<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1997.........................
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
JUNE 27, 1997 1-10269
ALLERGAN, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
95-1622442
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612
TELEPHONE NUMBER 714/752-4500
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) X yes no
------ ------
(2) X yes no
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of July 25, 1997 there were 64,836,314 shares of common stock outstanding.
1
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ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 27, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
(A) Consolidated Statements of Earnings - 3
Three Months and Six Months Ended
June 27, 1997 and June 30, 1996
(B) Consolidated Balance Sheets - 4
June 27, 1997 and December 31, 1996
(C) Consolidated Statements of Cash Flows - 5
Six Months Ended June 27, 1997 and June 30, 1996
(D) Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-10
PART II - OTHER INFORMATION
ITEM 5 11
ITEM 6 11
Signature 12
Exhibits
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Allergan, Inc.
Consolidated Statements of Earnings
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three months Six months
Ended, Ended,
------ ------
June 27, June 30, June 27, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 284.5 $ 289.6 $ 540.7 $ 547.7
Operating costs and expenses:
Cost of sales 100.1 97.3 192.7 183.0
Selling, general and
administrative 123.4 123.2 236.4 237.5
Research and development 30.9 27.5 58.5 54.3
Restructuring charge -- 34.2 -- 34.2
Asset write-offs -- 6.7 -- 6.7
------- ------- ------- -------
254.4 288.9 487.6 515.7
------- ------- ------- -------
Operating income 30.1 0.7 53.1 32.0
Nonoperating income (expense):
Interest income 2.0 2.6 3.8 4.9
Interest expense (2.5) (3.5) (4.7) (6.8)
Other, net 0.3 0.7 2.7 2.9
------- ------- ------- -------
(0.2) (0.2) 1.8 1.0
------- ------- ------- -------
Earnings before income taxes and
minority interest 29.9 0.5 54.9 33.0
Provision for income taxes 8.6 0.2 15.9 9.6
Minority interest (0.1) (0.4) (0.2) (0.4)
------- ------- ------- -------
Net Earnings $ 21.4 $ 0.7 $ 39.2 $ 23.8
======= ======= ======= =======
Net Earnings Per Common Share $ 0.33 $ 0.01 $ 0.60 $ 0.36
======= ======= ======= =======
Weighted Average Common
Shares Outstanding 65.6 65.9 65.8 65.7
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
Allergan, Inc.
Consolidated Balance Sheets
(In millions, except share data)
<TABLE>
<CAPTION>
June 27, December 31,
1997 1996
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 125.5 $ 112.0
Trade receivables, net 215.2 242.5
Inventories 139.9 130.1
Other current assets 117.2 115.1
-------- --------
Total current assets 597.8 599.7
Investments and other assets 161.7 163.0
Property, plant and equipment, net 339.9 348.5
Goodwill and intangibles, net 228.1 238.6
-------- --------
Total assets $1,327.5 $1,349.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 96.7 $ 66.6
Accounts payable 67.3 75.4
Accrued expenses 163.2 186.1
Income taxes 32.0 47.2
-------- --------
Total current liabilities 359.2 375.3
Long-term debt 173.4 170.0
Other liabilities 52.4 54.7
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
150,000,000 shares; issued 67,209,000
and 67,244,000 shares 0.7 0.7
Additional paid-in capital 206.9 205.6
Foreign currency translation
adjustment (4.9) 4.0
Other 2.4 3.1
Retained earnings 598.1 574.8
-------- --------
803.2 788.2
Less - treasury stock, at cost
(2,385,000 and 1,731,000 shares) (60.7) (38.4)
-------- --------
Total stockholders' equity 742.5 749.8
-------- --------
Total liabilities and
stockholders' equity $1,327.5 $1,349.8
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Allergan, Inc.
