer/disinfection system and the UltraCare(R) system with a
color indicator which turns the solution pink to indicate the disinfectant
tablet has dissolved. Both UltraCare(R) products are marketed in many countries
around the world under the brand name, Oxysept 1 Step(R). Complete(R) brand
Multi-Purpose solution is the Company's convenient, one-bottle chemical
disinfection system for soft contact lenses.
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In November 1995, the Company acquired the worldwide contact lens care
business of Pilkington Barnes Hind. Included in the acquisition was the Consept
F(R) Cleaning and Disinfecting System, the first approved non-heat disinfection
system for soft contact lenses in Japan. This acquisition significantly
increased the Company's contact lens care product business in Japan.
Sales of the Company's proprietary enzymatic cleaners represented 11%,
10% and 9% of total Company sales in 1993, 1994 and 1995, respectively, and
sales of the Company's hydrogen peroxide disinfection systems represented 14% of
total Company sales in each of 1993, 1994 and 1995. It is difficult for the
Company to predict what effect, if any, the continued market acceptance of daily
disposable contact lenses and the increasing acceptance of the surgical
correction of nearsightedness and other forms of visual acuity impairment,
especially in the United States, will have on the Company's optical business.
However, the Company believes that an acceleration of these trends could result
in a material adverse impact on sales of the Company's contact lens care
products in the United States.
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 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. Allergan's Azelex(R) (azelaic acid) cream for the
topical treatment of mild to moderate inflammatory acne vulgaris was launched in
the U.S. in December 1995 and is awaiting marketing approval in Canada.
In August 1995, the Company acquired the assets of Herald Pharmacal,
Inc., a developer and manufacturer of glycolic acid-based skin care products and
a leader in the aesthetic skin care market, located in Colonial Heights,
Virginia.
Botox(R)/Movement Disorder Business
Allergan's Botox(R) (Botulinum Toxin Type A) purified neurotoxin
complex injection is used in the treatment of certain movement disorders which
are characterized by involuntary muscle contractions or spasms. Botox(R)
purified neurotoxin complex injection is marketed in the United States and a
number of other major countries for the treatment of blepharospasm (the
uncontrollable contraction of the eyelid muscles which can force the eye closed
and result in functional blindness) and strabismus (misalignment of the eyes) in
people 12 years of age and over. In May 1994, Botox(R) 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 non-ophthalmic claim for
the treatment of a neck and shoulder movement disorder known as cervical
dystonia (spasmodic torticollis) affecting 160,000 people in the U.S. In March
1995, in response to a request from the FDA, Allergan initiated additional
clinical trials in support of the cervical dystonia filing. Botox(R) purified
neurotoxin complex has also been approved in several European countries for the
treatment of cervical dystonia.
EMPLOYEE RELATIONS
At December 31, 1995, the Company employed approximately 6,000 persons
throughout the world, including approximately 2,700 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
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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 52.5%, 52.7% and 56.4% of total sales for the years ended December
31, 1993, 1994 and 1995, 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 the 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 ("Santen"), the largest eye care pharmaceutical manufacturer in
Japan. Since 1976, Allergan's contact lens care products had been sold in Japan
through a 50-50 joint venture between Santen and Allergan ("Santen-Allergan").
In August 1995, Allergan acquired Santen's entire equity interest in the joint
venture and Santen-Allergan became a wholly owned subsidiary of the Company. Now
Allergan sells contact lens care products in Japan through the Santen-Allergan
subsidiary. The Company's IOLs and other eye care surgical products are also
sold in Japan by the Company through another local subsidiary, Allergan K.K.
In 1994, Allergan and Nicholas Piramal India Limited formed Allergan
India Private Ltd., a joint venture to manufacture and market eye care products
in India. Since 1994, 13 ophthalmic pharmaceutical products and Botox(R)
purified neurotoxin complex have been approved for sale in India. In 1993 and
1994, Allergan launched its Complete(R) contact lens care products and two
ophthalmic pharmaceutical products, Propine(R) and Betagan(R) solutions, in the
Peoples' Republic of China. In 1995, the Company received government approval to
do business through its wholly foreign owned entity, Allergan Pharmaceutical
(Hangzhou) Co. Ltd., and five additional products were launched. The Company
also began construction of its new manufacturing facility in Hangzhou in
October, 1995. Also, in June 1995, Allergan acquired Laboratorios Frumtost,
S.A., a manufacturer of ophthalmic and other pharmaceutical products in Brazil.
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,
dermatological and movement disorder 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, 1995, the Company employed approximately 1,100 sales
representatives throughout the world.
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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 treatment
currently being tested. Allergan's lead compound in this category is
brimonidine, to be marketed under the trade name, Alphagan(TM). During the third
quarter of 1994, Allergan filed a drug approval application with the FDA for
brimonidine for acute post-surgical elevated pressure in the eye following argon
laser trabeculoplasty. In September 1995, the Company filed another application
with the FDA for approval to market brimonidine in the U.S. for the chronic
indication of ocular hypertension and open angle glaucoma. 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
and the AMO(R)Clariflex(TM) acrylic foldable IOL. The Company anticipates filing
for U.S. marketing approval for these IOLs in late 1996 and 1998, respectively.
Research and development in the optical business is aimed at contact
lens care systems which are effective and more convenient for patients to use,
and 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.
In June 1995, the Company filed an application with the FDA for
approval to market its proprietary retinoid tazarotene gel (to be marketed under
the trade name, Zorac(TM), also previously known as AGN190168) for the topical
treatment of psoriasis and acne in the United States. In May 1995, the Company
acquired an option to license Hyal Pharmaceutical Corporation's topical gel
(Hyal CT1101) and other formulations of hyaluronic acid and diclofenac for the
treatment of basal cell carcinoma and actinic keratosis. Also, in September
1995, the Company entered into an option agreement with Peptech (UK) Ltd. for
the development and commercializaton of certain therapeutic products based on
its GMDP (a synthetic glucosaminyl muramyl dipeptide) compound for dermatology
indications with a right of first refusal to license potential applications in
ophthalmology and oncology.
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. 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
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million to accelerate the activities of the Joint Venture related to the
discovery and development of drugs based on receptor selective retinoids. In May
1995, Allergan and Ligand funded ALRT, in part, through a rights offering (the
"Offering") of $32.5 million of ALRT Units (consisting of one share of ALRT
common stock and two warrants to purchase one share each of Ligand common stock)
to their respective shareholders. In June 1995, upon completion of the Offering,
Allergan and Ligand contributed all Joint Venture technology and assets to ALRT
and made cash payments to ARLT of $50 million and $17.5 million, respectively.
Allergan accounted for its contribution as a one-time charge to operating
expense at the time of the contribution. In connection with the Offering, the
Joint Venture was dissolved and Allergan Pharmaceuticals (Ireland) Ltd., Inc.
("Allergan Ireland"), a wholly owned subsidiary of the Company, acquired an
additional $6 million of Ligand common stock. As a result, Allergan Ireland owns
approximately 12% of the outstanding common stock of Ligand.
Ligand, or if not exercised by Ligand then Allergan, has the option to
purchase all of the common stock of ALRT during a specified period in the
future. If Ligand exercises its option, Allergan has the right to acquire an
undivided one-half interest in ALRT technology and 50 percent of all other ALRT
assets. Additionally, after the earlier of a specified date or approval for
commercial sale, Ligand and Allergan have the option to acquire 9-cis retinoic
acid (known as ALRT 1057), one of the compounds under development by ALRT, prior
to the exercise of the option to acquire ALRT stock. ALRT, Ligand and Allergan
have entered into a commercialization agreement which provides for the
marketing, manufacture and sale by Ligand and/or Allergan of the retinoid
products developed by ALRT. In May 1995, the Company and Ligand initiated a
Phase IIb clinical trial program for oral ALRT 1057 in non-Hodgkin's lymphoma
and, in combination with alpha interferon, in renal cell carcinoma. Additional
Phase IIb trials of oral ALRT 1057 are underway in other cancer indications and
HIV related disorders. ALRT is also conducting Phase II studies for topical ALRT
1057 in Kaposi's sarcoma and cutaneous T-cell lymphoma and plans to initiate
Phase III trials in this area in 1996.
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. There is no assurance that any of the research
projects or pending drug marketing approval applications will result in new
products that the Company can commercialize. Delays or failures in one or more
significant research projects and pending drug marketing approval applications
could have a material adverse impact on the future operations of the Company.
At December 31, 1995, there were an aggregate of approximately 700
people involved in the Company's research and development efforts. The Company's
research and development expenditures associated with continuing operations for
1993, 1994 and 1995 were $102.5 million, $111.5 million and $116.7 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, Inc. (a subsidiary of
Nestle<180>), Bausch & Lomb, Chiron Vision (a subsidiary of Chiron Corporation),
CIBA Vision Ophthalmics (a division of Ciba-Geigy), Merck & Co., Inc., Pharmacia
Inc. Ophthalmics (a subsidiary of Pharmacia & Upjohn) and Storz Ophthalmics (a
division of American Home Products Corporation). These competitors have
equivalent or, in most cases, greater resources than Allergan. The Company's
skin care business competes against a number of companies, including, among
others, Sandoz Pharmaceuticals, Schering-Plough Corporation, Johnson & Johnson
and Hoffman LaRoche Inc., which all have greater resources than Allergan. In
marketing its products to health care professionals, pharmacy benefits
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management companies, health care maintenance organizations, and various other
national and regional health care providers and managed care entities, the
Company competes primarily on the basis of product technology, value-added
services and price. The Company believes that it competes favorably in its
product markets.
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 most 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 many 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 is costly and takes
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 50% of the Company's 1995 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. Further, in the United States, the impact of
increased FDA scrutiny is felt by all companies in the pharmaceutical and
medical device industries.
Moreover, internationally, the regulation of drugs and medical devices
is likewise becoming increasingly complex. In Europe, the Company's products are
subject to a new European Union regulatory regime which is currently optional
but will become mandatory in June 1998. This legislation introduces new
regulatory systems designed to ensure greater consistency in the approach to
product authorization and to avoid duplication in evaluating medicinal products.
