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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
Allergan, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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LOGO
2525 DUPONT DRIVE, IRVINE, CA 92612 (714) 246-4500
March 23, 2001
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders to
be held at the Irvine Marriott Hotel, 18000 Von Karman Avenue, Irvine,
California, on Wednesday, April 25, 2001 at 10:00 A.M. We hope you will be
present to hear management's report to stockholders.
The attached notice of meeting and proxy statement describe the matters to
be acted upon. If you plan to attend the meeting in person, please mark the
designated box on the proxy card. Or, if you utilize our telephone or Internet
voting systems, please indicate your plans to attend the meeting when prompted
to do so by the system. If you are a shareowner of record, you should bring the
enclosed bottom half of the proxy card as your admission card and present the
card upon entering the meeting. If you are planning to attend the meeting and
your shares are held in street name (by a bank or broker, for example), you
should ask the record owner for a legal proxy or bring your most recent account
statement to the meeting so that we can verify your ownership of Allergan stock.
Whether or not you plan to attend personally, and regardless of the number
of shares you own, it is important that your shares be represented at the
meeting. Accordingly, we urge you to complete the enclosed proxy and return it
to our vote tabulators promptly in the postage prepaid envelope provided, or to
promptly use the telephone or Internet voting system. If you do attend the
meeting and wish to vote in person, you may withdraw your proxy at that time.
Herbert W. Boyer David E.I. Pyott
/s/ HERBERT W. BOYER /s/ DAVID E.I. PYOTT
Chairman of the Board President and
Chief Executive Officer
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LOGO
2525 Dupont Drive, Irvine, CA 92612
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 25, 2001
TO OUR STOCKHOLDERS:
The annual meeting of stockholders of Allergan, Inc., a Delaware
corporation, will be held at the Irvine Marriott Hotel, 18000 Von Karman Avenue,
Irvine, California, on Wednesday, April 25, 2001 at 10:00 A.M. for the following
purposes:
1. To elect four Class III directors to serve for three-year terms ending
in 2004 and until their successors are elected and qualified.
2. To approve a special stock incentive plan for Allergan employees called
the Allergan, Inc. 2001 Premium Priced Stock Option Plan.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed March 9, 2001 as the record date for
determining the stockholders entitled to notice of and to vote at the meeting
and, consequently, only stockholders of record at the close of business on March
9, 2001 will be entitled to notice of and to vote at the meeting and any
adjournment thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. Even
though a stockholder may now plan to attend the meeting, he or she is urged to
complete, sign and date the enclosed proxy card and to mail it promptly in the
enclosed postage-paid envelope, or to use our telephone or internet voting
system. Any stockholder present at the meeting may withdraw his or her proxy and
vote personally on each matter brought before the meeting. Stockholders
attending the meeting whose shares are held in the name of a broker or other
nominee should bring with them a legal proxy or most recent statement from that
firm confirming their ownership of shares.
By Order of the Board of Directors
/s/ FRANCIS R. TUNNEY
Francis R. Tunney, Jr.
Secretary
March 23, 2001
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ALLERGAN, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 25, 2001
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Allergan,
Inc. ("Allergan" or the "Company"), 2525 Dupont Drive, Irvine, California 92612
for use at the annual meeting of the Company's stockholders to be held on April
25, 2001, and at any adjournment thereof, pursuant to the accompanying Notice of
Annual Meeting. This proxy statement and the accompanying proxy card are being
mailed to all stockholders on or about March 23, 2001.
The expense of this solicitation will be paid by the Company. In addition
to solicitation by mail, officers and employees of the Company may solicit
proxies by telephone, by facsimile or in person. The Company has retained
Corporate Investor Communications, Inc., a professional soliciting organization,
to aid in the solicitation of proxies to be voted at the annual meeting at an
estimated cost of $6,000 plus out-of-pocket expenses. The Company will also
reimburse brokers, nominees, fiduciaries and other custodians for reasonable
expenses incurred by them in sending proxy soliciting material to the beneficial
owners of Allergan stock.
GENERAL INFORMATION REGARDING
VOTING, CONFIDENTIALITY AND PROXIES
The persons named in the accompanying proxy will vote FOR the election of
the nominees for directors and FOR approval of Proposal 2. The proxy may be
revoked by the stockholder at any time prior to its use by giving notice of such
revocation to the independent vote tabulators. As to any other business which
may properly come before the meeting, the persons named in the accompanying
proxy card will vote in accordance with their best judgment, although the
Company does not presently know of any other business.
Holders of record of the Company's Common Stock at the close of business on
March 9, 2001 are entitled to vote at the meeting. On that date Allergan had
132,189,513 shares of Common Stock outstanding (exclusive of 2,065,259 shares
held in treasury). Each stockholder has one vote per share on all business to be
voted upon at the meeting. A majority of the outstanding shares will constitute
a quorum at the meeting. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions are counted as if they were "no" votes in tabulations
of the votes cast on proposals presented to stockholders, whereas broker
non-votes are not counted for purposes of determining whether a proposal has
been approved.
It is the Company's policy that all proxies, ballots and voting materials
that identify the particular vote of a stockholder be kept confidential, except
in the following circumstances: (1) to allow the independent election inspectors
to certify the results of the vote; (2) as necessary to meet applicable legal
requirements, including the pursuit or defense of a judicial action; (3) where
the Company concludes in good faith that a bona fide dispute exists as to the
authenticity of one or more proxies, ballots, or votes, or as to the accuracy of
the tabulation of such proxies, ballots, or votes; (4) where a stockholder
expressly requests disclosure or has made a written comment on a proxy card; (5)
where contacting stockholders by the Company is necessary to obtain a quorum,
the names of stockholders who have or have not voted (but not how they voted)
may be disclosed to the Company by the independent election inspectors; (6)
aggregate vote totals may be disclosed to the Company from time to time and
publicly announced at the meeting of stockholders at which they are relevant;
and (7) in the event of any solicitation of proxies or written consents with
respect to any of the securities of the Company by a person other than the
Company of which solicitation the Company has actual notice.
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ELECTION OF DIRECTORS
PROPOSAL 1
The Company's Restated Certificate of Incorporation provides for three
classes of directors, each class consisting, as nearly as may be possible, of
one third of the whole number of the Board of Directors. At each annual meeting
the directors elected by stockholders to succeed directors whose terms are
expiring are identified as being of the same class as those directors they
succeed and are elected for a term to expire at the third annual meeting of
stockholders after their election and until their successors are duly elected
and qualified. The Board of Directors elects directors to fill vacancies on the
Board, as they occur, as well as newly created directorships. A director elected
to fill a vacancy is elected to the same class as the director he or she
succeeds, and a director elected to fill a newly created directorship holds
office until the next election by the stockholders of the class to which such
director is elected. The Board of Directors currently consists of 12 directors
and currently four each serve as Class I, Class II and Class III directors.
UNLESS OTHERWISE DIRECTED IN THE PROXY, THE PERSONS NAMED IN THE
ACCOMPANYING PROXY INTEND TO VOTE THE SHARES REPRESENTED BY THE PROXY FOR THE
ELECTION AS DIRECTORS OF THE FOUR NOMINEES NAMED BELOW, ALL OF WHOM ARE, AT
PRESENT, CLASS III DIRECTORS OF THE COMPANY.
Directors are to be elected by a plurality of the votes cast at the meeting
in person or by proxy by the holders of shares entitled to vote in the election.
The Board of Directors is informed that all the nominees are willing to serve as
directors, but if any of them should decline or be unable to act as a director,
the persons named in the proxy will vote for such substitute nominee or nominees
as may be designated by the Board of Directors unless the Board reduces the
number of directors accordingly.
NOMINEES FOR DIRECTORS
CLASS III -- TERM TO EXPIRE AT THE ANNUAL MEETING IN 2004:
HANDEL E. EVANS, 66, is Chairman of Equity Growth Research Ltd., a company
providing financial services principally to health care companies in Europe. Mr.
Evans has 40 years' experience in the pharmaceutical industry and was the
founder and former Executive Chairman of Pharmaceutical Marketing Services Inc.
and Walsh International Inc., companies providing marketing services to the
industry. Prior to 1988, Mr. Evans was a founder and senior executive of IMS
International Inc., the leading information supplier to the industry. Mr. Evans
is a director of Cambridge Laboratories Ltd. and a Trustee of the British
Urological Foundation. Mr. Evans has been a director since 1989, is the Chairman
of the Corporate Governance Committee and is a member of the Audit and Finance
Committee.
MICHAEL R. GALLAGHER, 55, has been Chief Executive Officer and a Director
of Playtex Products, Inc., a personal care and consumer products manufacturer,
since July 1995. Prior to that Mr. Gallagher was Chief Executive Officer of
North America for Reckitt & Colman PLC, a consumer products company based in
London. Mr. Gallagher was President and Executive Officer of Eastman Kodak's
subsidiary L&F Products from 1988 until the subsidiary was sold to Reckitt &
Colman PLC in 1994. Mr. Gallagher held various executive positions with the Lehn
& Fink Products group of Sterling Drug from 1984 until its sale to Eastman Kodak
in 1988. In addition to Playtex, Mr. Gallagher is a member of the Board of
Directors of the Grocery Manufacturers Association and serves on the St. Luke's
School Board of Trustees and the Patriot Council of Boy Scouts of America. Mr.
Gallagher was elected to the Allergan Board in 1998 and is a member of the
Organization and Compensation Committee and the Corporate Governance Committee.
GAVIN S. HERBERT, 68, is founder of the Company and Chairman Emeritus as of
January 1, 1996. He had been Chairman since 1977 and was also Chief Executive
Officer from 1977 to 1991. Prior thereto, Mr. Herbert had been President and
Chief Executive Officer of the Company since 1961. He is Chairman and Founder of
Regenesis Bioremediation Products, formed in 1994. Mr. Herbert is a trustee of
the University of Southern California and is a director of Beckman Coulter,
Inc., Research to Prevent Blindness, and the Doheny Eye Institute. In 1994, Mr.
Herbert retired as an employee of the Company. He has been a director
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since 1950 and is a member of the Board's Audit and Finance Committee and the
Science and Technology Committee.
ANTHONY H. WILD, PH.D., 52, is the founding Partner and Chief Executive
Officer of MedPointe Capital Partners, LLC, a specialty pharmaceutical private
equity firm. Prior to his retirement in June 2000, Dr. Wild served as President
of Warner-Lambert's pharmaceutical business since 1996. Dr. Wild has more than
25 years of domestic and international pharmaceutical experience. He is a
Director of Bioglan Pharma plc and Variagenics, Inc. and serves on the Board of
Advisors for Columbia University's School of Public Health. He was elected to
the Board in 2000 and serves on the Organization and Compensation Committee and
the Science and Technology Committee.
DIRECTORS CONTINUING IN OFFICE
CLASS I -- TERM TO EXPIRE AT THE ANNUAL MEETING IN 2002:
LESTER J. KAPLAN, PH.D., 50, has been Allergan's Corporate Vice President
and President, Research and Development and Global BOTOX(R) since May 1998 and
had been Corporate Vice President, Science and Technology since July of 1996.
From 1992 until 1996, he was Corporate Vice President, Research and Development.
He had been Senior Vice President, Pharmaceutical Research and Development since
1991 and Senior Vice President, Research and Development since 1989. Dr. Kaplan
is a member of the Board of Directors of Acadia Pharmaceuticals Inc. and
Allergan Specialty Therapeutics, Inc. He is a member of the Pediatric Cancer
Research Foundation (PCRF) and Healthcare Ventures. He first joined the Company
in 1983, was elected to the Board in 1994 and is a member of the Science and
Technology Committee.
KAREN R. OSAR, 51, is Senior Vice President and Chief Financial Officer of
Westvaco Corporation, a producer of packaging, paper and specialty chemicals,
since November 1999. She formerly served as Vice President and Treasurer of
Tenneco, Inc., which was a packaging and auto parts manufacturer, since 1994.
Prior thereto, Ms. Osar served 19 years with J.P. Morgan & Company, where she
held a variety of positions including Managing Director in the investment
banking group. She is a member of the Board of Directors of BNY Hamilton Funds,
a mutual fund family advised by The Bank of New York. Ms. Osar was elected to
the Board in 1998, is Chairperson of the Audit and Finance Committee and is a
member of the Organization and Compensation Committee.
LOUIS T. ROSSO, 67, is Chairman Emeritus of Beckman Coulter, Inc., a
manufacturer of laboratory instruments, and had been its Chairman of the Board
until his retirement in February 1999. He served as Chief Executive Officer from
1988, when Beckman Instruments, Inc. again became a publicly held company, until
his retirement as a full-time employee in September 1998. He also served as
President from 1982 until 1993, and as Vice President of SmithKline Beckman
Corporation from 1982 until 1989. He is a member of the Board of Trustees of the
St. Joseph Heritage Healthcare Foundation and the Keck Graduate Institute of
Applied Life Sciences at Claremont. Mr. Rosso was elected to the Board in 1989
and is a member of the Board's Audit and Finance Committee and the Science and
Technology Committee.
LEONARD D. SCHAEFFER, 54, has been Chairman of the Board of Blue Cross of
California, a health insurance organization, since 1989 and Chief Executive
Officer since 1986. He has also been Chairman of the Board and Chief Executive
Officer of WellPoint Health Networks Inc., a New York Stock Exchange listed
health care company, since 1992. Mr. Schaeffer was the Administrator of the U.S.
Health Care Financing Administration (HCFA) from 1978 to 1980. He is Chairman of
the Board of the National Health Foundation and the National Institute for
Health Care Management and a member of the Institute of Medicine. Mr. Schaeffer
was elected to the Board in 1993 and is a member of the Audit and Finance
Committee and the Organization and Compensation Committee.
CLASS II -- TERM TO EXPIRE AT THE ANNUAL MEETING IN 2003:
HERBERT W. BOYER, PH.D., 64, is a founder of Genentech, Inc., a
biotechnology company, has been a director of Genentech since 1976 and is a
consultant to Genentech. He served as Vice President of Genentech
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from 1976 to 1991. Dr. Boyer, a Professor of Biochemistry at the University of
California at San Francisco from 1976 to 1991, demonstrated the usefulness of
recombinant DNA technology to produce medicines economically, which laid the
groundwork for Genentech's development. Dr. Boyer received the 1993 Helmut
Horten Research Award. He also received the National Medal of Science from
President Bush in 1990, the National Medal of Technology in 1989 and the Albert
Lasker Basic Medical Research Award in 1980. He is an elected member of the
National Academy of Sciences and a Fellow in the American Academy of Arts and
Sciences. He serves on the Boards of Sangamo, Inc. and the Scripps Research
Institute. Dr. Boyer was elected Chairman of the Board as of January 2, 1998 and
has been a Board member since 1994. He is a member of the Organization and
Compensation Committee, Corporate Governance Committee, and Science and
Technology Committee.
PROF. RONALD M. CRESSWELL, HON. D.SC., F.R.S.E., 66, retired in 1999 from
Warner-Lambert Company, a developer and manufacturer of health care and consumer
products, where he had been Senior Vice President and Chief Scientific Officer
since October 1998. Prof. Cresswell was formerly Vice President and Chairman,
Parke-Davis Pharmaceutical Research, a Warner-Lambert Company, since 1989. Prior
thereto, he served as Chief Operating Officer of Laporte Industries, an
internationally oriented chemical company, since 1987. Prof. Cresswell served 25
years at Burroughs Wellcome, a London-based international pharmaceutical firm,
where he held a broad range of research and development positions, culminating
in being the main board member for global research and development. He is a
fellow of the Royal Society of Edinburgh, the Royal Society of Medicine and the
Royal Society of Arts and Commerce, and a member of the Royal Society of
Chemistry, as well as a member of the American Chemical Society and the New York
Academy of Sciences. Prof. Cresswell is a visiting Professor to the Department
of Chemistry at the University of Edinburgh. Professor Cresswell was elected to
the Board in 1998, is the Chairman of the Science and Technology Committee and
serves on the Corporate Governance Committee.
WILLIAM R. GRANT, 76, is co-founder of Galen Associates, Inc., a venture
capital firm in the health care industry, and has been its Chairman since 1989.
Mr. Grant has over 40 years of experience in the investment banking and
risk-capital fields, including substantial experience in the health care
industry. From 1987 to 1989 he was Chairman of New York Life International
Investment, Inc. Mr. Grant is a Director of MiniMed, Inc., Ocular Sciences,
Inc., Vasogen Inc., Quest Diagnostics Incorporated and Massey Energy Company. He
is a member of the General Electric Equity Advisory Board, Trustee of the Center
for Blood Research (Harvard), and Trustee Emeritus of the Mary Flagler Cary
Charitable Trust. Mr. Grant was elected to the Board in 1989, is Chairman of the
Board's Organization and Compensation Committee, and is a member of the
Corporate Governance Committee.
DAVID E.I. PYOTT, 47, became President and Chief Executive Officer of the
Company in January 1998. Previously, he was head of the Nutrition Division and a
member of the executive committee of Novartis AG from 1995 until December 1997.
From 1992 to 1995 Mr. Pyott was President and Chief Executive Officer of Sandoz
Nutrition Corp., Minneapolis, Minnesota and General Manager of Sandoz Nutrition,
Barcelona, Spain from 1990 to 1992. Prior to that, Mr. Pyott held various
positions within the Sandoz Nutrition group from 1980. He is a member of the
Director's Board of the University of California (Irvine) Graduate School of
Management and serves on their Executive Committee, and he is the President of
the Pan-American Ophthalmological Foundation. Mr. Pyott is also a member of the
Executive Board of Pharmaceutical Research and Manufacturers of America (PhRMA),
and a member of the Board of Directors of Avery-Dennison Corporation, California
Healthcare Institute, and Edwards Lifesciences Corporation. Mr. Pyott was
elected to the Board in 1998.
INFORMATION REGARDING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES
The Board of Directors held five meetings during 2000 and its standing
committees also met from time to time to address issues within their respective
jurisdictions. Average attendance by directors at regular and special Board and
committee meetings was 92% and all directors attended 75% or more of the
meetings of the
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Board and committees on which they served, except for Professor Cresswell. It
should be noted that directors discharge their responsibilities throughout the
year not only at Board and committee meetings, but through personal meetings and
other communications, including considerable telephone contact with the Chairman
and others regarding matters of interest and concern to the Company.
Audit and Finance Committee -- The Company consolidated its Audit Committee
and its Finance Committee effective July 2000. During 2000, the Finance
Committee had two meetings, the Audit Committee had one meeting and the combined
committee met three times. The Audit and Finance Committee reviews and discusses
with management the audited financial statements, recommends to the Board of
Directors the appointment of the Company's independent auditors for the fiscal
year and meets with the independent auditors to discuss the scope and results of
their audit examination and the fees related to such work. It also meets with
the Company's internal auditors and financial management to review the internal
audit department's activities; to discuss the Company's accounting practices and
procedures; to review the adequacy of the Company's accounting and control
systems; and to report to the Board any considerations or recommendations the
Audit and Finance Committee may have with respect to such matters. The Committee
also reviews the audit schedule and considers any issues raised by its members,
the independent public accountants retained to audit the financial statements of
the Company, the internal audit staff, the legal staff or management. In
addition, the Committee monitors the implementation of the Code of Ethics for
the Company's employees, and receives regular reports from the Company's Chief
Ethics Officer who coordinates compliance reviews and investigates noncompliance
matters. The Committee also reviews, approves or modifies management
recommendations on corporate financial strategy and policy and, where
appropriate, makes recommendations to the Board of Directors. Allergan's
securities are listed on the New York Stock Exchange and are governed by its
listing standards. All members of the Audit and Finance Committee meet the
independence standards of Section 303.01(B)(2)(a) of the New York Stock Exchange
Listing Company Manual. None of the members of the Audit and Finance Committee
are officers or employees of the Company or any of its subsidiaries. The report
of the Committee begins on page 24. The charter adopted by the Committee is
attached to this Proxy Statement as Exhibit C.
Corporate Governance Committee -- The Corporate Governance Committee held
four meetings in 2000. It recommends qualified candidates for election as
directors of the Company, including the slate of directors which the Board
proposes for election by stockholders at the annual meeting; considers the
performance of incumbent directors; considers and makes recommendations to the
Board of Directors concerning the size and composition of the Board of
Directors; develops and recommends to the Board of Directors guidelines and
criteria to determine the qualifications of directors; considers and reports to
the Board of Directors concerning its assessment of the Board's performance;
considers, from time to time, the current Board committee structure and
membership; and recommends changes to the amount and type of compensation of
Board members as appropriate. None of the members of the Corporate Governance
Committee are officers, employees or former employees of the Company or any of
its subsidiaries.
Organization and Compensation Committee -- The Organization and
Compensation Committee, which had four meetings in 2000, reviews and approves
corporate organizational structure; reviews performance of corporate officers;
establishes overall employee compensation policies; and recommends to the Board
of Directors major compensation programs. The Committee also reviews and
approves compensation of corporate officers, including salary and bonus awards,
and administers the 1989 Incentive Compensation Plan. No member of the
Organization and Compensation Committee is a current or former member of
management or eligible for compensation other than as a director. The report of
the Committee begins on page 19.
Science and Technology Committee -- The Science and Technology Committee
held four meetings in 2000. It reviews the Company's research and development
programs and projects to evaluate variances to plan, investment allocations, the
portfolio of strategic patents, and major technology-based transactions.
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STOCKHOLDER NOMINATIONS
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 timely written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery or United States mail, postage prepaid, to the 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 must 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 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 (the "Exchange Act"); 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.
DIRECTOR COMPENSATION
Of the Board's current 12 members, two are officers of the Company who do
not receive additional compensation for Board or committee service. Non-employee
directors other than the Chairman earned, during 2000, an annual $25,000
retainer. All non-employee directors received $2,000 for each Board meeting
attended; $1,000 for each committee meeting attended by committee members; and
$1,500 for each committee meeting presided over as a committee chair.
Effective January 1, 1996, Mr. Herbert became Chairman Emeritus of the
Company. During 2000, he received retainer and attendance fees as described
above, and is eligible to participate in the 1989 Nonemployee Director Stock
Plan and the Deferred Directors' Fee Program, both as described below, on an
on-going basis. Additionally, in his role as Chairman Emeritus, Mr. Herbert
received $48,000 to cover the cost of secretarial support and office expenses.
Dr. Boyer became Chairman of the Board in January 1998. For such services
in 2000, he received an annual retainer of $250,000 and attendance fees as
described above. Dr. Boyer is also eligible to participate in the 1989
Nonemployee Director Stock Plan and the Deferred Directors' Fee Program on an
on-going basis, both as described below.
In 1991, the Company adopted a Deferred Directors' Fee Program that permits
directors to defer all or a portion of their retainers and meeting fees until
termination of their status as a director. Deferred amounts are treated as
having been invested in Common Stock of the Company and thus are valued
according to fluctuations in the market price of the Common Stock. Distributions
will be made in common stock of the Company. Dr. Boyer, Ms. Osar, Prof.
Cresswell, and Messrs. Evans, Gallagher, Grant, and Rosso chose to defer all or
a portion of their retainers and meeting fees for the period January 1, 2000
through December 31, 2000.
In accordance with the Company's 1989 Nonemployee Director Stock Plan (the
"Director Plan"), as amended by the stockholders in April 1998 and in April
1999, each director who is not an employee of the Company receives grants of
restricted stock upon (a) initial election to the Board of 1,800 shares per year
for each year, including a partial year of the term to be served, to a maximum
of three years and (b) reelection to the Board of 1,800 shares per year for each
of the three years of the new term. On the date of each annual
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meeting of stockholders, the vesting restrictions with respect to 1,800 shares
lapse for each participant. If an individual ceases to serve as a director prior
to full vesting of a restricted stock grant for reasons other than death or
total disability, those shares not then vested will be returned to the Company
without payment of any consideration to the director. The Director Plan provides
that the number of shares available for issuance under the Director Plan shall
be adjusted in the event of certain changes in capitalization, such as stock
splits and stock dividends. The Director Plan expires on December 31, 2009.
STOCK OWNERSHIP GUIDELINES
At its meeting held in January 1996, the Board approved stock ownership
guidelines for directors recommended by the Corporate Governance Committee. Each
non-employee director is expected to own stock, including the economic
equivalent number of shares showing on the records of the Company under the
Deferred Directors' Fee Program, equal in value to the number of years the
director has served on the Board since 1989 multiplied by the retainer fee for
each year served. As of December 31, 2000, all ten non-employee directors met
their ownership guidelines.
OTHER MATTERS
In 1997 the Company formed a new subsidiary, Allergan Specialty
Therapeutics, Inc. ("ASTI"), to conduct research and development of potential
pharmaceutical products based on the Company's retinoid and neuroprotective
technologies. In March 1998, the Company distributed all ASTI Class A Common
Stock to the Company's stockholders. Dr. Kaplan, Corporate Vice President and
President, Research and Development and Global BOTOX(R) and a director of the
Company, is on the ASTI Board of Directors. James M. Hindman, the Company's
Senior Vice President, Controller and Principal Accounting Officer, is ASTI's
Chief Financial Officer, and William C. Shepherd, who served as Allergan's
Chairman, President and Chief Executive Officer through December 31, 1997, is
the Chairman, President and Chief Executive Officer of ASTI.
Under the terms of a technology license agreement and a license option
agreement between the Company and ASTI, the Company has granted certain
technology licenses and agreed to make specified payments on sales of certain
products in exchange for the payment by ASTI of a technology fee and the option
to independently develop certain compounds funded by ASTI prior to the filing of
an Investigational New Drug application with the U.S. Food and Drug
Administration with respect thereto and to license any products and technology
developed by ASTI. During 2000, ASTI paid approximately $3.1 million in
technology fees to the Company.
ASTI's technology and product research and development activities take
place under a research and development agreement with the Company. During 2000,
the Company provided ASTI approximately $62.9 million in R&D and administrative
services.
The Company believes that these transactions were made on terms no less
favorable than that which could have been received by unaffiliated third
parties.
On December 31, 1997, in connection with his relocation from Europe to the
United States, the Company made an interest-free loan in the amount of $500,000
to David E.I. Pyott, the President and Chief Executive Officer of the Company,
to be used to purchase a residence in Orange County, California. The loan is
payable in full upon the earlier of five years or the date Mr. Pyott ceases to
be an employee of the Company. As of December 31, 2000, the outstanding balance
on the loan was $500,000.
On August 11, 1999, the Company made an interest-free loan in the amount of
$500,000 to Eric Brandt, the Company's Corporate Vice President and Chief
Financial Officer, in connection with his hiring and relocation to California.
Mr. Brandt used the loan to purchase a residence in Orange County, California.
The loan is payable in full upon the earlier of five years or 60 days after Mr.
Brandt's employment terminates. As of December 31, 2000, the outstanding balance
on the loan was $500,000.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the SEC and the New York Stock Exchange. Executive
officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 2000, its officers, directors and greater
than ten-percent beneficial owners complied with all Section 16(a) filing
requirements.
CORPORATE GOVERNANCE
GUIDELINES ON SIGNIFICANT CORPORATE GOVERNANCE ISSUES
In 1995, the Board approved "Board Guidelines on Significant Corporate
Governance Issues." The Guidelines, as amended to date, are listed below. These
guidelines are being published in this Proxy Statement to inform stockholders of
the Board's current thinking with respect to selected corporate governance
issues considered to be of significance to stockholders. The guidelines are only
guidelines, not rigid rules. Nor is it intended that publication of these
guidelines be interpreted as a representation that they will be strictly
followed in each instance. The Board will continue to assess the appropriateness
and efficacy of the guidelines and it is likely that changes or exceptions to
the guidelines will be considered from time to time.
