<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 September 24, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For The Quarter Ended September 24, 1999
Commission File Number 1-10269
ALLERGAN, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
95-1622442
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612
TELEPHONE NUMBER 714/246-4500
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 November 1, 1999, there were 67,755,499 shares of common stock
outstanding.
<PAGE> 2
ALLERGAN, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 24, 1999
INDEX
Page
-----
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
(A) Condensed Consolidated Statements of Earnings - 3
Three Months and Nine Months Ended
September 24, 1999 and September 25, 1998
(B) Condensed Consolidated Balance Sheets - 4
September 24, 1999 and December 31, 1998
(C) Condensed Consolidated Statements of Cash Flows - 5
Nine Months Ended September 24, 1999 and
September 25, 1998
(D) Notes to Condensed Consolidated Financial Statements 6-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-21
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22-24
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES 25-28
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 29
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 30
SIGNATURE 31
EXHIBITS
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Allergan, Inc.
Condensed Consolidated Statements of Earnings
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three months Ended Nine months Ended
---------------------------- ------------------------------
September 24, September 25, September 24, September 25,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales
Net sales ....................... $ 346.8 $ 321.2 $ 1,025.9 $ 915.5
Cost of sales ................... 101.9 98.1 305.1 298.1
------- ------- --------- -------
Product gross margin .......... 244.9 223.1 720.8 617.4
Research services
Research service revenues ....... 11.9 8.2 32.8 24.1
Cost of research services ....... 11.0 7.6 30.6 22.4
------- ------- --------- -------
Research services margin ...... 0.9 0.6 2.2 1.7
Operating costs and expenses
Selling, general and
administrative .............. 134.1 124.5 427.1 374.5
Research and development ...... 44.5 32.8 114.4 92.6
Restructuring charges ......... -- 62.8 -- 70.6
Asset write-offs .............. -- 36.0 -- 36.0
Contribution to ASTI .......... -- -- -- 171.4
------- ------- --------- -------
Operating income (loss) ......... 67.2 (32.4) 181.5 (126.0)
Nonoperating income (expense)
Interest income ............... 3.0 2.8 10.1 8.0
Interest expense .............. (3.6) (5.9) (10.1) (12.9)
Gain on investments, net ...... 0.2 0.2 2.3 53.7
Contribution to Allergan
Foundation .................. -- -- -- (11.0)
Other, net .................... 0.4 (1.2) 0.4 (1.6)
------- ------- --------- -------
-- (4.1) 2.7 36.2
------- ------- --------- -------
Earnings (loss) from continuing
operations before income
taxes and minority interest.... 67.2 (36.5) 184.2 (89.8)
Provision for income taxes ...... 20.2 (5.1) 55.3 29.1
Minority interest ............... -- -- -- (0.1)
------- ------- --------- -------
Net earnings (loss) ............. $ 47.0 $ (31.4) $ 128.9 $(118.8)
======= ======= ========= =======
Basic earnings (loss) per share $ 0.71 $ (0.48) $ 1.94 $ (1.82)
======= ======= ========= =======
Diluted earnings (loss) per share $ 0.70 $ (0.48) $ 1.90 $ (1.82)
======= ======= ========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
Allergan, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share data)
<TABLE>
<CAPTION>
September 24, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................. $ 264.9 $ 181.6
Trade receivables, net ............... 242.8 226.1
Inventories .......................... 126.2 123.3
Other current assets ................. 134.0 130.2
-------- --------
Total current assets ........ 767.9 661.2
Investments and other assets ................. 180.4 179.2
Property, plant and equipment, net ........... 320.3 324.9
Goodwill and intangibles, net ................ 159.1 169.1
-------- --------
Total assets ................ $1,427.7 $1,334.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ........................ $ 84.7 $ 48.5
Accounts payable ..................... 81.5 67.0
Accrued expenses ..................... 203.5 213.6
Income taxes ......................... 58.0 39.4
-------- --------
Total current liabilities ... 427.7 368.5
Long-term debt ............................... 248.0 201.1
Other liabilities ............................ 73.5 68.8
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 67,127,000
and 67,133,000 shares ................... 0.7 0.7
Additional paid-in capital ................ 238.6 223.0
Accumulated other comprehensive loss ...... (43.5) (4.3)
Retained earnings ......................... 610.6 516.3
-------- --------
806.4 735.7
Less - treasury stock, at cost
(1,382,000 and 1,016,000 shares) ........ (127.9) (39.7)
-------- --------
Total stockholders' equity ............. 678.5 696.0
-------- --------
Total liabilities and
stockholders' equity ...... $1,427.7 $1,334.4
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
Allergan, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
<TABLE>
<CAPTION>
Nine months Ended
----------------------------
September 24, September 25,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss) ............................... $ 128.9 $ (118.8)
Non-cash items included in net earnings (loss):
Depreciation and amortization .................. 51.9 56.7
Amortization of prepaid royalties .............. 6.8 7.5
Gain on investments, net ....................... (2.3) (53.7)
Contribution to Allergan Foundation ............ -- 11.0
Deferred income taxes .......................... (4.0) (5.2)
Asset write-off ................................ -- 36.0
Restructuring charge ........................... -- 70.6
(Gain) loss on disposal of assets ............... (0.2) 0.1
Expense of compensation plans .................. 8.2 5.8
Minority interest .............................. -- (0.1)
Adjustment in reporting foreign subsidiaries ... (2.6) (1.0)
Changes in assets and liabilities:
Trade receivables .............................. (20.7) (24.6)
Inventories .................................... (3.5) 5.0
Accounts payable ............................... 12.3 (7.2)
Accrued expenses ............................... (2.6) 35.4
Income taxes ................................... 36.0 (6.8)
Other .......................................... 3.0 (9.6)
------- -------
Net cash provided by operating activities ......... 211.2 1.1
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ........ (39.1) (31.4)
Disposals of property, plant and equipment ........ 7.7 3.4
Proceeds from sale of investments ................. 8.6 55.5
Other, net ........................................ (29.1) (21.1)
------- -------
Net cash (used in)/provided by investing activities (51.9) 6.4
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders ......................... (27.8) (25.3)
ASTI dividend ..................................... -- (28.6)
Net borrowings under commercial paper obligations.. 44.3 28.8
Net borrowings of notes payable ................... 1.1 (8.6)
Sale of stock to employees ........................ 24.0 24.6
Increase in long term debt ........................ 17.4 59.7
Decrease in long-term debt ........................ (1.8) (1.8)
Payments to acquire treasury stock ................ (125.2) (32.9)
------- -------
Net cash (used in)/provided by financing activities (68.0) 15.9
------- -------
Effect of exchange rates on cash and equivalents .. (8.0) (4.3)
------- -------
Net increase in cash and equivalents .............. 83.3 19.1
Cash and equivalents at beginning of period ....... 181.6 180.9
------- -------
Cash and equivalents at end of period ............. $ 264.9 $ 200.0
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying condensed 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,
1998. The results of operations for the nine months ended September 24, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
2. Components of inventory were:
September 24, December 31,
1999 1998
------------- ------------
(in millions)
Finished goods $ 77.8 $ 75.4
Work in process 23.9 18.1
Raw materials 24.5 29.8
------ ------
Total $126.2 $123.3
====== ======
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 such earnings are or will be reinvested in operations
outside the United States, 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 the ultimate
disposition of these matters would not have a material adverse effect on the
consolidated financial position and results of operations of the Company.
5. On October 21, 1999, the Board of Directors declared a quarterly cash
dividend of $0.14 per share, payable December 9, 1999 to stockholders of record
on November 18, 1999. Additionally, the Company's Board of Directors approved a
2-for-1 stock split of the Company's common stock in the form of a 100% stock
dividend to stockholders of record on November 18, 1999 and payable December 9,
1999.