Consolidated Statements of Cash Flows
(In millions)
<TABLE>
<CAPTION>
Six months
Ended,
-----
June 27, June 30
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 39.2 $ 23.8
Non-cash items included in net earnings:
Depreciation and amortization 35.9 33.8
Amortization of prepaid royalties 4.9 4.6
Deferred income taxes 1.2 (1.6)
Loss on sale of assets 0.7 4.0
Expense of compensation plans 3.7 2.9
Minority interest (0.2) (0.4)
Restructuring charge -- 34.2
Asset write-offs -- 6.7
Changes in assets and liabilities:
Trade receivables 21.1 (19.4)
Inventories (14.0) (14.1)
Accounts payable (7.8) 6.0
Accrued liabilities (20.5) (19.1)
Income taxes (12.8) 0.6
Other (2.8) (5.3)
------ ------
Net cash provided by operating activities 48.6 56.7
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (20.7) (24.9)
Disposals of property, plant and equipment 5.2 5.2
Other, net (12.4) (12.0)
------ ------
Net cash used in investing activities (27.9) (31.7)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (16.8) (15.3)
Net borrowings/(repayments) under commercial
paper obligations 48.9 (14.9)
Increase/(decrease) in notes payable (15.6) 4.4
Sale of stock to employees 9.2 10.6
Long term debt borrowings 3.6 16.2
Repayments of long term debt (0.6) (8.8)
Acquisition of capital leases (0.5) (0.2)
Payments to acquire treasury stock (34.0) --
------ ------
Net cash used in financing activities (5.8) (8.0)
------ ------
Effect of exchange rates on cash and
equivalents (1.4) (2.6)
------ ------
Net increase in cash and equivalents 13.5 14.4
Cash and equivalents at beginning of period 112.0 102.3
------ ------
Cash and equivalents at end of period $125.5 $116.7
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
Allergan, Inc.
Notes to Consolidated Financial Statements
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information contained
therein. These statements do not include all disclosures required by generally
accepted accounting principles and should be read in conjunction with the
audited financial statements of the Company for the year ended December 31,
1996. The results of operations for the six months ended June 27, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997. Earnings per common and common equivalent share were computed
by dividing net earnings by the weighted average number of common and common
equivalent shares outstanding during the respective periods.
2. Components of inventory were:
<TABLE>
<CAPTION>
June 27, December 31,
1997 1996
------- -----------
(in millions)
<S> <C> <C>
Finished goods $ 96.1 $ 87.5
Work in process 12.1 11.1
Raw materials 31.7 31.5
------ ------
Total $139.9 $130.1
====== ======
</TABLE>
3. Income taxes are determined using an estimated annual effective tax rate,
which is less than the U.S. Federal statutory rate, primarily because of lower
tax rates in Puerto Rico and in certain non U.S. jurisdictions. Withholding and
U.S. taxes have not been provided for unremitted earnings of certain non U.S.
subsidiaries because the Company expects that such earnings have been or will be
reinvested in operations, or will be offset by appropriate credits for foreign
income taxes paid.
4. The Company is involved in various litigation and claims arising in the
normal course of business. The Company's management believes that recovery or
liability with respect to these matters would not have a material adverse effect
on the consolidated financial position and results of operations of the Company.
5. On July 22, 1997 the Board of Directors declared a quarterly cash dividend
of $0.13 per share, payable September 12, 1997 to stockholders of record on
August 22, 1997.
6
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ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 27, 1997
RESULTS OF OPERATIONS
- ---------------------
The following table compares 1997 and 1996 net sales by Product Line for the
second quarter and year-to-date periods (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 27, June 30, June 27, June 30,
Net Sales by Product Line: 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Eye Care
Pharmaceuticals $103.8 $108.1 $197.1 $206.1
Surgical 44.9 47.1 85.2 87.6
Optical Lens Care 93.4 103.6 182.8 195.1
------ ------ ------ ------
242.1 258.8 465.1 488.8
Skin Care 20.1 14.4 33.6 28.2
Botox(R) 22.3 16.4 42.0 30.7
------ ------ ------ ------
Total Net Sales $284.5 $289.6 $540.7 $547.7
====== ====== ====== ======
</TABLE>
For the quarter ended June 27, 1997 total net sales decreased 2% to $284.5
million as compared to the second quarter of 1996. Net sales for the six months
ended June 27, 1997 were $540.7 million, a 1% decrease from the comparable 1996
amount.
The impact of foreign currency changes decreased net sales by $11.8 million or
4% for the quarter and by $19.2 million or 4% for the six months ended June 27,
1997. Excluding the impact of foreign currency changes, sales increased by $6.7
million or 2% during the quarter, and $12.2 million or 2% for the six months
ended June 27, 1997.
For the three months and six months ended June 27, 1997, Eye Care
Pharmaceuticals sales decreased 4% from the comparable 1996 periods. Sales in
the United States increased $4.8 million in the quarter and $2.3 million in the
first six months of 1997 primarily as a result of sales of Alphagan(R),
introduced in the third quarter of 1996, offsetting decreases in sales of other
glaucoma products. Sales in international markets decreased by $9.1 million in
the quarter and $11.3 million in the first six months of 1997 as a result of the
negative effect of currency changes of $2.8 million in the quarter and $4.3
million for the six months ended June 27, 1997. In addition, a decrease in
sales in the second quarter in the Argentina market of $2.6 million to reduce
wholesaler inventory positions contributed to the 1997 decreases.