1. SELECTION OF CHAIRMAN AND CEO
The Board should be free to make this choice any way that seems best for
the Company at a given point in time.
Therefore, the Board does not have a policy, one way or the other, on
whether or not the role of the Chief Executive Officer and Chairman should be
separate and, if it is to be separate, whether the Chairman should be selected
from the nonemployee directors or be an employee.
2. EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS
The outside directors of the Board will meet in Executive Session at a
regularly scheduled meeting at least once each year. The format of these
meetings will include a discussion with the Chief Executive Officer on each
occasion. These meetings should be scheduled in conjunction with a regular Board
meeting.
It is the policy of the Board that a director be selected by the outside
directors to chair Executive Sessions or assume other responsibilities which the
outside directors as a whole might designate from time to time.
3. NUMBER OF COMMITTEES
The current committee structure of the Company seems appropriate. There
will, from time to time, be occasions in which the Board may want to form a new
committee or disband a current committee depending upon the circumstances. The
current four Committees are Audit and Finance, Organization and Compensation,
Corporate Governance, and Science & Technology. The Audit and Finance, Corporate
Governance, and Organization and Compensation Committees will consist entirely
of outside directors.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS
The Corporate Governance Committee is responsible, after consultation with
the Chief Executive Officer and after consideration of the desires of individual
Board members, for the assignment of Board members to various committees.
8
12
It is the sense of the Board that consideration should be given to rotating
committee members periodically at about a three- to four-year interval, but the
Board does not feel that such a rotation should be mandated as policy since
there may be reasons at a given point in time to maintain an individual
director's committee membership for a longer period.
5. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS
The Committee chairman, in consultation with Committee members, will
determine the frequency and length of the meetings of the Committee. Meetings
will normally be held around Board meetings.
6. COMMITTEE AGENDA
The chairman of the Committee, in consultation with the appropriate members
of management and staff, will develop the Committee's agenda.
Each Committee will issue a schedule of agenda subjects to be discussed for
the ensuing year at the beginning of each year (to the degree these can be
foreseen). This forward agenda will also be shared with the Board. Key
functional managers (i.e., CFO, CVP -- Administration) will have direct contact
with the appropriate Committee chairperson.
7. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS
The Chairman of the Board and the Chief Executive Officer (if the Chairman
is not the Chief Executive Officer) will establish the agenda for each Board
meeting.
At the beginning of the year the Chairman will establish a schedule of
agenda subjects to be discussed during the next three years.
Each Board member is free to suggest the inclusion of item(s) on the
agenda. The CEO will be proactive in encouraging Board members to submit agenda
items.
8. BOARD MATERIALS DISTRIBUTED IN ADVANCE
It is the sense of the Board that information and data that is important to
the Board's understanding of the business to be conducted at that meeting be
distributed in writing to the Board before the Board meets. Management will make
every attempt to see that this material is as brief as possible while still
providing the desired information.
9. PRESENTATIONS
As a general rule, presentations on specific subjects should be sent to the
Board members in advance so that Board meeting time may be conserved and
discussion time focused on questions that the Board has about the subject. When
there is no prior distribution of a presentation on a sensitive subject, it is
the sense of the Board that each member be advised by telephone in advance of
the meeting of the subject and the principal issues the Board will need to
consider.
10. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS
The Board supports the regular attendance at each Board Meeting of
non-Board members who are members of senior management.
Should the Chief Executive Officer want to add additional people as
attendees on a regular basis, it is expected that this suggestion would be made
to the Board for its concurrence.
11. BOARD ACCESS TO SENIOR MANAGEMENT
Board members have complete access to Allergan's management.
9
13
It is assumed that Board members will use judgment to be sure that this
contact is not distracting to the business operation of the Company and that
such contact, if in writing, be copied to the Chief Executive Officer and/or the
Chairman.
Furthermore, the Board encourages the senior management to, from time to
time, bring other managers into Board meetings who: (a) can provide additional
insight into the items being discussed because of personal involvement in these
areas, and/or (b) represent managers with future potential that the senior
management believes should be given exposure to the Board.
12. BOARD COMPENSATION REVIEW
It is appropriate for the staff of the Company once every other year to
report to the Corporate Governance Committee the status of Allergan Board
compensation in relation to other U.S. companies.
Changes in Board compensation, if any, should come at the suggestion of the
Corporate Governance Committee, but with full discussion and approval by the
Board. The Corporate Governance Committee will make Board compensation change
recommendations after it has reviewed the information it considers appropriate
from the Chief Executive Officer, the Human Resources department and outside
consultants.
13. SIZE OF THE BOARD
The Board presently has 12 members. It is the sense of the Board that a
size of 10 to 12 is about right. However, the Board would be willing to go to a
somewhat larger size in order to accommodate the availability of an outstanding
candidate(s).
14. MIX OF INSIDE AND OUTSIDE DIRECTORS
The Board believes that as a matter of policy there should be a majority of
Independent Directors on the Allergan Board. A maximum ratio should be 1/4
management directors to 3/4 Independent Directors.
But the Board believes that management should encourage senior managers to
understand that Board membership is not necessary or a prerequisite to any
higher management position in the Company. Managers other than the Chief
Executive Officer currently attend Board meetings on a regular basis even though
they are not members of the Board.
15. BOARD DEFINITION OF WHAT CONSTITUTES INDEPENDENCE FOR OUTSIDE DIRECTORS
Allergan's Bylaw defining independent directors was approved by the Board
in July 1995. The Board believes there is no current relationship between any
outside director and Allergan that would be construed in any way to compromise
any Board member being designated independent. Compliance with the Bylaw is
reviewed annually by the Corporate Governance Committee.
16. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP
The Board believes this is a matter to be decided in each individual
instance. It is assumed that when the Chief Executive Officer resigns from that
position, he/she should offer his/her resignation from the Board at the same
time. Whether the individual continues to serve on the Board is a matter for
discussion at that time with the new Chief Executive Officer and the Board.
A former Chief Executive Officer serving on the Board will be considered an
inside director for purposes of corporate governance.
17. BOARD MEMBERSHIP CRITERIA
The Corporate Governance Committee is responsible for reviewing with the
Board on an annual basis the appropriate skills and characteristics required of
Board members in the context of the current make-up of the Board. This
assessment should include issues of diversity, age, skills such as understanding
of manufacturing
10
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technologies, international background, etc. -- all in the context of an
assessment of the perceived needs of the Board at that point in time.
18. SELECTION OF NEW DIRECTOR CANDIDATES
The Board itself should be responsible, in fact as well as procedure, for
selecting its own members. The Board delegates the screening process involved to
the Corporate Governance Committee with the direct input from the Chairman of
the Board as well as the Chief Executive Officer and the other members of the
Board. There should be a full discussion at a Board meeting before the decision
to invite someone to join the Board is made.
19. EXTENDING THE INVITATION TO A NEW POTENTIAL DIRECTOR TO JOIN THE BOARD
The invitation to join the Board should generally be extended by the
Chairman of the Corporate Governance Committee or the Chairman of the Board (if
separate from the Chief Executive Officer) on behalf of the Board after full
Board approval. The new director will receive an orientation about the Company
and its Corporate Governance philosophy.
20. ASSESSING THE BOARD'S PERFORMANCE
The Corporate Governance Committee is responsible to undertake an annual
assessment of the Board's performance. This will be discussed with the full
Board. This should be done following the end of each fiscal year and at the same
time as the report on Board membership criteria.
This assessment should be the Board's contribution as a whole and
specifically review areas in which the Board and/or the management believes a
better contribution could be made. Its purpose is to increase the effectiveness
of the Board, not to target individual Board members.
21. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY
It is the sense of the Board that individual directors who change the
responsibility they held when they were elected to the Board should volunteer to
resign from the Board.
It is not the sense of the Board that the directors who retire or change
from the position they held when they came on the Board should necessarily leave
the Board. There should, however, be an opportunity for the Board, via the
Corporate Governance Committee, to review the continued appropriateness of Board
membership under these circumstances.
22. TERM LIMITS
The Board does not believe it should establish term limits. While term
limits could help ensure that there are fresh ideas and viewpoints available to
the Board, they hold the disadvantage of losing the contribution of directors
who have been able to develop, over a period of time, increasing insight into
the Company and its operations and, therefore, provide an increasing
contribution to the Board as a whole.
As an alternative to term limits, the Corporate Governance Committee, in
consultation with the Chief Executive Officer and the Chairman of the Board,
will review each director's continuation on the Board every year. This will also
allow each director the opportunity to conveniently confirm his/her desire to
continue as a member of the Board.
23. RETIREMENT AGE
It is the sense of the Board that the current retirement age of 70 is
appropriate. In the unusual case when the mandated retirement age is not in the
best interest of the Company, the Board, acting through the Corporate Governance
Committee, should be guided by factors such as whether the director has retired
from other business pursuits, the past and anticipated contributions to the
Board as well as the factors typically considered for ongoing service on the
Board.
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15
24. FORMAL EVALUATION OF THE CHIEF EXECUTIVE OFFICER
The Organization and Compensation Committee should make this evaluation
annually, and it should be communicated to the Chief Executive Officer by the
Chairman of the Organization and Compensation Committee.
The evaluation should be based on objective criteria including performance
of the business, accomplishment of long-term strategic objectives, development
of management, etc.
The evaluation will be used by the Organization and Compensation Committee
in the course of its deliberations when considering the compensation of the
Chief Executive Officer.
25. SUCCESSION PLANNING
There should be an annual report by the Chief Executive Officer to the
Board on succession planning.
There should also be available, on a continuing basis, the Chief Executive
Officer's recommendation as to a successor should he/she be unexpectedly
disabled.
26. MANAGEMENT DEVELOPMENT
There will be an annual report to the Board by the Chief Executive Officer
on the Company's program for management development, described in detail.
This report should be given to the Board at the same time as the succession
planning report noted above.
27. BOARD INTERACTION WITH THE INVESTORS, THE MEDIA, CUSTOMERS, ETC.
The Board believes that only senior management speaks for Allergan.
Individual Board members may, with the knowledge of the management and, in most
instances, at the request of management, agree to receive input from various
constituencies that are involved with Allergan.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
BY MANAGEMENT
The following table sets forth information as of January 31, 2001 regarding
the beneficial ownership of the Common Stock of the Company by each nominee,
present directors of the Company, each of the executive officers named in the
Summary Compensation Table and all of the directors and executive officers of
the Company as a group. No officer or director of the Company owns beneficially
1% or more of the Common Stock outstanding.
SHARES OF RIGHTS TO
COMMON STOCK ACQUIRE
BENEFICIALLY BENEFICIAL
BENEFICIAL OWNER OWNED(1) OWNERSHIP(2) TOTAL
---------------- ------------ ------------ ---------
CLASS III DIRECTOR NOMINEES:
Handel E. Evans................................... 17,771 23,115 40,886
Michael R. Gallagher.............................. 7,400 1,770 9,170
Gavin S. Herbert.................................. 470,126(3) -- 470,126
Anthony H. Wild, Ph.D. ........................... 1,803 114 1,917
CLASS I DIRECTORS:
Lester J. Kaplan, Ph.D. .......................... 42,937 185,750 228,687
Karen R. Osar..................................... 7,200 1,100 8,300
Louis T. Rosso.................................... 100,622 18,203 118,825
Leonard D. Schaeffer.............................. 12,003 7,294 19,297
CLASS II DIRECTORS:
Herbert W. Boyer, Ph.D. .......................... 22,000 3,942 25,942
Ronald M. Cresswell............................... 13,000 1,596 14,596
William R. Grant.................................. 35,222 25,350 60,572
David E.I. Pyott.................................. 47,972 358,150 406,122
OTHER NAMED EXECUTIVE OFFICERS:
Francis R. Tunney, Jr. ........................... 26,472 168,350 194,822
F. Michael Ball................................... 4,779 78,350 83,129
Eric K. Brandt.................................... 10,462 35,950 46,412
All current directors and executive officers (21
persons, including those named above)........... 897,327 1,383,869 2,281,196(4)
---------------
(1) In addition to shares held in the individual's sole name, this column
includes shares held by the spouse of the named person and shares held in
various trusts. This column also includes, for employees, shares held in
trust for the benefit of the named employee in the Company's Savings and
Investment Plan and the Employee Stock Ownership Plan as of December 31,
2000.
(2) Shares which the party or group has the right to acquire within 60 days
after January 31, 2001. For Allergan employees (Dr. Kaplan and Messrs.
Pyott, Tunney, Ball and Brandt) these shares may be acquired upon the
exercise of stock options. For the non-employee directors, this number
represents the economic equivalent number of shares held by non-employee
directors who elected to participate in the Deferred Directors' Fee Program,
as of January 31, 2001. Under this program, participants elect to defer all
or a portion of their annual retainer and meeting fees, with such deferred
amounts treated as having been invested in Common Stock of the Company. Upon
termination of their status as a director, these economic equivalents are
settled in Common Stock.
(3) Includes 1,800 shares held directly, 328,286 shares beneficially owned by a
trust for which Mr. Herbert serves as trustee and beneficiary, and 140,040
shares held in two trusts for which Mr. Herbert serves as co-trustee and in
which he or his sister has a beneficial interest.
(4) Represents approximately 1.7% of the shares outstanding.
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BY OTHERS
Management of the Company knows of no person, except as set forth below,
who is the beneficial owner of more than 5% of the Company's issued and
outstanding Common Stock.
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS(1)
------------------------------------- ------------------ -----------
Putnam Investments, LLC.................................. 13,356,247(2) 10.14
One Post Office Square
Boston, MA 02109
FMR Corp. ............................................... 12,915,498(3) 9.79
82 Devonshire Street
Boston, MA 02109-3614
---------------
(1) Based on 131,768,693 shares outstanding on January 26, 2001 (excluding
shares held in treasury), and adjusted as required by rules promulgated by
the SEC.
(2) Based on an amended Schedule 13G, dated February 13, 2001, filed with the
Securities and Exchange Commission by Putnam Investments, LLC ("PI"), on
behalf of itself and the following affiliated entities: Marsh & McLennan
Companies, Inc. ("M&MC"), PI's parent holding company, Putnam Investment
Management, LLC ("PIM") and The Putnam Advisory Company, LLC ("PAC"), both
of which are investment advisors and subsidiaries of PI. Such filing reports
that M&MC owns no shares of Allergan's stock. PIM is deemed to be the owner
of 9,441,745 shares, over which it has shared power to dispose or to direct
the disposition of all of such shares, but over which it has no voting
power. PAC is deemed to be the owner of 3,914,502 shares, over which it has
shared power to dispose or to direct the disposition of all of such shares
and shared power to vote or to direct the vote of 1,562,365 of such shares.
PI is deemed to be the owner of all of PIM's and PAC's shares, has shared
power to dispose or to direct the disposition of all of such shares, and has
shared power to vote or to direct the vote of 1,562,365 of such shares.
(3) Based on an amended Schedule 13G, dated February 14, 2001, filed with the
Securities and Exchange Commission by FMR Corp. ("FMR") on behalf of itself
and affiliated persons and entities; includes an aggregate of 129,620 shares
of common stock resulting from the assumed conversion of an aggregate of
$22,500,000 principal amount of Allergan's Liquid Yield Option Notes due
2020. The affiliated persons and entities include Fidelity Management &
Research Company ("FMRC"), a wholly-owned subsidiary of FMR, Edward C.
Johnson 3d, Chairman of FMR, Fidelity Management Trust Company ("FMTC"), a
wholly-owned subsidiary of FMR, Abigail P. Johnson, a Director of FMR, and
Fidelity International Limited ("FIL"), a former subsidiary of FMRC that
currently operates as an entity independent of FMR and FMRC. Such filing
reports that FMRC, as a result of acting as investment advisor to various
investment companies, owns 11,699,533 shares of Allergan, FMTC, as a result
of serving as investment manager of institutional accounts, owns 1,031,108
shares, Ms. Johnson owns 1,000 shares and FIL owns 183,857 shares. Both Mr.
Johnson and FMR, through its control of FMRC and FMTC, have sole dispositive
power over both FMRC's 11,699,533 shares and FMTC's 1,031,108 shares, and
sole voting power over 978,808 of FMTC's shares. Neither FMR nor Mr. Johnson
has the sole power to vote or to direct the voting of any of FMRC's shares;
FMRC carries out the voting of shares under written guidelines established
by the Fidelity Funds' Boards of Trustees. Ms. Johnson has sole voting and
dispositive power over her 1,000 shares and FIL has sole voting and
dispositive power over its 183,857 shares.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the compensation for the Company's Chief
Executive Officer and the four most highly paid executive officers other than
the CEO for services rendered in all capacities to the Company and its
subsidiaries for the years ended December 31, 1998, 1999 and 2000.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------- -----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($) ($)(3) (#) ($)(4)
--------------------------- ---- ------- ------- ------------ ---------- ---------- ------------
David E.I. Pyott,...................... 2000 806,923 733,500 -- -- 216,600 8,841
President and Chief 1999 701,538 676,000 -- -- 642,000 7,814
Executive Officer 1998 604,615 700,000 -- -- 122,000 1,807,595
Lester J. Kaplan, Ph.D.,............... 2000 360,923 235,000 -- -- 50,200 8,932
Corporate Vice President 1999 339,154 229,100 -- -- 259,600 48,149
and President, Research & 1998 304,506 244,000 -- 175,625 60,000 929,189
Development and Global BOTOX(R)
F. Michael Ball,....................... 2000 334,423 260,300 -- -- 50,200 8,679
Corporate Vice President 1999 290,308 204,100 -- -- 246,800 8,114
and President, North 1998 276,145 239,000 -- -- 28,800 835,983
America Region and Global Eye Rx
Business
Francis R. Tunney, Jr.,................ 2000 353,531 220,200 50,200 9,052
Corporate Vice President -- 1999 333,500 223,400 -- -- 259,600 8,761
Administration and Secretary 1998 289,949 232,000 -- -- 40,000 878,398
Eric K. Brandt,........................ 2000 347,308 225,000 -- -- 50,200 8,692
Corporate Vice President, 1999 193,846 211,100 108,643 455,938 293,600 8,291
Chief Financial Officer, and 1998 -- -- -- -- -- --
President, Global Consumer
Eye Care Business
---------------
(1) The amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) The amounts shown represent bonus performance awards which were paid in
February of the following year under the Company's Management Bonus Plan or
Executive Bonus Plan for services rendered during the fiscal year indicated.
(3) Based on the closing price of the stock on the New York Stock Exchange on
the date of grant. All shares of restricted stock granted to named executive
officers other than the CEO vest, in whole, in four years and receive
non-preferential dividends. Shares granted to the CEO in 1997 receive
non-preferential dividends and vest as follows: 4,000 shares vested in
December 2000, 6,000 shares will vest in December 2001 and 10,000 shares
will vest in December 2002. The amounts shown in the table represent the
value of the restricted stock awards on the date of grant. The following
number of restricted shares (and the value based on the closing price of the
stock on the New York Stock Exchange on December 29, 2000) were held by each
of the named executives as of December 31, 2000: Mr. Pyott, 16,000
($1,549,000); Dr. Kaplan, 10,000 ($968,125); and Mr. Brandt, 10,000
($968,125).
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(4) The total amounts shown in this column for the 2000 fiscal year consist of
Company contributions to the Allergan, Inc. Savings and Investment Plan
("SIP") and the Allergan, Inc. Employee Stock Ownership Plan ("ESOP"), and
the cost of term life insurance and term executive post-retirement life
insurance premiums ("Insurance").
SIP ESOP INSURANCE
------ ------ ---------
Mr. Pyott....................................... $4,250 $4,157 $434
Dr. Kaplan...................................... 4,250 4,157 525
Mr. Ball........................................ 4,137 4,157 385
Mr. Tunney...................................... 4,250 4,157 645
Mr. Brandt...................................... 4,250 4,157 285
STOCK OPTIONS
The following table shows information regarding stock options granted to
the named executive officers during 2000.
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) 2000 PER SHARE DATE VALUE($)(2)
---- ------------- ---------- ----------- ---------- -----------
David E.I. Pyott................ 216,600 9.93% $54.25 1/23/10 7,059,227
Lester J. Kaplan, Ph.D. ........ 50,200 2.30% 54.25 1/23/10 1,636,072
F. Michael Ball................. 50,200 2.30% 54.25 1/23/10 1,636,072
Francis R. Tunney, Jr. ......... 50,200 2.30% 54.25 1/23/10 1,636,072
Eric K. Brandt.................. 50,200 2.30% 54.25 1/23/10 1,636,072
---------------
(1) All options disclosed in this table were granted pursuant to the 1989
Incentive Compensation Plan (the "Incentive Plan"). Options become
exercisable 25% per year beginning January 24, 2001. The exercise price and
the tax withholding obligations related to exercise may be paid by delivery
of already-owned shares. The Incentive Plan grants broad discretion to
change material terms and includes the automatic acceleration of vesting
upon a "Change in Control." See "Change in Control and Severance
Arrangements" on page 18.
(2) Based on the Black-Scholes model of option valuation to determine grant date
fair value, as prescribed under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. The actual value, if any,
an executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so that there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. The following assumptions were used in
the Black-Scholes model: market price of stock, $54.25; exercise price of
option, $54.25; expected stock volatility, 34%; risk-free interest rate,
6.60% (based on the 10-year treasury bond rate); expected life, five years;
dividend yield, .60%.
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OPTION EXERCISES AND HOLDINGS
The following table shows stock option exercises by the named executive
officers during 2000, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of December 31, 2000. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT 12/31/00(#) AT 12/31/00($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#)(2) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
David E.I. Pyott........ 400,000 6,337,971 213,000 489,600 15,948,063 27,794,663
Lester J. Kaplan,
Ph.D. ................ 345,600 12,667,026 143,300 136,900 11,254,641 8,298,834
Francis R. Tunney,
Jr. .................. 304,000 7,453,320 130,900 122,900 10,341,003 7,170,897
F. Michael Ball......... 230,000 2,717,522 46,900 107,700 3,552,478 6,129,172
Eric K. Brandt.......... 200,000 3,077,759 23,400 120,400 1,198,519 5,732,194
---------------
(1) Based on the closing price of $96.8125 on the New York Stock Exchange of the
Company's Common Stock on December 29, 2000.
(2) Of the options exercised, 400,000 such options for Mr. Pyott and 200,000 for
each of the other officers, were premium-priced options granted in March
1999 under a special program. The options were to expire on February 28,
2001. See page 22 of this Proxy Statement for further information on this
program.
DEFINED BENEFIT PENSION PLANS
The Company has a defined benefit retirement plan (the "Pension Plan")
which provides pension benefits to U.S. employees, including officers, based
upon the average of the highest 60 consecutive months of eligible earnings
("Final Average Pay") and years of service integrated with covered compensation
as defined by the Social Security Administration.
Allergan also has two supplemental retirement plans ("SRP") for certain
employees, including officers. These plans pay benefits directly to a
participant to the extent benefits under the Pension Plan are limited by certain
Internal Revenue Code provisions.
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The following table illustrates the annual combined retirement benefits
payable under the retirement plans based on an age 62 retirement. If an employee
elects a benefit for his or her surviving spouse, the retirement benefit for the
employee is reduced to reflect this additional coverage.
PENSION PLAN TABLE
YEARS OF SERVICE
FINAL --------------------------------------------------------------------------
AVERAGE
PAY 15 20 25 30 35 40 45
------- -------- -------- -------- -------- -------- -------- --------
$200,000 48,500 64,600 80,800 97,000 113,100 118,100 123,100
$250,000 61,500 81,900 102,400 122,900 143,400 149,700 155,900
$300,000 74,400 99,200 124,100 148,900 173,700 181,200 188,700
$350,000 87,400 116,500 145,700 174,800 204,000 212,700 221,500
$400,000 100,400 133,800 167,300 200,800 234,200 244,200 254,200
$500,000 126,300 168,400 210,600 252,700 294,800 307,300 319,800
$600,000 152,300 203,000 253,800 304,600 355,300 370,300 385,300
$700,000 178,200 237,600 297,100 356,500 415,900 433,400 450,900
$800,000 204,200 272,200 340,300 408,400 476,400 496,400 516,400
$900,000 230,100 306,800 383,600 460,300 537,000 559,500 582,000
The benefits shown are computed as a single life annuity beginning at age
62 with no deduction for Social Security or other offset amounts. Eligible
earnings include basic salary and bonuses earned during the year. Unreduced
benefits are payable at age 62, but employees may continue employment beyond
then and earn additional retirement benefits. Credited years of service at
normal retirement for the individuals named in the compensation table would be
as follows: Mr. Pyott, 18 years; Dr. Kaplan, 29 years; Mr. Tunney, 30 years; Mr.
Ball, 22 years; and Mr. Brandt, 25 years.
CHANGE IN CONTROL AND SEVERANCE ARRANGEMENTS
The Company has entered into agreements with each of its executive officers
and certain other executives which provide certain benefits in the event of a
change in control of the Company. For purposes of these agreements, "change in
control" of the Company is generally defined as the acquisition by any person of
beneficial ownership of 20% or more of the voting stock of the Company (unless
the Board approves the acquisition) or 33% or more of the voting stock (with or
without Board approval), certain business combinations involving the Company and
dispositions of Company assets, or a change in a majority of the incumbent
members of the Board of Directors, except for changes in the majority of such
members approved by such members. If, within two years after a change in
control, the Company or, in certain circumstances, the executive, terminates his
or her employment, the executive is entitled to a severance payment equal to
one, two or three (depending on the executive in question) times (i) such
executive's highest annual salary rate within the five-year period preceding
termination, plus (ii) a bonus increment equal to the average of the two highest
of the last five bonuses paid to such executive under the Company's Management
Bonus Plan or Executive Bonus Plan. In addition, the executive is entitled to
the continuation of all employment benefits for a one-, two- or three-year
period (depending on the executive in question), the vesting of all stock
options and certain other benefits, including payment of an amount sufficient to
offset the impact of any "excess parachute payment" excise tax payable by the
executive pursuant to the provisions of the Internal Revenue Code or any
comparable provision of state law. The multiple of salary and bonus (as
calculated above) and the number of years of continued coverage of other
benefits are as follows: David E.I. Pyott, Dr. Kaplan and Messrs. Ball, Tunney,
Brandt and five other corporate vice presidents -- three years; eleven senior
vice presidents -- two years; and 26 other covered executives -- one year.
In addition, the Company's SRP, Incentive Plan, Savings and Investment
Plan, Employee Stock Ownership Plan, Management Bonus Plan, Executive Bonus
Plan, Pension Plan and Nonemployee Director Stock Plan each contain provisions
for the accelerated vesting of benefits under such plans upon a change in
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control of the Company (using the same definition of change in control as used
in the change in control agreements).
The Organization and Compensation Committee has approved a severance pay
policy for executive officers whose employment is terminated as a result of a
reduction in force, mutual resignation or sale of a business unit where the
officer is not offered similar employment with the acquiring company. The amount
of severance pay depends upon the officer's years of service with the Company.
For Corporate Vice Presidents having 15 or more years of service, the severance
pay is two times the highest annual salary in the prior five years plus two
times the average of the two highest bonuses paid in the prior five years. These
officers are also entitled to two years of pension credit, two years of
continued coverage in medical, dental and vision plans, continued participation
in flexible spending accounts for the two-year severance period, continued
access to a car allowance, tax and financial planning and gasoline reimbursement
over those two years, and continued coverage in the Company's life insurance and
disability coverage in the two-year period. For Corporate Vice Presidents having
between 8 and 14 years of service, the severance pay is between 22 and 26 months
of base salary, depending upon the actual full years of service, with no
additional benefits other than medical, dental and vision coverage during the
severance pay period. For Corporate Vice Presidents having between zero and
seven years of service, the severance pay is between 14 and 15 1/2 months of
base salary, depending upon the actual full years of service, with no additional
benefits other than health care coverage during the severance pay period.