6
<PAGE> 7
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
6. The reconciliations of the numerators and denominators of the basic and
diluted earnings per share computations in accordance with SFAS No. 128 are as
follows:
<TABLE>
<CAPTION>
Third Quarter
-----------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------- -------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Computation of
basic EPS:
Income (loss)
available to common
stockholders $ 47.0 66.0 $0.71 $(31.4) 65.4 $(0.48)
===== ======
Effect of dilutive
options 1.4 --
----- -----
Computation of
diluted EPS:
Income (loss)
available to common
stockholders
assuming exercises $ 47.0 67.4 $0.70 $(31.4) 65.4 $(0.48)
====== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months
-------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------- ---------------------------------------------------
Income Shares Per-Share Income/loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Computation of
basic EPS:
Income (loss)
available to common
stockholders $128.9 66.3 $1.94 $(118.8) 65.4 $(1.82)
===== ======
Effect of dilutive
options 1.6 --
----- -----
Computation of
diluted EPS:
Income (loss)
available to common
stockholders
assuming exercises $128.9 67.9 $1.90 $(118.8) 65.4 $(1.82)
===== ===== ===== ======
</TABLE>
7
<PAGE> 8
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Options to purchase 1,100,000 shares of common stock at an exercise price of
$110.00 per share were outstanding at September 24, 1999. These options were not
included in the computation of diluted earnings per share at September 24, 1999
because the effect would be antidilutive.
At September 25, 1998, options to purchase 3,970,000 shares of common stock at
prices ranging from $13.50 per share to $52.88 per share were outstanding since
dates ranging from December 13, 1988 through July 29, 1998. These options were
not included in the computation of diluted earnings per share for the three and
nine months ended September 24, 1998 because the effect would be antidilutive
due to the loss for the periods.
7. The components of comprehensive income are:
<TABLE>
<CAPTION>
Third Quarter
-----------------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------- ---------------------------------------------
Tax Tax
Before-tax (expense) Net-of-tax Before-tax (expense) Net-of-tax
amount or benefit amount amount or benefit amount
---------- ---------- ---------- ----------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Foreign currency
translation
adjustments $(11.3) -- $(11.3) $ 2.2 -- $ 2.2
Unrealized holding
gains/(losses)
arising during
period (3.6) $1.3 (2.3) (7.9) $ 2.9 (5.0)
Reclassification
adjustment for
net gains
realized in net
earnings (loss) (0.2) 0.1 (0.1) (0.2) 0.1 (0.1)
------ ---- ----- ----- ----- ------
Other comprehensive
loss $(15.1) $1.4 (13.7) $(5.9) $ 3.0 (2.9)
====== ==== ===== =====
Net earnings (losses) 47.0 (31.4)
----- ------
Total comprehensive
income (loss) $33.3 $(34.3)
===== =======
</TABLE>
8
<PAGE> 9
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------------------------------------------------------
September 24, 1999 September 25, 1998
----------------------------------------------- ------------------------------------------------
Tax Tax
Before-tax (expense) Net-of-tax Before-tax (expense) Net-of-tax
amount or benefit amount amount or benefit amount
---------- ---------- ---------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Foreign currency
translation
adjustments $(38.8) -- $(38.8) $ 3.4 -- $ 3.4
Unrealized holding
gains/(losses)
arising during
period 1.6 $(0.5) 1.1 28.2 $ (9.7) 18.5
Reclassification
adjustment for
net gains realized
in net earnings
(loss) (2.3) 0.8 (1.5) (53.7) 18.8 (34.9)
------ ----- ----- ------ ------ ------
Other
comprehensive loss $(39.5) $ 0.3 (39.2) $(22.1) $ 9.1 (13.0)
====== ===== ====== ======
Net earnings (loss) 128.9 (118.8)
------ -------
Total comprehensive
income (loss) $ 89.7 $(131.8)
====== =======
</TABLE>
8. Business Segment Information
In 1998, the Company adopted SFAS No. 131 - "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards for
reporting financial and descriptive information regarding an enterprise's
operating segments. As a result, amounts presented are determined on a
consistent basis in accordance with SFAS No. 131.
The Company operates in Regions or geographic operating segments. In accordance
with SFAS No. 131, the United States information is presented separately as it
is the Company's headquarters country, and U.S. sales represented 47.8% and
47.9% of total product net sales for the quarters ended September 24, 1999 and
September 25, 1998, respectively, and 48.7% and 46.8% of total product net sales
for the nine month periods ended September 24, 1999 and September 25, 1998,
respectively. No other country, or single customer, generates over 10% of total
product net sales.
9
<PAGE> 10
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Operations for the Europe Region also include sales to customers in Africa and
the Middle East, and operations in the Asia Pacific Region include sales to
customers in Australia and New Zealand.
Operating income attributable to each operating segment is based upon the
management assignment of costs to such regions. In 1999, operating income was
determined for each operating segment using a cost of sales amount which
included the manufacturing standard cost of goods produced by the Company's
manufacturing operations (or the cost to acquire goods from third parties),
freight, duty and local distribution costs, and royalties. In 1999, operating
income for all operating segments and manufacturing operations also included a
charge for corporate services and asset utilization. In 1998, cost of sales in
most segments outside the United States included the cost of goods produced by
the Company's manufacturing operations at the transfer price charged the
distribution operation by the manufacturing location. It is impracticable to
restate operating income amounts for 1998.
Income from manufacturing operations is not assigned to geographic regions
because most manufacturing operations produce products for more than one region.
Research and Development costs are general corporate costs. In 1998 corporate
costs included significant administrative costs applicable to United States
operations that are not charged to the U.S. region. Special charges in 1998 for
restructuring and the contribution to Allergan Specialty Therapeutics, Inc.
(ASTI) are also considered corporate costs.
Identifiable assets are assigned by region based upon management responsibility
for such items. Corporate assets are primarily cash and equivalents, goodwill
and intangibles, and long-term investments. Assets assigned to segments have not
changed materially since December 31, 1998.
GEOGRAPHIC OPERATING SEGMENTS
<TABLE>
<CAPTION>
Net Sales Operating Income/(Loss)
------------------------- ------------------------
3rd Qtr. 3rd Qtr. 3rd Qtr. 3rd Qtr.
(in millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $164.2 $152.5 $ 70.0 $ 76.3
Europe 89.9 89.7 28.7 9.0
Asia Pacific 55.6 42.1 5.7 2.0
Other 35.6 35.4 7.4 3.0
----------------------- ----------------------
Segments total 345.3 319.7 111.8 90.3
Manufacturing operations 1.5 1.5 38.1 16.5
Research and development (44.5) (32.8)
Research services margin 0.9 0.6
Restructuring charge -- (62.8)
Asset write-off -- (36.0)
Elimination of inter-company
profit (52.2) --
General corporate 13.1 (8.2)
------------------------ ----------------------
Total $346.8 $321.2 $ 67.2 $(32.4)
======================= ======================
</TABLE>
10
<PAGE> 11
Allergan, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
GEOGRAPHIC OPERATING SEGMENTS (continued)
<TABLE>
<CAPTION>
Net Sales Operating Income/(Loss)
Nine Months Ended Nine Months Ended
------------------------------ --------------------------------
September 24, September 25, September 24, September 25,
(in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ 494.8 $423.4 $ 193.9 $ 217.3
Europe 274.4 262.8 76.1 23.4
Asia Pacific 149.0 120.3 12.3 6.9
Other 102.8 104.4 20.0 8.9
------------------------- --------------------------
Segments total 1,021.0 910.9 302.3 256.5
Manufacturing operations 4.9 4.6 99.9 34.1
Research and development (114.4) (92.6)
Research services margin 2.2 1.7
Restructuring charge -- (70.6)
Asset write-offs -- (36.0)
Elimination of inter-company
profit (146.3) --
Contribution to ASTI -- (171.4)
General corporate 37.8 (47.7)
------------------------- --------------------------
Total $1,025.9 $915.5 $ 181.5 $(126.0)
========================= ==========================
</TABLE>
11
<PAGE> 12
ALLERGAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999
RESULTS OF OPERATIONS
The following table compares 1999 and 1998 net sales by Product Line for the
third quarter and year-to-date periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
September 24, September 25, September 24, September 25,
1999 1998 1999 1998
------------- ------------- ------------- -------------
($ millions)
<S> <C> <C> <C> <C>
Net Sales by Product Line
Specialty pharmaceuticals
Eye Care Pharmaceuticals $141.2 $131.0 $ 424.7 $369.8
Skin Care 16.3 22.3 58.0 57.6
BOTOX(R)/Neuromuscular 43.1 31.9 121.9 88.1
------ ------ -------- ------
200.6 185.2 604.6 515.5
Medical devices and OTC
product lines
Ophthalmic Surgical 54.4 47.1 158.5 139.0
Contact Lens Care 91.8 88.9 262.8 261.0
------ ------ -------- ------
Total Net Sales $346.8 $321.2 $1,025.9 $915.5
====== ====== ======== ======
</TABLE>
For the quarter ended September 24, 1999 total net sales increased by $25.6
million or 8% to $346.8 million as compared to the third quarter of 1998. Net
sales for the nine months ended September 24, 1999 were $1,025.9 million, a 12%
increase from the comparable 1998 amount.
