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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 752-4500
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on
Title of each class which each class registered
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Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $1,900,000,000 on March 7, 1997, based upon
the closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of March 7, 1997 - 65,549,936 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
amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate certain information by reference from
the registrant's Annual Report to Stockholders for the fiscal year ended
December 31, 1996. 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 22, 1997, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1996.
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TABLE OF CONTENTS
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 14
Item I-A. Executive Officers of Allergan, Inc. . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 17
PART III
Item 10. Directors and Executive Officers of Allergan, Inc. . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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.
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 March 5, 1997, the Company announced that it expected, at that
time, that earnings for the first half of 1997 would be lower than those
reported for the first half of 1996, possibly as much as 20% below the
comparable 1996 period, excluding the impact of the special charges in the
second quarter of 1996. It attributed the expected decline in operating
results primarily to launch expenses for new products and the continuing
competitive pressures on the eye care business, as well as the impact of
foreign currency fluctuations. At the same time, the Company announced the
resumption of its stock repurchase plan approved by the Board of Directors in
1993. The existing Board approval permits repurchase of up to 2.9 million
shares. Further repurchases would require the approval of the Board.
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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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1996 1995 1994
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(IN MILLIONS)
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Eye Care
Pharmaceuticals $ 425.1 $ 415.1 $390.7
Surgical 184.0 188.7 144.3
Optical Lens Care 406.0 369.8 339.4
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Total Eye Care 1,015.1 973.6 874.4
Skin Care 64.7 44.7 37.3
Botox(R) 67.2 48.9 35.5
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Total Net Sales $1,147.0 $1,067.2 $947.2
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Domestic 41.4% 43.6% 47.3%
International 58.6% 56.4% 52.7%
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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 43 of the 1996
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). In September 1996, Alphagan(R)
(brimonidine) was approved in the United States for the treatment of open-angle
glaucoma and ocular hypertension; the period of new chemical entity exclusivity
for Alphagan(R) extends for five years from the date of approval. In March
1997, Alphagan(R) was also approved in the United Kingdom; the Company will
seek approval to market Alphagan(R) in the balance of the European community
through the mutual recognition filing process. Also, in March 1997,
Alphagan(R) was approved in the United States for acute post-surgical elevated
pressure in the eye following argon laser trabeculoplasty.
The Company also markets several leading ophthalmic products to treat
ocular inflammation and infection. Pred Fort(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's Acular(R)(1) ophthalmic
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(1) Acular , a registered trademark, is licensed from its developer Syntex
(U.S.A.) Inc.
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solution is indicated for the relief of itch associated with seasonal allergic
conjunctivitis and for the treatment of postoperative inflammation in patients
who have undergone cataract extraction. An application for U.S. marketing
approval for Acular(R) solution for corneal pain was filed with the U.S. Food
and Drug Administration ("FDA") in December 1996. 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)/Oflox(R)/Exocin(R) solution, a fluroquinolone which treats bacterial
conjunctivitis. In the United States, a marketing approval application for
Ocuflox(R) solution for the treatment of corneal ulcers was approved by the FDA
in May 1996.
Ophthalmic Surgical Business
Allergan's ophthalmic surgical business 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(R) 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., a division of
Smith & Nephew, plc.
Sales of all models of the Company's IOLs represented 10%, 12% and 11%
of total Company sales in 1994, 1995 and 1996, 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)
PhacoflexII(R)SI-30NB(R) foldable small incision IOL, introduced in April 1993,
the AMO(R)SI-40NB(R) foldable small incision IOL, introduced in 1995, and the
AMO(R)DuraLens(R) IOL, which was also introduced in 1995. The AMO(R)Array(R)
multifocal IOL is available in Brazil and several European countries including
Germany, France and Italy. An application for U.S. marketing approval was
filed with the FDA in August 1996. The Company believes that the
AMO(R)Array(R) multifocal IOL will be viewed by ophthalmic surgeons and
cataract patients as a significant improvement in IOL design, providing an
improved patient outcome.
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, provided 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.
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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 Oxysept
1Step(R)/UltraCare(R) 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
1Step(R). Complete(R) brand Multi-Purpose solution is the Company's
convenient, one-bottle chemical disinfection system for soft contact lenses.
One-bottle systems, including the Company's product, continue to gain
popularity with consumers.
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 10%,
9% and 6% of total Company sales in 1994, 1995 and 1996, respectively, and
sales of the Company's hydrogen peroxide disinfection systems represented 14%,
14% and 12% of total Company sales in 1994, 1995 and 1996, respectively. 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 develops, manufactures and markets therapeutic as well as cosmetic
skin care products, primarily in the United States and Argentina. 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 has been well
received in the market. The therapeutic product line also includes Elimite(R)
cream for the treatment of scabies, Naftin(R), a topical anti-fungal gel and
cream and Gris-Peg(R) tablets, a systemic anti-fungal product.
During the fourth quarter of 1996, the Company received approval from
the German Ministry of Health (Bfarm) to market Zora(R) (tazarotene) 0.05% and
0.1% topical gels to treat mild-to-moderate plaque psoriasis. The Company has
received an approvable letter for TazoracTM (the trade name for Zorac(R) in the
United States) for the treatment of plaque psoriasis and acne and is currently
in final labeling discussions with the FDA.
The Company also develops, manufactures and markets glycolic
acid-based skin care products as a result of its 1995 acquisition of the assets
of Herald Pharmacal, Inc.
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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 been approved in Canada and several European countries
for the treatment of cervical dystonia. Sales of Botox(R) have grown at the
rate of over 37% per year for the last two fiscal years.
EMPLOYEE RELATIONS
At December 31, 1996, the Company employed approximately 6,100 persons
throughout the world, including approximately 2,500 in the United States. None
of the Company's U.S.-based employees are represented by unions. The Company
considers that its relations with its employees are, in general, very good.
INTERNATIONAL OPERATIONS
The Company believes that international markets represent a
significant opportunity for continued growth. International sales have
represented approximately 52.7%, 56.4% and 58.6% of total sales for the years
ended December 31, 1994, 1995 and 1996, 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 have been licensed to Santen
Pharmaceuticals ("Santen"), the largest eye care pharmaceutical manufacturer in
Japan. Allergan also directly markets contact lens care products, IOLs and
other eye care surgical products, for which it has a leading market position.
In 1993 and 1994, Allergan launched its Complet(R) brand contact lens
care products and two ophthalmic pharmaceutical products, Propine(R) and
Betagan(R) solutions, in the People's 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. 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.
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SALES AND MARKETING
Allergan maintains global marketing and regional sales organizations.
Supplementing the sales efforts and promotional activities aimed at eye and
skin care professionals, as well as neurologists outside the U.S., who use,
prescribe and recommend its products, Allergan has been utilizing its resources
increasingly with 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, 1996, the Company employed approximately 1,100 sales
representatives throughout the world.
RESEARCH AND DEVELOPMENT
The Company's global research and development efforts focus on eye
care, skin care and neuromuscular products that are safe, effective, convenient
and have an economic benefit. The Company's own research and development
activities are supplemented by a commitment to identifying and obtaining new
technologies through in-licensing, technological collaborations, joint ventures
and acquisition efforts, including the establishment of research relationships
with academic institutions and individual researchers.
At December 31, 1996, there were, in the aggregate, approximately 700
people involved in the Company's research and development efforts. The
Company's research and development expenditures associated with continuing
operations for 1994, 1995 and 1996 were $111.5 million, $116.7 million and
$118.3 million, respectively, excluding amounts spent by Allergan Ligand
Retinoid Therapeutics, Inc. ("ALRT").
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. 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), an acrylic foldable IOL. The Company
filed for U.S. marketing approval for the the AMO(R)Array(R) multifocal IOL in
August 1996 and anticipates filing for U.S. marketing approval for the
AMO(R)Clariflex(TM) acrylic foldable IOL in 1998.
Research and development efforts for neuromuscular disorders focus on
expanding the uses for Botox(R) (Botulinum Toxin Type A) purified neurotoxin
complex to include treatment for cervical dystonia, juvenile cerebral palsy,
spasticity and pain.
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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.
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, ALRT, to devote $100 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 11% 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 or Panretin(TM)(2), 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 PanretinTM (ALRT 1057) in
non-Hodgkin's lymphoma and, in combination with alpha interferon, in renal cell
carcinoma. Additional Phase IIb trials of oral PanretinTM (ALRT 1057) are
under way in other cancer indications and HIV related disorders. ALRT is also
conducting Phase III studies for topical PanretinTM (ALRT 1057) in Kaposi's
sarcoma.
In September 1995, the Company entered into an option agreement with
Peptech (UK) Ltd. for the development and commercialization of certain
therapeutic products based on its GMDP (a synthetic glucosaminyl muramyl
dipeptide) compound for dermatology indications, such as psoriasis,
ophthalmology and oncology. In October 1996, the Company entered into an
exclusive collaboration agreement with SUGEN, Inc. to identify, develop and
commercialize novel pharmaceutical compounds utilizing SUGEN's proprietary
small molecule signal transduction inhibition technology for the treatment of
ophthalmic neovascular diseases, such as age-related macular degeneration and
diabetic retinopathy. In November 1996, the Company entered into a
collaboration agreement with Cambridge NeuroScience, Inc. ("CNSI") to develop
new treatments for glaucoma and other serious ophthalmic diseases. CNSI
specializes in glutamate ion channel-blocker and sodium channel technology.
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(2) Panretin(TM) is a trademark of Allergan Ligand Retinoid Therapeutics, Inc.
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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.