Further, it will require that medical devices may only be placed on the market
if they do not compromise safety and health when properly installed, maintained
and used in accordance with their intended purpose. National laws conforming to
this EU legislation will regulate the Company's IOLs and contact lens care
products under the medical devices regulatory system rather than the more
complex system for medicinal products under which they are currently regulated.
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.
8
<PAGE> 11
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 1997.
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. 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. 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. Congress is considering legislation which may further limit
these benefits.
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. Congress may consider further amendments to the
Orphan Drug Act in the future. In Europe, to date, there have been no special
provisions relating to orphan drugs. However, the European Commission is
initiating action to foster research and providing companies incentives for
development in this area.
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 may 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 many of
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
9
<PAGE> 12
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, 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 1, 1996:
<TABLE>
<CAPTION>
Location Primary Function Interest
- -------- ---------------- --------
<S> <C> <C>
Irvine, California Headquarters, research and development,
manufacturing, administrative Owned
Phoenix, Arizona Manufacturing, warehousing Owned
Berkeley, California Administrative, manufacturing, warehousing Leased
Irwindale, California Administrative, manufacturing, warehousing Leased
Santa Ana, California Manufacturing, warehousing Owned
North Andover, Massachusetts Administrative, manufacturing Leased
Lenoir, North Carolina Administrative, manufacturing, warehousing Owned
Waco, Texas Manufacturing, warehousing Owned
Colonial Heights, Virginia Administrative, manufacturing, warehousing Owned
Anasco, Puerto Rico Manufacturing, warehousing Leased
Hormigueros, Puerto Rico Manufacturing, warehousing Owned
Buenos Aires, Argentina Administrative, manufacturing, warehousing Owned
Sydney, Australia Administrative, warehousing Owned
Zaventem, Belgium Administrative, warehousing Leased
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C> <C>
Sao Paulo, Brazil Administrative, manufacturing, warehousing Owned
Guarulhos, Brazil Manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
Sophia Antipolis, France Administrative, warehousing Leased
Ettlingen, Germany Administrative, warehousing Owned
Hong Kong Administrative, warehousing Leased
Westport, Ireland Administrative, manufacturing, warehousing Owned
Pomezia, Italy Administrative, manufacturing, Owned
research and development, warehousing
Osaka, Japan Administrative Leased
Tokyo, Japan Administrative, research and development Leased
Madrid, Spain Administrative, warehousing Owned
Johannesburg, South Africa Administrative, warehousing Leased
High Wycombe, U.K. Administrative, warehousing 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.
The Company, in cooperation with regulatory authorities in Puerto Rico,
evaluated and implemented operational improvements to the wastewater treatment
system at the Company's Hormigueros facility in 1995. These improvements will
reduce the ecological impacts of the Company's operations and did not have a
material adverse impact on 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. In August, 1995, the U.S. Attorney referred the matter back to the
Commerce Department, without levying any formal criminal charges, for its
evaluation of possible civil liability. In September, 1995, the
11
<PAGE> 14
Company was advised by the Commerce Department that further field investigation
would be required. The Company continues to cooperate in the investigation. The
Company does not believe the imposition of a civil penalty is warranted.
Although the ultimate outcome of any pending litigation and claims, as
well as the current government investigation discussed above, cannot be
precisely ascertained at this time, Allergan believes that any liability
resulting from the aggregate amount of uninsured damages for outstanding
lawsuits, investigations and claims will not have a material adverse effect on
its consolidated financial position. However, in view of the unpredictable
nature of such matters, no assurances can be given in this regard.
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.
12
<PAGE> 15
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 1, 1996 are as
follows:
<TABLE>
<S> <C>
William C. Shepherd 57 Chairman of the Board,
President and Chief Executive Officer
Vicente Anido, Jr., Ph.D. 43 Corporate Vice President and
President, Americas Region
Jeffrey B. D'Eliscu 45 Corporate Vice President, Corporate Communications
Michael J. Donohoe 53 Corporate Vice President and President, Europe Region
Richard M. Haugen 43 Executive Vice President and Chief Operating Officer
Richard J. Hilles 53 Corporate Vice President, Human Resources
Lester J. Kaplan, Ph.D. 45 Corporate Vice President, Research and Development
Albert J. Moyer 52 Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Diethart Reichardt 53 Corporate Vice President, Optical
Jacqueline J. Schiavo 47 Corporate Vice President, Worldwide Operations
Francis R. Tunney, Jr. 48 Corporate Vice President, General Counsel and Secretary
Dwight J. Yoder 50 Vice President and Controller (Principal Accounting
Officer)
</TABLE>
Officers are appointed by and hold office at the pleasure of the Board of
Directors.
Mr. Shepherd has been Chairman of the Board since January 1, 1996 and President
and Chief Executive Officer of the Company since 1992 and prior thereto had been
President and Chief Operating Officer from 1984 to 1991. Mr. Shepherd first
joined the Company in 1966.
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. Dr. Anido resigned from the Company,
effective March 22, 1996, to become the Chief Executive Officer of CombiChem,
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
13
<PAGE> 16
1991 and Area Vice President, Northern Europe from 1989 to 1990. Mr. Donohoe
first joined the Company in 1987.
Mr. Haugen has been Executive Vice President and Chief Operating Officer since
1992 and was Corporate Vice President of the Company and President, Worldwide
Eye Care Marketing, Sales and Operations in 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. 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. Mr.
Hilles first joined SmithKline Beckman Corporation, the Company's former parent,
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 and Senior Vice President, Research and Development since 1989. Dr.
Kaplan first joined the Company in 1983.
Mr. Moyer joined the Company as Corporate Vice President and Chief Financial
Officer in July, 1995. From 1993 until 1995, he had been Senior Vice President
and Chief Financial Officer of Coldwell Banker Corporation. Through Moyer and
Associates, he offered management consulting services to a variety of companies
from 1990 to 1993. Mr. Moyer served as Chief Financial Officer of Western
Digital Corporation (1986-1990) and has held various management positions since
1975 with companies including Westinghouse Electric Corporation, White
Consolidated Industries, Inc., National Semiconductor Corporation and Enhansys,
Inc.
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. Ms. Schiavo first joined the Company in 1980.
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 first joined SmithKline
Beckman Corporation, the Company's former parent, in 1979.
Mr. Yoder has been Vice President and Controller of the Company since joining
the Company in 1990. He is also the Chief Financial Officer of Allergan Ligand
Retinoid Therapeutics, Inc.
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.
14
<PAGE> 17
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 48 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,
1995" on pages 25-30 of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, included on pages
25-44 of the Annual Report, together with the sections entitled "Independent
Auditors' Report" and "Quarterly Results (Unaudited)" of the Annual Report
included on page 46 and 47, 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 34 of the Proxy
Statement is incorporated herein by reference.
15
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLERGAN, INC.
Information under this Item is included on pages 2-4 of the Proxy
Statement and such information is incorporated herein by reference. Information
with respect to executive officers is included on pages 13-14 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 16-18
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 14-15 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 6-7 and
24, respectively, of the Proxy Statement are incorporated herein by reference.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements *
<TABLE>
<CAPTION>
Page(s) in
Annual Report
-------------
<S> <C>
1. Financial Statements included in Part II of this report:
Independent Auditors' Report 46
Consolidated Balance Sheets at December 31, 1995 and December
31, 1994 31
Consolidated Statements of Earnings for Each of the Years in
the Three Year Period Ended December 31, 1995 32
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1995 33
Notes to Consolidated Financial Statements 34-44
</TABLE>
* Incorporated by reference from the indicated pages of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1995 (and except
for these pages, the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1995, is not deemed filed as part of this report).
2. Schedules Supporting the Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page in
This Report
-----------
<S> <C>
Independent Auditors' Report 23
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 1995.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at page
20 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).
17
<PAGE> 20
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, 1996 ALLERGAN, INC.
By /S/ WILLIAM C. SHEPHERD
--------------------------------------
William C. Shepherd
President, Chief Executive Officer and
Chairman of the Board
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.
Date: March 22, 1996 By /S/ WILLIAM C. SHEPHERD
--------------------------------------
William C. Shepherd
President, Chief Executive Officer and
Chairman of the Board
Date: March 22,1996 By /S/ ALBERT J. MOYER
--------------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 22, 1996 By /S/ DR. HERBERT W. BOYER
--------------------------------------
Herbert W. Boyer, Ph.D., Director
Date: March 25, 1996 By /S/ TAMARA J. ERICKSON
--------------------------------------
Tamara J. Erickson Director
Date: March 25, 1996 By /S/ HANDEL E. EVANS
--------------------------------------
Handel E. Evans, Director
Date: March 25, 1996 By /S/ WILLIAM R. GRANT
--------------------------------------
William R. Grant, Director
Date: March , 1996 By
--------------------------------------
Howard E. Greene, Jr., Director
Date: March 22, 1996 By /S/ RICHARD M. HAUGEN
--------------------------------------
Richard M. Haugen, Director
18
<PAGE> 21
Date: March 22, 1996 By /S/ GAVIN S. HERBERT
--------------------------------------
Gavin S. Herbert, Director and Chairman
Emeritus
Date: March 22, 1996 By /S/ DR. LESTER J. KAPLAN
--------------------------------------
Lester J. Kaplan, Ph. D., Director
Date: March 22,1996 By /S/ LESLIE G. MCCRAW
--------------------------------------
Leslie G. McCraw, Director
Date: March 22, 1996 By /S/ LOUIS T. ROSSO
--------------------------------------
Louis T. Rosso, Director
Date: March 22, 1996 By /S/ LEONARD D. SCHAEFFER
--------------------------------------
Leonard D. Schaeffer, Director
Date: March 22, 1996 By /S/ HENRY WENDT
--------------------------------------
Henry Wendt, Director
19
<PAGE> 22
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 the Company's Report on Form 10-Q for the Quarter
ended June 30, 1995) ...................................................
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 and restated (incorporated by reference to Exhibit A to
the Company's Proxy Statement dated March 18, 1996, filed in
definitive form on March 14, 1996)......................................
10.5 Restated Allergan, Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.1 to the Company's Report
</TABLE>
20
<PAGE> 23
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- -------------
<S> <C> <C>
on Form 10-Q for the Quarter ended March 31, 1995)......................