The impact of foreign currency changes compared to the comparable prior year
period decreased net sales by $6.0 million or 2% for the quarter ended September
24, 1999 and by $20.3 million or 2% for the nine months ended September 24,
1999. At constant currency rates, sales increased $31.6 million or 10% during
the quarter, and $130.7 million or 14% for the nine months ended September 24,
1999 compared with the same periods last year. Eye Care Pharmaceutical sales
were reduced from the amounts that would have been reported at constant currency
rates by $8.7 million in the third quarter and by $23.7 million in the first
nine months of 1999 primarily as a result of the devaluation of the Brazilian
real in 1999. Contact Lens Care sales were increased from the amounts that would
have been reported at constant currency rates by $2.9 million in the third
quarter and by $5.1 million in the first nine months of 1999 primarily as a
result of the strengthening of the Japanese yen in 1999, partially offset by
weakness in Euro denominated currencies.
The $25.6 million increase in net sales in the third quarter and the $110.4
million increase in the first nine months of 1999 were primarily the result of
increases in sales in three product lines. Sales of Botox(R) Purified Neurotoxin
Complex increased by $11.2 million in the third quarter and $33.8 million in the
first nine months of 1999. Eye Care Pharmaceutical sales increased by $10.2
million in the third quarter and $54.9 million in
12
<PAGE> 13
Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
RESULTS OF OPERATIONS (Continued)
the first nine months of 1999. Surgical sales increased by $7.3 million in the
third quarter and $19.5 million in the first nine months of 1999. Botox(R) sales
increased as a result of strong growth in both the United States and
international markets. Allergan believes it currently controls over 80 percent
of the worldwide market for neurotoxins including Botox(R). Next year a
competitor is expected to introduce a competing neurotoxin. While Allergan
expects this new competition to cause the market for neurotoxins to expand, the
rate of growth of Botox(R) sales may decrease in the future as a result of this
new competition. Eye Care Pharmaceutical sales increased primarily because of
growth in sales of Alphagan(R) ophthalmic solution. Surgical sales increased
primarily as a result of increased sales of silicone intraocular lenses (IOLs)
and strong sales in international markets of an acrylic IOL first introduced in
1998. Such increases were partially offset by a decrease in sales in PMMA IOLs.
Allergan's gross margin percentage for the third quarter of 1999 was 70.6% of
net sales, which represents a 1.1 percentage point increase from the 69.5% rate
for the third quarter of 1998. The gross margin percentage for the nine months
ended September 24, 1999 was 70.3% of net sales, which represents a 2.9
percentage point increase from the 67.4% rate for the first nine months of 1998.
The gross margin percentage increased in 1999 compared to the comparable periods
in 1998 primarily as a result of reductions in costs of goods sold from
improvement in manufacturing efficiency, and shifts in the mix of products sold
to higher margin products. Gross margin in dollars increased over the third
quarter of 1998 by $21.8 million or 10% as a result of the 8% increase in net
sales and the 1.1 percentage point increase in gross margin percentage. For the
first nine months of 1999 gross margin in dollars increased over the comparable
period of 1998 by $103.4 million or 17% as a result of the 12% increase in net
sales and the 2.9 percentage point increase in gross margin percentage.
Operating income was a loss of $32.4 million in the third quarter of 1998. Such
loss included special charges of $62.8 million for restructuring costs and $36.0
million in asset write-offs. Excluding the effect of the special charges in
1998, operating income was $66.4 million in the third quarter of 1998 compared
to $67.2 million in the third quarter of 1999. The $0.8 million increase in
operating income was the result of the $21.8 million increase in gross margin
offset by increases of $9.6 million in selling, general and administrative
expense, and $11.7 million in research and development. Selling, general, and
administrative expense increased primarily as a result of a decrease in income
items included in the results for both years. During the third quarter, Allergan
received $12.9 million in product licensing fees in 1998 and $3.0 million in
1999. Research and development costs increased in 1999 as a result of expansion
of research activities in 1999.
13
<PAGE> 14
Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
RESULTS OF OPERATIONS (Continued)
Operating income was $181.5 million for the nine months ended September 24, 1999
compared to a loss of $126.0 million for the first nine months of 1998. The loss
in 1998 included a charge of $171.4 million relating to a dividend of stock of
Allergan Specialty Therapeutics, Inc. (ASTI) to Allergan stockholders. ASTI was
formed to conduct research and development of potential pharmaceutical products
based upon Allergan's retinoid and neuroprotective technologies. Allergan
contributed $200 million and certain related technologies to ASTI prior to the
dividend distribution. The loss in 1998 included special charges of $70.6
million for restructuring costs and $36.0 million in asset write-offs. Excluding
the effect of the charge for the dividend distribution of ASTI stock of $171.4
million and the special charges totaling $106.6 million, operating income was
$152.0 million (hereinafter referred to as adjusted operating income) in the
first nine months of 1998. Operating income in 1999 of $181.5 million was $29.5
million, or 19% higher than adjusted operating income in 1998 of $152.0 million.
Such increase was the result of the $103.4 million increase in gross margin in
1999 offset by a $52.6 million increase in selling, general and administrative
expense, and a $21.8 million dollar increase in research and development.
Selling, general and administrative expenses increased from 41% of sales in 1998
to 42% of sales in 1999. Such increase was primarily the result of increases in
spending on promotion, selling and marketing activities in 1999. Spending in
such areas increased by 1.9 percentage points in 1999 compared to 1998. General
and administrative expenses decreased by 2.3 percentage points partially
offsetting the increase in promotion, selling and marketing costs. General and
administrative expenses decreased in 1999 as a result of the reductions in staff
in this area resulting from a restructuring of the Company in 1998. Research and
development increased in 1999 as a result of increased research activity. In
addition, research and development was reduced in 1998 as a result of a $3.8
million reimbursement to Allergan by ASTI of costs incurred by the Company in
1997.
Net earnings were $47.0 million in the third quarter of 1999. Allergan recorded
a net loss of $31.4 million in the third quarter of 1998. The net loss in the
third quarter of 1998 included the after tax effect of the special charges for
restructuring costs of $42.6 million and asset write-offs of $31.2 million.
Excluding the after tax effect of the special charges, net earnings were $42.4
million (hereinafter referred to as adjusted net earnings). Net earnings in 1999
increased by $4.6 million over the adjusted net earnings amount for the third
quarter of 1998. Such increase was the result of the $0.8 million increase in
operating income, a $2.3 million decrease in interest expense and a $1.9 million
favorable change in the effects of foreign currency translation.
Net earnings were $128.9 million in the first nine months of 1999. Allergan
recorded a net loss of $118.8 million in the first nine months of 1998. The net
loss in 1998 included the $171.4 million charge relating to
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
RESULTS OF OPERATIONS (Continued)
ASTI and the special charges of $70.6 million for restructuring costs and $36.0
million in asset write-offs. Non-operating income in 1998 included three
significant items. The Company realized a gain of $51.8 million on its
investment in Ocular Sciences, Inc. (OSI) stock. The Company contributed a
portion of its OSI stock to The Allergan Foundation, a charitable foundation,
resulting in a charge of $11.0 million. The Company and the Foundation sold
their investments in OSI in the first quarter of 1998. The Company recorded a
charge of $3.8 million to recognize the permanent impairment in value of certain
other investments. Excluding the effect of the charge relating to ASTI and the
after tax effect of the special charges and the three significant non-operating
items discussed above, net earnings would have been $106.1 million in the first
nine months of 1998. Thus, net earnings of $128.9 million in the first nine
months of 1999 represent a $22.8 million, or 21.5% increase over adjusted
earnings of $106.1 million in the first nine months of 1998. The 1999 increase
is primarily the result of the $29.5 million increase in adjusted operating
income. Such increase is partially offset by a $10.0 million increase in income
taxes resulting from the increase in earnings before income tax in 1999 compared
to the adjusted earnings before income tax in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 24, 1999, the Company had a medium-term note program and eight
long-term credit facilities, one of which supports a commercial paper borrowing
arrangement. The note program allows the Company to issue up to an additional
$60 million in notes on a non-revolving basis. The credit facilities allow for
borrowings of up to $35.5 million through 2000, $45.1 million through 2001,
$14.4 million through 2002, and $277.0 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 September
24, 1999, the Company had $89.0 million in borrowings under the note program,
$121.1 million in borrowings under seven of the credit facilities, and $86.8
million in commercial paper borrowings.