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), Bausch & Lomb, Chiron Vision (a subsidiary of Chiron Corporation),
CIBA Vision Ophthalmics (a division of Novartis), Merck & Co., Inc., Pharmacia
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, Schering-Plough Corporation, Johnson & Johnson and Hoffman-La Roche
Inc., which all have greater resources than Allergan. In marketing its
products to health care professionals, pharmacy benefits 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 intraocular lenses
(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 premarket application and governmental
review is costly and takes many years to complete.
In general, manufacturers of drugs, medical devices and biologicals
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 48% of the Company's 1996
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
8
<PAGE> 11
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. 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 extensive regulatory requirements. As in the United States, the
marketing of medicinal products has for many years been subject to the granting
of marketing authorizations by medicine agencies. Particular emphasis is also
being placed on more sophisticated and faster procedures for reporting of
adverse events to the competent authorities. Additionally, new rules are being
introduced in several areas such as the harmonization of clinical research laws
and labeling and patient package information, which are expected to assist
companies such as Allergan bring products to market quickly once the first
European approval is received.
A new EU regulatory regime covers medical devices. This is currently
optional but will become mandatory in June 1998. It requires 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 EU regulatory system
for cosmetics, which covers many of the Company's skin care products, has been
extended to include, among other aspects, formal maintenance of a technical
file, a safety assessment, data on undesirable effects, good manufacturing
practice and extended labeling requirements. 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 facility fee which
includes a $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. In its effort to reduce Medicare expenditures,
Congress may lower the IOL allowance below $150. 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." Allergan intends
to seek "advanced technology" status for the AMO(R)Array(R) multifocal IOL.
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
9
<PAGE> 12
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. A provision of the Small Business
Job Protection Act of 1996 further limited these benefits by mandating the
elimination of all such tax benefits after the year 2005.
The Company has orphan drug designations from the FDA for two proposed
indicated uses for the marketed drug Botox(R) purified neurotoxin complex,
cervical dystonia and juvenile cerebral palsy. Clinical trials are under way,
and the Company expects to seek supplemental approvals to market the drug for
said uses. If the Company gains approval for one or both uses before any other
manufacturer of the same designated drug, the Company will be entitled to seven
years exclusive marketing in the United States for those uses. 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. On December 20, 1995, the
Council of Ministers adopted a Resolution calling on the European Commission to
look into the question of orphan drug policy, and a draft proposal for a
Council Regulation has now been proposed for comments. Although the draft is
not final, it is presently proposed that the criteria for designation of orphan
drug status will exclude a medicinal product that has already obtained orphan
drug benefits in the United States or in Japan.
In 1996, Congress examined the regulatory burdens imposed on drug and
medical device manufacturers by the FDA in its product approval processes. The
new Congress may consider legislation intended to ameliorate such problems.
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. Research is being
undertaken by the European Commission concerning the use of generic medicines
in the EU and may lead to new initiatives to harmonize legislation and
professional rules across the Community. In the meantime, national initiatives
aimed at encouraging generic prescription are increasing markedly the number of
prescriptions written generically in some Member States.
The Company cannot predict the likelihood or pace 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
overall sales. Allergan markets its products under various trademarks and
considers these trademarks to be valuable because of their contribution to the
market identification of the various products.
10
<PAGE> 13
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 that are likely to have a material
adverse impact on the Company's financial position. 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.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES
Certain disclosures made by the Company in this report and in other
reports and statements released by the Company are and will be forward-looking
in nature, such as comments which express the Company's opinions about trends
and factors which may impact future operating results. Disclosures which use
words such as the Company "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from expectations. Any such
forward-looking statements, whether made in this report or elsewhere, should be
considered in context with the various disclosures made by the Company about
its businesses including the factors discussed below.
o The overall rate of revenue growth in several of the Company's major
product lines has moderated in recent years.
o The pharmaceutical industry and other healthcare-related industries
continue to experience consolidation, resulting in larger, more diversified
companies with greater resources than the Company.
o Two of the Company's largest ophthalmic pharmaceutical products Betagan(R)
and Propine(R) are off patent in the U.S. and continue to face competition
from generic versions of these compounds as well as from recently
introduced new technology glaucoma products.
o The Company's Optical business continues to be impacted by trends in the
contact lens and lens care marketplace, including technological and medical
advances in surgical techniques for the correction of vision impairment;
the popularity of one-bottle chemical disinfection systems among soft
contact lens wearers instead of peroxide-based lens care products which
have historically been Allergan's strongest family of lens care products;
and the growing use and acceptance of disposable contact lenses which could
have the effect of reducing demand for lens care products generally.
o Sales of the Company's surgical and pharmaceutical products have been and
are expected to continue to be impacted by continuing pricing pressures
resulting from various government initiatives as well as from the
purchasing and operational decisions made by managed care organizations.
11
<PAGE> 14
o In the Company's pharmaceuticals business, the Company has increased the
use of sales and promotional incentives to promote the sale of Allergan
pharmaceutical products to drug wholesalers. The practices can result in
fluctuations in buying patterns and the potential for unanticipated levels
of product returns and unanticipated reductions in order levels based on
prevailing inventory levels in the marketplace.
o The current sources of supply for the key ingredient of the Company's
Botox(R) product are limited, and the manufacturing process for the
production of future supplies of such ingredient is unusually challenging.
It is possible that sales of Botox(R) products could in the future be
constrained by these conditions.
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, 1997:
<TABLE>
<CAPTION>
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
<S> <C> <C>
Irvine, California Headquarters, research and development, Owned/Leased
manufacturing, administrative
Costa Mesa, California Administrative Leased
Phoenix, Arizona(3) Manufacturing, warehousing Leased
Berkeley, California Administrative, manufacturing, warehousing Leased
Irwindale, California(4) 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(5) 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
Sao Paulo, Brazil Administrative, manufacturing, warehousing Owned
Guarulhos, Brazil Manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
Hangzhou, China Manufacturing (when operational) Owned
Sophia Antipolis, France Administrative, warehousing Leased
</TABLE>
- -------------------------
(3) Lease scheduled to end during 1997.
(4) Lease scheduled to end during 1997.
(5) Property is being sold, subject to a lease-back of a portion of the
property.
12
<PAGE> 15
<TABLE>
<CAPTION>
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
<S> <C> <C>
Ettlingen, Germany Administrative, warehousing Owned
Hong Kong Administrative, warehousing Leased
Dublin, Ireland Administrative 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.
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
Company was advised by the Commerce Department that further field investigation
would be required. Such investigation occurred with the Company's cooperation.
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.
13
<PAGE> 16
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.
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 1,
1997 are as follows:
<TABLE>
<S> <C> <C>
William C. Shepherd 58 Chairman of the Board,
President and Chief Executive Officer
F. Michael Ball 41 Corporate Vice President and
President, North America Region
Edward H. Danse 44 Corporate Vice President and
President, Asia Pacific Region
Michael J. Donohoe 54 Corporate Vice President and
President, Europe/Middle East/Africa Region
James H. Fuller 52 Corporate Vice President and
President, Latin America Region
Richard J. Hilles 54 Corporate Vice President,
Human Resources
Lester J. Kaplan, Ph.D. 46 Corporate Vice President,
Science and Technology
George M. Lasezkay, Pharm.D., J.D. 45 Vice President,
Corporate Development
Albert J. Moyer 53 Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Jacqueline J. Schiavo 48 Corporate Vice President,
Worldwide Operations
Francis R. Tunney, Jr., J.D. 49 Corporate Vice President,
General Counsel and Secretary
Dwight J. Yoder 51 Senior 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.
14
<PAGE> 17
Mr. Ball has been Corporate Vice President and President, North
America Region since April 1996. He joined the Company in 1995 as Senior Vice
President, U.S. Marketing after 12 years with Syntex Corporation, where he held
a variety of positions including president, Syntex Inc. Canada and Senior Vice
President, Syntex Laboratories. In November of 1995, Mr. Ball assumed
management responsibility for U.S. Eye Care Sales in addition to his
responsibilities for U.S. Eye Care Marketing.
Mr. Danse has been Corporate Vice President, and President, Asia
Pacific Region since July 1996, prior to which he had been Corporate Vice
President, and President, North East Asia Region since April of 1996. Mr.
Danse joined Allergan in 1988 as business development director, Americas, and
subsequently served briefly as director, Latin America. In early 1990, he was
named Vice President and Managing Director, Japan. In late 1993, Mr. Danse was
appointed Senior Vice President, North East Asia.
Mr. Donohoe has been Corporate Vice President and President,
Europe/Middle East/Africa Region since 1992. Prior thereto, he was Corporate
Vice President and President, Optical, Consumer/OTC Group from 1991. Mr.
Donohoe was Senior Vice President and General Manager, Contact Lenses from 1990
to 1991 and Area Vice President, Northern Europe from 1989 to 1990. Mr.
Donohoe first joined the Company in 1987.
Mr. Fuller has been Corporate Vice President and President, Latin
America Region since May 1996, prior to which he had been Vice President of the
region from 1994, and Senior Vice President from February of 1996. From
January 1992 to July 1994, he was Senior Vice President, Sales and Marketing.
Mr. Fuller first joined SmithKline Beckman Corporation, the Company's former
parent, in 1974.
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, Science and Technology
since July 1996 and had 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.
Dr. Lasezkay has been Vice President, Corporate Development since July
1996. He had been Assistant General Counsel of the Company since 1995 and
Senior Counsel to the Company since 1989 when he first joined the Company.
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 such as Westinghouse Electric Corporation,
White Consolidated Industries, Inc., National Semiconductor Corporation and
Enhansys, Inc.
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.
15
<PAGE> 18
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 Senior Vice President and Controller of the Company
since July 1996, prior to which he had been Vice President and Controller since
joining the Company in 1990. He is also the Chief Financial Officer of
Allergan Ligand Retinoid Therapeutics, Inc.