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 March 31, 1995)...........................................
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 (incorporated
by reference to Exhibit 10.9 to the Company's Report on Form 10-K for the
Fiscal Year ended December 31, 1994) ...................................
10.10 Restated Allergan, Inc. Pension Plan (incorporated
by reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the Quarter ended March 31, 1995).........................
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 ...................................
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 (incorporated by reference to Exhibit 10.15
</TABLE>
21
<PAGE> 24
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- -------------
<S> <C> <C>
to the Company's Report on Form 10-K for the fiscal year ended
December 31, 1994) .....................................................
10.16 First Amendment to the Restated Allergan, Inc. Pension Plan (incorporated
by reference to Exhibit 10.4 to the Company's Report on Form 10-Q
for the Quarter ended March 31, 1995)...................................
11 Statement re Computation of Earnings Per Share..........................
13 The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1995 (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, LLP 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>
22
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
Under date of January 23, 1996, we reported on the consolidated balance sheets
of Allergan, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings and cash flows for each of the years
in the three-year period ended December 31, 1995, as contained in the 1995
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 1995. 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.
KPMG PEAT MARWICK LLP
Costa Mesa, California
January 23, 1996
23
<PAGE> 26
SCHEDULE VIII
ALLERGAN, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
1995 $7.2 $1.7 (a) $2.7 (b) $6.2
---- ---- ---- ----
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
---- ---- ---- ----
</TABLE>
- --------------------
(a) Provision charged to earnings.
(b) Accounts written off.
(c) Allowance of business sold
<PAGE> 1
EXHIBIT 10.13
[LOGO] ALLERGAN
- --------------------------------------------------------------------------------
1996
MANAGEMENT BONUS PLAN
- --------------------------------------------------------------------------------
JANUARY 1996
- --------------------------------------------------------------------------------
1 CORPORATE COMPENSATION
<PAGE> 2
- --------------------------------------------------------------------------------
PURPOSE OF THE PLAN
The Allergan, Inc. Management Bonus Plan (the "Plan") is designed to reward
eligible management-level employees for their contributions to providing
Allergan's shareholders increased value for their investment through the
successful accomplishment of specific Company-wide financial objectives and
individual performance objectives.
- --------------------------------------------------------------------------------
PLAN YEAR
The Plan year for U.S. operations runs from January 1, 1996, through December
31, 1996. For international operations, the Plan year is December 1, 1995
through November 30, 1996.
- --------------------------------------------------------------------------------
ELIGIBILITY
All regular, full-time employees in salary grades 7E and above who are not
covered by any other bonus or sales incentive plan are eligible to participate
in the Plan. U.S. participants must have been employed on or before June 30,
1996; international participants must have been hired on or before May 31,
1996. Participants must be actively employed by Allergan on the date bonuses
are paid in order to be eligible to receive a bonus. Participants who resign or
are terminated for reasons other than those noted below will receive no bonus.
Bonuses, if any, for participants who become eligible after the beginning of
the plan year, retire (defined as age 55 or over with at least 5 years of
service), become disabled, die or transfer into a position covered by another
incentive plan will be pro-rated. Bonuses, if any, for participants who are
laid-off will be prorated provided the participant was eligible for at least
six months of the Plan year. All proration will be based on the number of
months of participation in the Plan during the Plan year.
- --------------------------------------------------------------------------------
PERFORMANCE OBJECTIVES
TARGET SETTING--The Plan's financial targets are set based on 100% achievement
of Allergan's operating plan. These bonus targets represent a reasonable
stretch from the prior year's results and are developed with the condition that
incremental shareholder value is created. The threshold and maximum points
around the Plan's targets represent minimum acceptable performance and superior
performance relative to both internal and external measures.
Bonuses for Plan participants are based on both organization performance and
individual performance in relation to pre-established objectives, as follows:
ORGANIZATION OBJECTIVES--Organization performance is measured in terms of
Allergan, Inc.'s increase in shareholder value, as shown by achievement of
financial objectives relating to the following measures:
. Cash Flow Return On Investment (CFROI) is defined as follows:
CASH FLOW FROM OPERATIONS
(NET INCOME PLUS DEPRECIATION, PLUS OR MINUS CHANGES IN
WORKING CAPITAL)
- --------------------------------------------------------------------------------
GROSS CASH INVESTMENT
(TOTAL ASSETS PLUS ACCUMULATED DEPRECIATION, MINUS CASH AND NON-DEBT
CURRENT LIABILITIES)
. Sales Growth is defined as the incremental increase in sales over the
previous year, expressed as a percentage.
. Earnings per share (EPS) is defined as net earnings divided by the weighted
average number of common and common equivalent shares.
- --------------------------------------------------------------------------------
2 CORPORATE COMPENSATION
<PAGE> 3
INDIVIDUAL OBJECTIVES--MBOs are prepared by each participant and his or her
supervisor at the beginning of the Plan year and may be modified throughout the
year as necessary. Objectives should reflect major results and accomplishments
to be achieved in order to meet short- and long-term business goals which
contribute to increased shareholder value. MBOs are expressed as specific,
quantifiable measures of performance in relation to key operating decisions for
the participant's business unit, such as managing inventory levels,
receivables, expenses, or payables; increasing sales; eliminating unnecessary
capital expenditures, etc.
At the end of the Plan year, the supervisor evaluates the participant's
performance in relation to his or her objectives in order to determine the size
of the bonus award, if any. A more detailed description of how the award is
calculated is provided under "Individual Bonus Award Calculation."
- --------------------------------------------------------------------------------
BONUS POOL CALCULATION
Bonuses are funded when the Company achieves threshold levels of performance in
relation to the measures of CFROI, sales growth, and EPS.
- --------------------------------------------------------------------------------
PERFORMANCE MATRIX AWARD
SEE ATTACHMENT A
The level of bonus funding is first determined by using the CFROI and sales
growth performance matrix. For example, if year-end CFROI reaches the target
performance level and sales growth hits the maximum, the matrix award is 130%.
The next step is to calculate EPS and compare it to the targeted EPS. If EPS is
at target or above, there is no effect on the matrix award percentage or the
bonus pool. If EPS is below target, the matrix award and bonus pool are reduced
until the targeted EPS is reached. Continuing the example, if EPS is $.01 less
than the [see Attachment A] target, the amount representing $.01 per share is
calculated and the bonus pool is reduced by that amount.
If actual results fall below threshold for CFROI and sales growth or if EPS is
so far below the targeted level that the bonus pool is depleted, bonuses are
not funded. If actual results fall between the performance levels shown above,
bonuses will be pro-rated accordingly. At the end of the year, the Chairman,
President, and Chief Executive Officer of Allergan, Inc. may recommend
adjustments to bonus funding levels to the Organization and Compensation
Committee after consideration of key operating results.
- --------------------------------------------------------------------------------
INDIVIDUAL BONUS AWARD CALCULATION
Target bonus awards are expressed as a percentage of the participant's year-end
base salary. For U.S. participants, year-end is December 31, 1996; for
international participants, year-end is November 30, 1996. The target
percentages vary by salary grade (see addendum). If a participant changes
grades during the plan year, his or her bonus will be prorated to reflect the
amount of time in each grade, the participant's salary at the time of grade
change and at year-end, and the bonus percentage relating to each grade.
A participant's actual bonus award may vary above or below the targeted level
based on the supervisor's evaluation of his or her performance in relation to
the predetermined MBOs. The bonus can be modified between 0%-150% of the
targeted bonus. However, the total of all bonus awards given within each
business unit must total no more than 100% of the total bonus pool dollars
allocated to that business unit.
- --------------------------------------------------------------------------------
DISCRETIONARY FUNDING FEATURE
If Company performance does not reach threshold levels, a discretionary bonus
pool will be funded, up to 30% of the target bonus pool. If this occurs, the
150% MBO modifier maximum will be eliminated. The requirement to not exceed the
bonus pool dollars for each business unit remains in effect.
- --------------------------------------------------------------------------------
3 CORPORATE COMPENSATION
<PAGE> 4
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
Cash awards are paid following the review and authorization of bonuses by the
Board of Directors, usually in late February following the close of the Plan
year. Bonuses will be paid within 30 days following management communication of
the award, through the participant's normal payroll channel.
- --------------------------------------------------------------------------------
CHANGE-IN-CONTROL
If a change-in-control occurs after the close of the Plan year but prior to
payment and Company performance supports bonus pool funding, participants will
be eligible for a bonus based on performance in relation to predetermined
objectives.
If the change-in-control occurs during the Plan year and Company performance
supports bonus pool funding, participants will be eligible for a bonus based
on performance in relation to predetermined objectives and prorated to reflect
the number of months prior to the change in control.
- --------------------------------------------------------------------------------
CONFIDENTIALITY
This plan document contains confidential, non-public information about
Allergan's Management Bonus Plan. The information, particularly EPS target, is
intended solely for Allergan's management and is not to be disclosed to persons
outside of Allergan or to non-management personnel who don't have a need to
know.
- --------------------------------------------------------------------------------
GENERAL
Management reserves the right to define organizational performance and
individual performance and to review, alter, amend, or terminate the Plan at
any time. This Plan does not constitute a contract of employment and cannot be
relied upon as such. Any questions regarding this Plan should be directed to
the Human Resources department or the Director, Compensation. This Management
Bonus Plan document supersedes any previous document you may have received.
- --------------------------------------------------------------------------------
4 CORPORATE COMPENSATION
<PAGE> 5
ADDENDUM
[LOGO] ALLERGAN
1996 MANAGEMENT BONUS PLAN
----------------------------------
TARGET AWARDS
<TABLE>
<CAPTION>
SALARY GRADE TARGET BONUS*
<S> <C>
7E 10%
8E 15%
9E 20%
10E 25%
11E 30%
12E 35%
13E 40%
14E 50%
15E 50%
Executive Vice President, Chief 55%
Operating Officer
Chairman, President, and Chief 60%
Executive Officer
</TABLE>
March 22, 1996 *As a percentage of year-end base salary.