Surgical sales decreased 5% in the second quarter of 1997 compared to the second
quarter of 1996. For the first six months of 1997, surgical sales were 3% less
than the comparable period in 1996. For the second quarter, domestic sales
decreased 7% while international sales decreased 3% from the second quarter of
1996. For the six month period ended June 27, 1997, domestic sales decreased 4%
and international sales decreased 2% compared to the first six months of 1996.
Domestic surgical sales decreased during the second quarter and for the six
months, in part, as a result of a decrease in sales of PMMA intraocular lenses.
International sales
7
<PAGE> 8
Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 27, 1997 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
decreased as a result of foreign currency changes. Absent the effects of foreign
currency changes, international surgical sales increased by 6% in the second
quarter and for the first six months of 1997 compared with 1996 results for
comparable periods.
Optical lens care sales of $93.4 million for the three months ended June 27,
1997 decreased by 10% from the second quarter of 1996. Sales for the six months
ended June 27, 1997 of $182.8 million decreased by 6% compared to 1996 sales.
Domestic optical sales decreased by 12% in the second quarter and by 8% in the
first six months of 1997 compared to comparable 1996 amounts. Optical sales in
international markets decreased by 9% in the second quarter and 6% in the first
six months of 1997 compared to comparable 1996 results. Domestic optical lens
care sales decreased during the second quarter and for the six months ended June
27, 1997 as a result of decreases in sales on ancillary contact lens care
products. This decrease is the result of increasing use of disposable and
frequent replacement contact lenses. International sales were negatively
impacted by foreign currency changes. Absent the effects of foreign currency
changes, international optical lens care sales decreased by 1% during the second
quarter of 1997, and increased by 1% for the first six months, compared to
comparable periods in 1996. Sales growth in international markets, primarily in
Europe, has been depressed by conversion to lower priced one bottle cold
chemical disinfection systems from peroxide based disinfection systems.
Skin Care Pharmaceuticals second quarter 1997 sales were 40% higher than the
comparable quarter in 1996. Sales for the six months ended June 27, 1997 were
19% higher than the comparable period in 1996. Tazorac(R), a topical gel used to
treat psoriasis and acne, was launched in the United States in the second
quarter of 1997 and launched in Canada in the first quarter of 1997. Zorac(R)
(the global brand name) has also been launched in Germany. Sales of
Tazorac(R)/Zorac(R) contributed the majority of sales growth in the second
quarter and for the six months ended June 27, 1997 in comparison with 1996
amounts.
Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex sales increased
by 36% in the second quarter and 37% in the first six months of 1997 compared to
1996 results. The increases were the result of strong growth in both the United
States and international markets.
Allergan's gross margin percentage for the second quarter of 1997 was 64.8% of
net sales, which represents a 1.6 percentage point decrease from the second
quarter of 1996. The gross margin percentage for the six months ended June 27,
1997 was 64.4% representing a 2.2 percentage point decrease from the comparable
1996 percentage. The gross margin percentage declined in 1997 compared to 1996
primarily as a result of the negative impact of foreign currency changes,
product mix shifts, and an increase in sales allowances for product returns in
the first quarter of 1997.
Gross margin in dollars decreased by $7.9 million or 4.1% in the second quarter
and $16.7 million or 4.6% in the first six months of 1997 from comparable 1996
results. Such decreases were the result of the decreases in net sales combined
with the decreases in gross margin percentage.
8
<PAGE> 9
Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 27, 1997 (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
Operating income was $30.1 million for the second quarter and $53.1 million for
the six months ended June 27, 1997, compared to $0.7 million for the second
quarter and $32.0 million for the first six months of 1996. Second quarter
results in 1996 include special charges for restructuring costs of $34.2 million
and asset write-offs of $6.7 million. Excluding the impact of the special
charges in 1996, operating income was $41.6 million for the second quarter and
$72.9 million for the six months ended June 30, 1996. The decrease in operating
income in 1997 in comparison with 1996 amounts, excluding the special charges,
is primarily the result of the decreases in gross margin of $7.9 million in the
second quarter and $16.7 million for the first six months of 1997. Such
decreases were partially offset by a decrease in selling, general and
administrative expense of $1.1 million in the first six months of 1997. The
decrease in selling, general and administrative expense was the result of
reductions in costs related to the restructuring activities begun in the second
quarter of 1996 and the impact of foreign currency changes. Such items were
offset by increased costs related to new product launches, and increases in
research and development expense of $3.4 million in the second quarter and $4.2
million in the first six months of 1997.