16
<PAGE> 19
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,
1996" 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 pages 46 and 47, respectively, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 20
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 14-16 of
this Form 10-K.
The information required by Item 405 of Regulation S-K is included on
page6 of the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation," and the subsection
entitled "Director Compensation" included in the Proxy Statement on pages 14-18
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 12-13 of the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" on pages 22-23 of the
Proxy Statement is incorporated herein by reference.
18
<PAGE> 21
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, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Earnings for Each of the Years
in the Three Year Period Ended December 31, 1996 . . . . . . . . . . 32
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1996 . . . . . . . . . . 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, 1996 (and
except for the pages specifically incorporated by reference, the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996, 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 . . . . . . . . . . . . . . 25
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 1996.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at page 22 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
14a-3(b)(1).
19
<PAGE> 22
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 25, 1997 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 25, 1997 By /s/ WILLIAM C. SHEPHERD
---------------------------------
William C. Shepherd
President, Chief Executive Officer
and Chairman of the Board
Date: March 25, 1997 By /s/ A. J. MOYER
---------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 25, 1997 By /s/ DWIGHT J. YODER
----------------------------------
Dwight J. Yoder
Senior VicePresident and
Controller
(Principal Accounting Officer)
Date: March 21, 1997 By /s/ HERBERT W.BOYER
----------------------------------
Herbert W. Boyer, Ph.D., Director
Date: March 20, 1997 By /s/ TAMARA J. ERICKSON
----------------------------------
Tamara J. Erickson, Director
Date: March 25, 1997 By /s/ HANDEL E. EVANS
----------------------------------
Handel E. Evans, Director
Date: March 25, 1997 By /s/ WILLIAM R. GRANT
----------------------------------
William R. Grant, Director
20
<PAGE> 23
Date: March 25, 1997 By /s/ HOWARD E. GREENE, JR.
----------------------------------
Howard E. Greene, Jr., Director
Date: March 25, 1997 By /s/ GAVIN S. HERBERT
----------------------------------
Gavin S. Herbert, Director and
Chairman Emeritus
Date: March 25, 1997 By /s/ DR. LESTER J. KAPLAN
----------------------------------
Lester J. Kaplan, Ph. D., Director
Date: March 25, 1997 By /s/ LESLIE G. MCCRAW
----------------------------------
Leslie G. McCraw, Director
Date: March 25, 1997 By /s/ LOUIS T. ROSSO
----------------------------------
Louis T. Rosso, Director
Date: March 25, 1997 By /s/ LEONARD D. SCHAEFFER
----------------------------------
Leonard D. Schaeffer, Director
Date: March 21, 1997 By /s/ HENRY WENDT
----------------------------------
Henry Wendt, Director
21
<PAGE> 24
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 10.4 to the Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)* . . . . . . . .
</TABLE>
- -----------------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
22
<PAGE> 25
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----------
<S> <C> <C>
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 on Form 10-Q for the Quarter ended March 31, 1996) . .
10.6 First Amendment to Restated Allergan, Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.3 to the Company's Report on Form 10-Q for
the Quarter ended June 30, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.7 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, 1996) . .
10.8 First Amendment to the Allergan, Inc. Savings and Investment Plan (incorporated by
reference to Exhibit 10.4 to the Company's Report on Form 10-Q for the Quarter
ended June 30, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.9 Form of Allergan change in control severance (incorporated by reference to Exhibit 10.1
to the Company's Report on Form 10-Q for the Quarter ended June 30, 1996)*. . . . . . . . .
10.10 $250,000,000 Credit Agreement dated as of December 22, 1993 and amended and restated
as of May 10, 1996 among the Company, as Borrower and Guarantor, the Eligible Subsidiaries
Referred to Therein, the Banks Listed Therein, Morgan Guaranty Trust Company of New York,
as Agent and Bank of America National Trust and Savings Association, as Co-Agent
(the "Credit Agreement") (incorporated by reference to Exhibit 10.7 to the Company's
Report on Form 10-Q for the Quarter ended March 31, 1996) . . . . . . . . . . . . . . . . .
10.11 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, 1996)* . . . . . . . . . . .
</TABLE>
- ---------------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
23
<PAGE> 26
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- -----------
<S> <C>
10.12 Restated Allergan, Inc. Supplemental Retirement Income Plan (incorporated by
reference to Exhibit 10.5 to the Company's Report on Form 10-Q for the Quarter
ended March 31, 1996)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.13 Restated Allergan, Inc. Supplemental Executive Benefit Plan (incorporated by
reference to Exhibit 10.6 to the Company's Report on Form 10-Q for the Quarter
ended March 31, 1996)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.14 Allergan, Inc. Management Bonus Plan* . . . . . . . . . . . . . . . . . . . . . . . . .
10.15 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) . . .
10.16 Allergan, Inc. Executive Deferred Compensation Plan dated as of January 1, 1995
(incorporated by reference to Exhibit 10.15 to the Company's Report on Form 10-K
for the fiscal year ended December 31, 1994)*. . . . . . . . . . . . . . . . . . . . . .
10.17 First Amendment to the Executive Deferred Compensation Plan (incorporated by
reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the Quarter
ended June 30, 1996)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Statement re Computation of Earnings Per Share . . . . . . . . . . . . . . . . . . . . .
13 The Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996
(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, 33-66874,
333-09091 and 333-04859 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- --------------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
24
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
Under date of January 28, 1997, we reported on the consolidated
balance sheets of Allergan, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 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 1996. 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 28, 1997
25
<PAGE> 28
SCHEDULE VIII
ALLERGAN, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
OF YEAR ADDITIONS DEDUCTIONS OF YEAR
------- --------- ---------- -------
<S> <C> <C> <C> <C>
1996 $6.2 $4.1 (a) $2.8 (b) $7.5
==== ==== ==== ====
1995 $7.2 $1.7 (a) $2.7 (b) $6.2
==== ==== ==== ====
1994 $5.8 $3.5 (a) $2.1 (b) $7.2
==== ==== ==== ====
</TABLE>
- -----------------------
(a) Provision charged to earnings.
(b) Accounts written off.
S-1
<PAGE> 1
EXHIBIT 10.14
ALLERGAN
COMPANY CONFIDENTIAL
1997
MANAGEMENT BONUS PLAN
JANUARY 1997
<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 financial objectives and individual
performance objectives.
- -----------------------------------------------------------------------------
PLAN YEAR
The Plan year for U.S. operations runs from January 1, 1997, through December
31, 1997. For international operations, the Plan year is December 1, 1996
through November 30, 1997.
- -----------------------------------------------------------------------------
ELIGIBILITY
All regular, full- and part-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, 1997; international participants must have been employed on or before
May 31, 1997. 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 prorated. 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
Bonuses for Plan participants are based on both corporate performance and
individual performance in relation to pre-established objectives, as follows:
# Corporate Objectives--Corporate performance is measured in terms of
Allergan, Inc.'s Earnings Per Share (EPS) compared to objective. EPS is
defined as net earnings divided by the weighted average number of common
and common equivalent shares.
# 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."
<PAGE> 3
- -----------------------------------------------------------------------------
BONUS POOL CALCULATION
The two components of this calculation are:
1. Individual objectives; and,
2. Corporate financial objectives.
INDIVIDUAL OBJECTIVES--This component is funded at 75% of target awards for
non-officers (grade 7E - 12E) and at 50% for officers (grade 13E+).
CORPORATE FINANCIAL OBJECTIVES--This component is funded according to the
following table if corporate EPS performance is within 1997 EPS range.
% OF TARGET BONUS
--------------------
1997 EPS RANGE 7E - 12E 13E+
- -------------- -------- ----
-$0.04 5% 10%
-$0.02 15% 30%
Target 25% 50%
Above Target 50% of incremental earnings will be added to
the bonus pool; 50% returned to the company.
If actual EPS results fall between the performance levels shown above, bonuses
will be prorated accordingly. At the end of the year, the Chairman, President,
and Chief Executive Officer of Allergan, Inc. may recommend adjustments to the
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, 1997; for
international participants, year-end is November 30, 1997. 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.
- -----------------------------------------------------------------------------
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.
<PAGE> 4
- -------------------------------------------------------------------------------
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, participants will be
eligible for a bonus based on performance of corporate objectives and individual
objectives. The bonus will be prorated to reflect the number of months prior to
the change-in-control. For purposes of determining achievement of corporate EPS
objective, the Company will utilize its monthly EPS target.
- -------------------------------------------------------------------------------
CONFIDENTIALITY
This plan document contains confidential, non-public information about
Allergan's Management Bonus Plan. The information 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 corporate 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.
<PAGE> 1
EXHIBIT 11
ALLERGAN, INC.
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,
-----------------------------------------
(in millions, except per share amounts) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the period 65.1 64.2 63.5
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 0.8 0.6 0.4
----- ----- ------
Weighted average number of common shares
including common stock equivalents 65.9 64.8 63.9
===== ===== ======
Net earnings for the year $77.1 $72.5 $110.7
===== ===== ======
Primary earnings per common share $1.17 $1.12 $1.73
===== ===== =====
</TABLE>
In 1996, 1995 and 1994, 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 1996 1995 % Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Highlights
Net sales $1,147.0 $1,067.2 7%
Net earnings 77.1 72.5 6%
Net earnings per share 1.17 1.12
Dividends per share 0.49 0.47
Adjusted amounts (1)
Net earnings 132.1 122.5 8%
Net earnings per share 2.00 1.90
</TABLE>
(1) The adjusted amounts in 1996 exclude $70.1 million in restructuring
charges and $7.4 million in asset write-offs charged to operating expense
in 1996. The adjusted amounts in 1995 exclude the $50.0 million
contribution to Allergan Ligand Retinoid Therapeutics, Inc. charged to
operating expense in 1995.