<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,
-------------------------------
(tenths of millions, except per share amounts) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the period 64.2 63.5 66.0
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 0.6 0.4 0.2
------ ------ ------
Weighted average number of common shares
including common stock equivalents 64.8 63.9 66.2
====== ====== ======
Net earnings for the year $ 72.5 $110.7 $108.9
====== ====== ======
Primary earnings per common share $ 1.12 $ 1.73 $ 1.65
====== ====== ======
</TABLE>
In 1995, 1994 and 1993, 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 1995 1994 Percentage Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Highlights
Net sales $1,067.2 $947.2 13%
Net earnings 72.5 110.7 (35%)
Net earnings per share 1.12 1.73
Dividends per share 0.47 0.42
Adjusted amounts(1)
Net earnings 122.5 110.7 11%
Net earnings per share 1.90 1.73
</TABLE>
(1) 1995 amounts exclude the $50.0 million contribution to Allergan Ligand
Retinoid Therapeutics, Inc. charged to operating expense in 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1995 1994 % Inc.
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales by Product Line
Eye Care
Pharmaceuticals $ 415.1 $390.7 6%
Surgical 188.7 144.3 31%
Optical Lens Care 369.8 339.4 9%
-------- ------
973.6 874.4 11%
Skin Care 44.7 37.3 20%
Botox 48.9 35.5 38%
-------- ------
Total Net Sales $1,067.2 $947.2 13%
======== ======
Domestic 43.6% 47.3%
International 56.4% 52.7%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 % Inc.
-------------------------------
<S> <C> <C> <C>
Employee Data
Number of employees 6,078 4,903 24%
</TABLE>
<PAGE> 2
Allergan, Inc.
FINANCIAL INFORMATION
Management's Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Management
Independent Auditors' Report
Quarterly Results
Selected Financial Data
2
<PAGE> 3
1995 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
This financial review presents the Company's operating results for each of the
three years in the period ended December 31, 1995, and its financial condition
at December 31, 1995. 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 1994 and 1995, the Company
acquired six businesses:
Ioptex Research (Ioptex) intraocular lens (IOL) product line based in
Irwindale, California, in September 1994.
Lorsen SA (Lorsen), a manufacturer of skin care products in Argentina, in
December 1994.
Optical Micro Systems Inc. (OMS), a manufacturer of phacoemulsification
equipment, in North Andover, Massachusetts, in January 1995.
Laboratorios Frumtost SA (Frumtost), the largest manufacturer of eye care
pharmaceuticals in Brazil, in June 1995.
Herald Pharmacal (Herald) skin care product line based in Colonial Heights,
Virginia, in August 1995.
Pilkington Barnes Hind contact lens care product line (Barnes Hind) marketed
worldwide with a leading product in Japan, in November 1995.
In addition, the Company acquired the minority ownership portion of its
Santen-Allergan joint venture marketing contact lens care products in Japan.
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.
RESULTS OF OPERATIONS
Net Sales
Net sales for 1995 were $1.067 billion, which was an increase of $120 million
or 13% over 1994. Sales in 1995 of products of acquired businesses in their
first twelve months after acquisition contributed $51.4 million to 1995 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. 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 53% in 1993 and 1994 to 56% in 1995. Foreign currency
fluctuations in 1995 increased sales by $33.0 million or 4% as compared to
average rates in effect throughout 1994. Foreign currency fluctuations in 1994
increased sales by $2.0 million as compared to average rates in effect
throughout 1993. Sales growth rates on a comparable exchange rate basis were
9% in 1995 and 10% in 1994.
The following table sets forth, for the periods indicated, net sales by major
product line.
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Eye Care
Pharmaceuticals $ 415.1 $390.7 $360.9
Surgical 188.7 144.3 115.3
Optical Lens Care 369.8 339.4 325.0
-------- ------ ------
973.6 874.4 801.2
Skin Care 44.7 37.3 32.4
Botox 48.9 35.5 25.3
-------- ------ ------
Total Net Sales $1,067.2 $947.2 $858.9
======== ====== ======
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Domestic 43.6% 47.3% 47.5%
International 56.4% 52.7% 52.5%
</TABLE>
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 6% in 1995 compared to 1994 and by 8% in 1994
compared to 1993. Sales in 1995 in international markets increased by $33.7
million or 20% compared to 1994. Such increase was the result of sales of
$17.5 million of Frumtost products and growth in other international markets.
United States sales declined by $9.3 million or 4% in 1995 compared to 1994.
The largest sales volume products in this product line are glaucoma therapy
products, including Betagan and Propine ophthalmic solutions. Declines in unit
volume of Betagan and Propine caused declines in United States sales in 1995.
Such declines were partially offset by increases in sales of other products.
Sales of Betagan and Propine in 1994 were comparable to 1993 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. 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.
Pharmaceutical Sales
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States $159.1 $168.3 $185.9 $202.0 $222.8 $213.5
International 118.3 136.8 153.8 158.9 167.9 201.6
------ ------ ------ ------ ------ ------
$277.4 $305.1 $339.7 $360.9 $390.7 $415.1
</TABLE>
Surgical sales represent products for the ophthalmic surgical market, including
IOLs, pharmaceuticals and other products related to cataract surgery. Surgical
sales increased 31% in 1995 compared to 1994 and by 25% in 1994 compared to
1993. Domestic sales increased by 14% in 1995 and 18% in 1994, while sales in
international markets increased by 52% in 1995 and 36% in 1994. Total IOL unit
sales in the U.S. market increased 26% in 1995 and 42% in 1994. Silicone IOL
unit sales in the U.S. market increased by 39% in 1995 and 48% in 1994. The
Company introduced new silicone IOLs, the SI-30NB in 1993 and SI-40NB in 1995.
Continuing market demand for these new products was a significant contributor
to sales growth in 1994 and 1995, particularly in international markets. The
Ioptex and OMS businesses contributed $21.6 million to 1995 sales in the first
twelve months after their respective acquisitions. Four months of sales of
Ioptex products totaling $6.9 million are also included in 1994 results.
Competitive pressures in the U.S. market have resulted in declines in average
selling prices of IOLs in both 1994 and 1993.
Surgical Sales
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States $ 83.5 $ 74.2 $ 70.7 $ 68.4 $ 80.5 $ 91.8
International 27.6 34.0 41.1 46.9 63.8 96.9
------ ------ ------ ------ ------ ------
$111.1 $108.2 $111.8 $115.3 $144.3 $188.7
</TABLE>
Optical Lens Care sales increased by 9% from 1994 to 1995 and by 4% from 1993
to 1994. Domestic sales increased by 4% in 1995 after decreasing 4% in 1994.
In 1992, the Company introduced a new contact lens disinfection system marketed
in the United States under the name UltraCare, and 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 domestic sales of other optical lens care
products. Continued growth in sales of Complete led the increase in the
domestic sales in 1995. Sales of Barnes Hind products contributed $0.8 million
to one month of domestic sales. International lens care product sales
increased by 11% in 1995 compared to 1994 and by 7% in 1994 compared to 1993.
The international sales increase in 1995 was primarily the result of continued
growth in sales of Complete. The 1994 international sales increase was the
result of the introduction of UltraCare in 1992, introduction of Complete in
1993 and increased market penetration. Currency fluctuations had a strong
positive impact on 1995 international sales growth. Excluding currency
fluctuations, international sales increased by 3% from 1994 to 1995.
Optical Lens Care Sales
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States $123.6 $ 98.0 $ 92.7 $ 88.8 $ 85.6 $ 88.6
International 168.2 201.3 229.7 236.2 253.8 281.2
------ ------ ------ ------ ------ ------
$291.8 $299.3 $322.4 $325.0 $339.4 $369.8
</TABLE>
Skin Care sales represent the Company's line of dermatological products. Sales
increased by $7.4 million or 20% in 1995 compared to 1994, and by $4.9 million
or 15% in 1994 compared to 1993. Sales growth in 1995 included $11.5 million
of products of the Lorsen and Herald businesses acquired in fiscal 1995. This
increase was offset by an 11% decrease in the base skin care business. Sales
growth in 1994 was the result of strong growth in Elimite cream, offset by
declines in sales of other products, and increased Medicaid rebate costs
compared to the prior year.
Skin Care Sales
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
United States $30.7 $34.3 $35.2 $30.4 $35.2 $39.2
International 2.5 2.2 2.1 2.0 2.1 5.5
----- ----- ----- ----- ----- -----
$33.2 $36.5 $37.3 $32.4 $37.3 $44.7
</TABLE>
Botox (Botulinum Toxin Type A) purified neurotoxin complex is the Company's
product for movement disorders. Botox sales growth was 38% in 1995 and 40% in
1994. Sales growth in both years was the result of increased market
penetration in both the U.S. and international markets.
Botox Sales
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
United States $0 $ 9.3 $13.5 $18.1 $24.2 $32.7
International 0 3.3 6.0 7.2 11.3 16.2
-- ----- ----- ----- ----- -----
$0 $12.6 $19.5 $25.3 $35.5 $48.9
</TABLE>
4
<PAGE> 5
Income and Expenses
The following table sets forth the relationship to sales of various income
statement items:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 30.7 30.3 29.1
----- ----- -----
Gross margin 69.3 69.7 70.9
Other operating costs and expenses:
Selling, general and administrative 42.3 41.4 42.2
Research and development 10.9 11.8 11.9
Contribution to ALRT 4.7 - -
----- ----- -----
Operating income 11.4 16.5 16.8
Nonoperating income (expense) 0.3 0.3 (0.1)
----- ----- -----
Earnings from continuing operations before
income taxes and minority interest 11.7 16.8 16.7
===== ===== =====
Earnings from continuing operations 6.8% 11.7% 12.2%
===== ===== =====
</TABLE>
Gross Margins
The Company's gross margin percentage decreased by 0.4 percentage points from
69.7% in 1994 to 69.3% in 1995. The decrease in gross margin percentage was
primarily the result of shifts in product sales mix.
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.