William C. Shepherd retired from the Company on January 1, 1998. Pursuant
to the terms of a letter agreement between Mr. Shepherd and Allergan regarding
Mr. Shepherd's retirement, Allergan agreed to pay Mr. Shepherd severance
payments totaling $3,210,000, on a semi-monthly basis, during the period
commencing January 1, 1998 and ending 36 months following such date (the
"Severance Pay Period"). In partial consideration of such severance payments,
Mr. Shepherd agreed to provide consulting services to Allergan as requested by
Allergan's Chief Executive Officer for up to a maximum of 50 days per year
during the Severance Pay Period. In addition, pursuant to the terms of the
letter agreement, the vesting of all of Mr. Shepherd's outstanding unvested
options was accelerated as of January 1, 1998. Under the terms of the letter
agreement, Allergan also agreed to provide Mr. Shepherd with continued medical,
dental, group term life, disability and flexible spending account benefits,
continued pension benefit accruals and other miscellaneous perquisites and
benefits during the Severance Pay Period.
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
As members of the Organization and Compensation Committee, it is our duty,
pursuant to our charter to amongst other things: administer the Company's
Management Bonus Plan, Executive Bonus Plan and the 1989 Incentive Compensation
Plan; review and adjust base compensation levels; evaluate performance; and
consider and approve management succession for executive officers.
Allergan's executive compensation programs are designed to attract,
motivate, and retain the executive talent needed to optimize stockholder value
in a competitive environment. The programs support the goal of increasing
stockholder value of the Company by achieving specific financial and strategic
objectives.
Allergan's executive compensation programs are designed to provide:
- levels of base compensation that are competitive with comparable
pharmaceutical and diversified health care companies;
- annual incentive compensation that varies in a consistent manner with
achievement of individual objectives and financial performance objectives
of the Company; and
- long-term incentive compensation that focuses executive efforts on
building stockholder value through meeting longer-term financial and
strategic goals.
In designing and administering its executive compensation program, the
Company attempts to strike an appropriate balance among these various elements,
each of which is discussed in greater detail below.
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BASE SALARY
Base salary, as well as bonus, is targeted at the 50th percentile level,
consistent with comparable pharmaceutical and diversified health care companies.
The Company's Corporate Compensation department, in an effort to obtain a broad
base of data, participates in a number of salary surveys, regularly obtains
commercially available surveys and consults with outside, independent
compensation specialists. In conducting its analysis, the Company attempts, when
data is available, to include data from companies included in the S&P Health
Care (Diversified) Index and other S&P Health Care indices, as well as from
companies subjectively considered comparable based on such factors as size,
product lines, employment levels and market capitalization.
Allergan's salary increase program is designed to reward individual
performance consistent with the Company's overall financial performance in the
context of competitive practice. Annual performance reviews and formal merit
increase guidelines determine individual salary increases. For 2000 and 2001,
the executive salary structure adjustment and merit increase guidelines were
based on commercially available surveys from the pharmaceutical and health care
industries. The named executive officers received an average salary increase of
6.3% effective January 2001 to reflect competitive market conditions,
performance and contributions.
THE MANAGEMENT BONUS PLAN
The Management Bonus Plan is designed to reward management-level employees
for their contributions to individual and corporate objectives. Each eligible
employee's award is expressed as a percentage of the participant's year end base
salary. Bonus targets begin at 10% for managers and in 2000 ranged from 40% to
55% for executive officers (excluding the CEO), it being the Committee's
compensation philosophy that increasing portions of compensation should be "at
risk" for those employees with greater influence on corporate results.
Individual performance is measured against objectives that reflect what
executives must do in order for Allergan to meet its short- and long-term
business goals. A participant's individual bonus target award may be modified
from 0% to 150%. In general, each eligible employee sets for himself or herself
(subject to his or her supervisor's review and approval or modification) a
number of objectives for the coming year and then receives an evaluation of
performance against these objectives as a part of the year-end compensation
review process. The individual objectives vary considerably in detail and
subject matter. Examples of objectives identified by executive officers for 2000
included financial targets, identifying and pursuing new business opportunities,
obtaining regulatory approvals for new products as well as new indications for
existing products, introducing new products into designated markets, and
identifying and implementing cost reduction measures. This information (or
summaries thereof) is generally considered by the Committee in an evaluation of
overall performance of the executive officers for purposes of determining the
actual bonus.
The Management Bonus Plan for 2001 will be funded according to the
achievement of a pre-established 2001 Earnings Per Share ("EPS") Target, as
approved by the Committee in January 2001. The EPS Target was based on corporate
objectives established as part of the annual operating plan process. The bonus
pool will be funded at 100% if the EPS Target is achieved, and the bonus pool
will automatically adjust if 2001 EPS surpasses or falls below the EPS Target,
up to a maximum funding level of 140%. Once funded, the bonus pool will be
allocated to the Company's business units based on the units' respective
operating income results compared to the 2001 budget. That is, if a business
unit is above budgeted operating income, it will receive a greater share of the
bonus pool than a business unit that is below the operating income budget. The
Committee will use the business unit allocations in its consideration of bonuses
to the executive officers, based on the performance of each executive officer's
business unit.
The Management Bonus Plan for 2000 followed the same design as the 2001
plan, with an EPS Target as its one funding component. For 2000, the EPS result
was above the 2000 EPS Target. As a result, the Committee approved a total bonus
fund of approximately $14.8 million for approximately 475 participating
employees. The Committee then allocated this bonus pool to the business
functions (and their respective
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executive officers) based on the functions' respective operating income results
compared to budgeted amounts for 2000.
THE EXECUTIVE BONUS PLAN
Through 1998, the CEO's bonus was granted under the Management Bonus Plan,
discussed above. The Company and its stockholders approved a new Executive Bonus
Plan in 1999 to cover bonus compensation to the CEO in the years 1999 and
beyond. The CEO is the only employee eligible for awards under the Executive
Bonus Plan. The primary purpose of the Executive Bonus Plan is to reward, retain
and motivate the Company's CEO. Incentive compensation under the plan is based
on the achievement of performance objectives established by the Committee for
each plan year.
For 2001, the CEO's award will be based on the Company's attainment of a
pre-established EPS target -- the same target approved for other managers of the
Company under the Management Bonus Plan discussed above. The CEO's award is
expressed as a percentage of year end annualized base salary but may not exceed
$5,000,000 in any calendar year. For 2001, the CEO will receive a bonus of up to
140% of base salary, depending on EPS performance.
For 2000, Mr. Pyott's award was based on the attainment of a corporate EPS
target that the Company surpassed. Therefore, the Committee approved a bonus of
$733,500 for Mr. Pyott, based on the Committee's assessment of Mr. Pyott's
achievements of his objectives for 2000. The Committee noted particularly the
Company's profitable growth during 2000, Mr. Pyott's effective implementation of
strategic plans and organizational restructuring, the successful implementation
of research and development and marketing collaborations, his successful
recruiting efforts to fill key positions, and his efforts to reduce operating
expense ratios on a global basis.
INCENTIVE COMPENSATION PLAN
The 1989 Incentive Compensation Plan (the "Incentive Plan") authorizes the
granting of various stock-based incentive awards to officers and key employees
of the Company and its subsidiaries. The plan has been designed to:
- focus attention on building stockholder value through meeting longer-term
financial and strategic goals;
- link management's financial success to that of the stockholders via
broad-based participation of Allergan employees (approximately 650
employees received grants in January 2001);
- balance long-term with short-term decision making; and
- encourage and create ownership and retention of the Company's stock.
Each January, the Committee considers long-term incentive grants for each
of the executive officers of the Company. The guidelines for each grade level
are set periodically based upon a comparison of Allergan to survey data prepared
and analyzed by the national consulting firm William M. Mercer, Incorporated in
order to approximate the 75th percentile level compensation if the Company is
successful and that success results in increased stock prices.
In January 2000, the Committee approved a grant to Mr. Pyott of 216,600
nonqualified stock options under the Incentive Plan. The Committee was
influenced by, among other things, competitive compensation requirements
necessary to retain Mr. Pyott, Mr. Pyott's successful management of growth at
Allergan, and his effective organizational and communications skills. In the
case of each of the other named executives, the stock award was within the
Company's guideline and reflects the assessment of individual performance as
well as the performance of the Company as discussed above. In determining the
specific award to the CEO and each of the other named executives, the Committee
considers a mix of individual and corporate performance achievements, without
attributing relative weights to the various factors considered.
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In March 1999, the Committee initiated a program under the Incentive Plan
for the Company's CEO and corporate vice presidents. The purpose of this program
was to solidify the Company's management behind a common and clearly stated goal
(stock performance) and to provide aggressive incentives to achieve substantial
gains. The program was not a new plan but rather was a grant of premium-priced
stock options under the Incentive Plan, using shares that were available for
grant. Rather than awarding cash and/or stock upon the attainment of stock price
goals, the Committee awarded the recipients options with an exercise price of
$55 (the "Premium Options"), which was more than $20 higher than the exercise
price of options granted in January 1999 as part of the Company's annual grant
and $13 higher than the closing price of the Company's Common Stock on the New
York Stock Exchange on the date of the grant. The Premium Options were to vest
on the earlier of October 1, 2000 or the date that the closing price of the
Company's Common Stock on the New York Stock Exchange reached $60 or more which
occurred on February 7, 2000. The Premium Options have been fully exercised, as
they were to expire on February 28, 2001. The Committee granted 400,000 Premium
Options to the CEO and 200,000 to each of the Company's nine corporate vice
presidents.
2001 PREMIUM PRICED STOCK OPTION PLAN
In January 2001, the Board approved a new stock option plan known as the
Allergan, Inc. 2001 Premium Priced Stock Option Plan (the "2001 Plan") which is
subject to the approval of the stockholders as described in Proposal 2 herein.
The 2001 Plan, if approved by the stockholders, will authorize the Board, upon
the recommendation of the Organization and Compensation Committee, to grant up
to an aggregate of 2.4 million premium-priced options to Allergan's managers
predominantly at the level of Vice President and above. The purpose of the 2001
Plan is to further align Allergan's management with the interests of its
stockholders by providing additional long-term incentives which reward
exceptional stock price performance. If approved by the stockholders, the Board
will consider its first grants of premium-priced options immediately following
the 2001 Annual Meeting.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
tax deductibility by a company of annual compensation in excess of $1,000,000
paid to the CEO and any of its four other most highly compensated executive
officers. However, performance-based compensation that has been approved by
stockholders is excluded from the $1,000,000 limit if, among other requirements,
the compensation is payable only upon attainment of pre-established, objective
performance goals and the Board committee that establishes such goals consists
only of "outside directors." Additionally, stock options will qualify for the
performance-based exception where, among other requirements, the exercise price
of the option is not less than the fair market value of the stock on the date of
grant, and the plan includes a per-executive limitation on the number of shares
for which options may be granted during a specified period.
All members of the Committee qualify as outside directors. While the tax
impact of any compensation arrangement is one factor to be considered, such
impact is evaluated in light of the Committee's overall compensation philosophy.
The Committee will consider ways to maximize the deductibility of executive
compensation, while retaining the discretion the Committee deems necessary to
compensate officers in a manner commensurate with performance and the
competitive environment for executive talent. However, from time to time the
Committee may award compensation which is not fully deductible if the Committee
determines that such award is consistent with its philosophy and is in the best
interests of Allergan and its stockholders.
The 1989 Incentive Compensation Plan, as amended, and the Executive Bonus
Plan, both approved most recently by the stockholders in April 1999, were
designed to meet the performance-based criteria of Section 162(m) of the
Internal Revenue Code of 1986, as amended, as is the 2001 Plan presented to the
stockholders for approval at this meeting.
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COMMITTEE ACTIVITIES
The Committee held four formal meetings in 2000 as well as many interim
discussions. The following summarizes the Committee's major activities in 2000:
- Evaluated CEO performance.
- Reviewed and determined 2000 salary increases for each corporate officer
based on the officer's performance.
- Determined 1999 management bonus awards for corporate officers based on
assessment of their performance against objectives. Approved the 2000
Management Bonus Plan's corporate financial objective.
- Approved the 2000 Executive Bonus Plan performance criteria.
- Reviewed and recommended 2000 stock awards for executive officers as well
as for other participants, totaling approximately 375.
- Reviewed management development and succession plans.
- Recommended the election of corporate officers and the designation of
executive officers covered under Section 16 of the Securities Exchange
Act of 1934.
- Reviewed executive stock ownership compared to the executive stock
ownership requirements established by the Committee. The President and
Chief Executive Officer is expected to hold five times his salary in
Company stock; and the guideline for Corporate Vice Presidents is two
times salary. Grants of restricted stock, as well as 50% of the value of
vested stock options are included for purposes of this calculation.
- Reviewed Pension Plan, Employee Stock Ownership Plan and Savings and
Investment Plan funding levels.
The Company, with the approval of the Committee, has retained the services
of William M. Mercer, Incorporated, a Human Resources consulting firm, to
provide advice and review the reasonableness of compensation paid to executive
officers of the Company. The Committee has independent access to William M.
Mercer, Incorporated. As part of its services, William M. Mercer, Incorporated
reviewed and, as appropriate, provided recommendations with respect to the
Incentive Plan, Management Bonus Plan, Executive Bonus Plan, and 2001 Plan.
ORGANIZATION AND COMPENSATION
COMMITTEE,
Mr. William R. Grant, Chairman
Dr. Herbert W. Boyer
Mr. Michael R. Gallagher
Ms. Karen R. Osar
Mr. Leonard D. Schaeffer
Dr. Anthony H. Wild
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's Organization and Compensation Committee is a
current or former officer or employee of the Company or any of its subsidiaries.
There are no compensation committee interlocks between the Company and other
entities involving Allergan executive officers and Allergan Board members who
serve as executive officers of such other entities.
AUDIT AND FINANCE COMMITTEE REPORT
The Audit and Finance Committee (the "AFC") of the Board of Directors of
Allergan issues the following report for inclusion in the Company's Proxy
Statement in connection with the Company's Annual Meeting scheduled for April
25, 2001.
1. The AFC has reviewed and discussed the audited financial statements for
the year ending December 31, 2000, with management of the Company and
with the Company's independent auditors, KPMG LLP.
2. The AFC has discussed those matters required by Statement on Auditing
Standards 61 with KPMG LLP.
3. The AFC has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board No. 1, and
has discussed with the independent auditors the auditor's independence
from the Company and its management (including whether the independent
auditor's provision of information technology services, if any, and
other non-audit services to the Company is compatible with the auditor's
independence).
4. After the discussions referenced in paragraphs 1 through 3 above, the
AFC recommended to the Board of Directors that the audited financial
statements for the fiscal year ending December 31, 2000 be included or
incorporated by reference in the Annual Report on Form 10-K for that
fiscal year for filing with the Securities and Exchange Commission.
AUDIT AND FINANCE COMMITTEE,
Karen R. Osar, Chair
Handel E. Evans
Gavin S. Herbert
Louis T. Rosso
Leonard D. Schaeffer
AUDIT FEES
KPMG LLP fees for its annual audit and review of financial statements
including the Company's Form 10-Qs for 2000 were $734,000.
ALL OTHER FEES
KPMG LLP fees for services unrelated to the annual audit and quarterly
reviews for 2000 were $1,940,000.
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STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the S&P 500 Stock Index and the S&P Health Care
(Diversified) Index for the period beginning December 31, 1995 and ending
December 31, 2000. The graph assumes that all dividends have been reinvested.
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
--------------------------------------------------------------------------------
Allergan 100 111 106 210 324 632
S&P 500 100 123 163 210 253 230
S&P Health Care
Diversified 100 126 183 267 255 349
--------------------------------------------------------------------------------
APPROVAL OF THE ALLERGAN, INC.
2001 PREMIUM PRICED STOCK OPTION PLAN
PROPOSAL 2
GENERAL
The Company's Board of Directors has approved the Allergan, Inc. 2001
Premium Priced Stock Option Plan ("2001 Plan"), subject to approval by the
Company's stockholders. The following is a summary of the principal features of
the PPO Plan. This summary is qualified by and subject to the actual provisions
of the 2001 Plan attached to this Proxy Statement as Exhibit B.
PURPOSE AND ELIGIBILITY
The purpose of the 2001 Plan is to advance the interests of Allergan and
its stockholders by affording to key management employees of Allergan and its
subsidiaries an opportunity to acquire or increase a proprietary interest in the
Company or to otherwise benefit from the success of the Company through the
grant to such employees of nonqualified stock options which have exercise prices
that are greater than the fair market value
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of the Company's Common Stock on the date the stock options are granted (the
"Premium Priced Options"). By thus encouraging such employees to become owners
of Allergan's shares, the Company seeks to attract, retain and motivate those
highly competent individuals upon whose judgment, initiative, leadership and
continued efforts the success of the Company in large measure depends. By
providing that the Premium Priced Options have above market exercise prices, the
2001 Plan will encourage the participants to increase the value of the Company's
Common Stock.
All "Employees" who are employed in positions in salary grades 10E or
above, or in salary grades below 10E upon the recommendation of the Company's
Chief Executive Officer, are eligible for consideration to receive Premium
Priced Options under the 2001 Plan, as determined by the Organization and
Compensation Committee of the Board of Directors. Members of the Board who are
not Employees are not eligible to receive Premium Priced Options under the 2001
Plan. Currently, there are 87 persons in salary grades 10E and above. The number
of other persons eligible cannot be estimated at this time. As defined under the
2001 Plan, an "Employee" is any individual classified by the Company as a
regular, full-time employee whose income is subject to withholding of income tax
and/or for whom Social Security contributions are made by the Company. The
definition of "Employee" expressly excludes individuals who are classified or
paid as independent contractors (regardless of their classification for federal
tax or other legal purposes) by the Company, as well as those who perform
services for the Company pursuant to an agreement between the Company and any
other person, including a leasing organization.
Notwithstanding anything to the contrary, the implementation of the 2001
Plan and any grants of Premium Priced Options under the 2001 Plan are subject to
the approval by and discretion of the Board and its Organization and
Compensation Committee.
ADMINISTRATION, AMENDMENT AND TERMINATION
The 2001 Plan is to be administered by a committee of two or more persons
appointed by the Company's Board of Directors ("Committee"), each of whom is
classified as both a "non-employee director" as defined by Rule 16b-3 under
Section 16 of the Exchange Act and an "outside director" for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee has the authority to interpret the 2001 Plan, determine the terms and
conditions of Premium Priced Options (other than the exercise price and vesting
period, which are set forth in the 2001 Plan itself), and make all other
determinations necessary and/or advisable for the administration of the 2001
Plan. The Committee may, with the consent of a participant, amend the terms of
any existing Premium Priced Option previously granted to such participant,
except that the Committee may not reduce the exercise price of an outstanding
Premium Priced Option by amending its terms or canceling it in exchange for
another grant without the approval of such amendment or exchange by Allergan's
stockholders.
The Committee also has authority to prescribe, amend and rescind rules and
regulations relating to the 2001 Plan. The Board of Directors has designated the
Organization and Compensation Committee as the Committee.
The Board of Directors may alter, amend, suspend or terminate the 2001 Plan
at any time. However, no such action may increase the maximum number of shares
that may be sold or issued under the 2001 Plan or alter the class of eligible
participants without the approval of the stockholders. No such Board action can,
without the consent of the participant or except as otherwise provided in the
2001 Plan or in the statement evidencing the grant of the Premium Priced Option,
alter, terminate, impair or adversely affect any right or obligation under any
previously granted Premium Priced Option.
PREMIUM PRICED OPTIONS
Stock options granted under the 2001 Plan do not qualify as incentive stock
options under the provisions of Code Section 422.
Each grant of Premium Priced Options will be divided into three tranches of
equal size. For instance, if the total number of Premium Priced Options granted
is 300, each tranche would be comprised of 100 shares.
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Each tranche will have its own purchase price for the associated Common Stock
(the "Option Exercise Price"). The Committee will determine the Option Exercise
Price for each tranche at the date of the grant, as follows:
- The Option Exercise Price for the first tranche shall be equal to one
hundred twenty percent (120%) of the Fair Market Value of a share of
Common Stock on the date the Premium Priced Option is granted.
- The Option Exercise Price for the second tranche shall be equal to one
hundred twenty percent (120%) of the Option Exercise Price for the first
tranche.
- The Option Exercise Price for the third tranche shall be equal to one
hundred twenty percent (120%) of the Option Exercise Price for the second
tranche.
"Fair Market Value" is defined as the average of the high and low trading
price of the Common Stock on the date of the grant.
Each tranche vests separately upon the earlier of five years from the date
of grant or the date that the closing price of the Company's Common Stock on the
stock exchange equals or exceeds the Option Exercise Price for that tranche.
OTHER TERMS OF OPTIONS
Each unexercised Premium Priced Option expires on the sixth anniversary of
the date of grant, unless otherwise changed in accordance with the 2001 Plan.
Unless the Company has expressly agreed otherwise, the following provisions
apply upon a participant's severance:
- Premium Priced Options, vested and unvested, expire at the date of
termination if the participant's employment with the Company is
terminated for cause.
- If a participant's employment terminates due to death or total
disability, all unvested options become vested, and the participant (or
his or her successor) has twelve months to exercise them.
- If the participant meets the criteria for "normal retirement," then the
participant's vested Premium Priced Options remain exercisable for three
years, provided they do not otherwise terminate earlier according to
their terms. Unvested options expire on the date of termination.
- If the participant's employment is terminated as a "job elimination,"
under clearly defined criteria, then all unvested options become vested,
and the participant has three months to exercise the options, unless the
options expire earlier according to their terms. Job elimination occurs
when a participant ceases to be an Employee of the Company as a result of
a reduction in force or transfer to a new organization outside of the
Company as a result of a divestiture, other than in a spin-off or other
distribution to the Company's stockholders. A "reduction in force" occurs
when no alternative job is offered to the participant at the Company and
there is a net head count reduction.
- If the participant's employment terminates for any other reason, unvested
options expire on the date of termination, and vested options remain
exercisable for three months, unless the options expire earlier according
to their terms.
- The Committee has the authority to alter the vesting and expiration
terms, but the participant's agreement is required if the term is
shortened.
SECURITIES SUBJECT TO 2001 PLAN
The aggregate number of shares of Common Stock issuable under the 2001 Plan
is 2,400,000. Shares subject to the unexercised portion of any award that
expire, terminate or are canceled and shares issued pursuant to an award that
are reacquired by the Company will again become available for the grant of
further awards under the 2001 Plan. The maximum number of shares with respect to
which options may be granted under the 2001 Plan to an executive officer in any
given calendar year is 300,000 shares.
27
31
The Common Stock to be issued under the 2001 Plan will be made available,
at the discretion of the Board or the Committee, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
The maximum number of shares issuable under the 2001 Plan, the number and
kind of shares subject to then outstanding awards, and the Option Exercise Price
for each share subject to then outstanding awards, will be appropriately and
proportionately adjusted to reflect mergers, consolidations, sales or exchanges
of all or substantially all of the properties of the Company, reorganizations,
recapitalizations, reclassifications, stock dividends, stock splits, reverse
stock splits, spin-offs or other distributions with respect to such shares of
Common Stock (or any stock or securities received with respect to such Common
Stock) or a reduction in the value of the outstanding shares of Common Stock by
reason of an extraordinary cash dividend.
Except as otherwise expressly provided in the statement evidencing the
grant of a Premium Priced Option, upon the occurrence of a "change in control"
of the Company, any outstanding Premium Priced Options not theretofore
exercisable immediately become exercisable in their entirety. A "change in
control" for this purpose occurs if:
- any person or group becomes the beneficial owner of 20% or more of the
Company's outstanding voting securities (unless the Board approves the
acquisition) or more than 33% with or without Board approval;
- a change occurs in the majority of the incumbent directors (except for
changes approved by such members);
- a merger or other business combination involving the Company is completed
(other than a merger or other transaction in which (A) the Company's
stock continues to represent at least 55% of the combined voting power of
the surviving corporation and (B) no person or group becomes a 20% or
more beneficial owner of Company voting securities); or
- a plan of complete liquidation or the sale of all or substantially all of
the Company's assets is approved by stockholders.
The Committee will not grant any awards under the 2001 Plan unless and
until the Allergan stockholders approve the plan and, thereafter, until the
Committee determines in its discretion to grant such awards.
On March 9, 2001, the closing price of the Company's Common Stock on the
New York Stock Exchange was $75.78 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the United States federal income
tax treatment which will generally apply to Premium Priced Options granted under
the 2001 Plan, based on federal income tax laws in effect on the date hereof.
Employees that participate in the 2001 Plan are advised to consult with their
own tax advisor for particular federal, as well as state and local, income and
any other tax advice.
Premium Priced Options do not qualify as incentive stock options under the
provisions of Code Section 422. Therefore, the grant of a Premium Priced Option
is generally not a taxable event for the optionee. Upon exercise of the Premium
Priced Option, the optionee will generally recognize ordinary income in an
amount equal to the excess of the fair market value of the stock acquired upon
exercise (determined as of the date of the exercise) over the Option Exercise
Price of such option, and the Company will be entitled to a tax deduction equal
to such amount.
If the grant of a Premium Priced Option is not approved by the Board of
Directors or a committee of the Board of Directors that is composed solely of
two or more "non-employee directors" (as such term is defined under Rule 16b-3
of the Exchange Act), and if an optionee is a director, officer or stockholder
subject to Section 16 of the Exchange Act (an "Insider") exercises the option
within six months of the date of grant, the timing of the recognition of any
ordinary income should be deferred until (and the amount of ordinary income
should be determined based on the fair market value (or sales price in the case
of a disposition) of the shares
28
32
of Common Stock upon) the earlier of the following two dates (the "16(b) Date"):
(i) six months after the date of grant or (ii) a disposition of the shares of
Common Stock, unless the Insider makes an election under Section 83(b) of the
Code (an "83(b) Election") within 30 days after exercise to recognize ordinary
income based on the value of the Common Stock on the date of exercise. In
addition, special rules apply to an Insider who exercises an option having an
exercise price greater than the fair market value of the underlying shares on
the date of exercise. Insiders are advised to consult their tax advisors to
determine the tax consequences to them of exercising options granted to them
pursuant to the 2001 Plan.
Special rules will apply in cases where a recipient of a Premium Priced
Option pays the Option Exercise Price of the Premium Priced Option or applicable
withholding tax obligations under the 2001 Plan by delivering previously owned
shares of Common Stock or by reducing the amount of shares otherwise issuable
pursuant to the Premium Priced Option. The surrender or withholding of such
shares will in certain circumstances result in the recognition of income with
respect to such shares or a carryover basis in the shares acquired.
The terms of the agreements pursuant to which specific Premium Priced
Options are made to employees under the 2001 Plan may provide for accelerated
vesting or payment of a Premium Priced Option in connection with a change in
ownership or control of the Company. In that event and depending upon the
individual circumstances of the recipient, certain amounts with respect to such
awards may constitute "excess parachute payments" under the "golden parachute"
provisions of the Code. Pursuant to these provisions, a recipient will be
subject to a 20% excise tax on any "excess parachute payments" and the Company
will be denied any deduction with respect to such payment. Recipients of Premium
Priced Options are advised to consult their tax advisors as to whether
accelerated vesting of a Premium Priced Option in connection with a change of
ownership or control of the Company would give rise to an excess parachute
payment.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting of Stockholders and
entitled to vote is required for approval of the 2001 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PROPOSED 2001 PLAN.