As of September 24, 1999, the Company has classified $86.8 million of commercial
paper borrowings as long-term debt based upon the Company's ability to maintain
such debt under terms of the credit facilities described above.
The net cash provided by operating activities for the nine months ended
September 24, 1999 and September 25, 1998 was $211.2 million and $1.1 million,
respectively. Such 1998 amount includes the $171.4 million charge relating to
ASTI. Excluding such charge, cash provided by operating activities in the first
nine months of 1998 was $172.5 million.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cash used in investing activities in the first nine months of 1999 was $51.9
million. Cash provided by investing activities in the first nine months of 1998
was $6.4 million. Such 1998 amount included $40.8 million in proceeds from the
sale of OSI stock. Excluding this transaction, cash used in investing activities
was $34.4 million in the first nine months of 1998. The Company invested $39.1
million in new facilities and equipment during the nine months ended September
24, 1999 compared to $31.4 million during the same period in 1998.
Cash used in financing activities was $68.0 million in the first nine months of
1999 compared to cash provided by financing activities of $15.9 million in the
first nine months of 1998. Borrowings, net of repayments of debt, totaled $61.0
million in the first nine months of 1999 and $78.1 million in the first nine
months of 1998. Cash used in financing activities includes $125.2 million in
1999 and $32.9 million in 1998 used to repurchase treasury stock. The borrowings
in 1999, along with cash provided by operations, were used to repurchase
treasury stock. The borrowings in 1998 were used to make the contribution to
ASTI of $200 million. The balance of the amount contributed was provided by cash
from operations, the proceeds from the sale of OSI stock, and a reduction of
cash and equivalents. The amounts in both years include dividend outflows of
$27.8 million in 1999 and $53.9 million in 1998. The 1998 dividends include
$28.6 million representing the dividend of ASTI stock to Allergan stockholders.
YEAR 2000
INTRODUCTION. Most businesses, including the Company, are faced with a
potentially serious threat to their operations, known as the "year 2000 issue"
which has been widely publicized. The year 2000 issue is a general term used to
describe the various problems arising from the inability of computers to
properly identify the year associated with information. This problem could
potentially cause system interruptions or failures or result in systems
providing incorrect data. The effect of the year 2000 issue could impact the
performance of operations within the Company as well as the Company's
relationships with third parties, including distributors, wholesalers,
governmental entities, vendors and customers who could also experience year 2000
compliance issues.
The Company is in the final stages of a process to address the year 2000 issue
with respect to computer systems and applications within the Company. In
addition, the process extends to relationships with key suppliers, governmental
entities, customers and other business partners who are also expected to be
impacted by year 2000 issues. The discussion below provides a description of the
Company's activities to address year 2000 compliance and minimize disruption to
the Company's business.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
YEAR 2000 (Continued)
STATE OF READINESS. The Company formed a task force in 1998 to manage a
four-phase process to promote global year 2000 compliance. The Company's Year
2000 Task Force is comprised of representatives from each of the Company's
global functional areas. The task force is centrally managed by co-chairs from
the information technology ("IT") group and from internal audit. Each global
function is sponsored by a member of the Company's executive management. The
task force reports to executive management on a monthly basis and to the Audit
Committee of the Company's Board of Directors at its regular meetings. In
addition, the Company's internal auditors have developed a program to review
progress on the year 2000 project during all 1999 audits. The Company's internal
auditors report to the Company's Audit Committee with the results of each audit
performed. The Company also engaged an independent third party consultant to
review the Company's year 2000 processes, approaches and readiness.
Furthermore, the Company participates in industry groups focusing on year 2000
issues.
The four phases of the Company's year 2000 readiness program are:
Phase 1 is the compilation of an inventory of systems and relationships
with suppliers, key customers and other business partners.
Phase 2 is the assessment of each item identified in the inventory and
the prioritization of such items based on potential impact to the
Company. Systems and relationships are categorized as business
critical, important, limited, or not critical.
Phase 3 involves the verification of compliance with year 2000
requirements and the development of contingency plans in the event that
year 2000 issues are encountered. The extent of verification of
individual systems or relationships and of the development of
contingency plans is dependent upon the assessment of business risk.
The goal is to verify the year 2000 compliance of systems and
relationships deemed to be business critical in an appropriate manner
through methods such as testing, auditing and surveying. A concerted
effort will be made for systems and relationships defined as important
or limited, at a minimum, to verify by confirmation with business
partners or hardware and software suppliers that applicable systems are
year 2000 compliant. If compliance is not verified, the Company will
pursue various alternatives to address remaining year 2000 issues.
Phase 4 is the assembly during the second quarter of 1999 of rapid
response teams to be prepared to deal with any failures of systems in
the year 1999 and into the year 2000, if any.
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
YEAR 2000 (Continued)
The Company has completed the Phase 1 inventory and Phase 2 assessment within
each of its business functions, although the Company's inventory and assessment
is an on-going process as the Company continues to add and delete items in the
inventory in its ordinary course of business. All business functions within
Allergan continue to work on Phase 3 validations of their systems and
relationships but have substantially completed their Phase 3 validations of
business critical items. As of September 30, 1999, the Company had verified,
through testing, auditing, communications with business partners and vendors and
other methods, that approximately 89% of its business critical inventory items
were "year 2000 compliant." This inventory includes both internal,
Company-operated systems and applications and external systems, applications and
enterprises. The vast majority of inventory items classified by Allergan as
non-compliant are external to Allergan, such as suppliers and customers.
The Company's definition of year 2000 compliance for business critical hardware
and software items means that the Company's tests or other methods of
verification have shown that the items are able to process dates after December
31, 1999. For critical business partners, the Company defines a partner as year
2000 compliant if the Company believes that the partner has sufficiently planned
for the transition to the year 2000 so that the partner will not cause the
Company to experience material business interruptions. The Company has taken a
conservative approach with respect to business critical partners and has not
deemed any partner who has merely promised to be ready as year 2000 compliant.
As a result, many of the Company's business partners who have asserted that they
intend to be year 2000 compliant (but cannot demonstrate current compliance)
have been excluded from the Company's category of "year 2000 compliant."
In 1994, the Company committed to a broad-based strategy of replacement of core
IT systems with systems using SAP R/3 software. Such systems provide control and
management of manufacturing, distribution, customer service, billing,
collection, purchasing and accounts payable, human resources and general
accounting functions. This core system is represented by the vendor to be year
2000 compliant. The Company performed detailed year 2000 testing of its SAP
processes in the first quarter of 1999 and, with two minor exceptions, did not
experience adverse year 2000 issues with the software. These two minor issues
with SAP have now been resolved. The Company has installed the SAP system in
sites producing a majority of the Company's revenue. Approximately 90% of the
Company's revenue is generated from sites that utilize SAP, and almost all
manufacturing locations are using SAP software. Company sites not using SAP are
utilizing software that the Company has validated as year 2000 compliant for
core processes.
Many items in the Company's year 2000 inventories are third party business
partner relationships. The Company has mailed letters to thousands of these
vendors, service providers, customers and other business partners to
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
YEAR 2000 (Continued)
determine the extent to which they are prepared for the year 2000 issue. The
Company has experienced a mediocre response rate that has caused the Company's
overall compliance rate to be lower than expected, especially in the selling,
general and administrative areas and with respect to vendors to the
manufacturing function. The Company intends to continue to follow up with
critical partners who have either declined to provide the requested assurances
or have limited the scope of assurances to which they are willing to commit. The
Company intends to continue to focus on these partners in the remaining months
of 1999 to either confirm their compliance or to begin initiating contingency
plans.
Two Allergan products include a date field in their embedded technology: the
AMO(R) Prestige(R) Phacoemulsification System (model 7000 series) and the
Sovereign(TM) Cataract Extraction System (model SOV680300). All other
phacoemulsification equipment marketed by Allergan does not include a date
field, and hence, the date problem is not applicable. The Company has tested the
Sovereign(TM) system and has confirmed that it accurately processes and stores
date and time information during the transition between the years 1999 and 2000
and on February 29, 2000 (leap year). The Company has also tested the
Prestige(R) system and has confirmed that it accurately processes date and time
information on January 1, 2000 and on February 29, 2000 (leap year).