Selling, General and Administrative
Selling, general and administrative expenses as a percentage of net sales
increased in 1995 to 42.3% from 41.4% in 1994 and 42.2% in 1993. The
percentage increase in 1995 was primarily the result of increased spending for
product launches, promotion of Complete and overhead related to recent
acquisitions. The decrease from 1993 to 1994 is 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 5% in 1995 to $116.7 million
compared to $111.5 million in 1994. Such expenses in 1994 were $9.0 million
greater than the $102.5 million spent on research and development in 1993. In
addition, in 1995 the Company contributed $50.0 million to Allergan Ligand
Retinoid Therapeutics, Inc. (ALRT) to conduct research related to small
molecule retinoid products. Beginning in 1995, Allergan research and
development costs related to retinoid products were reimbursed by ALRT. The
1994 increase in research and development expenditures was primarily in the
areas of emerging technologies, such as Botox and receptor-selective retinoid
research. The 1994 and 1995 increases are the result of increased spending on
selected research opportunities. Research and development expenditures are
allocated to each product line, with higher rates of investments allocated to
Eye Care pharmaceuticals, Botox and Skin Care.
Operating Income
Operating income in 1995 of $121.3 million or 11.4% of sales was $35.3 million
lower than 1994 operating income of $156.6 million or 16.5% of sales. The
decrease in operating income from 1994 to 1995 was primarily the result of the
$50 million contribution to ALRT. Absent the contribution to ALRT, operating
income in 1995 was $171.3 million or 16.1% of sales. The decline in operating
income percentage from 1994 to 1995 excluding the effect of the contribution to
ALRT was the result of the decrease in gross margin percentage and the increase
in selling, general and administrative expense as a percent of net sales.
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
5
<PAGE> 6
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
percentage of net sales.
Net Earnings
Net earnings were $72.5 million in 1995 compared to $110.7 million or 11.7% of
sales in 1994. Excluding the $50.0 million contribution to ALRT, net earnings
were $122.5 million or 11.5% of sales in 1995. The increase in earnings,
excluding the contribution to ALRT, was primarily the result of the increase in
operating income offset by an increase in income taxes.
Net earnings were $110.7 million in 1994 compared to $108.9 million in 1993.
The increase in net earnings 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. Legislation pending in the
United States Congress could eventually eliminate the provision of the United
States tax law currently producing significant tax savings for Puerto Rican
operations. The elimination of this provision would materially increase income
taxes. 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.
The Company purchased treasury stock totaling $21.6 million in 1994. Such
purchases were the primary cause of a decrease in weighted average common
shares outstanding from 66.2 million in 1993 to 63.9 million in 1994. Net
earnings per common share decreased to $1.12 in 1995 from $1.73 in 1994.
Excluding the effect of the contribution to ALRT, net earnings per common share
increased $0.17 or 10% to $1.90 in 1995. Net earnings per common share
increased by $0.08 or 5% from $1.65 in 1993 to $1.73 in 1994. 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.
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
1995 was $76.7 million compared to $166.4 million in 1994. The primary cause
of the decrease in cash provided from operations was the $50.0 million
contribution to ALRT. In addition, the Company reduced income taxes payable as
a result of acceleration of certain tax payments as required by taxation
provisions of the new United States GATT legislation enacted in December 1994.
Cash used in investing activities totaled $277.8 million in 1995. The
acquisitions of Lorsen, OMS, Frumtost, and the Herald Pharmacal and Barnes Hind
product lines, along with acquisition of the minority ownership portion of the
Santen-Allergan joint venture represent $162.0 million of such activities.
Cash utilized for investing activities in 1995 also includes $17.5 million used
to prepay product royalties, $30.7 million used primarily to acquire software,
and $62.5 million of expenditures for plant and equipment more fully described
under "Capital Expenditures," below.
Net cash provided by financing activities was $175.7 million in 1995. Cash was
provided primarily by net borrowings under commercial paper obligations of
$64.0 million, and long-term debt borrowings of $129.1 million. The primary
financing activity use of cash was $29.9 million in payment of dividends. 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. Purchases of treasury stock in 1994 have
been the primary cause of a decrease in common stock outstanding from 64.0
million shares at December 31, 1993 to 63.7 million shares at December 31,
1994.
Cash vs Debt
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
In millions 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 84.4 $127.4 $121.3 $141.8 $130.7 $102.3
Debt 190.1 145.1 119.8 142.6 132.3 325.2
</TABLE>
As of December 31, 1995, the Company had four long-term credit facilities and a
medium term note program. The credit facilities allow for borrowings of up to
$19.6 million through November 1996, and $254.4 million through 1999, and $49.0
million through 2003. The note program allows the Company to issue up to $200
million in notes. Borrowings under the credit facilities are subject to
certain financial and operating covenants, including a requirement that the
Company maintain certain financial ratios and other customary covenants for
credit facilities of similar kind. As of December 31, 1995, the Company had
$75.5 million in borrowings under three of the credit facilities and $85.0
million under the note program. As of December 31, 1995, the Company has
classified
6
<PAGE> 7
$76.5 million of its commercial paper borrowings and the $75.5 million borrowed
under the credit 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, 1995, the Company had commercial paper borrowings of $106.5
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.
Capital Expenditures
Expenditures for property, plant and equipment totaled $62.5 million for 1995,
$58.3 million for 1994 and $59.9 million for 1993. Expenditures for 1995
include expansion of manufacturing facilities in Ireland and a variety of other
projects designed to improve productivity. The Company expects to invest
approximately $60 to $65 million in property, plant and equipment in 1996.
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 56% of the Company's revenues in 1995 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
$33.0 million increase in 1995; a $2.0 million increase in 1994; and a $38.5
million decrease in 1993. See Note 1 to the Consolidated Financial Statements.
7
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
In millions, except share data 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 102.3 $ 130.7
Trade receivables, net 205.7 179.7
Inventories 120.8 96.8
Other current assets 93.5 78.3
-------- --------
Total current assets 522.3 485.5
Investments and other assets 160.8 133.4
Property, plant and equipment, net 357.5 314.8
Goodwill and intangibles, net 275.7 126.1
-------- --------
Total assets $1,316.3 $1,059.8
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 58.5 $ 48.6
Accounts payable 58.7 59.9
Accrued compensation 42.5 46.6
Other accrued expenses 130.6 102.1
Income taxes 41.3 66.5
-------- --------
Total current liabilities 331.6 323.7
Long-term debt 266.7 83.7
Other liabilities 49.1 38.5
Commitments and contingencies
Minority interest - 10.6
Stockholders' equity
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued - -
Common stock, $.01 par value; authorized
150,000,000 shares; issued 67,319,000
and 67,387,000 shares 0.7 0.7
Additional paid-in capital 199.7 196.7
Foreign currency translation adjustment 4.7 4.2
Other (1.4) -
Retained earnings 527.4 485.3
-------- --------
731.1 686.9
Less treasury stock, at cost
(2,786,000 and 3,724,000 shares) (62.2) (83.6)
-------- --------
Total stockholders' equity 668.9 603.3
-------- --------
Total liabilities and stockholders' equity $1,316.3 $1,059.8
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,067.2 $947.2 $858.9
Operating costs and expenses
Cost of sales 328.0 286.6 249.6
Selling, general and administrative 451.2 392.5 362.2
Research and development 116.7 111.5 102.5
Contribution to ALRT 50.0 - -
-------- ------ ------
945.9 790.6 714.3
-------- ------ ------
Operating income 121.3 156.6 144.6
Nonoperating income (expense)
Interest income 10.0 8.2 6.7
Interest expense (13.9) (11.0) (8.1)
Other, net 7.8 5.1 0.4
-------- ------ ------
3.9 2.3 (1.0)
-------- ------ ------
Earnings from continuing operations
before income taxes and minority interest 125.2 158.9 143.6
Provision for income taxes 51.7 46.2 36.5
Minority interest 1.0 2.0 2.6
-------- ------ ------
Earnings from continuing operations 72.5 110.7 104.5
Discontinued operations
Earnings from operations, net of
income taxes - - 4.0
Gain on disposal, net of income taxes - - 0.4
-------- ------ ------
Net earnings $ 72.5 $110.7 $108.9
======== ====== ======
Net earnings per common share
Continuing operations $ 1.12 $ 1.73 $ 1.58
Discontinued operations
Earnings from operations - - 0.06
Gain on disposal - - 0.01
-------- ------ ------
$ 1.12 $ 1.73 $ 1.65
======== ====== ======
Weighted average common shares
outstanding 64.8 63.9 66.2
======== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by operating activities
Net earnings $72.5 $110.7 $108.9
Non-cash items included in net earnings
Depreciation and amortization 60.5 52.3 46.8
Amortization of prepaid royalties 8.2 5.5 -
Deferred income taxes 1.3 (2.9) (6.5)
Gain on disposal of business - - (0.9)
Loss on sale of assets 0.1 3.7 4.1
Expense of compensation plans 2.5 1.8 6.6
Minority interest 1.0 2.0 2.6
Changes in assets and liabilities
Trade receivables (14.9) (25.8) (15.3)
Inventories (6.3) 2.7 (8.3)
Accounts payable (4.6) (0.5) 6.9
Income taxes (28.9) 20.6 5.3
Accrued liabilities 1.3 10.6 1.0
Other (16.0) (14.3) 4.8
------ ------ ------
Net cash provided by operating activities 76.7 166.4 156.0
------ ------ ------
Cash flows from investing activities
Additions to property, plant and equipment (62.5) (58.3) (59.9)
Disposals 0.9 1.5 25.1
Investment in Ligand Pharmaceuticals (6.0) - (4.0)
Prepayment of royalties (17.5) (35.5) (9.8)
Acquisitions of businesses, net of cash acquired (162.0) (17.5) -
Other (30.7) (25.3) (17.2)
------ ------ ------
Net cash used in investing activities (277.8) (135.1) (65.8)
------ ------ ------
Cash flows from financing activities
Dividends to stockholders (29.9) (26.5) (26.4)
Increase (decrease) in notes payable 8.1 8.4 (2.1)
Sale of stock to employees 15.4 10.3 3.5
Net borrowings (repayments) under commercial
paper obligations 64.0 (60.1) 30.2
Long-term debt borrowings 129.1 42.4 -
Repayments of long-term debt (11.0) (2.3) (4.4)
Payments to acquire treasury stock - (21.6) (71.0)
------ ------ ------
Net cash provided by (used in) financing activities 175.7 (49.4) (70.2)
Effect of exchange rates on cash and equivalents (3.0) 7.0 0.5
------ ------ ------
Net increase (decrease) in cash and equivalents (28.4) (11.1) 20.5
Cash and equivalents at beginning of year 130.7 141.8 121.3
------ ------ ------
Cash and equivalents at end of year $102.3 $130.7 $141.8
====== ====== ======
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest (net of amount capitalized) $ 13.8 $ 10.1 $ 6.2
====== ====== ======
Income taxes $ 70.4 $ 29.7 $ 39.9
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
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. All significant transactions among the consolidated
entities have been eliminated from the financial statements. 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 $1.8 million in 1995, $2.0 million in 1994, and $3.1
million in 1993.