INDEPENDENT AUDITORS
KPMG LLP, independent auditors, audited the consolidated financial
statements of the Company for the fiscal year ended December 31, 2000.
Representatives of KPMG LLP are expected to be present at the stockholders'
meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions. The Board of
Directors selects the independent auditors.
ANNUAL REPORT
The Annual Report to Stockholders for the year ended December 31, 2000
accompanies the proxy material being mailed to all stockholders. The Annual
Report is not a part of the proxy solicitation material. The Company will
provide, without charge, a copy of its most recent Annual Report on Form 10-K
upon the receipt of a written request by any stockholder.
DEADLINE FOR STOCKHOLDER PROPOSALS
Any stockholder of the Company wishing to have a proposal considered for
inclusion in the Company's 2002 proxy solicitation materials must, in addition
to other applicable requirements, set forth such proposal in writing and send
the proposal to the Secretary of the Company so that it is received on or before
November 16, 2001.
29
33
OTHER BUSINESS
PRESENTED BY MANAGEMENT
As of the date of this Proxy Statement, management knows of no other
matters to be brought before the stockholders at the annual meeting. Should any
other matters properly come before the meeting, action may be taken thereon
pursuant to the proxies in the form enclosed, which confer discretionary
authority on the persons named therein or their substitutes with respect to such
matters.
PRESENTED BY STOCKHOLDERS
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.
By Order of the Board of Directors
/s/ FRANCIS R. TUNNEY, JR.
Francis R. Tunney, Jr.
Secretary
March 23, 2001
Irvine, California
30
34
EXHIBIT A
Allergan, Inc.
FINANCIAL INFORMATION
PAGE
----
MANAGEMENT'S DISCUSSION AND ANALYSIS........................ A-2
CONSOLIDATED BALANCE SHEETS................................. A-18
CONSOLIDATED STATEMENTS OF OPERATIONS....................... A-19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............. A-20
CONSOLIDATED STATEMENTS OF CASH FLOWS....................... A-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. A-22
REPORT OF MANAGEMENT........................................ A-45
INDEPENDENT AUDITORS' REPORT................................ A-46
QUARTERLY RESULTS........................................... A-47
SELECTED FINANCIAL DATA..................................... A-48
A-1
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2000
This financial review presents the operating results for Allergan, Inc. for
each of the three years in the period ended December 31, 2000, and its financial
condition at December 31, 2000. This review should be read in connection with
the information presented in the Consolidated Financial Statements and the
related Notes to the Consolidated Financial Statements.
Allergan, Inc. (the Company), headquartered in Irvine, California, is a
technology driven, global health care company providing specialty pharmaceutical
products worldwide. The Company develops and commercializes products in the eye
care, dermatological and movement disorder pharmaceutical, ophthalmic surgical
device, and over-the-counter contact lens care markets that deliver value to our
customers, satisfy unmet medical needs, and improve patients' lives.
Incorporated in 1948, the Company employs approximately 6,200 professionals
around the world. The Company is a pioneer in specialty pharmaceutical research,
targeting products and technologies related to specific disease areas such as
glaucoma, retinal disease, cataracts, dry eye, psoriasis, acne, photodamage,
movement disorders, metabolic disease, and various types of cancer. With 2000
sales in excess of $1.5 billion, the Company is an innovative leader in
therapeutic and over-the-counter products that are sold in more than 100
countries around the world.
The Company operates in four regions: North America, Latin America, Europe
and Asia Pacific. 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.
In each region, the Company markets products in three product segments:
Specialty Pharmaceuticals, Ophthalmic Surgical and Contact Lens Care. The
Specialty Pharmaceutical segment produces a broad range of ophthalmic products
for glaucoma therapy, ocular inflammation, infection, allergy and dry eye; skin
care products for acne, psoriasis and other prescription and over the counter
dermatological products; and Botox(R) Purified Neurotoxin Complex for movement
disorders. The Ophthalmic Surgical segment produces intraocular lenses,
phacoemulsification equipment, viscoelastics, and other products related to
cataract surgery. The Contact Lens Care segment produces cleaning, storage and
disinfection products for the consumer contact lens market. The Company provides
global marketing strategy teams to ensure development and execution of a
consistent marketing strategy for products in all geographic operating segments.
In 2000, 1999 and 1998, the Company participated in the following research
and development and marketing collaboration activities:
In December 2000, the Company entered into a license agreement with
Photochemical Co., Ltd., for the right to develop and commercialize ATX-S10, a
compound used for photodynamic therapy of age-related macular degeneration.
In December 2000, the Company entered into a collaboration agreement with
Aurora Biosciences Corporation, focused on ion channel drug discovery for
ophthalmic indications.
In August 2000, the Company entered into a license agreement with Kyorin
Pharmaceuticals, for the development and commercialization of gatifloxacin for
the treatment of ocular infections in all territories except Japan, Korea,
China, and Taiwan.
In August 2000, the Company entered into a Strategic Partnership Agreement
with Allegiance, a subsidiary of Cardinal Health, to co-market Custom Surgical
Procedure Packs in Europe, Africa, and the Middle East ophthalmic surgery
markets.
In July 2000, the Company entered into a strategic global alliance with
Vistakon, a division of Johnson & Johnson, that will include research,
educational, marketing, and co-detailing initiatives worldwide.
A-2
36
In May 2000, the Company entered into an exclusive, multi-year distribution
agreement with Surgical Instrument Systems AG (SIS), to commercialize the
Amadeus(TM) microkeratome in both North America and Latin America.
In May 2000, the Company entered into a marketing alliance with VISX
Incorporated, to co-market Allergan Surgical products and VISX diagnostic and
treatment equipment in the U.S.
In May 2000, the Company entered into a license and multi-year research
collaboration agreement with the Center for Applied Microbiology and Research
(CAMR) to accelerate the commercial availability of CAMR's novel
neurotoxin-based technology that targets the treatment of acute and chronic pain
conditions.
In March 2000, the Company entered into a collaboration agreement with ISTA
Pharmaceuticals, in which it will commercialize Vitrase, a drug used for the
treatment of severe vitreous hemorrhage, in all markets except Mexico and Japan.
In February 2000, the Company entered into a multi-year, multi-product
segment alliance agreement with Dura Pharmaceuticals, to commercialize selected
Allergan products in the U.S. primary care and respiratory segments.
In December 1999, the Company acquired an exclusive license to a patented
use of neurotoxins like Botox(R) in specific medical applications.
In December 1999, the Company entered into a license agreement with
Boehringer Ingelheim granting the Company the right to develop and commercialize
epinastine for the treatment of ocular allergies.
In November 1999, the Company entered into a multi-year agreement with 3M
Pharmaceuticals, a division of Minnesota Mining and Manufacturing Company, to
co-promote Allergan's proprietary acne product, Tazorac(R) (Tazarotene Gel)
0.1%, in the U.S. dermatology market.
In October 1999, the Company entered into a three year agreement with
ChemRx Advanced Technologies, Inc. to provide the Company with a diverse
compound screening library.
In September 1999, the Company entered into a multi-year agreement with
McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson, to commercialize
Allergan's proprietary anti-infective, Ocuflox(R) (ofloxacin ophthalmic
solution) 0.3%, in the U.S. pediatric and selected general practitioner markets.
In July 1999, the Company entered into a license and research collaboration
agreement with ACADIA Pharmaceuticals to discover, develop and commercialize
compounds for glaucoma, based on ACADIA's proprietary and highly receptor
subtype-selective muscarinic lead compounds.
In June 1999, the Company obtained an exclusive license from XOMA Ltd. to
use recombinant BPI in combination with other anti-infectives to treat
ophthalmic infections. This license agreement terminated as of February 13,
2001.
In April 1999, the Company entered into a long-term marketing, sales and
development partnership with Bioglan Pharma Plc to commercialize tazarotene
(ZORAC(R)) in the United Kingdom, Ireland, Denmark, Sweden, Finland, and other
international markets, including certain countries in the Middle East and
Africa.
In February 1999, the Company entered into a long-term marketing, sales and
development partnership with Pierre Fabre Dermatologie to commercialize
tazarotene (ZORAC(R)), in continental Europe and nearby territories.
In July 1998, the Company entered into a multi-year research and
development collaboration with the Parke-Davis Pharmaceutical Research Division
of Warner-Lambert Company to identify, develop and commercialize up to two
retinoid compounds. The Company received a payment at the time of the agreement.
In October 2000, this collaboration expired. This was subsequent to the
acquisition by Pfizer Inc. of Warner Lambert, Inc., including its pharmaceutical
division, Parke-Davis.
A-3
37
In July 1998, the Company entered into an agreement with Santen
Pharmaceutical Co., Ltd. (Santen) granting Santen distribution rights in Japan
for brimonidine, a compound marketed by Allergan under the brand name
Alphagan(R). The Company will manufacture brimonidine for Santen. Santen is
responsible for development, registration and approval of brimonidine in Japan.
The Company received a payment on signing the agreement, is entitled to receive
development milestone payments and a percentage of future product sales, and
retains the right to co-market the product.
In March 1998, the Company formed Allergan Specialty Therapeutics, Inc.
(ASTI) to conduct research and development of potential pharmaceutical products
based primarily upon the Company's retinoid and neuroprotective technologies.
The Company contributed $200 million and certain related technologies to ASTI.
The Company then distributed the stock of ASTI in a dividend to the Company's
stockholders.
RESULTS OF OPERATIONS
Net Sales
The following table sets forth, for the periods indicated, net sales by
major product line.
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Specialty Pharmaceuticals:
Eye Care Pharmaceuticals.................................. $ 675.3 $ 571.2 $ 505.3
Skin Care................................................. 68.7 76.6 80.6
Botox(R)/Neuromuscular.................................... 239.5 175.8 125.3
-------- -------- --------
Total............................................. 983.5 823.6 711.2
Medical Devices and OTC Product Lines:
Ophthalmic Surgical....................................... 250.4 222.9 193.6
Contact Lens Care......................................... 328.7 359.7 356.9
-------- -------- --------
Total............................................. 579.1 582.6 550.5
-------- -------- --------
Total Product Net Sales................................ $1,562.6 $1,406.2 $1,261.7
======== ======== ========
Domestic.................................................... 51.7% 48.1% 46.2%
International............................................... 48.3% 51.9% 53.8%
Net sales for 2000 were $1.563 billion, which was an increase of $156.4
million or 11% over 1999. Foreign currency fluctuations in 2000 decreased sales
by $42.6 million or 3% as compared to average rates in effect in 1999. At
constant currency rates, sales increased by $199.0 million or 14% over 1999.
Net sales increased in 2000 primarily as a result of increases in sales in
three product lines, partially offset by a decrease in sales of Contact Lens
Care Products. Eye Care Pharmaceutical sales increased by $104.1 million, or
18%; sales of Botox(R) Purified Neurotoxin Complex increased by $63.7 million,
or 36%; and Surgical sales increased by $27.5 million, or 12% in 2000. Eye Care
Pharmaceutical sales increased primarily as a result of growth in sales of
Alphagan(R) ophthalmic solution. Sales growth in international markets decreased
due to currency, by $19.3 million, or 8%, primarily as a result of a decrease in
the value of the euro compared to the dollar. Sales increased by 28% in the
United States and 14% at constant currency rates in international markets in
2000 compared to 1999. Botox(R) sales increased as a result of strong growth in
both the United States and international markets. Allergan believes its
worldwide market share is over 80% for medical neurotoxins including Botox(R).
At the end of 2000, a competitor received approval for 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. Surgical sales increased primarily as a result
of strong sales of Allergan's Sensar(R) acrylic intraocular lens (IOL), silicone
IOLs, and phacoemulsification equipment. Such increases were partially offset by
a decrease in sales of PMMA IOLs. Contact Lens Care sales decreased by $31.0
million, or 9% from 1999 to 2000. While sales in the United States were
consistent between 1999 and 2000, international markets decreased 11%. Currency
fluctuations had a negative impact of $10.7 million, or 4%, attributable to the
weakening euro vs. the dollar
A-4
38
somewhat offset by the strengthening of the Japanese yen vs. the dollar. At
constant currency rates, international Lens Care sales decreased $19.7 million,
or 7%, primarily attributable to the decrease in sales of peroxide based
disinfection and ancillary products as consumers increased their use of lower
priced one-bottle cold chemical disinfection systems.
Net sales for 1999 were $1.406 billion, which was an increase of $144.5
million or 11% from 1998. Foreign currency fluctuations in 1999 decreased sales
by $34.6 million or 3% as compared to average rates in effect in 1998. At
constant currency rates, sales increased by $179.1 million or 14% over 1998.
Net sales increased in 1999 primarily as a result of increases in sales in
three product lines. Eye Care Pharmaceutical sales increased by $65.9 million,
or 13%; sales of Botox(R) Purified Neurotoxin Complex increased by $50.5
million, or 40%; and Surgical sales increased by $29.3 million, or 15%, in 1999.
Eye Care Pharmaceutical sales increased primarily as a result of growth in sales
of Alphagan(R) ophthalmic solution. In 1999, sales growth in international
markets decreased by $35.4 million, or 15%, as a result of a decrease in the
value of the Brazilian real compared to the dollar. Sales increased by 19% in
the United States and 21% at constant currency rates in international markets in
1999 compared to 1998. Botox(R) sales increased as a result of strong growth in
both the United States and international markets. Surgical sales in 1999
increased primarily as a result of increased sales of silicone foldable IOLs and
strong sales in international markets of the Sensar(R) acrylic lens introduced
in 1998. Such increases were partially offset by a decrease in sales of PMMA
IOLs.
The following table sets forth, for periods indicated, net sales by
geographic segment.
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
United States............................................... $ 803.8 $ 669.2 $ 577.2
Europe...................................................... 354.9 377.1 363.2
Asia Pacific................................................ 233.8 211.3 168.2
Other....................................................... 166.3 141.7 147.0
-------- -------- --------
Segments total.............................................. 1,558.8 1,399.3 1,255.6
Manufacturing operations.................................... 3.8 6.9 6.1
-------- -------- --------
Total Product Net Sales........................... $1,562.6 $1,406.2 $1,261.7
======== ======== ========
Net sales increased in 2000 by $199.0 million on a constant currency basis,
offset by a decrease in net sales of $42.6 million caused by changes in exchange
rates. United States net sales increased $134.6 million. Net sales in Europe
increased $22.6 million at constant currency rates, more than offset by a $44.8
million decrease resulting from a weakening of the euro vs. the dollar. Asia
Pacific net sales increased $19.7 million at constant currency rates. Net sales
in the Other geographic segment increased by $25.2 million at constant currency
rates. The currency weakness in 2000 impacted primarily the Eye Care
Pharmaceutical and Lens Care businesses, and resulted from the weakening of the
euro. In addition, the strengthening of the Japanese yen somewhat offset the
effects of the weakening euro in the Lens Care business.
Net sales increased in 1999 by $179.1 million on a constant currency basis,
offset by a decrease in net sales of $34.6 million caused by changes in exchange
rates. United States net sales increased $92.0 million. Net sales in Europe
increased $28.9 million at constant currency rates, offset by a $15.0 million
decrease resulting from a weakening of the euro vs. the dollar. Asia Pacific net
sales increased $24.0 million at constant currency rates. Currency changes in
1999 added $19.1 million to sales growth in the Asia Pacific segment, primarily
as a result of strengthening of the Japanese yen vs. the dollar. Net sales in
the Other geographic segment increased by $33.4 million at constant currency
rates, offset by a $38.7 million decrease resulting from changes in currency
rates. The currency weakness in 1999 impacted primarily the Eye Care
Pharmaceutical business, and resulted primarily from the devaluation of the
Brazilian real in early 1999.
A-5
39
Income and Expenses
The following table sets forth the relationship to sales of various income
statement items:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
Product net sales........................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 27.5 28.9 32.3
----- ----- -----
Product gross margin........................................ 72.5 71.1 67.7
Research services margin.................................... 0.2 0.2 0.2
Other operating costs and expenses:
Selling, general and administrative....................... 41.5 41.8 41.6
Technology fees from related party........................ (0.2) (0.4) (0.9)
Research & development.................................... 12.5 12.0 9.9
Restructuring charges (credit)............................ (0.1) (0.7) 5.9
Asset write-offs (credit)................................. -- (0.1) 4.6
Contribution to ASTI...................................... -- -- 13.6
----- ----- -----
Operating income (loss)..................................... 19.0 18.7 (6.9)
Gains on investments, net................................... 0.1 1.0 4.3
Contribution to The Allergan Foundation..................... -- (0.5) (0.9)
Other non-operating expense, net............................ 0.3 (0.1) (1.1)
----- ----- -----
Earnings (loss) before income taxes and minority interest... 19.4% 19.1% (4.6)%
===== ===== =====
Net earnings (loss)......................................... 13.8% 13.4% (7.1)%
===== ===== =====
Gross Margin
The Company's gross margin percentage increased by 1.4 percentage points
from 71.1% in 1999 to 72.5% in 2000 and by 3.4 percentage points from 67.7% in
1998 to 71.1% in 1999. The increases in gross margin percentage in both years
were primarily the result of shifts in the product mix of sales. Higher margin
eye care pharmaceutical and Botox(R) Purified Neurotoxin Complex sales
represented a greater percentage of 2000 sales compared to 1999, and 1999 sales
compared to 1998.
Selling, General and Administrative
Selling, general and administrative expenses as a percentage of net sales
decreased in 2000 to 41.5% from 41.8% in 1999. The percentage decrease in 2000
was the result of an increase in promotion, selling, and marketing expenses
which were more than offset by a decrease in general and administrative expenses
as a percentage of sales. Selling, general and administrative expenses as a
percentage of net sales increased in 1999 to 41.8% from 41.6% in 1998. The
percentage increase in 1999 was the result of an increase in promotion, selling
and marketing expenses partially offset by a decrease in general and
administrative expenses.
Research and Development
Research and development expenses increased by 16% in 2000 to $195.6
million compared to $168.4 million in 1999 and $125.4 million in 1998. Research
and development spending does not include research and development spending
performed under contracts with ASTI in 2000, 1999 and 1998. Research and
development spending increased in 2000 as a result of the Company's expanded
research efforts, particularly in Eye Care Pharmaceutical and Botox(R) research
and development. Research and development costs in 1998 were decreased by $3.8
million as a result of recovery from ASTI of costs incurred and expensed in the
fourth quarter of 1997, primarily relating to retinoid research. Research and
development expenditures are allocated to each product line, with higher rates
of investments allocated to Eye Care Pharmaceuticals and Botox(R).
A-6
40
Special Charges
Results for 1998 include three special charges disclosed on specific lines
in the Consolidated Statements of Operations.
The Company recorded a charge of $171.4 million in March 1998 relating to
the dividend distribution of ASTI stock to the Company's stockholders. Such
amount represents the excess of the $200 million contributed to ASTI by the
Company over the aggregate market value of ASTI stock at the commencement of
trading as an independent company.
During 1998, the Company recorded a $74.8 million restructuring charge,
$50.9 million after taxes. The restructuring charge represented the costs of a
comprehensive plan to streamline operations and reduce costs through reductions
in global general and administrative (G&A) staff and the closure of five of ten
manufacturing facilities in connection with the outsourcing and consolidation of
manufacturing operations. In addition, operations in many countries were
transferred to distributors, and business activities were concentrated into
regional shared service centers. The changes in operations were expected to
result in a net workforce reduction of 695 positions over a three-year period.
The reductions in G&A staff and manufacturing facilities are primarily the
result of a strategic assessment of the Company's product lines and businesses
and a review of the G&A cost structure and manufacturing capabilities during
1998. During the years ended December 31, 2000, 1999 and 1998, severance
payments of $4.0 million, $8.5 million and $3.6 million, respectively, were made
to 20, 323 and 141 terminated employees, respectively, associated with the
reduction of G&A staff and manufacturing facilities.
In 1999, the Company determined that various restructuring activities were
completed for less cost than estimated in 1998, primarily as a result of lower
than anticipated severance costs. A total of 95 positions included in the 695
position reduction did not require severance payments as certain employees
terminated their employment prior to the date they would have qualified for
severance, and other employees transferred to unfilled positions in other areas.
As a result, the Company recorded a $3.8 million reduction in the restructuring
charge in 1999.
The following table presents the restructuring activities through December
31, 2000 resulting from the 1998 restructuring charge (in millions):
FACILITY ABANDONMENT
PAYMENTS CLOSURE OF
TO EMPLOYEES AND COMPUTER
INVOLUNTARILY CONSOLIDATION SOFTWARE OTHER TOTAL
TERMINATED COSTS COSTS COSTS RESTRUCTURING
------------- ------------- ----------- ----- -------------
Net charge during 1998.............. $22.7 $ 28.9 $ 10.6 $12.6 $ 74.8
Assets written off during 1998...... -- (25.3) (10.6) (4.8) (40.7)
Spending during 1998................ (3.6) -- -- (7.4) (11.0)
----- ------ ------ ----- ------
Balances as of December 31, 1998.... 19.1 3.6 -- 0.4 23.1
Adjustments during 1999............. -- (0.3) -- 0.3 --
Net credit during 1999.............. (2.6) (0.7) -- (0.5) (3.8)
Assets written off during 1999...... -- (0.3) -- -- (0.3)
Spending during 1999................ (8.5) (0.4) -- -- (8.9)
----- ------ ------ ----- ------
Balances as of December 31, 1999.... 8.0 1.9 -- 0.2 10.1
Adjustments during 2000............. (0.5) 0.4 -- 0.1 --
Spending during 2000................ (4.0) -- -- (0.1) (4.1)
----- ------ ------ ----- ------
Balances as of December 31, 2000.... $ 3.5 $ 2.3 $ -- $ 0.2 $ 6.0
===== ====== ====== ===== ======
During 1998, the Company offered an early retirement program to certain
employees. The increase in pension liability resulting from this program is
included in the table above as 1998 "spending" under "other costs."
A-7
41
In 1998, management also completed a critical review of its asset bases in
light of the strategic decisions made in the restructuring activities discussed
above. Management made business decisions relating to the future use of certain
assets resulting in a reassessment of the carrying value of such assets. As a
result, the Company recorded a $58.5 million charge, $41.1 million after taxes.
Such charge reduced the value of a manufacturing facility, office facilities in
Germany and Spain, assets related to certain Herald skin care products and
certain other assets. The Company determined that the value of the assets, other
than office facilities, were impaired by comparing the carrying value of each
asset with an undiscounted cash flow analysis for each asset. The value of each
asset was written-down to the higher of its net realizable sales value less
costs to sell or the value determined by a discounted cash flow analysis. The
$58.5 million charge related to the following business segments: $18.0 million
in the United States, $4.5 million in Europe, $18.5 million in Asia Pacific,
$0.4 million in the Other geographic segment, and $17.1 million related to
corporate, research and product related assets.
In 1999, the Company realized $1.4 million in proceeds in excess of
estimates from disposal of certain real property included in the 1998 asset
write-off. As a result, the Company recorded a $1.4 million reduction in the
asset write-off charge in 1999.
In 1996, the Company recorded a $70.1 million restructuring charge to
streamline operations and reduce costs through management restructuring and
facilities consolidation affecting 22 locations worldwide. The Company began
restructuring activities in Europe in 1996 and completed them in 1999. Over the
three year period, such activities restructured European operations from
separate administrative services in various countries to a single shared service
center organization for the region. In 1999, the Company determined that
severance costs of positions eliminated would be $5.8 million less than accrued
in 1996. As a result, the Company recorded a $5.8 million reduction in the
restructuring charge in 1999. In 2000, the Company reviewed all restructuring
activities related to the 1996 restructure charge and determined that all
activities were completed. As a result, the remaining accrual of $2.0 million,
representing primarily an accrual for other costs, was eliminated. There will be
no further activities related to the 1996 restructuring plan.
The following table presents the restructuring activities through December
31, 2000 resulting from the 1996 restructuring charge (in millions):
FACILITY
PAYMENTS CLOSURE
TO EMPLOYEES AND
INVOLUNTARILY CONSOLIDATION OTHER TOTAL
TERMINATED COSTS COSTS RESTRUCTURING
------------- ------------- ----- -------------
Net charge during 1996....................... $34.0 $ 29.6 $ 6.5 $ 70.1
Assets written off during 1996............... -- (25.9) (6.2) (32.1)
Spending during 1996......................... (9.9) (0.7) (0.2) (10.8)
----- ------ ----- ------
Balances as of December 31, 1996............. 24.1 3.0 0.1 27.2
Adjustments during 1997...................... (0.5) -- 0.5 --
Spending during 1997......................... (7.6) (3.0) (0.6) (11.2)
----- ------ ----- ------
Balances as of December 31, 1997............. 16.0 -- -- 16.0
Adjustments during 1998...................... (0.4) -- 0.4 --
Assets written off during 1998............... -- -- (0.4) (0.4)
Spending during 1998......................... (5.0) -- -- (5.0)
----- ------ ----- ------
Balances as of December 31, 1998............. 10.6 -- -- 10.6
Adjustments during 1999...................... (2.0) -- 2.0 --
Net credit during 1999....................... (5.8) -- -- (5.8)
Spending during 1999......................... (2.6) -- -- (2.6)
----- ------ ----- ------
Balances as of December 31, 1999............. 0.2 -- 2.0 2.2
Net credit during 2000....................... (0.1) -- (1.9) (2.0)
Spending during 2000......................... (0.1) -- (0.1) (0.2)
----- ------ ----- ------
Balances as of December 31, 2000............. $ -- $ -- $ -- $ --
===== ====== ===== ======
A-8
42
Operating Income
Operating income was $296.4 million or 19.0% of product net sales in 2000
and $263.5 million or 18.7% of product net sales in 1999. Operating income was a
loss of $87.1 million or 6.9% of product net sales in 1998. The 1998 amount
includes special charges for restructuring of $74.8 million and asset write-offs
of $58.5 million. In addition, the 1998 amount includes the $171.4 million
charge relating to the dividend distribution of ASTI stock to the Company's
stockholders. Excluding the special charges in 1998, operating income was $217.6
million or 17.2% of product net sales.
Operating income and operating income percentage increased by $32.9 million
from $263.5 million or 18.7% of product net sales in 1999 to $296.4 million or
19.0% of product net sales in 2000. Such increases were the result of the $156.4
million or 11.1% increase in product net sales, combined with the 1.4 percentage
point increase in gross margin percentage from 1999 to 2000. Such increases were
partially offset by the increase in selling, general, and administrative
expenses, net of technology fees from related party, of $65.2 million and by the
increase in research and development expenses of $27.2 million which in
aggregate represent a 0.5% of product net sales increase in 2000 compared to
1999.
Operating income and the operating income percentage, excluding special
charges in 1998, increased by $45.9 million from $217.6 million or 17.2% of
product net sales in 1998 to $263.5 million or 18.7% of product net sales in
1999. Such increases were the result of the $144.5 million or 11% increase in
product net sales, combined with the 3.4 percentage point increase in gross
margin percentage from 1998 to 1999. Such increases were partially offset by the
increase in selling, general and administrative expenses, net of technology fees
from related party, of $67.8 million or 0.7% of product net sales, and by the
increase in research and development expenses of $43.0 million or 2.1% of
product net sales in 1999 compared to 1998.