Net Sales by Product Line
<TABLE>
<S> <C> <C> <C>
Eye Care
Pharmaceuticals $ 425.1 $ 415.1 2%
Surgical 184.0 188.7 (2%)
Optical Lens Care 406.0 369.8 10%
--------- ---------
1,015.1 973.6 4%
Skin Care 64.7 44.7 45%
Botox 67.2 48.9 37%
--------- ---------
Total Net Sales $ 1,147.0 $ 1,067.2 7%
========= =========
Domestic 41.4% 43.6%
International 58.6% 56.4%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 % Inc.
-----------------------------------------
<S> <C> <C> <C>
Employee Data
Number of employees 6,124 6,078 1%
</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
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
This financial review presents the Company's operating results for each of the
three years in the period ended December 31, 1996, and its financial condition
at December 31, 1996. 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 1996, the Company entered into two research and development collaboration
agreements:
In October 1996, the Company and SUGEN, Inc. entered into an exclusive
collaboration to identify compounds for the treatment of ophthalmic diseases
utilizing SUGEN's proprietary signal transduction inhibition technology. The
Company invested $7 million in SUGEN common stock, and paid SUGEN $2 million in
technology fees which were charged to research and development in 1996. In
addition, the Company will pay $4.5 million in collaborative research fees over
a three year period.
In November 1996, the Company and Cambridge NeuroScience, Inc. entered into a
collaboration to develop treatments for glaucoma and other ophthalmic diseases
based on ion channel blocking technology. The Company invested $3 million in
Cambridge NeuroScience common stock, and will pay Cambridge NeuroScience $3
million for collaborative research over a three year period.
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
August 1995.
RESULTS OF OPERATIONS
Net Sales
Net sales for 1996 were $1.147 billion, which was an increase of $79.8 million
or 7% over 1995. Foreign currency fluctuations in 1996 decreased sales by
$13.9 million or 2% as compared to average rates in effect through 1995.
Excluding the impact of foreign currency fluctuations, sales increased by $93.7
million or 9% over 1995. Sales in 1996 of products of acquired businesses in
their first twelve months after acquisition contributed $78.4 million to 1996
sales.
Net sales for 1995 were $1.067 billion, which was an increase of $120 million
or 13% over 1994. Foreign currency fluctuations in 1995 increased sales by $33
million or 4% as compared to average rates in effect throughout 1994.
Excluding the impact of foreign currency fluctuations, sales increased by $87
million or 9% over 1994. Sales in 1995 of products of acquired businesses in
their first twelve months after acquisition contributed $51.4 million to 1995
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 1994 to 56% in 1995 and 59% in 1996.
3
<PAGE> 4
The following table sets forth, for the periods indicated, net sales by major
product line.
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eye Care
Pharmaceuticals $ 425.1 $ 415.1 $390.7
Surgical 184.0 188.7 144.3
Optical Lens Care 406.0 369.8 339.4
--------- --------- ------
1,015.1 973.6 874.4
Skin Care 64.7 44.7 37.3
Botox 67.2 48.9 35.5
--------- --------- ------
Total Net Sales $ 1,147.0 $ 1,067.2 $947.2
========= ========= ======
Domestic 41.4% 43.6% 47.3%
International 58.6% 56.4% 52.7%
</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 2% in 1996 compared to 1995 and by 6% in 1995
compared to 1994. Sales in international markets increased by $32.9 million or
16% in 1996 compared to 1995, and by $33.7 million or 20% in 1995 compared to
1994. Such increases were the result of increased sales of Frumtost products
and growth in other international markets. The 1995 increase included sales of
$17.5 million of Frumtost products in the first twelve months after the
acquisition. United States sales declined by $22.9 million or 11% in 1996
compared to 1995, and 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
and 1996. Such declines were partially offset by increases in sales of other
products in 1995.
Surgical sales represent products for the ophthalmic surgical market, including
IOLs, pharmaceuticals and other products related to cataract surgery. Surgical
sales decreased 2% in 1996 compared to 1995 and increased 31% in 1995 compared
to 1994. Domestic sales decreased by 15% in 1996 and increased by 14% in 1995,
while sales in international markets increased by 9% in 1996 and 52% in 1995.
During 1996, surgical sales were negatively impacted by the initiation of a
limited voluntary recall of certain IOLs in the first quarter. Total IOL unit
sales in the U.S. market decreased 5% in 1996 after increasing 26% in 1995.
Silicone IOL unit sales in the U.S. market increased by 5% in 1996 and 39% in
1995. Competitive pressures have resulted in declines in average selling
prices of IOLs in 1996 in both the United States and international markets. In
addition, sales growth in international markets was decreased by 5 percentage
points by the impact of foreign currency fluctuations. 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
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.
Optical Lens Care sales increased by 10% from 1995 to 1996 and by 9% from 1994
to 1995. Domestic sales increased by 13% in 1996 and 4% in 1995. Sales of
Barnes Hind products account for most of the increase in United States sales in
1996. In 1994, the Company introduced Complete brand multi-purpose one-bottle
lens disinfection system in the United States. Growth in sales of Complete led
the increase in the domestic sales in 1995. International lens care product
sales increased by 9% in 1996 compared to 1995 and by 11% in 1995 compared to
1994. Sales of Barnes Hind products increased international sales in 1996 by
$36.1 million or 13%. This increase was offset by decreases in sales of
peroxide based disinfection products. In addition, currency fluctuations had a
negative impact on 1996 international sales growth. Excluding currency
fluctuations, international sales increased by 11% from 1995 to 1996. The
international sales increase in 1995 was primarily the result of continued
growth in sales of Complete.
Skin Care sales represent the Company's line of dermatological products. Sales
increased by $20 million or 45% in 1996 compared to 1995, and by $7.4 million
or 20% in 1995 compared to 1994. Sales in 1996 included a full year of Herald
product sales compared to five months sales in 1995. In addition, the Company
introduced Azelex (azelaic acid) cream in 1996. Sales of Azelex accounted for
the remainder of the increase in sales in 1996. Sales growth in 1995 included
$11.5 million of products of the Lorsen and Herald businesses acquired in
fiscal 1995. This 1995 increase was offset by an 11% decrease in the base skin
care business.
Botox (Botulinum Toxin Type A) purified neurotoxin complex is the Company's
product for movement disorders. Botox sales growth was 37% in 1996 and 38% in
1995. Sales growth in both years was the result of increased market
penetration in both the U.S. and international markets.
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,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 33.5 30.7 30.3
----- ----- -----
Gross Margin 66.5 69.3 69.7
Other operating costs and expenses:
Selling, general and administrative 40.5 42.3 41.4
Research and development 10.3 10.9 11.8
Restructuring charge 6.1 - -
Asset write-offs 0.6 - -
Contribution to ALRT - 4.7 -
----- ----- -----
Operating income 8.9 11.4 16.5
Nonoperating income (expense) 0.5 0.3 0.3
----- ----- -----
Earnings before income taxes
and minority interest 9.4 11.7 16.8
===== ===== =====
Net earnings 6.7% 6.8% 11.7%
===== ===== =====
</TABLE>
Gross Margins
The Company's gross margin percentage decreased by 2.8 percentage points from
69.3% in 1995 to 66.5% in 1996. The decrease in gross margin percentage was
primarily the result of the shift in sales mix to include lower margin products
of businesses acquired in 1995. In addition, margins declined as global
pricing pressures decreased selling prices in 1996. Pricing pressures were the
result of competitor actions, governmental cost control measures, and
reductions in net realized prices of products sold to managed care
organizations. 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.
Selling, General and Administrative
Selling, general and administrative expenses as a percentage of net sales
decreased in 1996 to 40.5% from 42.3% in 1995 and 41.4% in 1994. The
percentage decrease in 1996 was primarily the result of a decrease in product
launch expenses and overhead related to acquisitions and a favorable effect of
currency changes, offset by an increase in amortization cost of goodwill
related to recent acquisitions. In addition, restructuring activities in 1996
reduced the Company's administrative cost structure lowering selling, general
and administrative costs in the second half of the year. The increase from
1994 to 1995 is primarily the result of increased spending for product
launches, promotion of Complete and overhead related to acquisitions.
Research and Development
Research and development expenses increased by 1% in 1996 to $118.3 million
compared to $116.7 million in 1995 and $111.5 million in 1994. 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. Research and development
spending in 1995 and 1996 does not include the $50.0 million contribution to
ALRT in 1995, or research and development spending by ALRT in 1995 and 1996.
The 1996 and 1995 increases in research and development spending 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 1996 was $102.5 million or 8.9% of sales. Such amount
included special charges for restructuring costs of $70.1 million and asset
write-offs of $7.4 million. Operating income in 1995 was $121.3 million or
11.4% of sales. The 1995 amount included the special charge for the $50.0
million contribution to ALRT. Excluding the special charges in 1996 and 1995,
operating income was $180.0 million or 15.7% of sales in 1996 and $171.3
million or 16.1% of sales in 1995. Operating income, excluding special
charges, increased in 1996 as a result of the increase in net sales. The
operating income percentage, excluding special charges, declined in 1996 as a
result of the decline in gross margin percentage offset by the reduction in
selling, general and administrative costs as a percentage of net sales.
5
<PAGE> 6
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
$50.0 million contribution to ALRT. 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.
Net Earnings
Net earnings were $77.1 million in 1996 compared to $72.5 million in 1995. The
increase in net earnings was primarily the result of the increase in operating
income excluding the effect of the special charges in 1996 and 1995. Such
increase was offset by the increase in the effect of the special charges in
1996 compared to 1995. Net of income taxes, the restructuring charge in 1996
was $49.7 million and the asset write-offs were $5.3 million. The contribution
to ALRT in 1995 reduced net earnings by $50 million.