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.
Long-Lived Assets
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. 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 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 7 to 30 years. Intangibles include patents, licensing
agreements and marketing rights which are being amortized over their estimated
useful lives. Amortization expense was $14.3 million in 1995, $10.2 million in
1994, and $9.8 million in 1993.
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was issued in March 1995. SFAS 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment in value based upon
undiscounted future cash flows, and appropriate losses be recognized, whenever
the carrying amount of an asset may not be recovered. The Company adopted SFAS
121 in 1995 and such adoption did not have a material effect on the Company's
financial position or results of operations.
Income Taxes
The Company recognizes deferred tax assets and liabilities 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.
11
<PAGE> 12
Note 2: Acquisitions
In 1994 and 1995, the Company acquired six businesses:
Ioptex Research (Ioptex) intraocular lens (IOL) product line based in
Irwindale, California, in September 1994.
Lorsen SA (Lorsen), a manufacturer of skin care products in Argentina, in
December 1994.
Optical Micro Systems Inc. (OMS), a manufacturer of phacoemulsification
equipment, in North Andover, Massachusetts, in January 1995.
Laboratorios Frumtost SA (Frumtost), the largest manufacturer of eye care
pharmaceuticals in Brazil, in June 1995.
Herald Pharmacal (Herald) skin care product line based in Colonial Heights,
Virginia, in August 1995.
Pilkington Barnes Hind contact lens care product line (Barnes Hind) marketed
worldwide with a leading product in Japan, in November 1995.
The cost of the acquisitions totaled $17.5 million in 1994 and $149.8 million
in 1995. The acquisitions were accounted for using the purchase method.
Goodwill related to the acquisitions of $9.6 million in 1994 and $144.2 million
in 1995 is being amortized over periods of 7 to 30 years. Results of
operations of each of the acquisitions have been included in the Company's
income statements since their respective dates of acquisition. On the basis of
an unaudited pro forma consolidation of the results of operations as if the
acquisitions had taken place at the beginning of 1994, the following amounts
would have been reported:
<TABLE>
<CAPTION>
in millions 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Net sales $1,148.5 $1,067.7
Net earnings 73.0 114.3
Net earnings per common share $1.13 $1.79
</TABLE>
The unaudited pro forma results of operations are not necessarily indicative of
the results of operations that would have occurred had the acquisitions
occurred at the beginning of 1994, or of future results of operations.
In addition to the acquisitions discussed above, the Company acquired the
minority ownership of the Santen-Allergan joint venture for $25.7 million in
August 1995.
Note 3: Allergan Ligand Retinoid Therapeutics, Inc.
Since 1992, the Company and Ligand Pharmaceuticals Incorporated (Ligand)
operated a joint venture for the purpose of performing certain research and
development activities. In December 1994, Allergan and Ligand formed a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
(ALRT) to function as the successor to the joint venture. In June 1995, Ligand
contributed $17.5 million to ALRT for a right to acquire all of the stock of
ALRT at specified future dates and amounts. At the same time, the Company
contributed $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets, or a similar right to acquire all of the
stock of ALRT if Ligand does not exercise its right. The Company also
purchased $6.0 million of Ligand common stock at the time of its contribution
to ALRT. The Company accounted for its $50.0 million contribution as a charge
to operating expense at the time of the contribution.
Note 4: Discontinued Operations
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 for 1993 were net sales of $29.1 million, earnings from operations
before income taxes of $6.7 million and earnings from operations, net of income
taxes of $4.0 million.
12
<PAGE> 13
Note 5: Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
December 31,
In millions 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Trade receivables, net
Trade receivables $211.9 $186.9
Less allowance for doubtful accounts 6.2 7.2
------ ------
$205.7 $179.7
====== ======
Inventories
Finished products $ 83.0 $ 69.7
Work in process 11.3 8.4
Raw materials 26.5 18.7
------ ------
$120.8 $ 96.8
====== ======
Property, plant and equipment, net
Land $ 20.3 $ 15.9
Buildings 277.5 237.8
Machinery and equipment 280.8 247.7
------ ------
578.6 501.4
Less accumulated depreciation 221.1 186.6
------ ------
$357.5 $314.8
====== ======
Goodwill and intangibles, net
Goodwill $308.7 $151.3
Intangibles 39.4 39.9
------ ------
348.1 191.2
Less accumulated amortization 72.4 65.1
------ ------
$275.7 $126.1
====== ======
</TABLE>
Note 6: Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
December 31,
In millions 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Notes payable
Bank loans $ 23.5 $ 10.7
Commercial paper 30.0 30.0
Current maturities of long-term debt 5.0 7.9
------ ------
Total notes payable $ 58.5 $ 48.6
====== ======
Long-term debt
Medium term notes $ 85.0 $ 10.0
Bank loans 75.5 32.4
Commercial paper 76.5 12.8
ESOP loan 20.4 22.6
Capitalized leases 8.2 8.6
Other 6.1 5.2
------ ------
271.7 91.6
Less current maturities 5.0 7.9
------ ------
Total long-term debt $266.7 $ 83.7
====== ======
</TABLE>
In September 1994, the Company entered into a $200 million medium term note
program. This program ends in June 2002. 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 London interbank
borrowing rates (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, 1995 and 1994, the Company had $85.0 and $10.0
million, respectively, outstanding under this program at rates varying from
5.91% to 6.92% with interest due semi-annually and principal due upon maturity.
In 1994, 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
13
<PAGE> 14
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 is exposed to credit loss in the event of nonperformance by the
other party to the swap. Management believes such risk is remote.
In November 1994 and August 1995, two subsidiaries of the Company in Japan
entered into three revolving credit facilities, denominated in Yen, which allow
for aggregate borrowings of up to approximately $98.0 million. The facilities,
which expire from November 1996 to August 2003, are guaranteed by the Company.
The facilities offer various interest rates based on the Yen LIBOR and are used
to support working capital and general corporate purposes. At December 31,
1995 and 1994, the Company had in the aggregate $75.5 million and $32.4
million, respectively, outstanding under the credit facilities.
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
LIBOR, or other negotiated rates, and is used to support general corporate
purposes and the issuance of commercial paper in the United States. At
December 31, 1995 and 1994, there was no debt outstanding under the revolving
credit facilities.
At December 31, 1995 and 1994, the Company classified $76.5 million and $12.8
million, respectively, of commercial paper, and $75.5 million and $32.4
million, respectively, of borrowings under the revolving credit facilities in
Japan as long-term debt because the Company has the ability to refinance these
debts on a long-term basis under the terms of the revolving credit facilities.
The commercial paper is issued at current market rates and the carrying value
approximates the fair value. The medium term note program and credit
facilities discussed above provide 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. Certain covenants also limit subsidiary debt and restrict dividend
payments. The Company was in compliance with these covenants as of December
31, 1995. The Employee Stock Ownership Plan is discussed in Note 10.
In 1995, in conjunction with the issuance of commercial paper, the Company
entered into three swap agreements totaling $40 million. The swap agreements
terminate at various dates from March 1997 through May 2000. Under the swap
agreements the other parties are obligated to pay a floating rate based upon
the LIBOR while the Company is obligated to pay fixed rates varying from 6.86%
to 7.00%. Any gains or losses incurred as a result of the swap agreements are
recorded as interest expense. The Company would be required to pay $1.8
million to terminate the swap agreements based upon their fair value at
December 31, 1995. 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 aggregate maturities of long-term debt are $5.0 million in 1996, $24.9
million in 1997, $36.0 million in 1998, $115.0 million in 1999, $3.5 million in
2000 and $87.3 million thereafter. For purposes of summarizing the maturities
of long-term debt, the commercial paper outstanding of $76.5 million at
December 31, 1995 was treated as maturing in 1999 upon expiration of the
current credit facility. Interest incurred of $1.2 million in 1995, $0.3
million in 1994, and $1.3 million in 1993 has been capitalized and included in
property, plant and equipment. Noncash additions to capitalized leases and
capital lease obligations of $0.2 million in 1995 and $0.4 million in 1994 were
recorded on the Company's balance sheet and excluded from the Consolidated
Statements of Cash Flows.
Note 7: Income Taxes
The components of earnings before income taxes and minority interest were:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing operations before
income taxes and minority interest
U.S. $ 46.5 $ 76.0 $ 62.1
Non-U.S. 78.7 82.9 81.5
------ ------ ------
125.2 158.9 143.6
Discontinued operations
Earnings from operations - - 6.7
Gain on disposal - - 0.9
------ ------ ------
Earnings before income
taxes and minority interest $125.2 $158.9 $151.2
====== ====== ======
</TABLE>
14
<PAGE> 15
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit)
Continuing operations $ 51.7 $ 46.2 $ 36.5
Discontinued operations - - 3.2
------ ------ ------
$ 51.7 $ 46.2 $ 39.7
====== ====== ======
Current
U.S. federal $ 12.3 $ 21.0 $ 9.8
Non-U.S. 26.8 18.6 27.6
U.S. state and Puerto Rico 11.3 9.5 8.6
------ ------ ------
Total current 50.4 49.1 46.0
------ ------ ------
Deferred
U.S. federal 1.7 (6.1) (2.3)
Non-U.S. (1.8) 3.2 (0.2)
U.S. state and Puerto Rico 1.4 - (3.8)
------ ------ ------
Total deferred 1.3 (2.9) (6.3)
------ ------ ------
Total $ 51.7 $ 46.2 $ 39.7
====== ====== ======
</TABLE>
The balances of net current deferred tax assets and net non-current deferred
tax assets at December 31, 1995 were $31.0 million and $7.9 million,
respectively. 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. 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, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards (foreign) $ 11.7 $ 12.5 $ 10.3
Accrued expenses 17.1 18.2 21.9
Foreign tax credit carryforwards 1.4 1.7 14.5
Capitalized expenses 11.9 9.6 7.2
Pension expense 4.9 5.3 4.0
Medicaid rebates 4.7 4.9 4.0
Postretirement medical benefits 5.7 5.4 4.3
Intercompany profit in inventory 3.6 2.8 4.0
ALRT contribution 19.5 - -
All other 14.5 10.9 11.0
------ ------ ------
95.0 71.3 81.2
Less: valuation allowance (33.9) (17.9) (32.6)
------ ------ ------
Total deferred tax asset 61.1 53.4 48.6
------ ------ ------
Deferred tax liabilities
Depreciation 10.9 10.7 7.9
All other 11.3 2.6 3.5
------ ------ ------
Total deferred tax liabilities 22.2 13.3 11.4
------ ------ ------
Net deferred tax asset $ 38.9 $ 40.1 $ 37.2
====== ====== ======
</TABLE>
15
<PAGE> 16
The 1995 increase in the valuation allowance relates substantially to the
deferred tax asset resulting from the contribution to ALRT. 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.