The following table presents operating income by geographic operating
segment:
OPERATING INCOME (LOSS)
-----------------------------
2000 1999 1998
------- ------- -------
(IN MILLIONS)
United States......................................... $ 342.9 $ 264.3 $ 301.8
Europe................................................ 96.6 113.4 34.1
Asia Pacific.......................................... 44.9 24.1 10.6
Other................................................. 30.9 29.2 17.8
------- ------- -------
Segments total........................................ 515.3 431.0 364.3
Manufacturing operations.............................. 130.6 124.8 46.6
Research and development.............................. (195.6) (168.4) (125.4)
Research services margin.............................. 3.5 3.0 2.3
Restructuring (charge) credit......................... 2.0 9.6 (74.8)
Asset (write-offs) credit............................. -- 1.4 (58.5)
Elimination of inter-company profit................... (186.2) (180.5) --
Contribution to ASTI.................................. -- -- (171.4)
General corporate..................................... 26.8 42.6 (70.2)
------- ------- -------
Operating income (loss)............................... $ 296.4 $ 263.5 $ (87.1)
======= ======= =======
The Company operates in Regions or geographic operating segments. The
United States information is presented separately as it is the Company's
headquarters country, and U.S. sales represented 51.7%, 48.1% and 46.2% of total
product net sales in 2000, 1999 and 1998, respectively. No other country, or
single customer, generates over 10% of total product net sales. 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 October 1996, the Company
began converting its various local accounting systems to
A-9
43
a single worldwide system. By early 1999, the Company had converted a majority
of its businesses to the new system. The new worldwide accounting system allows
the Company to determine operating income for each operating segment using a
cost of sales amount which includes 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.
As this basis for assignment of costs is a significantly more effective method
for measuring segment performance, the Company adopted this cost assignment
method in 1999. In addition, in 1999 operating income for all operating segments
and manufacturing operations also included a charge for corporate services and
asset utilization. Such change permits management to better measure segment
performance by including a cost of capital in the determination of operating
income for each segment. In 1998, cost of sales in most segments outside the
United States includes the cost of goods produced by the Company's manufacturing
operations at the transfer price charged to the distribution operation by the
manufacturing location. It is impracticable to restate operating income for 1998
using the 1999 methodology.
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 include significant administrative costs applicable to United States
operations that are not charged to the U.S. region. Special charges in 1998 for
restructuring and asset write-offs, the reduction of such costs in 1999 and
2000, and the contribution to ASTI in 1998 are also considered corporate costs.
Operating income in the United States increased by $78.6 million, or 30%,
from $264.3 million in 1999 to $342.9 million in 2000. Such increase was
primarily the result of the 20% increase in United States net sales combined
with the impact of a higher gross margin percentage and the leveraging of
selling, general, and administrative expenses as a percentage of sales in 2000.
Operating income in the Europe segment decreased by $16.8 million, or 15%, in
2000 compared to 1999. Such decrease was primarily the result of the 6% decrease
in Europe net sales combined with a decrease in gross margin percentage
attributable to the weakening of the euro vs. the dollar. Operating income in
the Asia Pacific segment increased by $20.8 million, or 86% in 2000 compared to
1999. Such increase was primarily the result of the 11% increase in Asia Pacific
sales combined with the impact of a higher gross margin percentage and the
leveraging of selling, general, and administrative expenses as a percentage of
sales in 2000. Operating income in the Other geographic segment increased by
$1.7 million, or 6%, in 2000 compared to 1999 primarily as a result of the 17%
increase in sales somewhat offset by an increase in selling, general, and
administrative expenses in 2000. Operating income from Manufacturing Operations
increased by $5.8 million, or 5%, in 2000 compared to 1999 primarily as a result
of an increase in gross margins from intercompany sales to other geographic
segments at intercompany transfer prices.
Operating income by geographic segment in 1999 differs from 1998 results
primarily as a result of the changes in methods of measurement of results in
1999 discussed previously. As it is impracticable to restate operating income
amounts for 1998 using the 1999 methodology, the Company is unable to provide an
analysis of the changes in operating income from 1998 to 1999 as such amounts
were determined under two different methods of measurement.
Net Earnings
Net earnings were $215.1 million in 2000 compared to $188.2 million in
1999. The $26.9 million increase in net earnings in 2000 is primarily the result
of the $32.9 million increase in operating income and an increase in
non-operating income of $1.9 million, offset by an increase in income taxes of
$7.4 million. The increase in non-operating income includes a $4.9 million
increase in net interest income associated with the issuance of Zero Coupon
Convertible Subordinated Notes in November of 2000, the absence of contributions
to The Allergan Foundation of $6.9 million and a decrease in gain on investments
of $13.0 million in 2000 versus 1999.
Net earnings were $188.2 million in 1999 compared to a net loss of $90.2
million in 1998. The 1998 results include the charge related to the dividend of
ASTI stock of $171.4 million, the restructuring charge of
A-10
44
$50.9 million net of income taxes, and asset write-offs of $41.1 million net of
income taxes. Excluding the charge related to the dividend of ASTI stock and the
after tax effect of special charges, net earnings were $173.2 million in 1998.
The increase in 1999 of $15.0 million from the adjusted net earnings amount of
$173.2 million in 1998 to $188.2 million in net earnings in 1999 was the result
of the increase in operating income offset by a decrease in gain on investments.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity by its ability to generate cash
to fund its operations. Significant factors in the management of liquidity are:
funds generated by operations; levels of accounts receivable, inventories,
accounts payable and capital expenditures; the extent of the Company's stock
repurchase program; adequate lines of credit; and financial flexibility to
attract long-term capital on satisfactory terms.
Historically, the Company has generated cash from operations in excess of
working capital requirements. The net cash provided by operating activities was
$354.1 million in 2000, compared to $254.3 million in 1999 and $52.7 million in
1998. Operating cash flow in 1998 was reduced by the contribution to ASTI of
$171.4 million. Excluding such contribution, operating cash flow was $224.1
million in 1998. Operating cash flow increased in 2000 compared to 1999
primarily as a result of the increase in net earnings and an increase in accrued
liabilities, offset by the increase in accounts receivable. Operating cash flow
increased in 1999 compared to 1998 primarily as a result of the increase in net
earnings from 1998 to 1999, excluding the effect of the contribution of ASTI in
1998.
Net cash used in investing activities was $85.3 million in 2000 including
$66.9 million in expenditures for plant and equipment more fully described under
"Capital Expenditures" below and $8.0 million to acquire software. Net cash used
in investing activities was $53.0 million in 1999 including $63.3 million in
expenditures for plant and equipment, and $21.0 million to acquire software.
Such expenditures in 1999 were offset by $33.8 million in proceeds from sale of
investments. Net cash used in investing activities was $11.8 million in 1998
including $50.6 million in expenditures for plant and equipment, and $24.9
million to acquire software. Such expenditures in 1998 were offset by $57.0
million in proceeds from sale of investments.
Net cash provided by financing activities was $345.8 million in 2000,
composed primarily of proceeds from subordinated convertible borrowings of
$400.0 million and $148.1 million from sale of stock to employees. The Company
is uncertain as to the level of future stock purchases by employees. Net cash
was used for the payment of dividends of $41.9 million, $122.8 million for
purchases of treasury stock and $81.4 million in net repayments of debt,
including notes payable, commercial paper and long-term debt. Net cash used in
financing activities was $213.4 million in 1999, composed primarily of $37.0
million for payment of dividends, $225.3 million for purchases of treasury
stock, and $2.7 million in repayments of long-term debt. Cash was provided by
$22.8 million in long-term debt borrowings and $28.8 million from sale of stock
to employees. Net cash used in financing activities was $35.9 million in 1998,
composed primarily of $33.8 million for payment of dividends, $32.9 million for
purchases of treasury stock, $37.0 million in net repayments of debt including
notes payable, commercial paper, and long-term debt, and $28.6 million
representing the portion of the $200 million contribution to ASTI not charged to
operations in 1998.
As of December 31, 2000, the Company had long-term credit facilities and a
medium term note program. The credit facilities allow for borrowings of up to
$36.2 million through 2001, $13.1 million through 2002, and $294.9 million
through 2003. The note program allows the Company to issue up to an additional
$35 million in notes on a non-revolving basis. Borrowings under the credit
facilities are subject to certain financial and operating covenants, including a
requirement that the Company maintain certain financial ratios and other
customary covenants for credit facilities of similar kind. As of December 31,
2000, the Company had $76.8 million in borrowings primarily under yen dominated
credit facilities and $89.0 million under the note program.
A substantial portion of the Company's existing cash and equivalents are
held by non-U.S. subsidiaries. These funds are planned to be utilized in the
Company's operations outside the United States. The Company has approximately
$500.7 million in unremitted earnings outside the United States for which
withholding and
A-11
45
U.S. taxes have not been provided. Tax costs could be incurred if these funds
were remitted to the United States.
The Company believes that the net cash provided by operating activities,
supplemented as necessary with borrowings available under the Company's existing
credit facilities and existing cash and cash equivalents, will provide it with
sufficient resources to meet working capital requirements, debt service and
other cash needs over the next year. The Company believes it will spend
approximately $6.0 million on accrued restructuring costs during 2001.
The Company has the right to acquire all of the outstanding Class A Common
Stock of ASTI at any time from ASTI's inception until the 90th day after which
the Company has received notice that the amount of cash and marketable
securities held by ASTI is less than $15 million. ASTI announced in January 2000
that it expects to have expended all available funds by the middle of calendar
year 2001. Assuming that ASTI's forecast is reasonably accurate and Allergan
chooses to exercise its right to purchase the shares of ASTI, the purchase price
would be the greater of (i) $60 million, (ii) the fair market value of 1,000,000
shares of Allergan Common Stock on the date Allergan exercises its option to
purchase ASTI, or (iii) $250 million less the amount of fees previously paid to
Allergan by ASTI and research and development costs paid or incurred by ASTI.
Capital Expenditures
Expenditures for property, plant and equipment totaled $66.9 million for
2000, $63.3 million for 1999 and $50.6 million for 1998. Expenditures in 2000
include expansion of manufacturing facilities and a variety of other projects
designed to improve productivity. The Company expects to invest $70.0 million to
$80.0 million in property, plant and equipment in 2001.
Inflation
Although at reduced levels in recent years, inflation continues to apply
upward pressure on the cost of goods and services used by the Company. The
competitive and regulatory environments in many markets substantially limit the
Company's ability to fully recover these higher costs through increased selling
prices. The Company continually seeks to mitigate the adverse effects of
inflation through cost containment and improved productivity and manufacturing
processes.
Foreign Currency Fluctuations
Approximately 48% of the Company's revenues in 2000 were derived from
operations outside the U.S., and a portion of the Company's international cost
structure is denominated in currencies other than the U.S. dollar. As a result,
the Company is subject to fluctuations in sales and earnings reported in U.S.
dollars as a result of changing currency exchange rates. The Company routinely
monitors its transaction exposure to currency rates and implements certain
hedging strategies to limit such exposure, as appropriate. The impact of foreign
currency fluctuations on the Company's sales was as follows: a $42.6 million
decrease in 2000, a $34.6 million decrease in 1999 and a $27.8 million decrease
in 1998. The 2000 sales decrease included decreases of $44.8 million related to
the euro offset by an $2.8 million increase related to the Japanese yen. The
1999 sales decrease included decreases of $37.4 million related to the Brazilian
Real and $15.0 million related to European currencies, offset by an $18.6
million increase related to the Japanese yen. The 1998 sales decrease included
decreases of $8.4 million related to European currencies and $8.5 million
related to the Japanese yen. See Note 1 to the Consolidated Financial Statements
relative to the Company's accounting policy on foreign currency translation.
In the normal course of business, operations of the Company are exposed to
risks associated with fluctuations in currency exchange rates and interest
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. See Note 12 to the Consolidated Financial Statements for
activities relating to foreign currency and interest rate risk management.
A-12
46
QUANTITATIVE AND QUALITATIVE MARKET RISK FACTORS
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, 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. The gains and losses realized from the
interest rate swaps and foreign currency forward and option contracts are
recorded in Other, net in the accompanying consolidated statement of operations.
Interest Rate Risk
The Company's interest income and expense is more sensitive to fluctuations
in the general level of U.S. and Japan interest rates than to changes in rates
in other markets. Changes in U.S. and Japan 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 result
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 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.
A-13
47
The table below presents information about certain of the Company's
investment portfolio and its debt obligations for the years ended December 31,
2000 and 1999:
DECEMBER 31, 2000
--------------------------------------------------------------------------------------
MATURING IN
---------------------------------------------- FAIR MARKET
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
------- ------ ------ ----- ------ ---------- ------- -----------
(IN MILLIONS, EXCEPT INTEREST RATES)
ASSETS
Cash equivalents:
Repurchase Agreements.......... $ 350.0 -- -- -- -- -- $ 350.0 $350.0
Weighted Average Interest
Rate......................... 6.76% -- -- -- -- -- 6.76%
Commercial Paper............... 257.3 -- -- -- -- -- 257.3 257.3
Weighted Average Interest
Rate......................... 6.58% -- -- -- -- -- 6.58%
Foreign Time Deposits.......... 48.3 -- -- -- -- -- 48.3 48.3
Weighted Average Interest
Rate......................... 5.38% -- -- -- -- -- 5.38%
Total cash equivalents......... $ 655.6 -- -- -- -- -- $ 655.6 $655.6
Weighted Average Interest
Rate......................... 6.59% -- -- -- -- -- 6.59%
LIABILITIES
Debt Obligations:
Fixed Rate ($US)............... $ 14.0 $ 45.0 $ 30.0 -- -- $ 401.7 $ 490.7 $546.2
Weighted Average Interest
Rate......................... 6.83% 7.21% 5.72% -- -- 2.50% 3.25%
Fixed Rate (JPY)............... -- -- 21.9 -- 43.5 -- 65.4 67.4
Weighted Average Interest
Rate......................... -- -- 3.55% -- 1.85% -- 2.42%
Other Fixed Rate (non-US$)..... 0.9 0.9 0.3 -- -- -- 2.1 2.1
Weighted Average Interest
Rate......................... 13.5% 13.5% 13.5% -- -- -- 13.5%
Variable Rate ($US)............ 3.2 3.0 1.6 -- -- -- 7.8 7.8
Weighted Average Interest
Rate......................... 5.89% 5.75% 5.75% -- -- -- 5.81%
Variable Rate (JPY)............ 17.5 13.1 21.9 -- -- -- 52.5 52.5
Weighted Average Interest
Rate......................... 1.20% 1.23% 1.10% -- -- -- 1.17%
Other Variable Rate
(non-US$).................... 23.6 0.7 0.6 0.5 -- -- 25.4 25.4
Weighted Average Interest
Rate......................... 8.53% 5.10% 5.10% 5.10% -- -- 8.29%
Total Debt Obligations......... $ 59.2 $ 62.7 $ 76.3 $ 0.5 $ 43.5 $ 401.7 $ 643.9 $701.4
Weighted Average Interest
Rate......................... 5.89% 5.96% 3.80% 5.10% 1.85% 2.50% 3.26%
INTEREST RATE DERIVATIVES
Interest Rate Swaps
Variable to Fixed.............. $ 39.4 -- -- -- -- -- $ 39.4 $ (0.1)
Average Pay Rate............... 0.86% -- -- -- -- -- 0.86%
Average Receive Rate........... 0.55% -- -- -- -- -- 0.55%
A-14
48
DECEMBER 31, 1999
---------------------------------------------------------------------------------------
MATURING IN
----------------------------------------------- FAIR MARKET
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------- ------- ------ ------ ----- ---------- ------- -----------
(IN MILLIONS, EXCEPT INTEREST RATES)
ASSETS
Cash equivalents:
Repurchase Agreements......... $ 55.8 -- -- -- -- -- $ 55.8 $ 55.8
Weighted Average Interest
Rate........................ 5.86% -- -- -- -- -- 5.86%
Foreign Time Deposits......... 36.7 -- -- -- -- -- 36.7 36.7
Weighted Average Interest
Rate........................ 7.61% -- -- -- -- -- 7.61%
Commercial Paper.............. 8.4 -- -- -- -- -- 8.4 8.4
Weighted Average Interest
Rate........................ 5.10% -- -- -- -- -- 5.10%
Corporate Bonds............... 2.0 -- -- -- -- -- 2.0 2.0
Weighted Average Interest
Rate........................ 6.75% -- -- -- -- -- 6.75%
Total cash equivalents........ $ 102.9 -- -- -- -- -- $ 102.9 $102.9
Weighted Average Interest
Rate........................ 6.44% -- -- -- -- -- 6.44%
LIABILITIES
Debt Obligations:
Fixed Rate ($US).............. $ 25.0 $ 14.0 $ 20.0 $ 30.0 -- -- $ 89.0 $ 88.8
Weighted Average Interest
Rate........................ 6.01% 6.83% 6.92% 6.22% -- -- 6.41%
Fixed Rate (JPY).............. -- -- -- 24.5 -- -- 24.5 24.5
Weighted Average Interest
Rate........................ -- -- -- 3.55% -- -- 3.55%
Other Fixed Rate (non-US$).... -- 1.7 1.0 0.3 -- -- 3.0 3.0
Weighted Average Interest
Rate........................ -- 13.50% 13.50% 13.50% -- -- 13.50%
Variable Rate ($US)........... 2.6 50.9 3.0 1.9 -- -- 58.4 58.4
Weighted Average Interest
Rate........................ 5.29% 6.58% 5.29% 5.29% -- -- 6.42%
Variable Rate (JPY)........... 43.1 44.1 14.7 -- -- -- 101.9 101.9
Weighted Average Interest
Rate........................ 1.05% 0.85% 1.02% -- -- -- 0.96%
Other Variable Rate
(non-US$)................... 14.6 0.7 0.7 0.7 0.6 -- 17.3 17.3
Weighted Average Interest
Rate........................ 7.50% 5.10% 5.10% 5.10% 5.10% -- 7.12%
Total Debt Obligations........ $ 85.3 $ 111.4 $ 39.4 $ 57.4 $ 0.6 -- $ 294.1 $293.9
Weighted Average Interest
Rate........................ 3.74% 4.45% 4.73% 5.07% 5.10% -- 4.40%
INTEREST RATE DERIVATIVES
Interest Rate Swaps
Variable to Fixed ($US)....... $ 10.0 -- -- -- -- -- $ 10.0 $ --
Average Pay Rate.............. 7.00% -- -- -- -- -- 7.00%
Average Receive Rate.......... 6.19% -- -- -- -- -- 6.19%
Fixed to Variable (JPY)....... -- $ 44.1 -- -- -- -- $ 44.1 (0.4)
Average Pay Rate.............. -- 0.86% -- -- -- -- 0.86%
Average Receive Rate.......... -- 0.29% -- -- -- -- 0.29%
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 but are
recorded in Other, net in the accompanying consolidated statements of
operations.
A-15
49
All of the Company's outstanding foreign exchange forward contracts are
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 comprise 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 option contracts to hedge the currency
exchange risks associated with these probable but not firmly committed
transactions. The duration of foreign exchange hedging instruments, whether for
firmly committed transactions, or for probable but not firmly committed
transactions, currently does not exceed one year.
A substantial portion of the Company's purchased options are 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.
The following table provides information about the Company's foreign
currency derivative financial instruments outstanding as of December 31. The
information is provided in U.S. dollar amounts, as presented in the Company's
consolidated financial statements.
2000 1999
------------------------------- -------------------------------
NOTIONAL AVERAGE CONTRACT NOTIONAL AVERAGE CONTRACT
AMOUNT RATE OR STRIKE AMOUNT RATE OR STRIKE
IN MILLIONS AMOUNT IN MILLIONS AMOUNT
----------- ---------------- ----------- ----------------
Foreign currency forward contracts:
(Receive $US/Pay Foreign Currency)
Spanish Pesetas...................... $ 7.4 188.80 $ 9.7 164.05
French Francs........................ 8.7 7.44 2.4 6.46
German Marks......................... -- -- 4.1 1.93
Italian Lira......................... 4.1 2,196.98 4.9 1,907.40
Australian Dollars................... 3.7 0.54 8.7 0.64
Miscellaneous other currencies......... 1.1 n/a 5.1 n/a
------ -----
Total currency forward contracts....... $ 25.0 $34.9
Estimated fair value................... $ (1.5) $(0.2)
Foreign currency purchased put options:
Japanese Yen......................... $ 36.8 105.92 $38.6 100.98
Euro................................. 71.2 0.87 -- --
Canadian Dollar...................... 13.4 1.53 -- --
U.K. Pound........................... 7.6 1.46 -- --
Other................................ 15.8 n/a -- --
------ -----
$144.8 $38.6
Estimated fair value................... $ 3.7 $ 1.2
In June 1998, Statement of Financial Accounting Standards No.
133 -- "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133) was issued, as amended, and is effective for all periods of fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133
establishes accounting and reporting standards for all derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of position and
measure those instruments at fair
A-16
50
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized in earnings unless specific hedging accounting criteria are met.
Accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that an entity must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company adopted SFAS No. 133 on
January 1, 2001.
The Company has identified three types of derivative instruments at
December 31, 2000 which were recorded on the Company's Consolidated Balance
Sheet on January 1, 2001, the date of adoption of SFAS No. 133. The derivative
instruments are: interest rate swap agreements, foreign currency forward
contracts and foreign currency option contracts.
The Company enters into interest rate swap agreements to reduce the impact
of interest rate changes on its floating rate long-term debt. These swap
agreements qualify as a cash flow hedge under SFAS No. 133. Since the interest
rate swap agreements qualify as a cash flow hedge, the fair value of these
agreements totaling a loss of approximately $100,000 will be recorded as a debit
to other comprehensive income in stockholders' equity at January 1, 2001.
Changes in fair value of these interest rate swap agreements will be adjusted
through other comprehensive income as long as the cash flow hedge requirements
are met.
The Company enters into foreign currency forward and option contracts to
reduce earnings and cash flow volatility associated with foreign exchange rate
changes and its impact on the value of foreign currency assets and liabilities,
commitments and anticipated foreign currency denominated sales and operating
expenses. Upon adoption of SFAS No. 133, the Company's management decided not to
designate these derivative instruments as accounting hedges. Accordingly, during
the first quarter of fiscal 2001, the Company will record a net-of-tax
cumulative-effect loss of $1.8 million into earnings to recognize the foreign
currency forward and option contracts at fair value at January 1, 2001. Future
changes in the fair value of these contracts will be recorded through current
operations.
FORWARD LOOKING STATEMENTS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Certain disclosures made by the Company in this report and in other reports
and statements released by the Company are and will be forward-looking in
nature, such as comments which express the Company's opinions about trends and
factors which may impact future operating results. Disclosures 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 which could cause actual results to differ
materially from expectations. Any such forward-looking statements, whether made
in this report or elsewhere, should be considered in context with the Company's
disclosures about its businesses made in the Company's press releases and in the
Company's Annual Report on Form 10-K and other reports filed with the Securities
and Exchange Commission.
A-17
51
CONSOLIDATED BALANCE SHEETS
ASSETS
AS OF DECEMBER 31,
--------------------
2000 1999
-------- --------
IN MILLIONS,
EXCEPT SHARE DATA
Current assets
Cash and equivalents...................................... $ 773.9 $ 162.9
Trade receivables, net.................................... 290.1 253.2
Inventories............................................... 122.7 130.7
Other current assets...................................... 139.6 150.7
-------- --------
Total current assets.............................. 1,326.3 697.5
Investments and other assets................................ 159.9 160.8
Property, plant and equipment, net.......................... 351.6 330.3
Goodwill and intangibles, net............................... 133.2 150.5
-------- --------
Total assets...................................... $1,971.0 $1,339.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $ 59.2 $ 85.3
Accounts payable.......................................... 96.3 80.5
Accrued compensation...................................... 54.6 52.3
Other accrued expenses.................................... 123.9 118.4
Income taxes.............................................. 98.5 83.4
-------- --------
Total current liabilities......................... 432.5 419.9
Long-term debt.............................................. 183.0 208.8
Long-term convertible subordinated notes, net of discount... 401.7 --
Other liabilities........................................... 79.4 75.8
Commitments and contingencies
Minority interest........................................... 0.6 0.1
Stockholders' equity
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued.................................... -- --
Common stock, $.01 par value; authorized 300,000,000
shares; issued 134,255,000............................. 1.3 1.3
Additional paid-in capital................................ 288.7 245.5
Accumulated other comprehensive loss...................... (50.8) (49.3)
Retained earnings......................................... 780.0 651.1
-------- --------
1,019.2 848.6
Less treasury stock, at cost (2,574,000 and 4,436,000
shares)................................................ (145.4) (214.1)
-------- --------
Total stockholders' equity........................ 873.8 634.5
-------- --------
Total liabilities and stockholders' equity........ $1,971.0 $1,339.1
======== ========
See accompanying notes to consolidated financial statements.
A-18
52
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
IN MILLIONS, EXCEPT PER SHARE DATA
Product sales
Net sales................................................... $1,562.6 $1,406.2 $1,261.7
Cost of sales............................................... 429.1 406.4 407.0
-------- -------- --------
Product gross margin...................................... 1,133.5 999.8 854.7
-------- -------- --------
Research services
Research service revenues, primarily from related parties... 62.9 46.2 34.4
Cost of research services................................... 59.4 43.3 32.1
-------- -------- --------
Research services margin.................................. 3.5 2.9 2.3
-------- -------- --------
Selling, general and administrative......................... 650.1 587.9 525.2
Technology fees from related party.......................... (3.1) (6.1) (11.2)
Research and development.................................... 195.6 168.4 125.4
Restructuring charges (credit).............................. (2.0) (9.6) 74.8
Asset write-offs (credit)................................... -- (1.4) 58.5
Contribution to ASTI........................................ -- -- 171.4
-------- -------- --------
Operating income (loss)..................................... 296.4 263.5 (87.1)
Interest income............................................. 23.9 14.3 11.7
Interest expense............................................ (19.8) (15.1) (16.4)
Gain on investments, net.................................... 1.0 14.0 54.1
Contribution to The Allergan Foundation..................... -- (6.9) (11.0)
Other, net.................................................. 2.3 (0.8) (9.0)
-------- -------- --------
Earnings (loss) before income taxes and minority interest... 303.8 269.0 (57.7)
Provision for income taxes.................................. 88.1 80.7 32.8
Minority interest........................................... 0.6 0.1 (0.3)
-------- -------- --------
Net earnings (loss)......................................... $ 215.1 $ 188.2 $ (90.2)
======== ======== ========
Basic earnings (loss) per common share...................... $ 1.65 $ 1.42 $ (0.69)
======== ======== ========
Diluted earnings (loss) per common share.................... $ 1.61 $ 1.39 $ (0.69)
======== ======== ========
See accompanying notes to consolidated financial statements.
A-19
53
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK ADDITIONAL UNEARNED OTHER TREASURY STOCK
------------------ PAID-IN COMPEN- COMPREHENSIVE RETAINED ----------------
SHARES PAR VALUE CAPITAL SATION INCOME (LOSS) EARNINGS SHARES AMOUNT TOTAL
------ --------- ---------- -------- ------------- -------- ------ ------- -------
IN MILLIONS
Balance December 31, 1997..... 67.2 $0.7 $227.7 $(19.6) $ 11.7 $670.8 (1.9) $ (49.9) $ 841.4
Comprehensive loss
Net loss.................... (90.2) (90.2)
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments...............
Unrealized losses on
investments...............
Other comprehensive loss.... (16.0) (16.0)
Comprehensive loss....