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 per common share increased to $1.17 in 1996 from $1.12 in 1995.
The 1996 amount was reduced by $0.75 for the after tax effect of the
restructuring charge, and by $0.08 for the after tax effect of the asset
write-offs. The 1995 amount was reduced by $0.78 for the effect of the
contribution to ALRT. Excluding the effect of the special charges for
restructuring costs and asset write-offs in 1996 and the contribution to ALRT
in 1995, net earnings per common share increased $0.10 or 5% to $2.00 in 1996
from $1.90 in 1995. Excluding the effect of the contribution to ALRT, net
earnings per common share increased by $0.17 or 10% from $1.73 in 1994 to $1.90
in 1995.
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
was $175.2 million in 1996 compared to $76.7 million in 1995. Operating cash
flow in 1995 was reduced by the $50.0 million contribution to ALRT. In
addition, the Company reduced income taxes payable in 1995 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 of $74.4 million in 1996 included $23.5
million to acquire software, and $59.7 million of expenditures for plant and
equipment more fully described under "Capital Expenditures," below. Such
expenditures were partially offset by proceeds from sales of various assets.
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.
Cash used in financing activities was $93.5 million in 1996, composed primarily
of $31.5 million for payment of dividends and $100.1 million in net repayments
of debt including commercial paper, notes payable and long-term debt. Cash was
provided from $18.2 million in proceeds from sales of stock to employees and
$19.9 million in long-term borrowings. 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.
As of December 31, 1996, the Company had three long-term credit facilities and
a medium term note program. The credit facilities allow for borrowings of up
to $17.6 million through 1998, $32.5 million through 1999, $250 million through
2001, and $43.9 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, 1996, the
Company had $80.3 million in borrowings under two of the credit facilities,
$85.0 million under the note program, and commercial paper borrowings of $15.0
million. As of December 31, 1995, the Company had classified $76.5 million of
its commercial paper
6
<PAGE> 7
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.
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 costs could be incurred
reducing these funds if they were remitted to the United States.
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 $59.7 million for 1996,
$62.5 million for 1995 and $58.3 million for 1994. Expenditures for 1996
include expansion of manufacturing facilities and a variety of other projects
designed to improve productivity.
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 59% of the Company's revenues in 1996 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
$13.9 million decrease in 1996; a $33.0 million increase in 1995; and a $2.0
million increase in 1994. See Note 1 to the Consolidated Financial Statements.
Forward Looking Statements
Any of the above statements that refer to the Company's estimated or
anticipated future results are forward looking and reflect the Company's
current analysis of existing trends and information. Actual results may differ
from current expectations based on a number of factors affecting Allergan's
businesses, including competitive conditions and changing market conditions,
the timing and uncertainty of results of both research and regulatory
processes, and performance, including consumer acceptance of new products, the
impact of the Company's previously announced strategic restructuring and the
results of geographic expansion efforts. In addition, matters affecting the
economy generally, such as currency exchange rates and the state of the economy
worldwide, can affect the Company's results. These forward looking statements
represent the Company's judgment only as of the date of this Annual Report.
Actual results could differ materially, and, as a result, the reader is
cautioned not to rely on these forward looking statements. The Company
disclaims, however, any intent or obligation to update these forward looking
statements.
7
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
In millions, except share data 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 112.0 $ 102.3
Trade receivables, net 242.5 205.7
Inventories 130.1 120.8
Other current assets 115.1 93.5
--------- ---------
Total current assets 599.7 522.3
Investments and other assets 163.0 160.8
Property, plant and equipment, net 348.5 357.5
Goodwill and intangibles, net 238.6 275.7
--------- ---------
Total assets $ 1,349.8 $ 1,316.3
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 66.6 $ 58.5
Accounts payable 75.4 58.7
Accrued compensation 41.7 42.5
Other accrued expenses 144.4 130.6
Income taxes 47.2 41.3
--------- ---------
Total current liabilities 375.3 331.6
Long-term debt 170.0 266.7
Other liabilities 54.1 49.1
Commitments and contingencies
Minority interest 0.6 -
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 67,244,000
and 67,319,000 shares 0.7 0.7
Additional paid-in capital 205.6 199.7
Foreign currency translation adjustment 4.0 4.7
Other 3.1 (1.4)
Retained earnings 574.8 527.4
--------- ---------
788.2 731.1
Less treasury stock, at cost
(1,731,000 and 2,786,000 shares) (38.4) (62.2)
--------- ---------
Total stockholders' equity 749.8 668.9
--------- ---------
Total liabilities and stockholders' equity $ 1,349.8 $ 1,316.3
========= =========
</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 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,147.0 $1,067.2 $947.2
Operating costs and expenses
Cost of sales 384.7 328.0 286.6
Selling, general and administrative 464.0 451.2 392.5
Research and development 118.3 116.7 111.5
Restructuring charge 70.1 - -
Asset write-offs 7.4 - -
Contribution to ALRT - 50.0 -
-------- -------- ------
1,044.5 945.9 790.6
-------- -------- ------
Operating income 102.5 121.3 156.6
Nonoperating income (expense)
Interest income 13.1 10.0 8.2
Interest expense (12.5) (13.9) (11.0)
Other, net 4.9 7.8 5.1
-------- -------- ------
5.5 3.9 2.3
-------- -------- ------
Earnings before income taxes and minority interest 108.0 125.2 158.9
Provision for income taxes 31.3 51.7 46.2
Minority interest (0.4) 1.0 2.0
-------- -------- ------
Net earnings $ 77.1 $ 72.5 $110.7
======== ======== ======
Net earnings per common share $ 1.17 $ 1.12 $ 1.73
======== ======== ======
Weighted average common shares
outstanding 65.9 64.8 63.9
======== ======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows provided by operating activities
Net earnings $ 77.1 $ 72.5 $110.7
Non-cash items included in net earnings
Depreciation and amortization 72.9 60.5 52.3
Amortization of prepaid royalties 7.4 8.2 5.5
Deferred income taxes (8.1) 1.3 (2.9)
Loss on sale of assets 4.1 0.1 3.7
Expense of compensation plans 5.5 2.5 1.8
Minority interest (0.4) 1.0 2.0
Restructuring charge 70.1 - -
Asset write-offs 7.4 - -
Changes in assets and liabilities
Trade receivables (45.3) (14.9) (25.8)
Inventories (15.0) (6.3) 2.7
Accounts payable 19.6 (4.6) (0.5)
Income taxes 16.5 (28.9) 20.6
Accrued liabilities (28.0) 1.3 10.6
Other (8.6) (16.0) (14.3)
------ ------ ------
Net cash provided by operating activities 175.2 76.7 166.4
------ ------ ------
Cash flows from investing activities
Additions to property, plant and equipment (59.7) (62.5) (58.3)
Disposals 7.2 0.9 1.5
Investment in Ligand Pharmaceuticals - (6.0) -
Prepayment of royalties - (17.5) (35.5)
Acquisitions of businesses, net of cash acquired - (162.0) (17.5)
Other (21.9) (30.7) (25.3)
------ ------ ------
Net cash used in investing activities (74.4) (277.8) (135.1)
------ ------ ------
Cash flows from financing activities
Dividends to stockholders (31.5) (29.9) (26.5)
Increase (decrease) in notes payable (12.3) 8.1 8.4
Sale of stock to employees 18.2 15.4 10.3
Net borrowings (repayments) under commercial
paper obligations (76.5) 64.0 (60.1)
Long-term debt borrowings 19.9 129.1 42.4
Repayments of long-term debt (11.3) (11.0) (2.3)
Payments to acquire treasury stock - - (21.6)
------ ------ ------
Net cash provided by (used in) financing activities (93.5) 175.7 (49.4)
Effect of exchange rates on cash and equivalents 2.4 (3.0) 7.0
------ ------ ------
Net increase (decrease) in cash and equivalents 9.7 (28.4) (11.1)
-
Cash and equivalents at beginning of year 102.3 130.7 141.8
------ ------ ------
Cash and equivalents at end of year $112.0 $102.3 $130.7
====== ====== ======
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest (net of amount capitalized) $ 16.2 $ 13.8 $ 10.1
======= ======= =======
Income taxes $ 28.6 $ 70.4 $ 29.7
======= ======= =======
</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.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Actual results could differ from those estimates.
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 in highly inflationary
economies are included in earnings. Foreign currency transaction and
translation losses totaled $3.3 million in 1996, $1.8 million in 1995, and $2.0
million in 1994.
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 $21.6 million in 1996, $14.3 million in
1995, and $10.2 million in 1994.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment in value based upon undiscounted future cash flows, and appropriate
losses are recognized, whenever the carrying amount of an asset may not be
recovered.
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 $139.6 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: Special Charges
During 1996, the Company recorded a $70.1 million restructuring charge, $49.7
million after taxes. The restructuring charge related to a comprehensive
program to streamline operations and reduce costs through management
restructuring and facilities consolidation resulting in a workforce reduction
of approximately 500 people. The restructuring charge consisted of $34.0
million of employee severance costs, $29.6 million of facility consolidation
costs and $6.5 million of other costs. During 1996, $9.9 million was paid to
approximately 300 terminated employees and $26.5 million was paid for facility
consolidation and other costs.
The Company also recorded $7.4 million in asset write-offs, $5.3 million after
taxes, in 1996. The asset write-offs related to computer hardware and software
and certain intangible assets.
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.