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, 1995. 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>
1995 1994 1993
- ---------------------------------------------------------------------------- -------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of U.S. tax benefit 1.3 1.4 -
Ireland and Puerto Rico income (13.9) (12.8) (13.1)
U.S. tax effect of foreign earnings
and dividends, net of foreign tax credits - 1.9 2.7
Other credits (0.8) (2.2) (4.0)
Taxes on unremitted earnings of subsidiaries 8.0 2.0 6.6
Valuation allowance, federal & state,
on ALRT contribution 15.6 - -
Other (3.9) 3.8 (0.9)
------ ------ ------
Effective tax rate 41.3% 29.1% 26.3%
====== ====== ======
</TABLE>
The Company's effective tax rate, exclusive of the impact of the one-time
charge to earnings for the contribution to ALRT, would have been 29.5% for
1995. 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 $17.4 million ($0.27 per
share) in 1995, $20.3 million ($0.32 per share) in 1994, and $19.8 million
($0.30 per share) in 1993. The Puerto Rico exemption expires December 31,
2007.
Withholding and U.S. taxes have not been provided on approximately $234.1
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 1989, SmithKline Beckman
Corporation (SmithKline), entered into a Tax Agreement, 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 1989. The Company is in the process of settling the final
audit cycle with SmithKline for the years 1987 - July 1989 pursuant to the Tax
Agreement mentioned above. The Company and its consolidated subsidiaries are
under examination for the years 1989-1993. 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, 1995, the Company has foreign tax credit carryforwards for
federal income tax purposes of approximately $1.4 million which are available
to reduce future federal income taxes, if any, through 1999.
At December 31, 1995, the Company has net operating loss carryforwards of
certain non-U.S. subsidiaries, with various expiration dates, of approximately
$60.2 million.
16
<PAGE> 17
Note 8: Stockholders' Equity
An analysis of activity in stockholders' equity for the three years ended
December 31, 1995 follows:
<TABLE>
<CAPTION>
Common Stock
----------------- Additional Unearned Treasury Stock
Par Paid-In Compen- Retained ------------------
In millions Shares Value Capital sation Earnings Other Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 67.6 $0.7 $225.8 $(31.6) $320.8 $ 2.0 (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) 403.2 (5.0) (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) 485.3 4.2 (3.7) (83.6)
Net earnings 72.5
Translation adjustment 0.5
Investment market value
adjustment (0.6)
Additional minimum liability
for qualified pension plan (0.8)
Dividends ($0.47 per share) (30.2)
Issuance of shares under
stock plans (0.1) (1.4) (2.0) 1.0 0.2 4.3
Stock options exercised 2.4 (1.2) 0.7 17.1
Purchase of treasury stock
Expense of compensation plans 4.0
---------------------------------------------------------------------------------------
Balance December 31, 1995 67.3 $0.7 $224.1 $(24.4) $527.4 $ 3.3 (2.8) $(62.2)
==== ==== ====== ====== ====== ===== ==== ======
</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 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.
17
<PAGE> 18
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 9: Employee Retirement And Other Benefit Plans
Pension 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 $7.4 million in 1995, $9.3 million in 1994 and $7.3 million in 1993.
Components of pension expense under the Company's U.S. and major non-U.S. plans
for 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 6.8 $ 7.1 $ 6.2
Interest cost 8.2 7.1 6.4
Actual return on assets (12.3) (0.5) (4.5)
Net amortization and deferral 4.7 (4.4) (0.8)
------ ----- -----
Total pension expense $ 7.4 $ 9.3 $ 7.3
====== ===== =====
</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>
1995 1994
---------------------------- --------------------------
In millions Qualified Non-Qualified Qualified Non-Qualified
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair market value $ 87.4 $ - $67.8 $ -
------ ------ ----- -----
Accumulated benefit obligation
Vested $ 84.0 $ 7.7 $51.5 $ 5.5
Nonvested 6.7 0.1 5.1 -
------ ------ ----- -----
90.7 7.8 56.6 5.5
------ ------ ----- -----
Plan assets in excess of (less than)
accumulated benefit obligations (3.3) (7.8) 11.2 (5.5)
Projected compensation increases 26.7 3.0 23.4 4.5
------ ------ ----- -----
Projected benefit obligation in
excess of plan assets 30.0 10.8 12.2 10.0
Unrecognized transition asset 3.3 - 3.7 -
Unrecognized net loss (27.4) (1.0) (7.3) (1.2)
Unrecognized prior service cost 0.5 (1.9) 0.6 (2.1)
Adjustment to recognize minimum liability 1.4 - 0.2 -
------ ------ ----- -----
Accrued pension cost $ 7.8 $ 7.9 $ 9.4 $ 6.7
====== ====== ===== =====
</TABLE>
18
<PAGE> 19
The expected long-term rate of return on plan assets ranged from 4% to 9.9% in
1995 and from 5.5% to 10% in 1994. The discount rate used in determining
obligations ranged from 3.5% to 8.5% in 1995 and from 5% to 9% in 1994, and the
assumed average rate of increase in future compensation levels ranged from 3%
to 5% in 1995 and from 3.5% to 6.1% in 1994.
Postretirement Benefits
The Company has one retiree health plan that covers United States retirees and
dependents. 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 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 2.4 $ 2.6
Fully eligible plan participants 0 .1 -
Other active plan participants 10.6 8.1
----- -----
Accumulated postretirement benefit obligation $13.1 $10.7
===== =====
Plan assets at fair value $ - $ -
Accumulated postretirement benefit obligation
in excess of plan assets 13.1 10.7
Unrecognized net income (loss) from past
experience different from that assumed
and from changes in assumptions (0.4) 0.6
Past service costs 1.9 1.9
----- -----
Accrued postretirement benefit cost $14.6 $13.2
===== =====
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
In millions 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits attributed to
service during the period $ 0.9 $1.5
Interest cost on accumulated
postretirement benefit obligation 0.8 1.0
Net amortization and deferral (0.2) 0.1
----- ----
Net periodic postretirement benefit cost $ 1.5 $2.6
===== ====
</TABLE>
Cost increases were assumed of 8.5% for the medical plan and 5.5% for the
dental plan in 1996. Annual cost increases were assumed to decrease gradually
to 4.5% for the medical plan and 4.0% for the dental plan in 2002 and remain
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, 1995 by $3.4 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year then ended
by $0.4 million. The discount rates used in determining the accumulated
postretirement benefit obligation and the net periodic postretirement benefit
cost were 6.9% and 8.9%, 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 upon
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 $2.8
million in 1995, $2.7 million in 1994, and $2.9 million in 1993.
19
<PAGE> 20
Note 10: 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 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. 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, 1995 and 1994 are:
<TABLE>
<CAPTION>
Number of Shares
------------------------
In thousands 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Allocated shares 483 398
Shares committed to be allocated 99 85
Unallocated shares 753 852
----- -----
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.
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 1995, 1994 and 1993
was $1.3 million, $1.6 million and $1.7 million, respectively. Compensation
expense is recognized based on the amortization of the related loan.
Compensation expense for 1995, 1994 and 1993 was $1.9 million, $1.7 million and
$1.6 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. Options generally expire ten
years after their original date of grant. As of December 31, 1995, a total of
334,000 shares of restricted stock and options to purchase 4,084,000 shares of
common stock were issued and outstanding.
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, 1995.
20
<PAGE> 21
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, 1995, there were
11,000 shares issued and outstanding. Stock option activity in 1995, 1994 and
1993 under the Company's incentive plan was as follows:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------------
In thousands, except option price data 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 4,189 4,137 3,604
Options granted at fair market value 767 778 858
Options exercised (747) (548) (208)
Options cancelled (125) (178) (117)
----- ----- -----
Outstanding, end of year 4,084 4,189 4,137
===== ===== =====
Exercisable, end of year 2,384 2,051 2,287
===== ===== =====
Price range of options outstanding, end of year $13.50 - $29.75 $11.57 - $26.41 $11.57 - $26.41
=============== =============== ===============
Price range of options exercised $11.57 - $24.83 $11.85 - $24.83 $11.41 - $24.83
=============== =============== ===============
</TABLE>
Note 11: 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 $13.4 million in 1995, $12.0 million in 1994 and
$12.6 million in 1993.
Minimum rentals payable under noncancelable operating leases, net of minimum
sublease rentals, as of December 31, 1995, aggregate $40.0 million and for each
of the next five years are $12.9 million in 1996, $9.5 million in 1997, $4.4
million in 1998, $3.3 million in 1999, $0.9 million in 2000 and $9.0 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, 1995, the
Company had forward exchange contracts outstanding, with maturities not
exceeding six months, which require the Company to exchange foreign currencies
for $33.2 million which approximates fair value.
Note 12: 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.
21
<PAGE> 22
The table to the right represents the Company's business segment information by
geographic area.