With respect to the Prestige(R) system only, Allergan has identified an
inconsistency between the display date and the hardcopy printout that occurs any
year on December 31. Allergan believes that this is not a year 2000 issue and
that it does not affect the safety or efficacy of the Prestige(R) system. On
December 31 of any given year, the date on the display is correct, but the date
on the printout reads as January 0 of the following year. Allergan is in the
process of developing a software modification to correct the anomaly and intends
to provide the modification free of charge to customers in 1999. Allergan
expects to spend less than $150,000 to develop and distribute the modification.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. In 1994, the Company chose to
install SAP R/3 systems in order to establish software systems necessary to meet
business needs. Costs to install SAP would have been incurred had there been no
year 2000 issue. The Company estimates that it has spent less than $1 million in
non-SAP out of pocket expenses through September 30, 1999 to address the year
2000 issue. The Company does not have a method in place to track the direct
costs of internal employees working on the year 2000 issue. Remaining costs
required to complete its year 2000 compliance project are not anticipated to be
material to the Company's results of operations or financial position. The
Company has funded, and intends to complete the funding of, the year 2000
compliance effort using cash provided by operations. While the Company has
incurred
19
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
YEAR 2000 (Continued)
an opportunity cost for implementing its year 2000 project, the Company has not
deferred any specific IT project solely as a result of the implementation of its
year 2000 effort.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The greatest risks to the Company are
the potential failures of any software applications or business partner
relationships that have been identified as business critical or business
important. The Company currently believes that the most reasonably likely worst
case scenario concerning the year 2000 involves potential business disruption
among the third parties with whom it conducts significant business. If a number
of these third parties experience business disruption due to a year 2000
problem, the Company's results of operations and cash flow could be materially
adversely affected.
Because the Company's year 2000 compliance is dependent upon key third parties
also being year 2000 compliant on a timely basis, there can be no guarantee that
the Company's efforts will prevent a material adverse impact on its results of
operations, financial condition or cash flows. These third parties include
wholesalers, distributors, managed care organizations, hospitals, suppliers,
clinical researchers, research partners and government agencies. Unlike computer
systems, it is impossible to fully analyze a third party's readiness. There can
be no assurance that the Company has effectively identified all business
critical systems and relationships or that third parties who have been
identified will convert their systems in a timely manner and in a way that is
compatible with the Company's systems. If Allergan's systems or those of key
third parties are not fully year 2000 compliant, the Company estimates that a
disruption in operations could occur. Such a disruption could result in delays
in the manufacturing process, the distribution of finished goods or receipt of
raw materials, delays in receiving or making payments for products sold or
purchased, errors in customer-order taking, disruption of clinical activities or
delays in product development. In addition, the Company may also incur losses if
governmental payment systems are inoperable or if the Company's ability to
import or export products is affected by year 2000 issues in United States and
foreign governmental agencies. These consequences could have a material adverse
impact on the Company's results of operations, financial condition and cash
flows if the Company is unable to conduct its business in the ordinary course.
The Company believes that its efforts to address the year 2000 issue, including
the development of contingency plans, will significantly reduce the adverse
impact that any such disruption in business might have. In any event, even where
the Company has developed contingency plans, there can be no assurance that such
plans will address all the problems that may arise, or that such plans, even if
implemented, will be successful. Notwithstanding the foregoing, the Company has
no reason to believe that its exposure to the risks of lack of supplier and
customer year 2000 readiness is any greater than the exposure to such risk that
affects its competitors generally.
20
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Allergan, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 24, 1999 (Continued)
YEAR 2000 (Continued)
An additional year 2000 risk that is particularly applicable to the
pharmaceutical industry is that panic stemming from fears about year 2000
problems could create its own problems, namely the risk that distributors or
customers of the Company's products will stockpile products in anticipation of
possible product shortages. The effects of stockpiling could create a material
adverse effect on the Company's results of operations, financial condition and
cash flows in the year 2000 and possibly beyond. Stockpiling could challenge the
Company's capacity to produce and distribute products to meet the excess demand.
Excess demand for the Company's products in 1999 could cause the Company to
achieve stronger than expected performance in 1999, followed by weaker than
expected performance in 2000 as inventories created by stockpiling are
dissipated. And, because pharmaceutical products have limited shelf lives,
consumers who stockpile may risk their health by taking medicines beyond their
expiration dates. If the Company manufactures more products in 1999 to meet
excess demand and then accepts as returns a large amount of products that were
not consumed prior to their expiration dating, the resulting loss to the Company
could materially and negatively impact the Company's results of operations. The
Company is implementing a process with the goal of distinguishing actual demand
from stockpiling and will develop appropriate contingency plans accordingly.
There can be no assurance, however, that the Company will be able to
successfully monitor demand and avoid the effects of stockpiling.
THE COMPANY'S CONTINGENCY PLANS. As discussed above, the development of
contingency plans is an integral part of the process of verification of business
risk. The Company has developed contingency plans for all business critical
items. These contingency plans are action plans to keep the Company in operation
and to address the flow of products to the consumer should there be a failure in
systems despite the testing and validation performed to determine and eliminate
such risks. Such plans include development of backup procedures and manual
work-arounds, identification of alternate suppliers, and possible increases in
inventory levels of raw materials or finished goods.
In addition, the Company has formed rapid response teams to address year 2000
issues as they arise, notwithstanding the efforts described above to identify
and eliminate such problems. These teams are composed of both IT and non-IT
personnel. The rapid response teams will be working with a third party
consulting firm to conduct several tabletop exercises during the fourth quarter
of 1999 to test the response process.
The Company has an on-going contractual relationship with a technology service
company that specializes in disaster recovery support for computer systems. As
required by the technology service company, the Company has completed a Y2K
Ready Analysis and thus has been granted full participation in their Y2K Ready
program. The Company therefore believes that it will have access to the vendor's
recovery facilities and resources in the event of an unanticipated hardware
system failure.
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Allergan, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to risks
associated with fluctuations in interest rates and foreign currency exchange
rates. The Company addresses these risks through controlled risk management that
includes the use of derivative financial instruments to hedge or reduce these
exposures. The Company does not enter into financial instruments for trading or
speculative purposes.
To ensure the adequacy and effectiveness of the Company's interest rate and
foreign exchange hedge positions, the Company continually monitors its interest
rate swap positions and foreign exchange forward and option positions both on a
stand-alone basis and in conjunction with its underlying interest rate and
foreign currency exposures, respectively, from an accounting and economic
perspective. However, given the inherent limitations of forecasting and the
anticipatory nature of the exposures intended to be hedged, there can be no
assurance that such programs will offset more than a portion of the adverse
financial impact resulting from unfavorable movements in either interest or
foreign exchange rates. In addition, the timing of the accounting for
recognition of gains and losses related to mark-to-market instruments for any
given period may not coincide with the timing of gains and losses related to the
underlying economic exposures and, therefore, may adversely affect the Company's
consolidated operating results and financial position.
Interest Rate Risk
The Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. Changes in U.S. interest rates affect
the interest earned on the Company's cash and equivalents, interest expense on
the Company's debt as well as costs associated with foreign currency hedges.
The Company's exposure to market risk for changes in interest rates results from
the Company's long-term debt obligations and related derivative financial
instruments. The Company enters into interest rate swap agreements to reduce the
impact of interest rate changes on its floating rate long-term debt. These
derivative financial instruments allow the Company to make long-term borrowings
at floating rates and then swap them into fixed rates that are anticipated to be
lower than those available to the Company if fixed-rate borrowings were made
directly.
The Company's interest rate swaps outstanding at September 24, 1999 qualify as
accounting hedges and generally require the Company to pay a fixed interest rate
and receive a floating rate of interest without exchanges of the underlying
notional amounts. As a result, these swaps effectively convert the Company's
floating-rate debt to fixed rates and generally qualify for hedge accounting
treatment.
The impact of interest rate risk management activities on income during the
quarter ended September 24, 1999, and the amount of deferred gains and losses
from interest rate risk management transactions at September 24, 1999 were not
material.
22
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Allergan, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Foreign Currency Risk
Overall, the Company is a net recipient of currencies other than the U.S. dollar
and, as such, benefits from a weaker dollar and is adversely affected by a
stronger dollar relative to major currencies worldwide. Accordingly, changes in
exchange rates, and in particular a strengthening of the U.S. dollar, may
negatively affect the Company's consolidated sales and gross margins as
expressed in U.S. dollars.