12
<PAGE> 13
Note 4: Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
December 31,
In millions 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade receivables, net
Trade receivables $250.0 $211.9
Less allowance for doubtful accounts 7.5 6 .2
------ ------
$242.5 $205.7
====== ======
Inventories
Finished products $ 87.5 $ 83 .0
Work in process 11.1 11.3
Raw materials 31.5 26.5
------ ------
$130.1 $120.8
====== ======
Other current assets
Prepaid expenses $ 42.3 $ 38 .1
Deferred taxes 41.7 31.0
Other 31.1 24.4
------ ------
$115.1 $ 93 .5
====== ========
Property, plant and equipment, net
Land $ 14.7 $ 20 .3
Buildings 275.0 277 .5
Machinery and equipment 289.1 280 .8
------ ------
578.8 578 .6
Less accumulated depreciation 230.3 221 .1
------ ------
$348.5 $357.5
====== ======
Goodwill and intangibles, net
Goodwill $297.1 $308.7
Intangibles 36.0 39.4
------ ------
333.1 348 .1
Less accumulated amortization 94.5 72.4
------ ------
$238.6 $275.7
====== ======
</TABLE>
Note 5: Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
1996
Average
Effective
Interest December 31,
In millions Rate 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes payable
Bank loans 6.47% $ 26.7 $ 23 .5
Commercial paper 6.86% 15.0 30.0
Current maturities of long-term debt 24.9 5 .0
-------- ---------
Total notes payable $ 66.6 $ 58 .5
======== =========
Long-term debt
5.91% - 6.92% medium term notes
due from 1997-2002 6.50% $ 85.0 $ 85 .0
Yen denominated notes
due from 1998-2003 1.57% 80.3 75.5
Commercial paper - 76.5
ESOP loan due 2003 4.73% 18.2 20.4
Capitalized leases 7.3 8 .2
Other 4.1 6 .1
-------- ---------
194.9 271 .7
Less current maturities 24.9 5 .0
-------- ---------
Total long-term debt $ 170.0 $ 266 .7
======== =========
</TABLE>
13
<PAGE> 14
At December 31, 1996 and 1995, the Company had $250 million and $225 million,
respectively, of domestic unused committed lines of credit which support
general corporate purposes and domestic commercial paper borrowing
arrangements. In addition, the Company had foreign unused committed lines of
credit of approximately $16.3 million in 1996 and $25.8 million in 1995.
At December 31, 1995, $76.5 million of commercial paper and $75.5 million of
borrowings under revolving credit facilities were classified as long-term debt
because the Company had the ability to refinance these debts on a long term
basis under terms of unused committed lines of credit.
The credit facilities and medium term note program entered into by the Company
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, 1996. The Employee Stock
Ownership Plan is discussed in Note 9.
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
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 $0.8
million to terminate the swap agreements based upon their fair value at
December 31, 1996. 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 for each of the next five years are
as follows: 1997, $24.9 million; 1998, $36.6 million; 1999, $3.2 million;
2000, $61.8 million; and 2001, $17.7 million; and $50.7 million thereafter.
Interest incurred of $1.0 million in 1996, $1.2 million in 1995 and $0.3
million in 1994 has been capitalized and included in property, plant and
equipment. Noncash additions to capitalized leases and capital lease
obligations of $0.8 million in 1996 and $0.2 million in 1995 were recorded on
the Company''s balance sheet and excluded from the Consolidated Statements of
Cash Flows.
Note 6: Income Taxes
The components of earnings before income taxes and minority interest were:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes
and minority interest
U.S. $ 31.9 $ 46.5 $ 76.0
Non-U.S. 76.1 78.7 82.9
------- ------- -------
Earnings before income
taxes and minority interest $108.0 $125.2 $158.9
====== ====== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit)
Current
U.S. federal $ 9.9 $ 12.3 $ 21.0
Non-U.S. 22.7 26.8 18.6
U.S. state and Puerto Rico 6.8 11.3 9.5
-------- ------- -------
Total current 39.4 50.4 49.1
--------- -------- --------
Deferred
U.S. federal (11.5) 1.7 (6.1)
Non-U.S. 5.9 (1.8) 3.2
U.S. state and Puerto Rico (2.5) 1.4 -
-------- ------- -------
Total deferred (8.1) 1.3 (2.9)
-------- ------- -------
Total $ 31.3 $ 51.7 $ 46.2
======== ======= =======
</TABLE>
14
<PAGE> 15
The balances of net current deferred tax assets and net non-current deferred
tax assets at December 31, 1996 were $41.7 million and $5.3 million,
respectively. 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. 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, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C> <C>
Net operating loss carryforwards (foreign) $ 13.0 $ 11.7 $ 12.5
Accrued expenses 16.0 17.1 18.2
Foreign tax credit carryforwards 2.0 1.4 1.7
Capitalized expenses 13.4 11.9 9.6
Pension expense 7.4 4.9 5.3
Medicaid rebates 4.9 4.7 4.9
Postretirement medical benefits 6.1 5.7 5.4
Intercompany profit in inventory 7.0 3.6 2.8
ALRT contribution 19.5 19.5 -
All other 24.8 14.5 10.9
------ ------ ------
114.1 95.0 71.3
Less: valuation allowance (35.8) (33.9) (17.9)
------ ------ ------
Total deferred tax asset 78.3 61.1 53.4
------ ------ ------
Deferred tax liabilities
Depreciation 13.4 10.9 10.7
All other 17.9 11.3 2.6
------ ------ ------
Total deferred tax liabilities 31.3 22.2 13.3
------ ------ ------
Net deferred tax asset $ 47.0 $ 38.9 $ 40.1
====== ====== ======
</TABLE>
The 1996 increase of $1.9 million in the valuation allowance relates
substantially to increased future net operating loss benefits in foreign
jurisdictions. The 1995 increase of $16.0 million in the valuation allowance
relates substantially to the deferred tax asset resulting from the contribution
to ALRT.
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, 1996. 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.
15
<PAGE> 16
The reconciliations of the U.S. federal statutory tax rate to the combined
effective tax rate follow:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of U.S.
tax benefit (0.7) 1.3 1.4
Ireland and Puerto Rico
income (13 .7) (13.9) (12.8)
U.S. tax effect of foreign earnings
and dividends, net of foreign tax credits 5 .4 - 1.9
Other credits (0.5) (0.8) (2.2)
Taxes on unremitted earnings of subsidiaries 7 .8 8.0 2.0
Valuation allowance, federal & state,
on ALRT contribution - 15.6 -
Other (4 .3) (3.9) 3.8
------ ------- ------
Effective tax rate 29.0% 41.3% 29.1%
====== ====== ======
</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 $14.8 million ($0.22 per
share) in 1996, $17.4 million ($0.27 per share) in 1995, and $20.3 million
($0.32 per share) in 1994. The Puerto Rico exemption expires December 31,
2007.
Withholding and U.S. taxes have not been provided on approximately $264.6
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 domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited and settled through the year
1990. The Company and its consolidated subsidiaries are under examination for
the years 1991-1993. 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, 1996, the Company has foreign tax credit carryforwards for
federal income tax purposes of approximately $2.0 million which are available
to reduce future federal income taxes, if any, through 2000.
At December 31, 1996, the Company has net operating loss carryforwards of
certain non-U.S. subsidiaries, with various expiration dates, of approximately
$70.1 million.
16
<PAGE> 17
Note 7: Stockholders' Equity
An analysis of activity in stockholders' equity for the three years ended
December 31, 1996 follows:
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Unearned Treasury Stock
Par Paid-In Compen- Retained --------------------
In millions Shares Value Capital sation Other Earnings Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 67.5 $0.7 $223.6 $(29.1) $(5.0) $403.2 (3.5) $(78.9)
Net earnings 110.7
Translation adjustment 9.2
Dividends ($0.42 per share) (26.7)
Stock options exercised 1.3 (1.7) 0.5 12.4
Activity under other
stock plans (0.1) (1.8) (1.0) (0.2) 0.3 4.5
Purchase of treasury stock (1.0) (21.6)
Expense of compensation plans 3 .7
--------------------------------------------------------------------------------------------
Balance December 31, 1994 67.4 0.7 223.1 (26 .4) 4.2 485.3 (3.7) (83.6)
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)
Stock options exercised 2.4 (1.2) 0.7 17.1
Activity under other
stock plans (0.1) (1.4) (2.0) 1.0 0.2 4.3
Expense of compensation plans 4 .0
--------------------------------------------------------------------------------------------
Balance December 31, 1995 67.3 0.7 224.1 (24 .4) 3.3 527.4 (2.8) (62.2)
Net earnings 77.1
Translation adjustment (0.7)
Investment market value
adjustment 3.7
Adjust minimum liability
for qualified pension plan 0.8
Dividends ($0.49 per share) (31.9)
Stock options exercised 5.7 (0.2) 0.9 19.7
Activity under other
stock plans (0.1) (2.1) (1.5) 2.4 0.2 4.1
Expense of compensation plans 3 .8
--------------------------------------------------------------------------------------------
Balance December 31, 1996 67.2 $0.7 $227.7 $(22.1) $7.1 $574.8 (1.7) $(38.4)
==== ==== ====== ====== ==== ====== === ======
</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
17
<PAGE> 18
than the Acquiring Person and related persons) will then be entitled to
receive, upon exercise, common stock of the acquiring company having a value of
two times the exercise price of the Right.
The Board may redeem the Rights at any time prior to a person becoming an
Acquiring Person. Pursuant to an amendment adopted by the Board in September
1993 and approved by the stockholders in April 1994 (the Amendment), if, within
60 days after receiving an offer meeting certain conditions (i.e., an offer for
all outstanding shares at the same price which is not subject to financing,
funding or due diligence conditions and, if for cash, is fully financed or, if
not for cash, is for New York Stock Exchange-listed securities and will provide
tax-deferred treatment for stockholders), the Board has not either redeemed all
of the outstanding Rights or approved a financially superior transaction, then
the Board is required to call a special meeting of stockholders for the purpose
of allowing the stockholders to vote on the acceptance of such offer.