Geographic Areas
<TABLE>
<CAPTION>
For the Year Ended December 31,
In millions 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $ 535.3 $ 501.4 $458.8
-------- -------- ------
Europe 413.6 370.1 340.9
Other 218.0 173.1 142.7
-------- -------- ------
Total international 631.6 543.2 483.6
-------- -------- ------
Transfers between areas(a)
United States (56.6) (52.2) (43.7)
Europe (43.1) (45.2) (39.8)
-------- -------- ------
Total transfers between areas (99.7) (97.4) (83.5)
-------- -------- ------
Total net sales $1,067.2 $ 947.2 $858.9
======== ======== ======
Operating income
United States before
research and development and
contribution to ALRT $ 199.2 $ 194.1 $180.9
Research and development expenses(b) (92.1) (93.3) (87.6)
Contribution to ALRT (50.0) - -
-------- -------- ------
United States 57.1 100.8 93.3
-------- -------- ------
Europe 117.3 108.5 97.9
Other 2.5 6.4 12.3
-------- -------- ------
Total international 119.8 114.9 110.2
-------- -------- ------
176.9 215.7 203.5
Corporate expenses (55.6) (59.1) (58.9)
-------- -------- ------
Total operating income $ 121.3 $ 156.6 $144.6
======== ======== ======
Identifiable assets(c)
United States $ 646.8 $ 529.7 $482.6
-------- -------- ------
Europe 348.6 301.6 242.5
Other 218.6 97.8 72.9
-------- -------- ------
Total international 567.2 399.4 315.4
Corporate 102.3 130.7 141.8
-------- -------- ------
Total assets $1,316.3 $1,059.8 $939.8
======== ======== ======
</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.
Note 13: Subsequent Events
On January 23, 1996, the Board of Directors declared a cash dividend of $0.12
per share, payable March 8, 1996, to stockholders of record on February 16,
1996.
22
<PAGE> 23
Note 14: 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.
23
<PAGE> 24
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 1995, 1994 and 1993 consolidated
financial statements of Allergan, Inc. and subsidiaries and conducted 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.
William C. Shepherd
President, Chief Executive Officer, and
Chairman of the Board of Directors
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
Dwight J. Yoder
Vice President, Controller and
Principal Accounting Officer
24
<PAGE> 25
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, 1995 and 1994 and the related consolidated
statements of earnings and cash flows for each of the years in the three-year
period ended December 31, 1995. 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, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Costa Mesa, California
January 23, 1996
25
<PAGE> 26
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
In millions, except per share data Quarter Quarter(a) Quarter Quarter Year(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Net sales $228.3 $262.2 $273.6 $303.1 $1,067.2
Gross margin 157.2 180.5 190.0 211.5 739.2
Operating income (loss) 28.1 (12.3) 50.1 55.4 121.3
Net earnings (loss) 21.7 (23.0) 34.2 39.6 72.5
Net earnings (loss) per share 0.34 (0.36) 0.53 0.61 1.12
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
</TABLE>
(a) 1995 results for the second quarter and full year include a $50.0 million
charge to operating expense for a contribution to Allergan Ligand Retinoid
Therapeutics, Inc. Excluding the charge, the following amounts would have
been reported:
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating income $28.1 $37.7 $50.1 $55.4 $171.3
Net earnings 21.7 27.0 34.2 39.6 122.5
Net earnings per share 0.34 0.42 0.53 0.61 1.90
</TABLE>
26
<PAGE> 27
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1995(a) 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $1,067.2 $947.2 $858.9 $830.7 $761.7
Operating costs and expenses:
Cost of sales 328.0 286.6 249.6 241.8 212.1
Selling, general & administrative 451.2 392.5 362.2 362.9 356.2
Research and development 116.7 111.5 102.5 89.5 70.4
Contribution to ALRT 50.0 - - - -
-------- ------ ------ ------ ------
Operating income 121.3 156.6 144.6 136.5 123.0
Nonoperating income (expense) 3.9 2.3 (1.0) (4.9) (6.6)
Earnings from continuing
operations before income taxes and
minority interest 125.2 158.9 143.6 131.6 116.4
Earnings from
continuing operations 72.5 110.7 104.5 95.8 88.3
Earnings (loss) from
discontinued operations - - 4.4 10.0 (147.8)
Cumulative effect of
accounting changes - - - (2.2) -
Net earnings (loss) 72.5 110.7 108.9 103.6 (59.5)
Earnings per share
from continuing operations 1.12 1.73 1.58 1.42 1.31
Earnings (loss) per share
from discontinued operations - - 0.07 0.14 (2.20)
Cumulative effect per share
of accounting changes - - - (0.03) -
Net earnings (loss) per share 1.12 1.73 1.65 1.53 (0.89)
Cash dividends per share 0.47 0.42 0.40 0.38 0.33
Financial Position
Current assets $ 522.3 $ 485.5 $443.9 $422.8 $448.2
Working capital 190.7 161.8 167.5 155.2 179.1
Total assets 1,316.3 1,059.8 939.8 885.8 833.6
Long-term debt 266.7 83.7 104.6 82.0 97.2
Total stockholders' equity 668.9 603.3 514.5 499.8 444.9
</TABLE>
(a) 1995 results include a $50.0 million charge to operating expense for a
contribution to Allergan Ligand Retinoid Therapeutics, Inc. Excluding the
charge, operating income was $171.3 million, earnings from continuing
operations before income taxes and minority interest were $175.2 million,
net earnings were $122.5 million, and earnings per share were $1.90.
27
<PAGE> 28
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>
1995 1994
-------------------------- -------------------------
Quarter Low High Div. Low High Div.
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 26 1/4 30 1/4 $.11 20 1/4 25 1/4 $.10
Second 25 3/4 29 7/8 $.12 20 25 $.10
Third 26 1/8 33 5/8 $.12 21 5/8 28 $.11
Fourth 28 1/2 33 3/4 $.12 24 7/8 30 7/8 $.11
</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 14,000 as of January 19,
1996.
For the fourth quarter of 1995, the Board declared a cash dividend of $0.12 per
share, payable March 8, 1996 to shareholders of record on February 16, 1996.
See Note 6 to the Consolidated Financial Statements relative to restrictions on
dividend payments.
28
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ALLERGAN, INC.
A DELAWARE CORPORATION
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
Allergan-Loa S.A.I.C. y F. Argentina
Allergan S.A.I.C. y F. Argentina
Lorsen S.A. Argentina
Allergan Australia Pty. Limited Australia
Allergan Holdings Pty. Limited Australia
Amawind Pty. Limited Australia
Pacific Eye Care Pty. Limited Australia
Allergan Warenvertriebsgesellschaft mbH Austria
Allergan N.V. Belgium
Optical Micro Systems Europe N.V. Belgium
Allergan-Lok Produtos Farmaceuticos Ltda. Brazil
Allergan Inc. Canada
Allergan Laboratorios Limitada Chile
Allergan Pharmaceutical (Hangzhou) Co. Ltd. China
Allergan de Colombia S.A. Colombia
Allergan ApS Denmark
Allergan France S.A. France
Allergan Optical GmbH Germany
Pharm-Allergan GmbH Germany
Allergan Asia Limited Hong Kong
Allergan Botox Limited Ireland
Allergan Ireland (Sales) Limited Ireland
CrownPharma Limited Ireland
Allergan S.p.A. (Intl. Toric Lens merged into SpA) Italy
Allergan K.K. Japan
Barnes-Hind Co., Ltd. Japan
Santen Allergan Corporation Japan
Allergan Korea Ltd. Korea
Allergan Afrasia Limited Malta
Allergan S.A. de C.V. Mexico
Laboratoires Allergan Dulcis S.A.M. Monaco
Pharmac, S.A.M. Monaco
Allergan B.V. Netherlands
Allergan New Zealand Limited New Zealand
Allergan AS 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 (Proprietary) Limited South Africa
Allergan Pharmaceuticals (Proprietary) Limited South Africa
Allergan, S.A. Spain
Allergan Norden AB Sweden
Allergan AG Switzerland
Allergan Optik Mamulleri Sanayi Ve Ticaret Limited Turkey
Allergan Farnborough Limited United Kingdom
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Allergan Holdings Limited United Kingdom
Allergan Limited United Kingdom
Allergan Elite, Inc. United States/CA
Allergan Sales, Inc.(formerly Allergan Medical Optics) United States/CA
Allergan Services, Inc. United States/CA
AMO Puerto Rico, Inc. (formerly Allergan America) United States/CA
Herbert Laboratories United States/CA
Allergan America, Inc. (formerly Allergan Caribe, Inc.) United States/DE
Allergan General, Inc. United States/DE
Allergan Holdings, Inc. United States/DE
Allergan Optical Inc. United States/DE
Allergan Puerto Rico, Inc. United States/DE
Allergan Retinoid Corporation United States/DE
Pacific I Limited, Inc. United States/DE
AMO Holdings, Inc. United States/DE
Optical Micro Systems, Inc.. United States/DE
Pacific General, Inc. United States/DE
Pacific Vision Limited, 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, 1996, relating to the
consolidated balance sheets of Allergan, Inc. and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended December 31, 1995,
and the related schedule, which reports appear in the December 31, 1995 annual
report on Form 10-K of Allergan, Inc.
KPMG PEAT MARWICK LLP
Costa Mesa, California
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED STATEMENT OF EARNINGS AND BALANCE SHEETS OF ALLERGAN, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) REPORT ON FORM 10K FOR THE
YEAR ENDED DECEMBER 31, 1995
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 102,300
<SECURITIES> 0
<RECEIVABLES> 211,900
<ALLOWANCES> 6,200
<INVENTORY> 120,800
<CURRENT-ASSETS> 522,300
<PP&E> 578,600
<DEPRECIATION> 221,100
<TOTAL-ASSETS> 1,316,300
<CURRENT-LIABILITIES> 331,600
<BONDS> 266,700
700
0
<COMMON> 0
<OTHER-SE> 668,200
<TOTAL-LIABILITY-AND-EQUITY> 1,316,300
<SALES> 1,067,200
<TOTAL-REVENUES> 1,067,200
<CGS> 328,000
<TOTAL-COSTS> 328,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,700
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> 125,200
<INCOME-TAX> 51,700
<INCOME-CONTINUING> 72,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,500
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