From time to time, the Company enters into foreign currency forward and option
contracts to reduce earnings and cash flow volatility associated with foreign
exchange rate changes to allow management to focus its attention on its core
business issues and challenges. Accordingly, the Company enters into various
contracts which change in value as foreign exchange rates change to offset the
effect of changes in the value of foreign currency assets and liabilities,
commitments and anticipated foreign currency denominated sales and operating
expenses. The Company enters into foreign currency forward and option contracts
in amounts between minimum and maximum anticipated foreign exchange exposures,
generally for periods not to exceed one year. The gains and losses on these
contracts offset changes in the value of the related exposures.
At September 24, 1999, all of the Company's outstanding foreign exchange forward
contracts were entered into to protect the value of intercompany borrowings
denominated in currencies other than the lender's functional currency. These
forward contracts qualify for hedge accounting treatment. As such, gains and
losses recognized upon settlement of the forward contracts offset losses and
gains, respectively, on the underlying intercompany receivables being hedged.
Probable but not firmly committed transactions are comprised of sales of the
Company's products and purchases of raw material in currencies other than the
U.S. dollar. A majority of these sales are made through the Company's
subsidiaries in Europe, Asia (particularly Japan), Canada and Australia. The
Company purchases foreign exchange forward and option contracts to hedge the
currency exchange risks associated with these probable but not firmly committed
transactions. The Company also sells foreign exchange option contracts, in order
to partially finance the purchase of foreign exchange option contracts. The
duration of foreign exchange hedging instruments, whether for firmly committed
transactions, for probable but not firmly committed transactions, or to
partially finance the foreign currency risk management program, currently does
not exceed one year.
At September 24, 1999, all of the Company's purchased options were entered into
to protect the value of anticipated, but not firmly committed, transactions in
Japan and Europe. The premium cost of purchased foreign exchange option
contracts are recorded in other current assets and amortized over the life of
the option. At September 24, 1999, the Company had sold options that were
entered into to offset the cost of entering into
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Allergan, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
purchased options. Premiums received on sold options are recorded in deferred
income and amortized over the life of the option. At September 24, 1999 some of
the Company's option contracts did not qualify for hedge accounting treatment.
As such, these derivative financial instruments are recorded at fair value and
gains on purchased options and losses on sold options are recognized currently
in income as a component of other non-operating expense, net.
24
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Allergan, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES
The Company believes that certain statements made by the Company in this report
and in other reports and statements released by the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, such as comments which express the Company's
opinions about trends and factors which may impact future operating results.
Disclosures that 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 that
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, without limitation, the factors discussed below.
o The pharmaceutical industry and other health care-related industries
continue to experience consolidation, resulting in larger, more diversified
companies with greater resources than the Company. Among other things,
these larger companies can spread their research and development costs over
much broader revenue bases than Allergan and can influence customer and
distributor buying decisions.
o Two of the Company's 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. Other significant products
such as Elimite(R) cream, Blephamide(R) ophthalmic suspension and
Pred-Forte(R) ophthalmic suspension are also off patent and may face
similar generic competition.
o The Company is currently the only manufacturer of an FDA-approved
neurotoxin. The Company is aware, however, of another company seeking FDA
approval of a neurotoxin. If such approval is granted, the Company's sales
of Botox(R) Purified Neurotoxin Complex could be materially and negatively
impacted.
o The manufacturing process to create bulk toxin raw material necessary to
produce Botox(R) Purified Neurotoxin Complex is technically complicated.
Any failure of the Company to maintain an adequate supply of bulk toxin and
finished product could result in an interruption in the supply of Botox(R)
Purified Neurotoxin Complex and a resulting decrease in sales of the
product.
o Trends in the contact lens and lens care marketplace continue to impact the
Company's Contact Lens Care business. These trends include technological
and medical advances in surgical techniques for the correction of vision
impairment such as refractive correction procedures. One-bottle chemical
disinfection systems have gained popularity among soft contact lens wearers
instead of peroxide-based lens care products, which historically have been
Allergan's strongest
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Allergan, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES (Continued)
family of lens care products. Also, the growing use and acceptance of daily
contact lenses, along with the other factors above, could have the effect
of reducing demand for lens care products generally. While the Company
believes it has established appropriate marketing and sales plans to
mitigate the impact of these trends upon its Contact Lens Care business, no
assurance can be given in this regard.
o The Company has in the past been, and continues to be, subject to product
liability claims. In addition, the Company has in the past and may in the
future recall or issue field corrections related to its products due to
manufacturing deficiencies, labeling errors or other regulatory or safety
reasons. There can be no assurance that the Company will not experience
material losses due to product liability claims or product recalls or
corrections.
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.
Failure of the Array(R) multifocal IOL to be designated as a "new
technology IOL" by the Health Care Financing Administration could adversely
affect the Company's sales and profit margin for the product.
o There is currently a political debate in the United States regarding the
proposed expansion of Medicare coverage to pharmaceutical products. If
measures to accomplish that coverage become law, and if those measures
impose price controls on the Company's products, the Company's revenues and
financial condition are likely to be materially and adversely affected.
o Uncertainties of the business include the success of the Company in
identifying information technology ("IT") and non-IT systems, applications
and relationships that are not year 2000 compliant, the nature and amount
of programming required to upgrade or replace each of the affected
programs, the availability, rate and magnitude of related labor and
consulting costs and the success of governmental agencies and the Company's
business partners, vendors and clients and customers in addressing the year
2000 issue. Further uncertainties and risks include the possibility of
errors in Allergan's remediation efforts, inabilities to obtain or delays
in obtaining replacements for non-compliant systems or equipment, delays in
regulatory approvals caused by governmental failures, the Company's ability
to validate new suppliers, if necessary, failures in global banking systems
and capital markets, extended failures by utility companies or common
carriers and general economic downturn related to year 2000 failures on a
global basis. If the distributors or customers of the Company's products
should stockpile products in anticipation of possible product shortages,
this stockpiling could challenge the Company's capacity to produce and
distribute products to meet the excess demand. An even larger risk
associated with stockpiling is that excess demand for the Company's
products in 1999 could cause the Company to achieve stronger than expected
performance in 1999, followed by
26
<PAGE> 27
Allergan, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES (Continued)
weaker than expected performance in 2000 as inventories created by
stockpiling are dissipated. In addition, because pharmaceutical products
have limited expiration dating, if the Company manufactures more products
in 1999 to meet excess demand and then accepts as returns a large amount of
products that were not consumed prior to their expiration dating, the
resulting loss to the Company could materially and negatively impact the
Company's results of operations. Even though the Company expects an
increased ability to avoid significant disruptions of its business as a
result of its year 2000 readiness program, including, for instance,
measures to address the stockpiling of products and the risk of unexpected
returns, management cannot provide any assurance that there will be no
material adverse effects to the financial condition or results of
operations of the Company as a result of year 2000 issues. For additional
information regarding year 2000 risks and issues, see the section entitled
"Year 2000" in this Quarterly Report on Form 10-Q, which is incorporated
herein by reference.
o The Company collects and pays a substantial portion of its sales and
expenditures in currencies other than the U.S. dollar. Therefore,
fluctuations in foreign currency exchange rates affect the Company's
operating results. The Company can provide no assurance that it can
effectively protect itself from adverse exchange rates or that future
exchange rate movements will not have a material adverse effect on the
Company's sales, gross profit or operating expenses.
o A large part of the Company's sales are generated outside of the United
States. The Company's business is therefore subject to other risks
generally associated with doing business abroad, such as political unrest
and changing economic conditions with countries where the Company's
products are sold or manufactured. Management cannot provide assurances
that it can successfully avoid or manage these risks.
o The Company sells its pharmaceutical products primarily through
wholesalers. Wholesaler purchases may exceed customer demand, resulting in
reduced wholesaler purchases in later quarters. The Company can give no
assurances that wholesaler purchases will not decline as a result of this
potential excess buying.
o In the past three years, the Company has taken steps designed to improve
its gross profit margin, including continued emphasis on new products as
well as the closure of certain plants and other cost-cutting measures. In
particular, the Company announced comprehensive plans in the third quarter
of 1998 to streamline operations and reduce costs through global G&A
restructuring and manufacturing consolidation. The success of these steps
in improving gross profit margin depends in part on whether sales of new
products will result in a more favorable mix of products, and on whether
the anticipated cost savings can be achieved and sustained.