Pursuant to the Amendment, the Rights will expire on the date of the Annual
Meeting of stockholders in 1997 unless extended by approval of the stockholders
at that meeting.
Note 8: 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 $12.7 million in 1996, $7.4 million in 1995 and $9.3 million in 1994.
Components of pension expense under the Company's U.S. and major non-U.S. plans
for 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
Year ended December 31,
In millions 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 8 .8 $ 6 .8 $ 7 .1
Interest cost 9 .8 8 .2 7 .1
Actual return on assets (9.1) (12 .3) (0.5)
Net amortization and deferral 3 .2 4 .7 (4.4)
------- -------- ------
Total pension expense $ 12 .7 $ 7 .4 $ 9 .3
======= ======== ======
</TABLE>
18
<PAGE> 19
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 are presented on the next page.
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
In millions Qualified Non-Qualified Qualified Non-Qualified
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair market value $101.4 $ - $ 87.4 $ -
------ ------ ------ ------
Accumulated benefit obligation
Vested $ 83.9 $ 8.5 $ 84.0 $ 7.7
Nonvested 7.4 0.2 6.7 0.1
------ ------ ------ ------
91.3 8.7 90.7 7.8
------ ------ ------ ------
Plan assets in excess of (less than)
accumulated benefit obligations 10.1 (8.7) (3.3) (7.8)
Projected compensation increases 33.3 5.0 26.7 3.0
------ ------ ------ ------
Projected benefit obligation in
excess of plan assets 23.2 13.7 30.0 10.8
Unrecognized transition asset 2.8 - 3.3 -
Unrecognized net loss (13.5) (2.6) (27.4) (1.0)
Unrecognized prior service cost 0.3 (1.7) 0.5 (1.9)
Adjustment to recognize minimum liability - - 1.4 -
------ ------ ------ ------
Accrued pension cost $ 12.8 $ 9.4 $ 7.8 $ 7.9
====== ====== ====== ======
</TABLE>
The expected long-term rate of return on plan assets ranged from 3.5% to 9.5%
in 1996 and from 4% to 9.9% in 1995. The discount rate used in determining
obligations ranged from 3.5% to 8% in 1996 and from 3.5% to 8.5% in 1995, and
the assumed average rate of increase in future compensation levels ranged from
3% to 5.2% in 1996 and from 3% to 5% in 1995.
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 modifications 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>
December 31,
In millions 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 2.2 $ 2.4
Fully eligible plan participants 0.1 0.1
Other active plan participants 6.9 10.6
------ ------
Accumulated postretirement benefit obligation $ 9.2 $13.1
====== ======
Plan assets at fair value $ - $ -
Accumulated postretirement benefit obligation in excess of plan assets 9.2 13.1
Unrecognized net income (loss) from past experience different from that assumed
and from changes in assumptions 4.8 (0.4)
Past service costs 1.8 1.9
------ ------
Accrued postretirement benefit cost $15.8 $14.6
====== ======
</TABLE>
19
<PAGE> 20
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31,
In millions 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits attributed to service during the period $ 0.9 $ 0.9
Interest cost on accumulated postretirement benefit obligation 0.7 0.8
Net amortization and deferral (0.2) (0.2)
-------- --------
Net periodic postretirement benefit cost $ 1.4 $ 1.5
====== ======
</TABLE>
Cost increases of 7.5% were assumed for the indemnity medical plan and 0.0% for
the HMO medical plan in 1997. Annual cost increases were assumed to decrease
or increase gradually to 5.0% for the medical plans by 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, 1996 by $1.9 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 8.0% and 6.9%, respectively.
Savings and Investment Plans
In May 1989, the Company established Savings and Investment Plans, which
provide for all 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 $3.1
million in 1996, $2.8 million in 1995, and $2.7 million in 1994.
Note 9: Employee Stock Ownership Plan and Incentive Compensation Plans
Employee Stock Ownership Plan
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 shares are divided
among participants based on relative compensation. Allocated and unallocated
shares in the ESOP as of December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------
In thousands 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated shares 582 483
Shares committed to be allocated 99 99
Unallocated shares 654 753
------ ------
Total ESOP shares 1,335 1,335
===== =====
</TABLE>
The loan has a fifteen year maturity, with quarterly principal and interest
payments. Under the current repayment plan, the loan will be repaid in October
2003. 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 an interest rate swap
agreement, maturing in 1999, to reduce the impact that interest rate changes
have on the loan. This agreement effectively fixes the interest rate on $10.0
million of the loan at 4.75%. Any gains or losses incurred as a result of the
swap agreement are recorded as interest expense. The Company would receive
$0.1 million to terminate the swap agreement based on its fair value at
December 31, 1996. 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.
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 1996, 1995 and 1994
was $1.2 million, $1.3 million, and $1.6 million, respectively. Compensation
expense is recognized based on the amortization of the related loan.
Compensation expense for 1996, 1995 and 1994 was $1.9 million, $1.9 million,
and $1.7 million, respectively.
20
<PAGE> 21
Incentive Compensation Plans
The Company has an incentive compensation plan and a nonemployee director stock
plan. The incentive compensation plan provides for the granting of
non-qualified stock options, restricted stock and other stock-based incentive
awards for officers and key employees. As of December 31, 1996, an aggregate
of 5,878,000 shares of stock have been authorized for issuance under the
incentive compensation plan and 50,000 shares have been authorized for issuance
under the nonemployee director stock plan.
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. 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, 1996.
Stock option activity under the Company's incentive compensation plan was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
In thousands, except option price data Shares Price Shares Price Shares Price
- -------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 4,084 $22.55 4,189 $21.35 4,137 $21.20
Options granted 870 35.13 767 27.68 778 21.06
Options exercised (866) 22.54 (747) 21.02 (548) 19.54
Options cancelled (110) 27.05 (125) 23.20 (178) 22.31
----- ----- ------
Outstanding, end of year 3,978 25.18 4,084 22.55 4,189 21.35
===== ===== =====
Exercisable, end of year 2,423 22.13 2,384 21.21 2,051 20.93
===== ===== =====
Weighted average fair value of options
granted during the year $14.84 $11.49
====== ======
</TABLE>
The fair value of each option granted during 1996 and 1995 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 1.4% in 1996 and 1.7% in 1995, expected
volatility of 43% for both years, risk-free interest rate of 6.7% in 1996 and
6.95% in 1995, and expected life of 7 years for both 1996 and 1995 grants.
The following table summarizes stock options outstanding at December 31, 1996
(shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ---------------------------------------
Average
Number Remaining Weighted Average Number Weighted Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.50 - $20.16 397 3.0 years $17.05 397 $17.05
$20.34 - $29.75 2,775 6.1 years 23.45 1,976 22.82
$35.13 806 9.3 years 35.13 50 35.13
----- -----
3,978 2,423
===== =====
</TABLE>
No compensation expense has been recognized for stock-based incentive
compensation plans other than for the restricted stock award plan and the
nonemployee director stock plan. Had compensation expense for the Company's
incentive stock option plan been recognized based upon the fair value for
awards granted, as prescribed under Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for Stock-Based Compensation, the Company's net
earnings would have been reduced by $5.3 million or $0.08 per share in 1996,
and $2.1 million or $0.03 per share in 1995. These proforma effects are not
indicative of future amounts. The Company expects to grant additional awards
in future years.
21
<PAGE> 22
Under the terms of the incentive compensation plan, the restricted stock awards
are subject to restrictions as to sale or other disposition of the shares and
to restrictions which require continuous employment with the Company. The
restrictions generally expire, and the awards become fully vested, four years
from the date of grant. The Company granted 89,000, 92,000 and 103,000 shares
of stock under the plan in 1996, 1995 and 1994, respectively. The weighted
average fair value per share of the restricted stock grants was $35.13 in 1996,
$27.68 in 1995 and $21.06 in 1994. Grants of restricted stock are charged to
unearned compensation in stockholders' equity at their fair value and
recognized in expense over the vesting period. Compensation expense recognized
under the restricted stock award plan was $1.4 million, $1.7 million and $1.6
million in 1996, 1995 and 1994, respectively.
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, 1996, there were
10,000 shares issued and outstanding under the plan.
Note 10: Fair Value of Financial Instruments
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, 1996, the
Company had forward exchange contracts outstanding, with maturities not
exceeding six months, which require the Company to exchange foreign currencies
for $27.7 million.
The Company determines fair values of financial assets based on quoted market
values. The fair value of debt is estimated based on current rates offered to
the Company for debt of the same maturities. At December 31, 1996 and 1995,
the fair values of financial instruments were not materially different from
their carrying amounts.
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 $18.3 million in 1996, $13.4 million in 1995, and
$12.0 million in 1994.
Minimum rentals payable under noncancelable operating leases, net of minimum
sublease rentals, as of December 31, 1996, aggregate $50.3 million and for each
of the next five years are $17.0 million in 1997, $13.3 million in 1998, $6.1
million in 1999, $3.3 million in 2000, $1.6 million in 2001 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.
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 specialty health
care products for specific disease areas.
22
<PAGE> 23
The table on the next page represents the Company's business segment
information by geographic area. With the acquisition of businesses in Asia and
Latin America, activities in such geographic areas increased in significance in
1996. Results for such geographic areas are presented for 1996 and included in
the Other category in prior years.