Dividends ($0.52 per share)... (34.1) (34.1)
Dividend of ASTI stock........ (28.6) (28.6)
Stock options exercised....... 12.7 (2.9) 1.5 39.2 49.0
Activity under other stock
plans....................... (0.1) (1.1) (1.1) 2.2 0.2 3.9 3.9
Adjustment in reporting of
subsidiaries................ (0.9) (0.9)
Purchases of treasury stock... (0.8) (32.9) (32.9)
Expense of compensation
plans....................... 4.4 4.4
----- ---- ------ ------ ------ ------ ---- ------- -------
Balance December 31, 1998..... 67.1 0.7 239.3 (16.3) (4.3) 516.3 (1.0) (39.7) 696.0
Comprehensive income
Net earnings................ 188.2 188.2
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments...............
Unrealized loss on
investments...............
Other comprehensive loss.... (45.0) (45.0)
Comprehensive
income..............
Two for one stock split
affected as a dividend...... 67.2 0.6 (0.6) (1.0)
Dividends ($0.28 per share)... (37.0) (37.0)
Stock options exercised....... 22.2 (17.8) 1.0 46.6 51.0
Activity under other stock
plans....................... (0.1) (5.4) 4.5 1.3 4.3 3.3
Adjustment in reporting of
subsidiaries................ (2.5) (2.5)
Purchase of treasury stock.... (4.7) (225.3) (225.3)
Expense of compensation
plans....................... 5.8 5.8
----- ---- ------ ------ ------ ------ ---- ------- -------
Balance December 31, 1999..... 134.3 1.3 261.4 (15.9) (49.3) 651.1 (4.4) (214.1) 634.5
Comprehensive income
Net earnings................ 215.1 215.1
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments...............
Unrealized gain on
investments...............
Other comprehensive loss.... (1.5) (1.5)
Comprehensive
income..............
Dividends ($0.32 per share)... (41.9) (41.9)
Stock options exercised....... 37.1 (41.8) 3.9 189.9 185.2
Activity under other stock
plans....................... 0.4 0.7 1.6 2.7
Adjustment in reporting of
subsidiaries................ (3.2) (3.2)
Purchase of treasury stock.... (2.1) (122.8) (122.8)
Expense of compensation
plans....................... 5.7 5.7
----- ---- ------ ------ ------ ------ ---- ------- -------
Balance December 31, 2000..... 134.3 $1.3 $298.5 $ (9.8) $(50.8) $780.0 (2.6) $(145.4) $ 873.8
===== ==== ====== ====== ====== ====== ==== ======= =======
COMPREHENSIVE
INCOME (LOSS)
-------------
IN MILLIONS
Balance December 31, 1997.....
Comprehensive loss
Net loss.................... (90.2)
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments............... (2.1)
Unrealized losses on
investments............... (13.9)
-------
Other comprehensive loss.... (16.0)
-------
Comprehensive loss.... $(106.2)
=======
Dividends ($0.52 per share)...
Dividend of ASTI stock........
Stock options exercised.......
Activity under other stock
plans.......................
Adjustment in reporting of
subsidiaries................
Purchases of treasury stock...
Expense of compensation
plans.......................
Balance December 31, 1998.....
Comprehensive income
Net earnings................ 188.2
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments............... (42.1)
Unrealized loss on
investments............... (2.9)
-------
Other comprehensive loss.... (45.0)
-------
Comprehensive
income.............. $ 143.2
=======
Two for one stock split
affected as a dividend......
Dividends ($0.28 per share)...
Stock options exercised.......
Activity under other stock
plans.......................
Adjustment in reporting of
subsidiaries................
Purchase of treasury stock....
Expense of compensation
plans.......................
Balance December 31, 1999.....
Comprehensive income
Net earnings................ 215.1
Other comprehensive income,
net of tax................
Foreign currency translation
adjustments............... (2.8)
Unrealized gain on
investments............... 1.3
-------
Other comprehensive loss.... (1.5)
-------
Comprehensive
income.............. $ 213.6
=======
Dividends ($0.32 per share)...
Stock options exercised.......
Activity under other stock
plans.......................
Adjustment in reporting of
subsidiaries................
Purchase of treasury stock....
Expense of compensation
plans.......................
Balance December 31, 2000.....
See accompanying notes to consolidated financial statements.
A-20
54
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- ------
IN MILLIONS
Cash flows provided by operating activities
Net earnings (loss)......................................... $ 215.1 $ 188.2 $(90.2)
Non-cash items included in net earnings (loss)
Depreciation and amortization............................. 77.7 73.8 76.5
Amortization of prepaid royalties......................... 7.4 8.6 10.3
Amortization of original issue discount................... 1.7 -- --
Deferred income taxes..................................... (4.6) (7.1) (40.4)
Gain on sale of investments............................... (1.0) (14.0) (54.1)
Contribution to The Allergan Foundation................... -- 6.9 11.0
Loss (gain) on sale of assets............................. 1.1 (0.2) 4.3
Expense of compensation plans............................. 8.5 10.0 8.1
Minority interest......................................... 0.6 0.1 (0.3)
Restructuring charges (credit)............................ (2.0) (9.6) 74.8
Asset write-offs (credit)................................. -- (1.4) 58.5
Adjustment in reporting of foreign subsidiaries........... (3.2) (2.5) (0.9)
Changes in assets and liabilities
Trade receivables......................................... (48.8) (31.8) (40.1)
Inventories............................................... 4.6 (6.9) 18.8
Accounts payable.......................................... 15.9 11.2 (15.8)
Income taxes.............................................. 52.0 66.3 9.7
Accrued liabilities....................................... 24.2 (27.9) 37.3
Other..................................................... 4.9 (9.4) (14.8)
------- ------- ------
Net cash provided by operating activities............ 354.1 254.3 52.7
------- ------- ------
Cash flows from investing activities
Additions to property, plant and equipment.................. (66.9) (63.3) (50.6)
Proceeds from sale of property, plant and equipment......... 1.1 13.7 8.8
Proceeds from sale of investments........................... 3.0 33.8 57.0
Other, net.................................................. (22.5) (37.2) (27.0)
------- ------- ------
Net cash used in investing activities................ (85.3) (53.0) (11.8)
------- ------- ------
Cash flows from financing activities
Dividends to stockholders................................... (41.9) (37.0) (33.8)
ASTI dividend............................................... -- -- (28.6)
(Decrease) increase in notes payable........................ (29.1) 0.6 (32.9)
Sale of stock to employees.................................. 148.1 28.8 36.0
Net (repayments) borrowings under commercial paper
obligations............................................... (47.1) 4.5 (1.1)
Proceeds from subordinated, convertible borrowings.......... 400.0 -- --
Long-term debt borrowings................................... 43.8 17.7 60.4
Repayments of long-term debt................................ (5.2) (2.7) (3.0)
Payments to acquire treasury stock.......................... (122.8) (225.3) (32.9)
------- ------- ------
Net cash provided by (used in) financing
activities........................................ 345.8 (213.4) (35.9)
Effect of exchange rates on cash and equivalents............ (3.6) (6.6) (4.3)
------- ------- ------
Net increase (decrease) in cash and equivalents............. 611.0 (18.7) 0.7
Cash and equivalents at beginning of year................... 162.9 181.6 180.9
------- ------- ------
Cash and equivalents at end of year......................... $ 773.9 $ 162.9 $181.6
======= ======= ======
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest (net of amount capitalized)...................... $ 19.2 $ 13.4 $ 14.3
======= ======= ======
Income taxes.............................................. $ 54.5 $ 33.2 $ 65.8
======= ======= ======
See accompanying notes to consolidated financial statements.
A-21
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Allergan,
Inc. and all of its subsidiaries. All significant transactions among the
consolidated entities have been eliminated from the financial statements.
In 1997, the Company began converting the financial systems in its
significant non-U.S. subsidiaries. At the time of conversion, the results of
such operations were modified to be accounted for on a calendar year basis.
Prior to December 31, 1999, a majority of non-U.S. subsidiaries were included on
the basis of their fiscal years ended November 30. Substantially all
subsidiaries underwent conversion in 1999 and 1998 and had revenues of $19.2
million and $1.3 million, respectively, and net losses of $2.5 million and $0.9
million, respectively, for the month of activity not included. Activities not
included in operating results were recorded as adjustments to retained earnings.
While there were no such conversions in 2000, miscellaneous adjustments were
made during 2000 to the activities previously recorded to retained earnings.
Two foreign subsidiaries remain which account for results on the basis of
their fiscal years ended November 30. The aggregate sales and earnings of these
two subsidiaries represent 1% of total consolidated sales and less than 1% of
earnings for the year ended December 31, 2000.
Use of Estimates
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and, as such,
include amounts based on informed estimates and judgments of management. Actual
results could differ from those estimates.
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries are generally determined using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in accumulated other comprehensive loss in
stockholders' equity. Gains and losses resulting from foreign currency
transactions and translation adjustments relating to foreign entities deemed to
be operating in U.S. dollar functional currency in highly inflationary economies
are included in earnings. For the year ended December 31, 2000, the Company
recognized a foreign currency gain of $2.2 million. For the years ended December
31, 1999 and 1998, the Company recognized foreign currency losses of $1.4
million and $9.7 million, respectively. The Company did not record any foreign
currency translation gains or losses in 2000, 1999 or 1998 related to foreign
entities deemed to be operating in US dollar functional currency in a highly
inflationary economy.
Cash and Equivalents
The Company considers cash and equivalents to include cash in banks,
repurchase agreements, commercial paper and deposits with financial institutions
which can be liquidated without prior notice or penalty.
Inventories
Inventories are valued at the lower of cost or market (net realizable
value). Cost is determined by the first-in, first-out method.
Long-Lived Assets
Property, plant and equipment are stated at cost. Additions, major renewals
and improvements are capitalized, while maintenance and repairs are expensed.
Upon disposition, the net book value of assets is relieved and resulting gains
or losses are reflected in earnings. For financial reporting purposes,
depreciation is
A-22
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
generally provided on the straight-line method over the useful life of the
related asset. Accelerated depreciation methods are generally used for income
tax purposes.
Goodwill represents the excess of acquisition costs over the fair value of
net assets of purchased businesses and is being amortized on a straight-line
basis over periods from 7 to 30 years. Intangibles include patents, licensing
agreements and marketing rights which are being amortized over their estimated
useful lives ranging from 3 to 10 years. Amortization expense was $14.5 million
in 2000, $17.6 million in 1999 and $19.5 million in 1998.
Long-lived assets, goodwill and certain identifiable intangibles are
reviewed for impairment in value based upon undiscounted future operating cash
flows, and appropriate losses are recognized and reflected in current earnings,
to the extent the carrying amount of an asset exceeds its estimated fair value
determined by the use of appraisals, discounted cash flow analyses or comparable
fair values of similar assets.
Revenue Recognition
The Company recognizes revenue from product sales when the goods are
shipped to the customer. The Company generally permits returns of product from
any product line by any class of customer if such product is returned in a
timely manner, in good condition, from the normal channels of distribution.
Returns policies in certain international markets provide for more stringent
guidelines for returns in accordance with the terms of contractual agreements
with customers. Allowances for returns are provided for based upon an analysis
of the Company's historical patterns of returns matched against the sales from
which they originated. Historical product returns have been within the amounts
reserved. Intraocular lenses are the only product that is an exception to the
statements above. Intraocular lenses are generally sold on a consignment basis
and are, therefore, generally not subject to return. Revenue is recognized on
the ultimate sales of intraocular lenses.
Research service revenue is recognized and related costs are recorded as
services are performed under research service agreements. At such time, the
research service customers are obligated to pay, and such obligation is not
refundable.
The Company recognizes income from license fees based upon the facts and
circumstances of each licensing agreement. In general, the Company recognizes
income on signing of a license agreement that grants rights to products or
technology to a third party if the Company has no further obligation to provide
products or services to the third party after granting the license.
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 101 -- "Revenue Recognition in
Financial Statements," as amended, effective October 1, 2000. SAB No. 101
summarizes certain of the staff's views in applying accounting principles
generally accepted in the United States of America to revenue recognition in
financial statements. The Company has implemented SAB No. 101 and there was no
material impact on its financial statements.
Stock-Based Compensation
The Company measures stock based compensation for option grants to
employees and members of the board of directors using a method which assumes
that options granted at market price at the date of grant have no intrinsic
value. Pro forma net earnings (loss) and earnings (loss) per share are presented
in Note 11 as if the fair value method had been applied.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss and credit carryforwards. The impact on deferred taxes of changes
in tax rates and laws, if any, are applied to the years during which temporary
differences are expected to be settled and
A-23
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reflected in the financial statements in the period of enactment. No provision
is made for taxes on unremitted earnings of certain non-U.S. subsidiaries which
are or will be reinvested indefinitely in such operations.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with current year presentation.
New Accounting Standards
In June 1998, Statement of Financial Accounting Standards No.
133 -- "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133) was issued, as amended, and is effective for all periods of fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133
establishes accounting and reporting standards for all derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of position and
measure those instruments at fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized in earnings unless specific hedging
accounting criteria are met. Accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that an entity must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company adopted SFAS No. 133 on January 1, 2001.
The Company has identified three types of derivative instruments at
December 31, 2000 which were recorded on the Company's Consolidated Balance
Sheet on January 1, 2001, the date of adoption of SFAS No. 133. The derivative
instruments are: interest rate swap agreements, foreign currency forward
contracts and foreign currency option contracts.
The Company enters into interest rate swap agreements to reduce the impact
of interest rate changes on its floating rate long-term debt. These swap
agreements qualify as a cash flow hedge under SFAS No. 133. Since the interest
rate swap agreements qualify as a cash flow hedge, the fair value of these
agreements totaling a loss of approximately $100,000 will be recorded as a debit
to other comprehensive income in stockholders' equity at January 1, 2001.
Changes in fair value of these interest rate swap agreements will be adjusted
through other comprehensive income as long as the cash flow hedge requirements
are met.
The Company enters into foreign currency forward and option contracts to
reduce earnings and cash flow volatility associated with foreign exchange rate
changes and its impact on the value of foreign currency assets and liabilities,
commitments and anticipated foreign currency denominated sales and operating
expenses. Upon adoption of SFAS No. 133, the Company's management decided not to
designate these derivative instruments as accounting hedges. Accordingly, during
the first quarter of fiscal 2001, the Company will record a net-of-tax
cumulative-effect loss of $1.8 million into earnings to recognize the foreign
currency forward and option contracts at fair value at January 1, 2001. Future
changes in the fair value of these contracts will be recorded through current
operations.
NOTE 2: COMMON STOCK SPLIT
On October 21, 1999, the Company's Board of Directors approved a two for
one stock split in the form of a 100% stock dividend. At December 31, 1999, this
stock split was recorded as a transfer of $671,000 from retained earnings to
Common Stock, representing a $0.01 par value for each additional share issued.
All share and per share data, including the Employee Stock Ownership Plan
and Incentive Compensation Plan information, is stated to reflect the split for
all periods presented prior to December 31, 1999 except for the Consolidated
Statement of Stockholders' Equity for the year ended December 31, 1998.
A-24
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: SPECIAL CHARGES
Results for 1998 include three special charges disclosed on specific lines
in the Consolidated Statements of Operations.
The Company recorded a charge of $171.4 million in March 1998 relating to
the dividend distribution of Allergan Specialty Therapeutics, Inc. (ASTI) stock
to the Company's stockholders. Such amount represents the excess of the $200
million contributed to ASTI by the Company over the aggregate market value of
ASTI stock at the commencement of trading as an independent company.
During 1998, the Company recorded a $74.8 million restructuring charge,
$50.9 million after taxes. The restructuring charge represented the costs of a
comprehensive plan to streamline operations and reduce costs through reductions
in global general and administrative (G&A) staff and the closure of five of ten
manufacturing facilities in connection with the outsourcing and consolidation of
manufacturing operations. In addition, operations in many countries were
transferred to distributors, and business activities were concentrated into
regional shared service centers. The changes in operations were expected to
result in a net workforce reduction of 695 positions over a three-year period.
The reductions in G&A staff and manufacturing facilities are primarily the
result of a strategic assessment of the Company's product lines and businesses
and a review of the G&A cost structure and manufacturing capabilities during
1998. During the years ended December 31, 2000, 1999 and 1998, severance
payments of $4.0 million, $8.5 million and $3.6 million, respectively, were made
to 20, 323 and 141 terminated employees, respectively, associated with the
reduction of G&A staff and manufacturing facilities.
In 1999, the Company determined that various restructuring activities were
completed for less cost than estimated in 1998, primarily as a result of lower
than anticipated severance costs. A total of 95 positions included in the 695
position reduction did not require severance payments as certain employees
terminated their employment prior to the date they would have qualified for
severance, and other employees transferred to unfilled positions in other areas.
As a result, the Company recorded a $3.8 million reduction in the restructuring
charge in 1999.
The following table presents the restructuring activities through December
31, 2000 resulting from the 1998 restructuring charge (in millions):
PAYMENTS FACILITY ABANDONMENT
TO EMPLOYEES CLOSURE AND OF COMPUTER
INVOLUNTARILY CONSOLIDATION SOFTWARE OTHER TOTAL
TERMINATED COSTS COSTS COSTS RESTRUCTURING
------------- ------------- ----------- ----- -------------
Net charge during 1998.......... $22.7 $ 28.9 $ 10.6 $12.6 $ 74.8
Assets written off during
1998.......................... -- (25.3) (10.6) (4.8) (40.7)
Spending during 1998............ (3.6) -- -- (7.4) (11.0)
----- ------ ------ ----- ------
Balances as of December 31,
1998.......................... 19.1 3.6 -- 0.4 23.1
Adjustments during 1999......... -- (0.3) -- 0.3 --
Net credit during 1999.......... (2.6) (0.7) -- (0.5) (3.8)
Assets written off during
1999.......................... -- (0.3) -- -- (0.3)
Spending during 1999............ (8.5) (0.4) -- -- (8.9)
----- ------ ------ ----- ------
Balances as of December 31,
1999.......................... 8.0 1.9 -- 0.2 10.1
Adjustments during 2000......... (0.5) 0.4 -- 0.1 --
Spending during 2000............ (4.0) -- -- (0.1) (4.1)
----- ------ ------ ----- ------
Balances as of December 31,
2000.......................... $ 3.5 $ 2.3 $ -- $ 0.2 $ 6.0
===== ====== ====== ===== ======
During 1998, the Company offered an early retirement program to certain
employees. The increase in pension liability resulting from this program is
included in the table above as 1998 "spending" under "other costs".
A-25
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1998, management also completed a critical review of its asset bases in
light of the strategic decisions made in the restructuring activities discussed
above. Management made business decisions relating to the future use of certain
assets resulting in a reassessment of the carrying value of such assets. As a
result, the Company recorded a $58.5 million charge, $41.1 million after taxes.
Such charge reduced the value of a manufacturing facility, office facilities in
Germany and Spain, assets related to certain Herald skin care products and
certain other assets. The Company determined that the value of the assets, other
than office facilities, were impaired by comparing the carrying value of each
asset with an undiscounted cash flow analysis for each asset. The value of each
asset was written-down to the higher of its net realizable sales value less
costs to sell or the value determined by a discounted cash flow analysis. The
$58.5 million charge related to the following business segments: $18.0 million
in the United States, $4.5 million in Europe, $18.5 million in Asia Pacific,
$0.4 million in the Other geographic segment, and $17.1 million related to
corporate, research and product related assets.
In 1999, the Company realized $1.4 million in proceeds in excess of
estimates from disposal of certain real property included in the 1998 asset
write-off. As a result, the Company recorded a $1.4 million reduction in the
asset write-off charge in 1999.
In 1996, the Company recorded a $70.1 million restructuring charge to
streamline operations and reduce costs through management restructuring and
facilities consolidation affecting 22 locations worldwide. The Company began
restructuring activities in Europe in 1996 and completed them in 1999. Over the
three year period, such activities restructured European operations from
separate administrative services in various countries to a single shared service
center organization for the region. In 1999, the Company determined that
severance costs of positions eliminated would be $5.8 million less than accrued
in 1996. As a result, the Company recorded a $5.8 million reduction in the
restructuring charge in 1999. In 2000, the Company reviewed all restructuring
activities related to the 1996 restructure charge and determined that all
activities were completed. As a result, the remaining accrual of $2.0 million,
representing primarily an accrual for other costs, was eliminated. There will be
no further activities related to the 1996 restructuring plan.
A-26
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the restructuring activities through December
31, 2000 resulting from the 1996 restructuring charge (in millions):
PAYMENTS FACILITY
TO EMPLOYEES CLOSURE AND
INVOLUNTARILY CONSOLIDATION OTHER TOTAL
TERMINATED COSTS COSTS RESTRUCTURING
------------- ------------- ----- -------------
Net charge during 1996............... $34.0 $ 29.6 $ 6.5 $ 70.1
Assets written off during 1996....... -- (25.9) (6.2) (32.1)
Spending during 1996................. (9.9) (0.7) (0.2) (10.8)
----- ------ ----- ------
Balances as of December 31, 1996..... 24.1 3.0 0.1 27.2
Adjustments during 1997.............. (0.5) -- 0.5 --
Spending during 1997................. (7.6) (3.0) (0.6) (11.2)
----- ------ ----- ------
Balances as of December 31, 1997..... 16.0 -- -- 16.0
Adjustments during 1998.............. (0.4) -- 0.4 --
Assets written off during 1998....... -- -- (0.4) (0.4)
Spending during 1998................. (5.0) -- -- (5.0)
----- ------ ----- ------
Balances as of December 31, 1998..... 10.6 -- -- 10.6
Adjustments during 1999.............. (2.0) -- 2.0 --
Net credit during 1999............... (5.8) -- -- (5.8)
Spending during 1999................. (2.6) -- -- (2.6)
----- ------ ----- ------
Balances as of December 31, 1999..... 0.2 -- 2.0 2.2
Net credit during 2000............... (0.1) -- (1.9) (2.0)
Spending during 2000................. (0.1) -- (0.1) (0.2)
----- ------ ----- ------
Balances as of December 31, 2000..... $ -- $ -- $ -- $ --
===== ====== ===== ======
NOTE 4: CONTRIBUTION TO THE ALLERGAN FOUNDATION
In 1998, the Company founded The Allergan Foundation, an independent
charitable foundation. In 1998, the Company disposed of the remainder of its
investment in Ocular Sciences, Inc. (OSI) for a gain of $51.8 million. Prior to
sale of the investment, the Company contributed $11.0 million in OSI stock to
The Allergan Foundation. In 1999, the Company disposed of its investment in
Pharmacia & Upjohn Inc. for a gain of $6.9 million. Such investment was the
result of an investment in SUGEN, Inc. that was acquired by Pharmacia & Upjohn,
Inc. in 1999. Prior to the sale of the investment, the Company contributed $6.9
million of Pharmacia & Upjohn, Inc. stock to The Allergan Foundation. The
Company has no obligation to provide additional contributions to The Allergan
Foundation on an annual or other basis. There were no contributions to The
Allergan Foundation in 2000.
NOTE 5: ALLERGAN SPECIALTY THERAPEUTICS, INC. (ASTI)
In 1997 the Company formed a new subsidiary, ASTI, to conduct research and
development of potential pharmaceutical products based on the Company's retinoid
and neuroprotective technologies. On March 10, 1998, the Company made a special
distribution of ASTI Class A Common Stock to the Company's stockholders.
Prior to the distribution, the Company contributed $200 million to ASTI.
The market value of ASTI stock on March 10, 1998 was $28.6 million. The Company
recorded a dividend for the amount of the market value of ASTI stock at the
distribution. The remainder of the $200 million, $171.4 million, was recorded as
a charge against operating income. The Company's stockholders received one share
of ASTI Class A Common Stock for each 20 shares of Common Stock held as of a
record date. As a result, 3,272,690 shares of ASTI Class A Common Stock were
issued in the distribution. The Company's stockholders were not required to pay
any cash or other consideration for the ASTI Class A Common Stock received in
the distribution.
A-27
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As the sole holder of ASTI's outstanding Class B Common Stock following the
distribution, the Company has the right to vote separately as a class with
respect to any merger or liquidation of ASTI, the sale, lease, exchange,
transfer or other disposition of any substantial asset of ASTI and any
amendments to the Restated Certificate of Incorporation of ASTI that would alter
the Company's purchase option, ASTI's authorized capitalization or the
provisions governing ASTI's Board of Directors. As the holder of all of the
Class B Common Stock, the Company is entitled to elect one ASTI director. On all
other matters, the Class A and Class B Common Stockholders vote together as a
single class, with each Class A and Class B Common Share having one vote.
Ownership of the Class B Common Stock conveys to Allergan rights to acquire the
Class A Common Stock of ASTI or selected assets of ASTI. Allergan has an
irrevocable option to purchase all of the issued and outstanding shares of ASTI
Class A Common Stock until the option terminates. This purchase option will
terminate on the 90th day after the date on which Allergan receives notice that
the amount of cash and marketable securities held by ASTI is less than $15
million. If the purchase option is exercised, the exercise price will be set by
a pre-established formula. The Company has also granted certain technology
licenses and agreed to make specified payments on sales of certain products in
exchange for the payment by ASTI of a technology fee and the option to
independently develop certain compounds funded by ASTI prior to the filing of an
Investigational New Drug application with the U.S. Food and Drug Administration
with respect thereto and to license any products and technology developed by
ASTI. The Company will recognize the technology fee as revenue as it is earned
and received. For the years ended December 31, 2000, 1999 and 1998, technology
fees of $3.1 million, $6.1 million and $11.2 million, respectively, were earned
and reported in technology fees from related party in the accompanying
Consolidated Statements of Operations. If ASTI were to operate for a full five
years, the future fees earned would be $1.6 million in 2001.
ASTI's technology and product research and development activities take
place under a research and development agreement with the Company. The Company
recognizes revenues and related costs as services are performed under such
contracts. It is expected that substantially all of ASTI's funds will be
directed toward continuing the research and development of products based on
retinoid and neuroprotective technologies. In addition, ASTI may fund the
research and development of pharmaceutical products in therapeutic categories of
interest to the Company, other than those based on retinoid and neuroprotective
technologies, that complement the Company's product pipeline or otherwise are
believed to provide a potential commercialization opportunity for the Company.
For the years ended December 31, 2000, 1999 and 1998, the Company earned $62.9
million, $46.2 million and $34.4 million, respectively, in research service
revenues under the research and development agreement with ASTI.