27
<PAGE> 28
Allergan, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES (Continued)
o 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.
o In February 1999, the Financial Accounting Standards Board released a
revised Exposure Draft of a Proposed Statement of Financial Accounting
Standards - Consolidated Financial Statements: Purpose and Policy. If
adopted as a SFAS, the terms of this Exposure Draft could require the
Company to include the financial position and results of operations of
Allergan Specialty Therapeutics, Inc. (ASTI) in its consolidated results on
a retrospective basis. The Company is currently evaluating the effect of
implementation of this proposed statement. By including the results of
operations of ASTI, the Company's consolidated results of operations could
be adversely affected.
28
<PAGE> 29
PART II - OTHER INFORMATION
Item 5. Other Information.
ANNUAL MEETING.
The Company's next annual stockholders' meeting will be held on
Wednesday, April 26, 2000 at 10:00 A.M.
NOMINATION OF DIRECTORS.
The Restated Certificate of Incorporation of the Company provides that
any stockholder entitled to vote for the election of directors at a meeting may
nominate persons for election as directors only if written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery or United States mail, postage prepaid, to Francis R. Tunney, Jr.,
Secretary, Allergan, Inc., 2525 Dupont Drive, Irvine, CA 92612. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, the
address provided not less than 30 days nor more than 60 days prior to the
scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than 40 days' notice or prior public disclosure of the date of the scheduled
annual meeting is given or made, notice by the stockholder, to be timely, must
be so delivered or received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. A stockholder's notice to the Secretary shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the Company which are
beneficially owned by the person, (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice (i) the name
and address, as they appear on the Company's books, of the stockholder and (ii)
the class and number of shares of the Company's stock which are beneficially
owned by the stockholder on the date of such stockholder notice. The Company may
require any proposed nominee to furnish such other information as may be
reasonably required by the Company to determine the eligibility of such proposed
nominee to serve as a director of the Company.
29
<PAGE> 30
Allergan, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information. (Continued)
OTHER BUSINESS.
Pursuant to the Company's Restated Certificate of Incorporation only
such business shall be conducted at an annual meeting of stockholders as is
properly brought before the meeting. For business to be properly brought before
an annual meeting by a stockholder, in addition to any other applicable
requirements, timely notice of the matter must be first given to the Secretary
of the Company. To be timely, written notice must be received by the Secretary
no less than 30 days nor more than 60 days prior to the meeting. If less than 40
days' notice or prior public disclosure of the meeting has been given to
stockholders, then notice of the proposed business matter must be received by
the Secretary not later than ten days after the mailing of notice of the meeting
or such public disclosure. Any notice to the Secretary must include as to each
matter the stockholder proposes to bring before the meeting (a) a brief
description of the proposal desired to be brought before the meeting and the
reason for conducting such business at the annual meeting, (b) the name and
record address of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Company which are beneficially owned by the
stockholder on the date of such stockholder notice and by other stockholders
known by such stockholder to be supporting such proposal on the date of such
stockholder notice, and (d) any material interest of the stockholder in such
business.
Item 6. Exhibits and Reports on Form 8-K
- Exhibits.
(numbered in accordance with Item 601 of Regulation S-K)
3.1 First Amendment to Allergan, Inc. Bylaws.
10.1 First Amendment to Allergan, Inc. 1989 Incentive Compensation
Plan (Restated 1999).
10.2 Third Amendment to Allergan, Inc. Pension Plan (Restated
1996).
10.3 First Amendment to Allergan, Inc. Supplemental Executive
Benefit Plan (Restated 1996).
10.4 First Amendment to Allergan, Inc. Supplemental Retirement
Income Plan (Restated 1996).
10.5 First Amendment to Allergan, Inc. Savings and Investment Plan
(Restated 1998).
10.6 Fourth Amendment to Allergan, Inc. Employee Stock Ownership
Plan (Restated 1996).
10.7 Third Amendment to Allergan, Inc. Executive Deferred
Compensation Plan.
10.8 First Amendment to Allergan, Inc. 1999 Management Bonus Plan.
27 Financial Data Schedule
- Reports on Form 8-K. None.
30
<PAGE> 31
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: November 8, 1999 ALLERGAN, INC.
/s/ ERIC K. BRANDT
-----------------------------------
Eric K. Brandt
Principal Financial Officer
31
<PAGE> 32
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 First Amendment to Allergan, Inc. Bylaws.
10.1 First Amendment to Allergan, Inc. 1989 Incentive Compensation
Plan (Restated 1999).
10.2 Third Amendment to Allergan, Inc. Pension Plan (Restated
1996).
10.3 First Amendment to Allergan, Inc. Supplemental Executive
Benefit Plan (Restated 1996).
10.4 First Amendment to Allergan, Inc. Supplemental Retirement
Income Plan (Restated 1996).
10.5 First Amendment to Allergan, Inc. Savings and Investment Plan
(Restated 1998).
10.6 Fourth Amendment to Allergan, Inc. Employee Stock Ownership
Plan (Restated 1996).
10.7 Third Amendment to Allergan, Inc. Executive Deferred
Compensation Plan.
10.8 First Amendment to Allergan, Inc. 1999 Management Bonus Plan.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
FIRST AMENDMENT TO ALLERGAN, INC. BYLAWS
The ALLERGAN, INC. BYLAWS (the "Bylaws") are hereby amended as follows:
1. Article II, Section 6 of the Bylaws is amended in its entirety as
follows:
SECTION 6. Voting.
Each stockholder shall, at each meeting of stockholders, be
entitled to vote in person or by proxy each share of the stock of the
Corporation that has voting rights on the matter in question and that
shall have been held by such stockholder and registered in such
stockholder's name on the books of the Corporation:
(A) on the date fixed pursuant to Article VI, Section 5 of
these Bylaws as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting;
or
(B) if no such record date shall have been so fixed, then
(i) at the close of business on the day next preceding the day
upon which notice of the meeting shall be given or (ii) if
notice of the meeting shall be waived, at the close of business
on the day next preceding the day upon which the meeting shall
be held.
Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the Corporation in
a fiduciary capacity shall be entitled to vote such stock. Person whose
stock is pledged shall be entitled to vote, unless in the transfer by
the pledgor on the books of the Corporation the pledgor shall have
expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or the pledgee's proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of
two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise,
or with respect to which two or more persons have the same fiduciary
relationship, shall be voted in accordance with the provisions of the
Delaware General Corporation Law.
Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by
an instrument in writing (or in such manner prescribed by the Delaware
General Corporation Law), by such stockholder or by such stockholder's
attorney thereunto authorized and delivered to the secretary of the
meeting; provided, however, that no proxy shall
<PAGE> 2
be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the
effect of revoking the same unless such stockholder shall in writing so
notify the secretary of the meeting prior to the voting of the proxy. At
any meeting of stockholders, all matters, except as otherwise provided
in the Restated Certificate of Incorporation, in these Bylaws or by law,
shall be decided by the vote of a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat
and thereon, a quorum being present. The vote at any meeting of
stockholders on any question need not be by ballot, unless so directed
by the chairman of the meeting. On a vote by ballot, each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, if
there be such proxy, and it shall state the number of shares voted.
2. The effective date of this First Amendment shall be September 20, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment on the
29th day of October, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO ALLERGAN, INC.
1989 INCENTIVE COMPENSATION PLAN
The ALLERGAN, INC. 1989 INCENTIVE COMPENSATION PLAN (the "Plan") is hereby
amended to read as follows:
1. Section 1.2(j) of the Plan is amended in its entirety as follows:
(j) "Employee" means any individual classified by the Company
as a regular, full-time employee of the Company whose income is subject
to withholding of income tax and/or for whom Social Security
contributions are made by the Company except that such term shall not
include any individual who (a) performs services for the Company and
who is classified or paid as an independent contractor (regardless of
his or her classification for federal tax or other legal purposes) by
the Company or (b) performs services for the Company pursuant to an
agreement between the Company and any other person including a leasing
organization.
2. The effective date of this First Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.2
THIRD AMENDMENT TO ALLERGAN, INC.