<TABLE>
<CAPTION>
Geographic Areas
Year Ended December 31,
In millions 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales(a)
United States $ 547.8 $ 530.6 $ 500.9
-------- -------- ---------
Europe 426.2 432.6 387.3
Asia 151.0
Latin America 112.7
Other 83.0 248.4 171.9
-------- -------- ---------
Total international 772.9 681.0 559.2
Transfers between areas(a)
United States (73.2) (59.2) (51.7)
Europe (42.4) (43.1) (45.0)
Latin America (15.0)
Other (43.1) (42.1) (16.2)
-------- -------- ---------
Total transfers between areas (173.7) (144.4) (112.9)
-------- -------- ---------
Total net sales $1,147.0 $1,067.2 $ 947.2
======== ======== ========
Operating income (expense)
United States before
research and development
and contribution to ALRT $ 150.1 $ 204.4 $ 202.4
Research and development expenses(b) (92.8) (91.7) (93.3)
Contribution to ALRT - (50.0) -
-------- -------- ---------
United States 57.3 62.7 109.1
-------- -------- ---------
Europe 99.8 117.2 107.9
Asia (3.0)
Latin America 16.3
Other (6.2) (3.0) (1.3)
-------- -------- ---------
Total international 106.9 114.2 106.6
-------- -------- ---------
164.2 176.9 215.7
Corporate expenses (61.7) (55.6) (59.1)
-------- -------- ---------
Total operating income(c) $ 102.5 $ 121.3 $ 156.6
======== ======== ========
Identifiable assets(d)
United States $ 494.6 $ 505.9 $ 408.5
-------- -------- ---------
Europe 351.8 362.6 313.8
Asia 123.1
Latin America 103.5
Other 164.8 345.5 206.8
-------- -------- ---------
Total international 743.2 708.1 520.6
Corporate 112.0 102.3 130.7
-------- -------- ---------
Total assets $1,349.8 $1,316.3 $1,059.8
======== ======== ========
</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) Results in 1996 include special charges totaling $77.5 million. Such
charges include $70.1 million in restructuring charges and $7.4 million in
asset write-offs. By geographic segment the special charges were $37.3 million
in the United States, $36.7 million in Europe, $2.1 million in Asia, $1.2
million in Latin America, and $0.2 million in Other.
d) Identifiable assets are those used by the operations in each geographic
location. Corporate assets consist of cash, time deposits and short-term
investments.
23
<PAGE> 24
Note 13: Subsequent Events
On January 28, 1997, the Board of Directors declared a cash dividend of $0.13
per share, payable March 11, 1997, to stockholders of record on February 18,
1997.
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.
24
<PAGE> 25
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 were engaged to audit the 1996, 1995 and 1994
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
Senior Vice President, Controller and
Principal Accounting Officer
25
<PAGE> 26
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, 1996 and 1995 and the related consolidated
statements of earnings and cash flows for each of the years in the three-year
period ended December 31, 1996. 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, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Costa Mesa, California
January 28, 1997
26
<PAGE> 27
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second (a) Third (a) Fourth (a) Total (a)
In millions, except per share data Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $258.1 $289.6 $287.5 $311.8 $1,147.0
Gross margin 172.4 192.3 187.8 209.8 762.3
Operating income 31.3 0.7 20.8 49.7 102.5
Net earnings 23.1 0.7 17.3 36.0 77.1
Net earnings per share 0.35 0.01 0.26 0.55 1.17
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
</TABLE>
(a) Results for the second quarter, third quarter, fourth quarter, and total
year of 1996 include special charges in operating costs and expenses for
restructuring costs and asset write-offs. Excluding the charges, the
following amounts would have been reported:
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating income $31.3 $41.6 $49.6 $57.5 $180.0
Net earnings 23.1 29.8 37.7 41.5 132.1
Net earnings per share 0.35 0.45 0.57 0.63 2.00
</TABLE>
Results for the second quarter and total year of 1995 include a $50.0 million
charge in operating costs and expenses 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>
27
<PAGE> 28
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1996(a) 1995(b) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $1,147.0 $1,067.2 $947.2 $858.9 $830.7
Operating costs and expenses:
Cost of sales 384.7 328.0 286.6 249.6 241.8
Selling, general & administrative 464.0 451.2 392.5 362.2 362.9
Research and development 118.3 116.7 111.5 102.5 89.5
Restructuring charge 70.1 - - - -
Asset write-offs 7.4 - - - -
Contribution to ALRT - 50.0 - - -
------- ------- ------ ------ ------
Operating income 102.5 121.3 156.6 144.6 136.5
Nonoperating income (expense) 5.5 3.9 2.3 (1.0) (4.9)
Earnings from continuing
operations before income taxes and
minority interest 108.0 125.2 158.9 143.6 131.6
Earnings from
continuing operations 77.1 72.5 110.7 104.5 95.8
Earnings from
discontinued operations - - - 4.4 10.0
Cumulative effect of
accounting changes - - - - (2.2)
Net earnings 77.1 72.5 110.7 108.9 103.6
Earnings per share
from continuing operations 1.17 1.12 1.73 1.58 1.42
Earnings per share
from discontinued operations - - - 0.07 0.14
Cumulative effect per share
of accounting changes - - - - (0.03)
Net earnings per share 1.17 1.12 1.73 1.65 1.53
Cash dividends per share 0.49 0.47 0.42 0.40 0.38
Financial Position
Current assets $ 599.7 $ 522.3 $ 485.5 $443.9 $422.8
Working capital 224.4 190.7 161.8 167.5 155.2
Total assets 1,349.8 1,316.3 1,059.8 939.8 885.8
Long-term debt 170.0 266.7 83.7 104.6 82.0
Total stockholders' equity 749.8 668.9 603.3 514.5 499.8
</TABLE>
(a) Results in 1996 include a $70.1 million charge in operating costs and
expenses for restructuring costs and a $7.4 million charge for asset
write-offs. Excluding the charges, operating income was $180.0 million,
earnings from continuing operations before income taxes and minority interest
were $185.5 million, net earnings were $132.1 million, and earnings per share
were $2.00.
(b) Results in 1995 include a $50.0 million charge in operating costs and
expenses 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.
28
<PAGE> 29
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>
1996 1995
---------------------------------- -------------------------------------
Quarter Low High Div. Low High Div.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 30 5/8 39 1/4 $.12 26 1/4 30 1/4 $.11
Second 34 41 1/4 $.12 25 3/4 29 7/8 $.12
Third 36 3/4 42 $.12 26 1/8 33 5/8 $.12
Fourth 30 38 1/8 $.13 28 1/2 33 3/4 $.12
</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 13,000 as of January 17,
1997.
For the fourth quarter of 1996, the Board declared a cash dividend of $0.13 per
share, payable March 11, 1997 to shareholders of record on February 18, 1997.
See Note 5 to the Consolidated Financial Statements relative to restrictions on
dividend payments.
29
<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 Eyecare 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
CrownPharma Canada Inc. Canada
Allergan Laboratorios Limitada Chile
Allergan Pharmaceutical (Hangzhou) Co. Ltd. China
Allergan de Colombia S.A. Colombia
Allergan A/S 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
Allergan Sales, Limited Ireland
Allergan Services International, Limited Ireland
Allergan Trading International, Limited Ireland
CrownPharma Limited Ireland
Allergan S.p.A. Italy
Allergan K.K. 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
Allergan Holdings Limited United Kingdom
Allergan Limited United Kingdom
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Allergan Elite, Inc. United States/CA
Allergan Optical Irvine, 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 Retinoid Corporation* United States/DE
AMO Holdings, Inc. United States/DE
Optical Micro Systems, Inc. United States/DE
Pacific I Limited, Inc. United States/DE
Pacific General, Inc. United States/DE
Pacific Vision Limited, Inc. United States/DE
Allergan de Venezuela, S.A. (inactive) Venezuela
</TABLE>
ALLERGAN, INC.
Joint Ventures and
Partnerships
<TABLE>
<CAPTION>
NAME OF JOINT VENTURE: PLACE OF INCORPORATION/ORGANIZATION
- --------------------- -----------------------------------
<S> <C> <C> <C>
J.V. Allergan India Limited India
</TABLE>
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP: PLACE OF FORMATION
- -------------------- ------------------
<S> <C> <C>
L.P. Pacific Pharma L.P. Texas
L.P. Vision Pharmaceuticals L.P. Texas
</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, 33-66874, 333- 09091
and 333-04859 on Form S-8 of Allergan, Inc. of our reports dated January 28,
1997, relating to the consolidated balance sheets of Allergan, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of earnings and cash flows for each of the years in the three-year
period ended December 31, 1996, and the related schedule, which reports appear
in the December 31, 1996 annual report on Form 10-K of Allergan, Inc.
KPMG PEAT MARWICK LLP
Costa Mesa, California
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF ALLERGAN, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10K FOR THE YEAR
ENDED DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 112,000
<SECURITIES> 0
<RECEIVABLES> 250,000
<ALLOWANCES> 7,500
<INVENTORY> 130,100
<CURRENT-ASSETS> 599,700
<PP&E> 578,700
<DEPRECIATION> 230,300
<TOTAL-ASSETS> 1,349,800
<CURRENT-LIABILITIES> 375,300
<BONDS> 170,000
0
0
<COMMON> 700
<OTHER-SE> 749,100
<TOTAL-LIABILITY-AND-EQUITY> 1,349,800
<SALES> 1,147,000
<TOTAL-REVENUES> 1,147,000
<CGS> 384,700
<TOTAL-COSTS> 384,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,100
<INTEREST-EXPENSE> 13,500
<INCOME-PRETAX> 108,000
<INCOME-TAX> 31,300
<INCOME-CONTINUING> 77,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,100
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