A-28
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of operations for ASTI for the years ended
December 31, 2000, 1999 and 1998, and for the cumulative period from Inception
(November 12, 1997) to December 31, 2000, and financial position at December 31,
2000 and 1999:
CUMULATIVE PERIOD FROM
YEAR ENDED NOVEMBER 12, 1997
-------------------------------------------- (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998 2000
------------ ------------ ------------ ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS:
Revenues....................... $ 3,218 $ 7,110 $ 9,043 $ 19,371
Costs and expenses
Research and development.... 64,299 49,200 35,886 149,385
Technology fees............. 5,775 5,500 6,520 17,795
General and
administrative............ 1,033 1,198 933 3,164
---------- ---------- ---------- ---------
Total costs and
expenses............. 71,107 55,898 43,339 170,344
---------- ---------- ---------- ---------
Net loss......................... $ (69,246) $ (52,806) $ (36,808) $(158,860)
========== ========== ========== =========
Basic & diluted loss per share... $ (21.15) $ (16.13) $ (11.24) $ (48.53)
========== ========== ========== =========
Basic & diluted shares
outstanding.................... 3,273,690 3,273,690 3,273,690 3,273,690
BALANCE SHEET DATA:
Cash and investments........... $ 42,603 $ 105,299
Total assets................... 45,350 112,022
Payable to Allergan, Inc....... 7,085 6,047
Total liabilities.............. 7,223 6,047
Total stockholders' equity..... 38,127 105,975
A-29
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
DECEMBER 31,
----------------
2000 1999
------ ------
(IN MILLIONS)
Trade receivables, net
Trade receivables......................................... $294.1 $258.6
Less allowance for doubtful accounts...................... 4.0 5.4
------ ------
$290.1 $253.2
====== ======
Inventories
Finished products......................................... $ 81.4 $ 87.5
Work in process........................................... 23.6 13.3
Raw materials............................................. 17.7 29.9
------ ------
$122.7 $130.7
====== ======
Other current assets
Prepaid expenses.......................................... $ 45.5 $ 48.1
Deferred taxes............................................ 56.1 55.8
Other..................................................... 38.0 46.8
------ ------
$139.6 $150.7
====== ======
Property, plant and equipment, net
Land...................................................... $ 8.6 $ 13.0
Buildings................................................. 331.5 296.3
Machinery and equipment................................... 318.7 301.5
------ ------
658.8 610.8
Less accumulated depreciation............................. 307.2 280.5
------ ------
$351.6 $330.3
====== ======
Goodwill and intangibles, net Goodwill...................... $243.2 $250.5
Intangibles............................................... 22.2 25.5
------ ------
265.4 276.0
Less accumulated amortization............................. 132.2 125.5
------ ------
$133.2 $150.5
====== ======
A-30
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
2000 1999
AVERAGE AVERAGE
EFFECTIVE EFFECTIVE
INTEREST DECEMBER 31, INTEREST DECEMBER 31,
RATE 2000 RATE 1999
--------- ------------ --------- ------------
(IN MILLIONS)
Bank loans............................. 8.67% $ 22.7 5.32% $ 20.6
Commercial paper....................... -- -- 6.62% 47.1
ESOP loan due 2003..................... 5.75% 7.4 5.29% 10.3
Medium term notes 5.72% - 7.45% due
from 2000 - 2003..................... 6.65% 89.0 5.94% 89.0
Yen denominated notes due from
2001 - 2005.......................... 1.86% 117.9 1.70% 119.5
Capitalized leases..................... 2.8 3.6
Other.................................. 2.4 4.0
------ ------
$242.2 $294.1
Less current maturities.............. 59.2 85.3
------ ------
Total long-term debt......... $183.0 $208.8
====== ======
At December 31, 2000 and 1999, the Company had a domestic unused committed
line of credit of $250 million which supports general corporate purposes and
domestic commercial paper borrowing arrangements. The commitment fees under the
agreement are nominal. In addition, the Company had foreign unused committed
lines of credit of approximately $17.5 million in 2000 and $20.5 million in
1999.
The credit facilities and medium term note program entered into by the
Company provide that the Company will maintain certain financial and operating
covenants which include, among other provisions, maintaining minimum debt to
capitalization ratios and minimum consolidated net worth. Certain covenants also
limit subsidiary debt and restrict dividend payments. The Company was in
compliance with these covenants as of December 31, 2000.
The aggregate maturities of debt for each of the next five years and
thereafter are as follows: $59.2 million in 2001; $62.7 million 2002; $76.3
million in 2003; $0.5 million in 2004 and $43.5 million in 2005. Interest
incurred of $0.3 million in 2000, $0.9 million in 1999 and $0.7 million in 1998
has been capitalized and included in property, plant and equipment.
NOTE 8: CONVERTIBLE SUBORDINATED NOTES
On November 1, 2000, the Company issued Zero Coupon Convertible
Subordinated Notes (the "Convertible Notes") with an aggregate principal amount
at maturity of $657.5 million. The Convertible Notes, which were issued at a
discount of $257.5 million, are unsecured, subordinate to all other Company
indebtedness, and accrue interest at 2.5% annually, maturing on November 1,
2020. The Convertible Notes are convertible into approximately 3.8 million
common shares at any time on or before maturity or redemption of the Convertible
Notes.
At December 31, 2000, approximately $1.7 million of interest expense was
recognized representing the amortization of discount from the issuance date of
November 1, 2000 to December 31, 2000. The discount was amortized using the
effective interest method. At December 31, 2000, approximately $255.8 million of
unamortized discount remains as a component of the Convertible Notes.
A-31
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: INCOME TAXES
The components of earnings (loss) before income taxes and minority interest
were:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------ ------ -------
(IN MILLIONS)
Earnings (loss) before income taxes and minority
interest
U.S. ................................................. $167.8 $ 91.4 $(144.1)
Non-U.S. ............................................. 136.0 177.6 86.4
------ ------ -------
Earnings (loss) before income taxes and minority
interest.............................................. $303.8 $269.0 $ (57.7)
====== ====== =======
The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
----- ----- ------
(IN MILLIONS)
Income tax expense (benefit)
Current
U.S. federal.......................................... $56.6 $49.6 $ 48.4
Non-U.S. ............................................. 28.1 26.4 18.4
U.S. state and Puerto Rico............................ 8.0 13.4 13.9
----- ----- ------
Total current.................................... 92.7 89.4 80.7
----- ----- ------
Deferred
U.S. federal.......................................... 3.8 (6.7) (31.4)
Non-U.S. ............................................. (5.2) 3.8 (13.3)
U.S. state and Puerto Rico............................ (3.2) (5.8) (3.2)
----- ----- ------
Total deferred................................... (4.6) (8.7) (47.9)
----- ----- ------
Total............................................ $88.1 $80.7 $ 32.8
===== ===== ======
The reconciliations of the U.S. federal statutory tax rate to the combined
effective tax rate follow:
2000 1999 1998
----- ----- -----
Statutory rate of tax (benefit) expense..................... 35% 35% (35.0)%
State taxes, net of U.S. tax benefit...................... 0.9 1.1 (3.1)
Ireland and Puerto Rico income............................ (11.7) (12.0) (43.9)
U.S. tax effect of foreign earnings and dividends, net of
foreign tax credits.................................... 3.4 7.8 1.2
Other credits (R&D)....................................... (2.8) (0.9) (4.0)
Taxes on unremitted earnings of subsidiaries.............. 2.0 (0.7) 37.7
Valuation allowance, federal & state, on ALRT
contribution........................................... -- -- (3.9)
ASTI contribution......................................... -- -- 103.9
Other..................................................... 2.2 (0.3) 3.9
----- ----- -----
Effective tax rate................................ 29.0% 30.0% 56.8%
===== ===== =====
Withholding and U.S. taxes have not been provided on approximately $500.7
million of unremitted earnings of certain non-U.S. subsidiaries because such
earnings are or will be reinvested in operations or will be offset by
appropriate credits for foreign income taxes paid. Such earnings would become
taxable upon the sale or liquidation of these non-U.S. subsidiaries or upon the
remittance of dividends. It is not practicable to estimate the amount of the
deferred tax liability on such unremitted earnings. Upon remittance, certain
foreign countries impose withholding taxes that are then available, subject to
certain limitations, for use as credits against the Company's U.S. tax
liability, if any.
A-32
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have either been audited and/or settled through
statute expiration through the year 1995. The Company and its consolidated
subsidiaries are not currently under examination.
At December 31, 2000, the Company has net operating loss carryforwards in
certain non-U.S. subsidiaries, with various expiration dates, of approximately
$45.9 million.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 2000, 1999 and
1998 are as follows:
2000 1999 1998
------ ------ -----
(IN MILLIONS)
Deferred tax assets
Net operating loss carryforwards (foreign).............. $ 14.4 $ 13.0 $15.3
Accrued expenses........................................ 15.7 19.2 16.7
Capitalized expenses.................................... 17.4 19.4 17.2
Deferred compensation................................... 7.5 6.3 4.1
Pension expense......................................... 15.1 12.5 11.9
Medicaid rebates........................................ 6.0 4.0 4.3
Postretirement medical benefits......................... 7.5 7.6 7.1
Purchase of ALRT assets................................. 10.5 11.5 12.4
Asset write-off -- manufacturing facility............... 5.5 7.0 7.0
Plant consolidation..................................... 7.9 6.3 7.1
Asset write-off......................................... -- -- 6.7
Research credit carryforwards........................... 9.2 14.4 --
All other............................................... 31.7 26.8 18.6
------ ------ -----
148.4 148.0 128.4
Less: valuation allowance............................... (31.8) (30.2) (27.6)
------ ------ -----
Total deferred tax asset........................ 116.6 117.8 100.8
------ ------ -----
Deferred tax liabilities
Depreciation............................................ 9.2 12.5 9.2
All other............................................... 0.3 2.8 (2.2)
------ ------ -----
Total deferred tax liabilities.................. 9.5 15.3 7.0
------ ------ -----
Net deferred tax asset.................................... $107.1 $102.5 $93.8
====== ====== =====
The balances of net current deferred tax assets and net non-current
deferred tax assets at December 31, 2000 were $56.1 million and $51.0 million,
respectively. The balances of net current deferred tax assets and net
non-current deferred tax assets at December 31, 1999 were $55.8 million and
$46.7 million, respectively. Such amounts are included in other current assets
and investments and other assets in the Consolidated Balance Sheets.
Based on the Company's historical pre-tax earnings, management believes it
is more likely than not that the Company will realize the benefit of the
existing net deferred tax asset at December 31, 2000. Management believes the
existing net deductible temporary differences will reverse during periods in
which the Company generates net taxable income, however, there can be no
assurance that the Company will generate any earnings or any specific level of
continuing earnings in future years. Certain tax planning or other strategies
could be implemented, if necessary, to supplement income from operations to
fully realize recorded tax benefits.
A-33
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: EMPLOYEE RETIREMENT AND OTHER BENEFIT PLANS
Pension and Postretirement Benefit Plans
The Company sponsors qualified defined benefit pension plans covering
substantially all of its employees. In addition, the Company sponsors two
supplemental nonqualified plans, covering certain management employees and
officers. U.S. pension benefits are based on years of service and compensation
during the five highest consecutive earnings years. The Company's funding policy
for its U.S. qualified plan is to provide currently for accumulated benefits,
subject to federal regulations. Plan assets of the qualified plan consist
primarily of fixed income and equity securities. Benefits for the nonqualified
plans are paid as they come due.
The Company has one retiree health plan that covers United States retirees
and dependents. Retiree contributions are required depending on the year of
retirement and the number of years of service at the time of retirement.
Disbursements exceed retiree contributions and the plan currently has no assets.
The accounting for the health care plan anticipates future cost-sharing changes
to the written plan that are consistent with the Company's past practice and
management's intent to manage plan costs. The Company's history of retiree
medical plan modifications indicates a consistent approach to increasing the
cost sharing provisions of the plan.
Components of net periodic benefit cost under the Company's U.S. and major
non-U.S. pension plans and retiree health plan for 2000, 1999 and 1998 were:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------------- -----------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ----- ----- -----
(IN MILLIONS)
Service cost.......................... $ 11.0 $ 10.7 $ 9.8 $ 0.8 $ 0.9 $ 0.9
Interest cost......................... 14.6 13.0 11.8 0.8 0.7 0.8
Expected return on plan assets........ (11.6) (14.0) (11.6) -- -- --
Amortization of transition amount..... (0.5) (0.5) (0.4) -- -- --
Amortization of prior service cost.... 0.2 0.2 0.2 (0.1) (0.1) (0.1)
Recognized net actuarial (gain)
loss................................ (2.5) 3.4 1.1 (0.3) (0.3) (0.1)
Settlement loss....................... -- -- 8.6 -- -- 0.2
Curtailment gain (loss)............... -- 0.1 -- -- (0.1) (0.1)
------ ------ ------ ----- ----- -----
Net periodic benefit cost............. $ 11.2 $ 12.9 $ 19.5 $ 1.2 $ 1.1 $ 1.6
====== ====== ====== ===== ===== =====
Included in 1998 settlement loss is $7.4 million and $0.2 million for
pension benefits and other postretirement benefits, respectively, representing
the cost of enhanced termination benefits to participants of a voluntary early
retirement program. Such costs were included in the restructuring charge as more
fully described in Note 3.
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68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of the change in benefit obligation, change in plan assets and
funded status for the Company's U.S. and major non-U.S. pension plans and
retiree health plan for December 31, 2000 and 1999 were as follows:
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
2000 1999 2000 1999
------- ------- ------ ------
(IN MILLIONS)
Change in benefit obligation
Benefit obligation, beginning of period..................... $197.1 $195.4 $ 9.8 $13.2
Service cost................................................ 11.0 10.7 0.8 0.9
Interest cost............................................... 14.6 13.0 0.8 0.7
Participant contributions................................... 0.8 0.8 -- --
Curtailment gain............................................ -- -- -- (0.2)
Actuarial (gain) loss....................................... (3.1) (12.8) 1.0 (4.5)
Settlement gain............................................. -- (2.5) -- --
Benefits paid............................................... (5.5) (5.5) (0.7) (0.3)
Impact of foreign currency translation...................... (3.0) (2.0) -- --
------ ------ ----- -----
Benefit obligation, end of period........................... $211.9 $197.1 $11.7 $ 9.8
------ ------ ----- -----
Change in plan assets
Fair value of plan assets, beginning of period.............. $156.0 $140.7 $ -- $ --
Actual return on plan assets................................ 10.9 16.6 -- --
Company contribution........................................ 6.5 8.3 0.7 0.3
Participant contributions................................... 0.8 0.8 -- --
Benefits paid............................................... (5.5) (5.5) (0.7) (0.3)
Settlement gain............................................. -- (2.5) -- --
Impact of foreign currency translation...................... (1.0) (2.4) -- --
------ ------ ----- -----
Fair value of plan assets, end of period.................... $167.7 $156.0 $ -- $ --
------ ------ ----- -----
Funded status of plan....................................... $ 44.2 $ 41.1 $11.7 $ 9.8
Unrecognized net actuarial (loss) gain...................... (1.2) (2.5) 6.5 7.8
Unrecognized prior service cost............................. (1.3) (1.6) 1.3 1.3
Unrecognized net transition obligation...................... 1.0 1.5 -- --
Fourth quarter contributions................................ (1.3) (0.2) -- --
------ ------ ----- -----
Accrued benefit cost........................................ $ 41.4 $ 38.3 $19.5 $18.9
------ ------ ----- -----
The funded status of the pension and other postretirement benefits
presented as of December 31, 2000 and 1999 were measured as of September 30,
2000 and 1999, respectively. The Company adopted this measurement date to
conform to its internal cost management systems.
Weighted average assumptions as of December 31 are:
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- --------------
2000 1999 2000 1999
------- ------ ----- -----
Discount rate used..................................... 8.00% 7.75% 7.75% 7.75%
Expected return on plan assets......................... 10.00% 9.00% n/a n/a
Rate of compensation increase.......................... 5.39% 5.14% n/a n/a
A-35
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported as other postretirement benefits. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN MILLIONS)
Effect on total service and interest cost
components............................... $0.5 $(0.4)
Effect on postretirement benefit
obligation............................... 2.5 (2.1)
Cost increases of 5% were assumed for the indemnity medical plan and 6% for
the HMO medical plan in 2000. Annual cost increases were assumed to remain at 5%
for the medical plans in 2001 and remain level thereafter.
Savings and Investment Plan
The Company has a Savings and Investment Plan, which provides for all U.S.
and Puerto Rico employees to become participants upon employment. In general,
participants' contributions, up to 5% of compensation, qualify for a 50% Company
match. Company contributions are generally used to purchase Allergan Common
Stock. The Company's cost of the plan was $3.8 million in 2000, $2.8 million in
1999, and $3.3 million in 1998.
NOTE 11: EMPLOYEE STOCK OWNERSHIP PLAN AND INCENTIVE COMPENSATION PLANS
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (ESOP) for U.S. employees.
A related loan is guaranteed by the Company as to payment of principal and
interest and, accordingly, the unpaid balance of the loan is included in the
Company's consolidated financial statements as debt, offset by unearned
compensation included in stockholders' equity. The ESOP trust purchased
2,670,000 shares from the Company using the proceeds of the loan, all of which
are considered outstanding for purposes of calculating earnings per share.
Participants receive an allocation of shares held in the plan based on the
amortization schedule of the loan borrowed by the ESOP to purchase the shares,
and generally become vested over five years of Company service. Allocated shares
are divided among participants based on relative compensation. Allocated and
unallocated shares in the ESOP as of December 31, 2000 and 1999, are summarized
below. The 1999 number of shares have been presented giving effect to the two
for one stock split in December 1999 (Note 2).
NUMBER OF SHARES
----------------
2000 1999
------ ------
(IN THOUSANDS)
Allocated shares............................................ 1,976 1,780
Shares committed to be allocated............................ 203 196
Unallocated shares.......................................... 491 694
----- -----
Total ESOP shares................................. 2,670 2,670
===== =====
The loan has a fifteen year maturity, with quarterly principal and interest
payments. Under the current repayment plan, the loan will be repaid in July
2003. Interest rates are determined at the Company's option based upon a percent
of prime or the LIBOR and the Company's consolidated debt to capitalization
ratio.
Dividends accrued on unallocated shares held by the ESOP are used to repay
the loan and totaled $0.2 million in 2000, $0.3 million in 1999 and $0.6 million
in 1998. Dividends received on allocated shares held by the ESOP are allocated
directly to participants' accounts. Interest incurred on ESOP debt in 2000,
A-36
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1999, and 1998 was $0.5 million, $0.5 million and $0.7 million, respectively.
Compensation expense is recognized based on the amortization of the related
loan. Compensation expense for 2000, 1999 and 1998 was $2.7 million, $2.5
million and $2.2 million, respectively.
Incentive Compensation Plans
The Company has an incentive compensation plan and a nonemployee director
stock plan. The incentive compensation plan provides for the granting of
non-qualified stock options, restricted stock and other stock-based incentive
awards for officers and key employees. As of December 31, 2000, an aggregate of
approximately 17,646,000 shares of stock have been authorized for issuance under
the incentive compensation plan and 250,000 shares have been authorized for
issuance under the nonemployee director stock plan.
Generally, grants have historically provided that options become
exercisable 25% per year beginning twelve months after the date of grant.
Options generally expire ten years after their original date of grant. Options
granted under the Company's incentive compensation plan provide that an employee
holding a stock option may exchange stock which the employee has owned for at
least six months as payment against the exercise of their option. This provision
applies to all options outstanding at December 31, 2000.
Stock option activity under the Company's incentive compensation plan is
summarized below. The 1999 and 1998 presentation of the number of shares and
weighted average exercise price reflect the two for one stock split in December
1999 (Note 2).
2000 1999 1998
--------------------------------- -------------------------------- --------------------------------
NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE OF AVERAGE OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
(IN THOUSANDS, EXCEPT OPTION PRICE DATA)
Outstanding, beginning of
year.................... 9,645 $30.06 6,835 $14.45 8,942 $13.15
Options granted........... 2,180 54.32 4,955 44.77 1,702 17.56
Options exercised......... (3,893) 38.06 (2,075) 13.99 (3,005) 12.11
Options cancelled......... (160) 34.66 (70) 23.95 (804) 15.33
------ ------ ------
Outstanding, end of
year.................... 7,772 32.77 9,645 30.06 6,835 14.45
====== ====== ======
Exercisable, end of
year.................... 2,652 19.55 2,575 14.27 3,154 13.08
====== ====== ======
Weighted average fair
value of options granted
during the year......... $21.40 $9.79 $5.85
====== ===== =====
The fair value of each option granted during 2000, 1999 and 1998 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0.60% in 2000, 0.75% in 1999 and
1.5% in 1998, expected volatility of 34.0% for 2000 and 1999 and 32% for 1998,
risk-free interest rate of 6.6% in 2000, 4.9% in 1999 and 5.5% in 1998, and
expected life of 5 years for 2000, 4 years for 1999 and 7 years for 1998 grants.
A-37
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes stock options outstanding at December 31,
2000 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER NUMBER
OUTSTANDING AVERAGE EXERCISABLE
RANGE OF AT DECEMBER 31, REMAINING WEIGHTED AVERAGE AT DECEMBER 31, WEIGHTED AVERAGE
EXERCISE PRICES 2000 CONTRACTUAL LIFE EXERCISE PRICE 2000 EXERCISE PRICE
--------------- --------------- ---------------- ---------------- --------------- ----------------
$10.53 - $13.81 1,669 5.3 $13.17 1,206 $13.05
$16.59 - $17.56 1,514 6.3 $17.34 916 $17.36
$26.44 - $34.66 1,809 7.8 $34.52 370 $34.43
$42.69 - $60.41 2,773 8.7 $51.73 160 $46.81
$75.13 7 9.5 $75.13 -- --
----- -----
7,772 2,652
===== =====
No compensation expense has been recognized for stock-based incentive
compensation plans other than for restricted stock awards under the incentive
compensation plan and the nonemployee director stock plan. Had compensation
expense for the Company's stock options under the incentive compensation plan
been recognized based upon the fair value for awards granted, the Company's net
earnings would have been decreased by $19.2 million or $0.15 for basic earnings
per share and $0.14 for diluted earnings per share in 2000, $15.0 million or
$0.11 for both basic and diluted earnings per share in 1999, and the net loss
would have increased by $6.1 million or $0.05 for both basic and diluted loss
per share in 1998. These proforma effects are not indicative of future amounts.
The Company expects to grant additional awards in future years.
Under the terms of the incentive compensation plan, the restricted stock
awards are subject to restrictions as to sale or other disposition of the shares
and to restrictions which require continuous employment with the Company. The
restrictions generally expire, and the awards become fully vested, four years
from the date of grant. The Company did not grant any shares in 2000 and granted
180,000 shares of stock under the plan in 1999. The weighted average grant date
price of the restricted stock grants was $35.26 in 1999. Grants of restricted
stock are charged to unearned compensation in stockholders' equity at their
intrinsic value and recognized in expense over the vesting period. Compensation
expense recognized under the restricted stock award plan was $2.1 million in
2000, $2.4 million in 1999 and $1.3 million in 1998.
Under the terms of the nonemployee director stock plan, each eligible
director received an initial grant of restricted stock and will receive
additional grants upon re-election to the Board. As of December 31, 2000, there
were 37,532 shares issued and outstanding under the plan. Compensation expense
recognized under the plan was $1.0 million in 2000, $780,000 in 1999 and
$185,000 in 1998.
NOTE 12: FINANCIAL INSTRUMENTS
In the normal course of business, operations of the Company are exposed to
risks associated with fluctuations in interest rates and currency exchange
rates. The Company addresses these risks through controlled risk management that
includes the use of derivative financial instruments to hedge these exposures.
The Company does not enter into financial instruments for trading or speculative
purposes.
The Company enters into derivative financial instruments with major
financial institutions that have at least an "A" or equivalent credit rating.
The Company has not experienced any losses on its derivative financial
instruments to date due to credit risk and management believes that such risk is
remote and in any event would be immaterial.
Interest Rate Risk Management
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
rates
A-38
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
available to the Company if fixed-rate borrowings were made directly. Under
interest rate swaps, the Company will pay a fixed interest rate and receive a
floating rate of interest based on LIBOR, without exchanges of the underlying
notional amounts.
The following table presents the notional amounts, maturity dates, and
effective floating and fixed interest rates related to the Company's interest
rate swaps as of December 31 (in millions):
INTEREST RATE
---------------------
NOTIONAL AMOUNT MATURITY DATE FLOATING PAY-FIXED
--------------- ------------- -------- ---------
2000................................ 2,500Y 2001 0.57% 0.87%
2,000Y 2001 0.53% 0.84%
1999................................ $10.0 2000 6.19% 7.00%
2,500Y 2001 0.30% 0.87%
2,000Y 2001 0.28% 0.84%
The impact of interest rate risk management activities on income in 2000,
1999 and 1998 were not material.
Foreign Exchange Risk Management
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 and are recorded in Other,
net, in the accompanying consolidated statements of operations.
The Company uses foreign currency option contracts, which provide for the
sale of foreign currencies to offset foreign currency exposures expected to
arise in the normal course of the Company's business. While these instruments
are subject to fluctuations in value, such fluctuations are anticipated to
offset changes in the value of the underlying exposures. The principal
currencies subject to this process are the Japanese yen, British pound,
Australian dollar, Canadian dollar and the Euro. Derivative instruments that are
used to offset these probable, but not firmly committed foreign currency
exposures are carried at fair value with gains and losses recorded currently in
income as a component of other non-operating expense, net.
The Company uses forward contracts to hedge foreign currency intercompany
borrowings. These instruments are designated and effective as hedges. While
these hedging instruments are subject to fluctuations in value, they do not
subject the Company to market risk from exchange rate movements because such
gains and losses offset losses and gains, respectively, on the intercompany
borrowings being hedged.
At December 31, the notional principal and fair value of the Company's
outstanding foreign currency derivative financial instruments were as follows
(in millions):
2000 1999
------------------ ------------------
NOTIONAL FAIR NOTIONAL FAIR
PRINCIPAL VALUE PRINCIPAL VALUE
--------- ----- --------- -----
Forward exchange contracts...................... $ 25.0 $(1.5) $34.9 $(0.2)
Foreign currency options purchased.............. 144.8 3.7 38.6 1.2
The notional principal amounts provide one measure of the transaction
volume outstanding as of year end, and do not represent the amount of the
Company's exposure to market loss. The estimates of fair value are based on
applicable and commonly used pricing models using prevailing financial market
information as of
A-39
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000 and 1999. The amounts ultimately realized upon settlement of
these financial instruments, together with the gains and losses on the
underlying exposures, will depend on actual market conditions during the
remaining life of the instruments. The impact of foreign exchange risk
management transactions on income was a net gain of $4.9 million in 2000, a net
gain of $1.6 million in 1999 and a net loss of $5.9 million in 1998.
See Note 1 regarding the impact of adopting SFAS No. 133 on January 1,
2001.
Fair Value of Financial Instruments
At December 31, 2000 and 1999, the Company's financial instruments included
cash and equivalents, trade receivables, investments, accounts payable,
borrowings and foreign exchange risk management instruments. The carrying amount
of cash and equivalents, trade receivables and accounts payable approximates
fair value due to the short-term maturities of these instruments. The fair value
of marketable investments, notes payable, long-term debt and foreign currency
contracts were estimated based on quoted market prices at year-end. The fair
values of non-marketable equity investments, which represent either equity
investments in start-up technology companies or partnerships that invest in
start-up technology companies, are estimated based on the fair value information
provided by these ventures. If it is determined that a decline of any of these
investments is other than temporary, then the investment's basis would be
written down to fair value, and the write-down would be included in earnings as
a loss.
The carrying amount and estimated fair value of the Company's financial
instruments at December 31 were as follows (in millions):
2000 1999
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Cash and equivalents....................... $773.9 $773.9 $162.9 $162.9
Non-current investments:
Marketable equity........................ 15.1 15.1 0.2 0.2
Non-marketable equity.................... 6.4 6.4 7.1 7.1
Notes payable.............................. 59.2 59.2 85.3 85.3
Long-term convertible, subordinated notes,
net of discount.......................... 401.7 456.9 -- --
Long-term debt............................. 183.0 185.3 208.8 208.6
Marketable equity amounts include unrealized holding gains of $1.1 million
at December 31, 2000; and unrealized holding losses of $0.2 million at December
31, 1999.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
principally consist of trade receivables. Wholesale distributors, major retail
chains, and managed care organizations account for a substantial portion of
trade receivables. This risk is limited due to the number of customers
comprising the Company's customer base, and their geographic dispersion. Ongoing
credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, office equipment and automobiles and
provides for payment of taxes, insurance and other charges on certain of these
leases. Rental expense was $29.8 million in 2000, $21.6 million in 1999 and
$25.2 million in 1998.