Net earnings were $21.4 million in the second quarter and $39.2 million for the
first six months of 1997 compared to net income of $0.7 million for the second
quarter and $23.8 million for the first six months of 1996. The impact on 1996
amounts from the restructuring charge was $24.3 million net of applicable income
taxes, and from the asset write-offs was $4.8 million net of applicable income
taxes. Excluding the impact on net earnings from the restructuring charge and
asset write-offs in 1996, net earnings for the second quarter were $21.4 million
compared to $29.8 million in 1996; and for the six months ended June 27, 1997
net earnings were $39.2 million compared to $52.9 million in 1996. Net earnings,
excluding the effect of the special charges in 1996, decreased in 1997 from 1996
as a result of the decreases in operating income. Such decreases were partially
offset by decreases in income taxes on decreased 1997 earnings before income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 27, 1997, the Company had a medium term note program and three
long-term credit facilities, one of which supports a commercial paper borrowing
arrangement. The note program allows the Company to issue up to $200 million in
notes. The credit facilities allow for borrowings of up to $17.2 million through
February 1998, $31.8 million through 1999, $250 million through 2001, and $43
million through 2003. Borrowings under the credit facilities are subject to
certain financial and operating covenants, including a requirement that the
Company maintain certain financial ratios, and other customary covenants for
credit facilities of similar kind. As of June 27, 1997, the Company had $75
million in borrowings under the note program and $81.3 million in borrowings
under two of the credit facilities.
As of June 27, 1997, the Company had commercial paper borrowings of $63.8
million. As of June 27, 1997, the Company has classified $42.6 million of
short-term borrowings under the credit facilities and $33.8 million of its
commercial paper borrowings as a long-term debt based upon the Company's
9
<PAGE> 10
Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 27, 1997 (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
- -------------------------------------------
ability to maintain such debt under terms of the credit facilities described
above. The net cash provided by operating activities for the six months ended
June 27, 1997 was $48.6 million compared with $56.7 million for the first six
months of 1996. Net cash flows from operating activities decreased in 1997
compared to 1996, primarily as a result of the decrease in earnings excluding
the effect of the special charges in 1996. Most of the Company's existing cash
and equivalents are held by its non-U.S. subsidiaries and will be reinvested
in operations outside the United States.
The Company invested $20.7 million in new facilities and equipment during the
six months ended June 27, 1997 compared to $24.9 million during the comparable
period in 1996.
Cash used in financing activities was $5.8 million in the six months ended June
27, 1997 compared to $8.0 million cash used in financing activities in the
comparable period in 1996. The amounts include dividend outflows of $16.8
million in 1997 and $15.3 million in 1996 and $34.0 million for the repurchase
of stock in 1997.
10
<PAGE> 11
Allergan, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
- Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
- Reports on Form 8-K. None.
11
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 4, 1997 ALLERGAN, INC.
--------------
/s/ A. J. Moyer
-------------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
12
<PAGE> 1
ALLERGAN, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Earnings per share of common stock, including common stock equivalents, have
been computed based on the following weighted average number of shares and net
earnings:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 27, 1997 June 27, 1997
------------- -------------
(in millions, except per share amounts)
<S> <C> <C>
Weighted average number of shares
outstanding during the period 65.1 65.3
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 0.5 0.5
------ ------
Weighted average number of common shares
including common stock equivalents 65.6 65.8
====== ======
Net Earnings for the period $ 21.4 $ 39.2
====== ======
Primary Earnings per Common Share $ 0.33 $ 0.60
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND BALANCE SHEETS OF ALLERGAN, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 27, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-27-1997
<EXCHANGE-RATE> 1
<CASH> 125,500
<SECURITIES> 0
<RECEIVABLES> 223,400
<ALLOWANCES> 8,200
<INVENTORY> 139,900
<CURRENT-ASSETS> 597,800
<PP&E> 584,400
<DEPRECIATION> 244,500
<TOTAL-ASSETS> 1,327,500
<CURRENT-LIABILITIES> 359,200
<BONDS> 173,400
0
0
<COMMON> 700
<OTHER-SE> 741,800
<TOTAL-LIABILITY-AND-EQUITY> 1,327,500
<SALES> 540,700
<TOTAL-REVENUES> 540,700
<CGS> 192,700
<TOTAL-COSTS> 192,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,700
<INTEREST-EXPENSE> 4,700
<INCOME-PRETAX> 54,900
<INCOME-TAX> 15,900
<INCOME-CONTINUING> 39,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,200
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