PENSION PLAN (RESTATED 1996)
The ALLERGAN, INC. PENSION PLAN (the "Plan") is hereby amended to read as
follows:
1. The definition of the term "Employee" in Section 1.1 of the Plan is amended
in its entirety, as follows:
"'Employee' means a person who is employed by or is an
officer of the Company or an Affiliate, any portion of whose income is
subject to withholding of income tax and/or for whom Social Security
contributions are made by the Company or an Affiliate, except that such
term shall not include (a) any individual who performs services for the
Company or an Affiliate and who is classified or paid as an independent
contractor (regardless of his or her classification for federal tax or
other legal purposes) by the Company or Affiliate and (b) any
individual who performs services for the Company or an Affiliate
pursuant to an agreement between the Company or Affiliate and any other
person including a leasing organization except to the extent such
individual is a Leased Employee."
2. The definition of the term "Eligible Employee" in Section 1.1 of the Plan is
amended in its entirety as follows:
"'Eligible Employee' means an Employee who is employed by the
Company or by an Affiliate designated by the Board of Directors of
Allergan, but not by a joint venture in which the Company or such
Affiliate is a joint venturer; provided, that an Employee with respect
to whom retirement benefits have been the subject of good faith
collective bargaining shall be an Eligible Employee only to the extent
a collective bargaining agreement relating to him so provides. An
Employee of an Affiliate or of the Company who is a Leased Employee, or
who is neither a United States citizen nor a United States resident,
shall not be an Eligible Employee. Notwithstanding the preceding
sentence, for Plan Years beginning prior to January 1, 1996, an
Eligible Employee shall not include a temporary employee classified as
such by the Affiliate or the Company."
3. The effective date of this Third Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Third Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO ALLERGAN, INC.
SUPPLEMENTAL EXECUTIVE BENEFIT PLAN (RESTATED 1996)
The ALLERGAN, INC. SUPPLEMENTAL EXECUTIVE BENEFIT PLAN (the "Plan") is hereby
amended to read as follows:
1. Section 1.3 of the Plan is amended in its entirety as follows:
1.3 Participation. Participation in this Plan is only open to
those officers of the Sponsor who are appointed directly by the Board
of Directors (any such officer shall be referred to herein as a
"Designated Officer") and who (a) are not classified or paid as
independent contractors (regardless of their classification for federal
tax or other legal purposes) by the Sponsor and (b) do not perform
services for the Sponsor pursuant to an agreement between the Sponsor
and any other person including a leasing organization. Each employee of
the Sponsor who is, as of the Effective Date hereof, a Designated
Officer shall automatically commence participation in this Plan as of
such Effective Date. Any employee of the Sponsor who becomes,
subsequent to the Effective Date hereof, a Designated Officer shall
automatically commence participation in this Plan as of the date such
employee becomes a Designated Officer.
2. The effective date of this First Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO ALLERGAN, INC.
SUPPLEMENTAL RETIREMENT INCOME PLAN (RESTATED 1996)
The ALLERGAN, INC. SUPPLEMENTAL RETIREMENT INCOME PLAN (the "Plan") is hereby
amended to read as follows:
1. Section 1.3 of the Plan is amended in its entirety as follows:
1.3 Participation. Participation in this Plan shall be open to
all Eligible Employees of the Sponsor and any Affiliated Company. For
purposes of the preceding sentence, "Eligible Employees" means any
management employee of the Sponsor or any Affiliated Company whose
benefits under the Pension Plan are limited by reason of Code Section
415. Notwithstanding the preceding sentence, an Eligible Employee shall
not include any individual who (a) performs services for the Sponsor or
an Affiliated Company and who is classified or paid as an independent
contractor (regardless of his or her classification for federal tax or
other legal purposes) by the Sponsor or an Affiliated Company or (b)
performs services for the Sponsor or an Affiliated Company pursuant to
an agreement between the Sponsor or an Affiliated Company and any other
person including a leasing organization.
2. The effective date of this First Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO ALLERGAN, INC.
SAVINGS AND INVESTMENT PLAN (RESTATED 1998)
The ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN (the "Plan") is hereby amended as
follows:
1. Section 2.29 of the Plan is amended in its entirety as follows:
Section 2.29 Employee. "Employee" shall mean any person who is
employed by the Sponsor or an Affiliated Company in any capacity, any
portion of whose income is subject to withholding of income tax and/or
for whom Social Security contributions are made by the Sponsor or an
Affiliated Company except that such term shall not include (i) any
individual who performs services for the Sponsor or an Affiliated
Company and who is classified or paid as an independent contractor
(regardless of his or her classification for federal tax or other legal
purposes) by the Sponsor or an Affiliated Company; (ii) any individual
who performs services for the Sponsor or an Affiliated Company pursuant
to an agreement between the Sponsor or an Affiliated Company and any
other person including a leasing organization except to the extent such
individual is a Leased Employee; and (iii) any Puerto Rico-based
employee until such date the merger of the Allergan, Inc. Puerto Rico
Savings and Investment Plan into the Plan is approved by the United
States and Puerto Rico tax authorities.
2. The effective date of this First Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.6
FOURTH AMENDMENT TO ALLERGAN, INC.
EMPLOYEE STOCK OWNERSHIP PLAN (RESTATED 1996)
The ALLERGAN, INC. EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") is hereby amended
to read as follows:
1. Section 2.13 of the Plan is amended in its entirety as follows:
Section 2.13 "Employee" shall mean any person who is
employed by the Sponsor or an Affiliated Company in any capacity,
any portion of whose income is subject to withholding of income
tax and/or for whom Social Security contributions are made by the
Sponsor or an Affiliated Company except that such term shall not
include (a) any individual who performs services for the Sponsor
or an Affiliated Company and who is classified or paid as an
independent contractor (regardless of his or her classification
for federal tax or other legal purposes) by the Sponsor or an
Affiliated Company and (b) any individual who performs services
for the Sponsor or an Affiliated Company pursuant to an agreement
between the Sponsor or an Affiliated Company and any other person
including a leasing organization except to the extent such
individual is a Leased Employee.
2. Section 2.14 of the Plan is amended in its entirety as follows:
Section 2.14 "Eligible Employee" shall mean any United
States-based payroll Employee of the Company and any expatriate
Employee of the Company who is a United States citizen or
permanent resident, but excluding any Employee of the Company who
is employed at the Sponsor's facility in Puerto Rico, any
non-resident alien, any non-regular manufacturing site transition
Employee, any Leased Employee, and any Employee covered by a
collective bargaining agreement. Notwithstanding the preceding
sentence, for Plan Years beginning prior to January 1, 1996, an
Eligible Employee shall not include a temporary employee
classified as such by the Company.
3. The effective date of this Fourth Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Fourth
Amendment on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.7
THIRD AMENDMENT TO ALLERGAN, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
The ALLERGAN, INC. EXECUTIVE DEFERRED COMPENSATION PLAN (the "Plan") is hereby
amended to read as follows:
1. Section 2.17 of the Plan is amended in its entirety as follows:
2.17 Eligible Employees. "Eligible Employee" means an employee
of the Company who is a U.S. local or U.S. based expatriate that is
either exempt grade 9E and above or is employed in another executive or
management position as approved by the Committee. An employee shall be
treated as an Eligible Employee only upon selection and notification in
writing of such status by the Committee and only if (a) he or she is
not classified or paid as an independent contractor (regardless of his
or her classification for federal tax or other legal purposes) by the
Company and (b) he or she does not perform services for the Company
pursuant to an agreement between the Company and any other person
including a leasing organization. An employee shall cease to be an
Eligible Employee if he or she is reclassified below exempt grade 9E or
as an independent contractor or a leased employee by the Company,
except that, upon reclassification below exempt grade 9E, any Deferral
Election which has been made (and deferrals having commenced) may be
completed.
2. The effective date of this Third Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Third Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT TO ALLERGAN, INC.
1999 MANAGEMENT BONUS PLAN
The ALLERGAN, INC. 1999 MANAGEMENT BONUS PLAN (the "Plan") is hereby amended to
read as follows:
1. A new sentence is added immediately following the first sentence of the
Section of the Plan entitled "Eligibility" to read as follows:
Notwithstanding anything in this Plan to the contrary, any
individual shall not be eligible to participate in the Plan if such
individual (a) performs services for the Company and is classified or
paid as an independent contractor (regardless of his or her
classification for federal tax or other legal purposes) by the Company
or (b) performs services for the Company pursuant to an agreement
between the Company and any other person including a leasing
organization.
2. The effective date of this Amendment shall be January 1, 1999.
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this First Amendment
on the 26th day of August, 1999.
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
-----------------------------------------
Francis R. Tunney, Jr.,
Corporate Vice President--Administration,
General Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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