A-40
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum rental payments under non-cancelable operating lease
commitments with a term of more than one year as of December 31, 2000, are as
follows: $23.5 million in 2001; $15.7 million in 2002; $7.0 million in 2003;
$3.6 million in 2004; $2.9 million in 2005 and $5.1 million thereafter.
The Company is involved in various litigation and claims arising in the
normal course of business. Management believes that recovery or liability with
respect to any pending lawsuits or asserted claims, will not have a material
adverse effect on the Company's consolidated financial position or results of
operations for the year ended December 31, 2000. Also see Subsequent Event Note
17.
NOTE 14: BUSINESS SEGMENT INFORMATION
The Company operates in Regions or geographic operating segments. The
United States information is presented separately as it is the Company's
headquarters country, and U.S. sales represented 51.7%, 48.1% and 46.2% of total
product net sales in 2000, 1999 and 1998, respectively. No other country, or
single customer, generates over 10% of total product net sales. 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 October 1996, the Company
began converting its various local accounting systems to a single worldwide
system. By early 1999, the Company had converted a majority of its businesses to
the new system. The new worldwide accounting system allows the Company to
determine operating income for each operating segment using a cost of sales
amount which includes 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. As this
basis for assignment of costs is a significantly more effective method for
measuring segment performance, the Company adopted this cost assignment method
in 1999. In addition, beginning in 1999 operating income for all operating
segments and manufacturing operations also included a charge for corporate
services and asset utilization. Such change permits management to better measure
segment performance by including a cost of capital in the determination of
operating income for each segment. In 1998, cost of sales in most segments
outside the United States includes the cost of goods produced by the Company's
manufacturing operations at the transfer price charged to the distribution
operation by the manufacturing location. It is impracticable to restate
operating income for 1998 using the 1999 methodology.
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 include significant administrative costs applicable to United States
operations that were not charged to the U.S. region. Special charges in 1998 for
restructuring and asset write-offs, the reduction of such costs in 1999 and
2000, and the contribution to ASTI in 1998 are also considered corporate costs.
Identifiable assets, depreciation and amortization and capital expenditures
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.
A-41
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEOGRAPHIC OPERATING SEGMENTS
NET SALES OPERATING INCOME (LOSS)
------------------------------ ---------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- -------
(IN MILLIONS)
United States..................... $ 803.8 $ 669.2 $ 577.2 $ 342.9 $ 264.3 $ 301.8
Europe............................ 354.9 377.1 363.2 96.6 113.4 34.1
Asia Pacific...................... 233.8 211.3 168.2 44.9 24.1 10.6
Other............................. 166.3 141.7 147.0 30.9 29.2 17.8
-------- -------- -------- ------- ------- -------
Segments total.......... 1,558.8 1,399.3 1,255.6 515.3 431.0 364.3
Manufacturing operations.......... 3.8 6.9 6.1 130.6 124.8 46.6
Research and development.......... (195.6) (168.4) (125.4)
Research services margin.......... 3.5 3.0 2.3
Restructuring (charge) credit..... 2.0 9.6 (74.8)
Asset (write-offs) credit......... -- 1.4 (58.5)
Elimination of inter-company
profit.......................... (186.2) (180.5) --
Contribution to ASTI.............. -- -- (171.4)
General corporate................. 26.8 42.6 (70.2)
-------- -------- -------- ------- ------- -------
Net sales and operating
income (loss)......... $1,562.6 $1,406.2 $1,261.7 $ 296.4 $ 263.5 $ (87.1)
======== ======== ======== ======= ======= =======
DEPRECIATION AND
IDENTIFIABLE ASSETS AMORTIZATION CAPITAL EXPENDITURES
------------------------------ --------------------- ---------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
-------- -------- -------- ----- ----- ----- ----- ----- -----
(IN MILLIONS)
United States............. $ 213.9 $ 195.1 $ 82.5 $24.4 $22.0 $ 3.0 $23.8 $25.4 $ 0.8
Europe.................... 129.3 142.5 164.2 6.1 6.5 6.9 2.0 1.2 1.5
Asia Pacific.............. 92.4 106.3 88.9 6.1 6.5 6.1 0.7 1.6 2.4
Other..................... 93.0 67.8 67.3 7.1 4.0 8.1 3.6 2.0 1.1
-------- -------- -------- ----- ----- ----- ----- ----- -----
Segments
total......... 528.6 511.7 402.9 43.7 39.0 24.1 30.1 30.2 5.8
Manufacturing
operations.............. 309.0 316.1 362.9 28.4 29.7 42.5 29.5 27.7 40.4
Adjustments and
eliminations............ (12.2) (24.5) (38.0) -- -- -- -- -- --
General Corporate......... 1,145.6 535.8 606.6 5.6 5.1 9.9 7.3 5.4 4.4
-------- -------- -------- ----- ----- ----- ----- ----- -----
Total........... $1,971.0 $1,339.1 $1,334.4 $77.7 $73.8 $76.5 $66.9 $63.3 $50.6
======== ======== ======== ===== ===== ===== ===== ===== =====
In 1999, the Company assigned responsibility to the United States segment
for certain assets previously included in manufacturing operations and general
corporate assets. Such assets were primarily finished goods, inventory,
capitalized software and prepaid expenses.
In each geographic segment the Company markets products in three product
segments: Specialty Pharmaceuticals, Ophthalmic Surgical and Contact Lens Care.
The Specialty Pharmaceutical segment produces a broad range of ophthalmic
products for glaucoma therapy, ocular inflammation, infection, allergy and dry
eye; skin care products for acne, psoriasis and other prescription and over the
counter dermatological products; and Botox(R) Purified Neurotoxin Complex for
movement disorders. The Ophthalmic Surgical segment produces intraocular lenses,
phacoemulsification equipment, viscoelastics, and other products related to
cataract surgery. The Contact Lens Care segment produces cleaning, storage and
disinfection products for the consumer contact lens market. The Company provides
global marketing strategy teams to ensure development and execution of a
consistent marketing strategy for products in all geographic operating segments.
There are no transfers of products between product lines.
A-42
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRODUCT NET SALES BY PRODUCT LINE
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Specialty Pharmaceuticals
Eye Care Pharmaceuticals........................... $ 675.3 $ 571.2 $ 505.3
Skin Care.......................................... 68.7 76.6 80.6
Botox/Neuromuscular................................ 239.5 175.8 125.3
-------- -------- --------
Total Specialty Pharmaceuticals............ 983.5 823.6 711.2
Ophthalmic Surgical.................................. 250.4 222.9 193.6
Contact Lens Care.................................... 328.7 359.7 356.9
-------- -------- --------
Net sales.................................. $1,562.6 $1,406.2 $1,261.7
======== ======== ========
NOTE 15: EARNINGS PER SHARE
The table below presents the computation of basic and diluted earnings
(loss) per share. The 1999 and 1998 presentation of the computation of basic and
diluted earnings (loss) per share reflect the two for one stock split in
December 1999 (Note 2):
FOR THE YEAR ENDED 2000 FOR THE YEAR ENDED 1999
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Computation of basic
EPS:
Income (loss)
available to common
stockholders........ $215.1 130.7 $1.65 $188.2 132.2 $1.42
===== =====
Effect of dilutive
options............. 3.1 3.0
----- -----
Computation of
diluted EPS:
Income (loss)
available to common
stockholders
assuming
conversions......... $215.1 133.8 $1.61 $188.2 135.2 $1.39
===== ===== =====
FOR THE YEAR ENDED 1998
----------------------------------------
INCOME(LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Computation of basic
EPS:
Income (loss)
available to common
stockholders........ $(90.2) 131.1 $(0.69)
======
Effect of dilutive
options............. --
-----
Computation of
diluted EPS:
Income (loss)
available to common
stockholders
assuming
conversions......... $(90.2) 131.1 $(0.69)
===== ======
At December 31, 1999, options of 2,200,000 with an exercise price of $55.00
were outstanding. These outstanding options at December 31, 1999 were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares and, therefore, the
effect would be antidilutive. At December 31, 2000, there were no options which
had an exercise price greater than the average market price of common shares.
Stock options outstanding at December 31, 1998 were not included in the
computation of diluted EPS because the Company incurred a loss and hence, the
impact would be antidilutive.
Additionally, at December 31, 2000 the effect of approximately 3.8 million
common shares related to the Convertible Notes (Note 8) were not included in the
computation of diluted EPS because the effect would be antidilutive.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16: COMPREHENSIVE INCOME
The following table summarizes the components of comprehensive income at
December 31:
2000 1999 1998
--------------------------------------- --------------------------------------- ----------
BEFORE TAX TAX (EXPENSE) NET-OF-TAX BEFORE TAX TAX (EXPENSE) NET-OF-TAX BEFORE TAX
AMOUNT OR BENEFIT AMOUNT AMOUNT OR BENEFIT AMOUNT AMOUNT
---------- ------------- ---------- ---------- ------------- ---------- ----------
(IN MILLIONS)
Foreign currency
translation
adjustments:
Unrealized foreign
currency translation
adjustments.......... $(2.8) $ -- $ (2.8) $(42.1) $ -- $(42.1) $ (0.9)
Less: reclassification
adjustment for gains
(losses) realized in
net income (loss).... -- -- -- -- -- -- (1.2)
----- ----- ------ ------ ----- ------ ------
Net unrealized foreign
translation
adjustments.......... (2.8) -- (2.8) (42.1) -- (42.1) (2.1)
Unrealized gains on
investments:
Unrealized holding
gains arising during
period............... 2.6 (0.9) 1.7 1.6 (0.6) 1.0 33.4
Less: reclassification
adjustment for gains
realized in net
income (loss)........ (0.6) 0.2 (0.4) (6.1) 2.2 (3.9) (54.1)
----- ----- ------ ------ ----- ------ ------
Net unrealized gains
(losses) on
investments.......... 2.0 (0.7) 1.3 (4.5) 1.6 (2.9) (20.7)
----- ----- ------ ------ ----- ------ ------
Other comprehensive
income (loss).......... $(0.8) $(0.7) (1.5) $(46.6) $ 1.6 (45.0) $(22.8)
===== ===== ====== ====== ===== ====== ======
Net earnings (loss)...... 215.1 188.2
------ ------
Total
comprehensive
income
(loss)......... $213.6 $143.2
====== ======
1998
--------------------------
TAX (EXPENSE) NET-OF-TAX
OR BENEFIT AMOUNT
------------- ----------
(IN MILLIONS)
Foreign currency
translation
adjustments:
Unrealized foreign
currency translation
adjustments.......... $ -- $ (0.9)
Less: reclassification
adjustment for gains
(losses) realized in
net income (loss).... -- (1.2)
------ -------
Net unrealized foreign
translation
adjustments.......... -- (2.1)
Unrealized gains on
investments:
Unrealized holding
gains arising during
period............... (11.7) 21.7
Less: reclassification
adjustment for gains
realized in net
income (loss)........ 18.5 (35.6)
------ -------
Net unrealized gains
(losses) on
investments.......... 6.8 (13.9)
------ -------
Other comprehensive
income (loss).......... $ 6.8 (16.0)
====== =======
Net earnings (loss)...... (90.2)
-------
Total
comprehensive
income
(loss)......... $(106.2)
=======
NOTE 17: SUBSEQUENT EVENTS (UNAUDITED)
On January 30, 2001, the Board of Directors declared a cash dividend of
$.09 per share payable on March 16, 2001, to stockholders of record on February
16, 2001.
On March 1, 2001, after concluding that Pharmacia Corporation planned to
file a patent infringement lawsuit against the Company regarding the
investigational glaucoma drug, Lumigan(TM), the Company filed a declaratory
relief lawsuit against Pharmacia (and related entities) in the United States
District Court for the District of Delaware. In the lawsuit, the Company asked
the court to issue a ruling that Lumigan(TM) does not infringe certain patents
owned or controlled by Pharmacia and also that such patents are not valid.
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78
REPORT OF MANAGEMENT
Management is responsible for the preparation and integrity of the
consolidated financial statements appearing in this Proxy Statement. The
consolidated financial statements are presented in Exhibit A to the Company's
Proxy Statement. The consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the United States of
America appropriate in the circumstances and, accordingly, include some amounts
based on management's best judgments and estimates.
Management is responsible for maintaining a system of internal control and
procedures to provide reasonable assurance, at an appropriate cost/benefit
relationship, that assets are safeguarded and that transactions are authorized,
recorded and reported properly. The internal control system is augmented by a
program of internal audits and appropriate reviews by management, written
policies and guidelines, careful selection and training of qualified personnel
and a written Code of Ethics adopted by the Board of Directors, applicable to
all employees of the Company and its subsidiaries. Management believes that the
Company's system of internal control provides reasonable assurance that assets
are safeguarded against material loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial statements and
other data and for maintaining accountability for assets.
The Audit and Finance Committee of the Board of Directors, composed solely
of Directors who are not officers or employees of the Company, meets with the
independent auditors, management and internal auditors periodically to discuss
internal accounting controls, auditing and financial reporting matters and to
discharge its responsibilities outlined in its written charter. The Committee
reviews with the independent auditors the scope and results of the audit effort.
The Committee also meets with the independent auditors without management
present to ensure that the independent auditors have free access to the
Committee.
The independent auditors, KPMG LLP, were recommended by the Audit and
Finance Committee of the Board of Directors and selected by the Board of
Directors. KPMG LLP was engaged to audit the 2000, 1999 and 1998 consolidated
financial statements of Allergan, Inc. and its subsidiaries and conducted such
tests and related procedures as deemed necessary in conformity with auditing
standards generally accepted in the United States of America. The opinion of the
independent auditors, based upon their audits of the consolidated financial
statements, is presented on Page A-46 of this Proxy Statement.
January 29, 2001 David E. I. Pyott
President and Chief Executive Officer
Eric K. Brandt
Corporate Vice President and
Chief Financial Officer
James M. Hindman
Senior Vice President, Controller
and Principal Accounting Officer
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INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
We have audited the accompanying consolidated balance sheets of Allergan,
Inc. and subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allergan,
Inc. and subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Costa Mesa, California
January 29, 2001
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QUARTERLY RESULTS (UNAUDITED)
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
2000 (a)
Product net sales............................ $376.2 $404.1 $381.6 $400.7 $1,562.6
Product gross margin......................... 272.8 291.9 277.0 291.8 1,133.5
Research service revenues, primarily from a
related party.............................. 15.6 13.8 15.1 18.4 62.9
Research services margin..................... 0.8 0.8 0.9 1.0 3.5
Operating income............................. 63.2 73.7 74.5 85.0 296.4
Net earnings................................. 43.5 51.9 54.6 65.1 215.1
Basic earnings per share..................... 0.33 0.40 0.42 0.50 1.65
Diluted earnings per share................... 0.33 0.39 0.41 0.48 1.61
1999 (b)
Product net sales............................ $311.3 $367.8 $346.8 $380.3 $1,406.2
Product gross margin......................... 221.6 254.3 244.9 279.0 999.8
Research service revenues, primarily from a
related party.............................. 9.8 11.1 11.9 13.4 46.2
Research services margin..................... 0.7 0.6 0.9 0.7 2.9
Operating income............................. 48.4 65.9 67.2 82.0 263.5
Net earnings................................. 35.0 46.9 47.0 59.3 188.2
Basic earnings per share..................... 0.26 0.35 0.36 0.45 1.42
Diluted earnings per share................... 0.26 0.34 0.35 0.44 1.39
---------------
(a) Fiscal quarters in 2000 ended on March 31, June 30, September 29 and
December 31.
(b) Fiscal quarters in 1999 ended on March 26, June 25, September 24 and
December 31.
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81
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS
Product net sales...................... $1,562.6 $1,406.2 $1,261.7 $1,138.0 $1,147.0
Research service revenues, primarily
from a related party................. 62.9 46.2 34.4 11.0 9.9
Operating costs and expenses:
Cost of product sales................ 429.1 406.4 407.0 399.3 384.7
Cost of research services............ 59.4 43.3 32.1 10.4 9.2
Selling, general and
administrative.................... 650.1 587.9 525.2 459.1 456.6
Technology fees from related party... (3.1) (6.1) (11.2) -- --
Research & development............... 195.6 168.4 125.4 131.2 118.3
Restructuring charges (credit)....... (2.0) (9.6) 74.8 -- 70.1
Asset write-offs (credit)............ -- (1.4) 58.5 -- 7.4
Contribution to ASTI................. -- -- 171.4 -- --
-------- -------- -------- -------- --------
Operating income (loss)................ 296.4 263.5 (87.1) 149.0 110.6
Non-operating income (expense)......... 7.4 5.5 29.4 8.1 (2.6)
Earnings (loss) before income taxes and
minority interest.................... 303.8 269.0 (57.7) 157.1 108.0
Net earnings (loss).................... 215.1 188.2 (90.2) 128.3 77.1
Basic earnings (loss) per common
share................................ 1.65 1.42 (0.69) 0.98 0.59
Diluted earnings (loss) per common
share................................ 1.61 1.39 (0.69) 0.97 0.58
Cash dividends per share............... 0.32 0.28 0.26 0.26 0.25
FINANCIAL POSITION
Current assets......................... $1,326.3 $ 697.5 $ 661.2 $ 636.4 $ 599.7
Working capital........................ 893.8 277.6 292.7 273.1 224.4
Total assets........................... 1,971.0 1,339.1 1,334.4 1,398.9 1,349.8
Long-term debt......................... 584.7 208.8 201.1 142.5 170.0
Total stockholders' equity............. 873.8 634.5 696.0 841.4 749.8
The earnings per share data in years prior to 1999 has been restated to
reflect the two for one stock split in December 1999 (see Note 2 to the
Consolidated Financial Statements).
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MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The following table shows the quarterly price range of the Common Stock and
the cash dividends declared per share during the periods listed. Stock prices
and cash dividends per share prior to December 10, 1999 have been restated to
reflect the two for one stock split (see Note 2 to the Consolidated Financial
Statements).
2000 1999
------------------------- ------------------------
CALENDAR QUARTER LOW HIGH DIV. LOW HIGH DIV.
---------------- ------ ------- ---- ------ ------ ----
First................................. $44.50 $ 63.94 $.08 $31.69 $48.64 $.07
Second................................ 49.88 78.75 .08 41.31 55.50 .07
Third................................. 64.75 90.31 .08 42.03 57.38 .07
Fourth................................ 67.13 101.13 .08 41.00 57.81 .07
Allergan Common Stock is listed on the New York Stock Exchange and is
traded under the symbol "AGN." In newspapers, stock information is frequently
listed as "Alergn."
The approximate number of stockholders of record was 7,500 as of January
31, 2001.
On January 30, 2001, the Board declared a cash dividend of $0.09 per share,
payable March 16, 2001 to stockholders of record on February 16, 2001. See Note
7 to the Consolidated Financial Statements relative to restrictions on dividend
payments.
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83
EXHIBIT B
ALLERGAN, INC.
2001 PREMIUM PRICED STOCK OPTION PLAN
I. GENERAL PROVISIONS
1.1 PURPOSES OF THE PLAN
Allergan, Inc. ("Allergan") has adopted this 2001 Premium Priced Stock
Option Plan (the "Plan") to advance the interests of Allergan and its
stockholders by affording to key management Employees of Allergan and its
subsidiaries an opportunity to acquire or increase a proprietary interest in the
Company or to otherwise benefit from the success of the Company through the
grant to such Employees of Stock Options which have exercise prices which are
greater than the fair market value of the Company's Common Stock on the date the
Stock Options are granted and under the other terms and conditions set forth
herein. By thus encouraging such Employees to become owners of Allergan's
shares, the Company seeks to attract, retain and motivate those highly competent
individuals upon whose judgment, initiative, leadership and continued efforts
the success of the Company in large measure depends. By providing that the Stock
Options shall have premium exercise prices, the Plan will encourage such
Employees to increase the value of the Company's Common Stock.
1.2 DEFINITIONS
As used herein the following terms shall have the meanings set forth below:
(a) "Allergan" means Allergan, Inc., a Delaware corporation, or any
successor thereto.
(b) "Board" means the Board of Directors of Allergan.
(c) "Cause" means, with respect to the discharge by the Company of any
Participant, any conduct that under Company policies as set forth from time to
time in the Allergan Supervisors Manual (or any successor thereto) would be
considered to constitute "serious misconduct" that would justify immediate
termination without benefit of a counseling review or severance pay.
(d) "Change in Control" means the following and shall be deemed to occur if
any of the following events occur:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (a "Person"), is or becomes the "beneficial owner," as
defined in Rule 13d-3 under the Exchange Act (a "Beneficial Owner"),
directly or indirectly, of securities of Allergan representing (i) 20% or
more of the combined voting power of Allergan's then outstanding voting
securities, which acquisition is not approved in advance of the acquisition
or within 30 days after the acquisition by a majority of the Incumbent
Board (as hereinafter defined) or (ii) 33% or more of the combined voting
power of Allergan's then outstanding voting securities, without regard to
whether such acquisition is approved by the Incumbent Board;
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board"), cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by Allergan's
stockholders, is approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of the
directors of Allergan, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall, for the purposes of the
Plan, be considered as though such person were a member of the Incumbent
Board of Allergan;
B-1
84
(iii) The consummation of a merger, consolidation or reorganization
involving Allergan, other than one which satisfies both of the following
conditions:
(A) a merger, consolidation or reorganization which would result in
the voting securities of Allergan outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another entity) at least 55% of the
combined voting power of the voting securities of Allergan or such other
entity resulting from the merger, consolidation or reorganization (the
"Surviving Corporation") outstanding immediately after such merger,
consolidation or reorganization and being held in substantially the same
proportion as the ownership in Allergan's voting securities immediately
before such merger, consolidation or reorganization, and
(B) a merger, consolidation or reorganization in which no Person is
or becomes the Beneficial Owner, directly or indirectly, of securities
of Allergan representing 20% or more of the combined voting power of
Allergan's then outstanding voting securities; or
(iv) The stockholders of Allergan approve a plan of complete
liquidation of the Allergan or an agreement for the sale or other
disposition by the Allergan of all or substantially all of the Allergan's
assets.
Notwithstanding the preceding provisions of this Subsection (d), a Change in
Control shall not be deemed to have occurred if the Person described in the
preceding provisions of this Subsection (d) is (1) an underwriter or
underwriting syndicate that has acquired any of Allergan's then outstanding
voting securities solely in connection with a public offering of Allergan's
securities, (2) Allergan or any subsidiary of Allergan or (3) an employee stock
ownership plan or other employee benefit plan maintained by the Allergan or any
of its subsidiaries that is qualified under the provisions of the Code. In
addition, notwithstanding the preceding provisions of this Subsection (d), a
Change in Control shall not be deemed to have occurred if the Person described
in the preceding provisions of this Subsection (d) becomes a Beneficial Owner of
more than the permitted amount of outstanding securities as a result of the
acquisition of voting securities by Allergan which, by reducing the number of
voting securities outstanding, increases the proportional number of shares
beneficially owned by such Person, provided, that if a Change in Control would
occur but for the operation of this sentence and such Person becomes the
Beneficial Owner of any additional voting securities (other than through the
exercise of options granted under any stock option plan of Allergan or through a
stock dividend or stock split), then a Change in Control shall occur.
(e) "Code" means the Internal Revenue Code of 1986, as amended. Where the
context so requires, a reference to a particular Code section shall also refer
to any successor provision of the Code to such section.
(f) "Committee" means the committee appointed by the Board to administer
the Plan. The Committee shall be composed entirely of members who meet the
requirements of Section 1.4(a) hereof.
(g) "Common Stock" means the common stock of Allergan, $0.01 par value.
(h) "Company" means Allergan and any present or future parent or subsidiary
corporations (as defined in Section 425 of the Code) with respect to Allergan,
or any successors to such corporations.
(i) "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.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
Where the context so requires, a reference to a particular section of the
Exchange Act shall also refer to any successor provision to such section.
B-2
85
(k) "Fair Market Value" means (a) the average of the high and low prices of
a share of Common Stock on the principal exchange on which shares of Common
Stock are then trading, if any (or as reported on any composite index which
includes such principal exchange), on such date, or if shares were not traded on
such date, then on the next preceding date on which a trade occurred, or (b) if
Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, the mean between the closing representative bid and asked
prices for the Common Stock on the trading day previous to such date as reported
by NASDAQ or such successor quotation system; or (c) if Common Stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the Fair Market Value of a share of Common Stock as established by the
Committee acting in good faith.
(l) "Participant" means any Employee selected by the Committee to receive a
Stock Option pursuant to the Plan.
(m) "Plan" means the Allergan, Inc. 2001 Premium Priced Stock Option Plan
as set forth herein, as amended from time to time.
(n) "Securities Act" means the Securities Act of 1933, as amended.
(o) "Stock Option" means a right to purchase Common Stock pursuant to a
stock option which is not intended to qualify as an "incentive stock option" as
defined in Section 422 of the Code.
(p) "Stock Option Tranche" means with respect to a Stock Option, one third
of the shares of Common Stock subject to such Stock Option as designated in the
statement evidencing the Stock Option and setting forth the terms and conditions
applicable to the Stock Option.
1.3 SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 1.3(c) and Section 3.1 of the
Plan, the maximum number of shares of Common Stock that may be issued pursuant
to Stock Options under the Plan shall be 2,400,000 shares.
(b) The Common Stock to be issued under the Plan will be made available, at
the discretion of the Board or the Committee, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
(c) Shares of Common Stock subject to unexercised portions of any Stock
Option granted under the Plan that expire, terminate or are cancelled, and
shares of Common Stock issued pursuant to a Stock Option under the Plan that are
reacquired by the Company pursuant to the terms of the Stock Option under which
such shares were issued, shall again become available for the grant of further
Stock Options under the Plan.
(d) The maximum number of shares of Common Stock with respect to which
Stock Options may be granted to any person in any given calendar year is 300,000
shares.
1.4 ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee, which shall consist
solely of two or more members of the Board appointed by and holding office at
the pleasure of the Board, each of whom is both a "non-employee director" as
defined by Rule 16b-3 under Section 16 of the Exchange Act and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
(b) The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to select the eligible Employees to whom, and the time or times at
which, Stock Options shall be granted, the number of shares of Common Stock
subject to each Stock Option, and such other terms and conditions applicable to
each individual Stock Option as the Committee shall determine. The Committee may
grant at any time new Stock Options to a Participant who has previously received
Stock
B-3
86
Options or other grants (including other stock options) whether such prior Stock
Options or such other grants are still outstanding or have previously been
exercised in whole or in part. The Committee may grant Stock Options singly or
in combination or in tandem with other Stock Options as it determines in its
discretion. Further, the Committee may, with the consent of a Participant, amend
in a manner consistent with the Plan the terms of any existing Stock Option
previously granted to such Participant.
(c) Subject to the express provisions of the Plan, the Committee has the
authority to interpret the Plan, to determine the terms and conditions of Stock
Options and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee has authority to prescribe, amend and
rescind rules and regulations relating to the Plan. All interpretations,
determinations and actions by the Committee shall be final, conclusive and
binding upon all parties. Any action of the Committee with respect to the
administration of the Plan shall be taken pursuant to a majority vote or by the
unanimous written consent of its members.
(d) Members of the Committee shall receive such compensation if any for
their services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and members of the Board shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Participants, the Company and all
other interested persons. No members of the Committee or Board shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or Stock Options, and all members of the
Committee and the Board shall be fully protected by the Company in respect of
any such action, determination or interpretation.
1.5 PARTICIPATION
(a) All Employees who are employed in positions in salary grades 10E or
above, or in salary grades below 10E upon the recommendation of the Company's
Chief Executive Officer, are eligible to receive Stock Options under the Plan,
as determined by the Committee. In no event may any member of the Board who is
not an Employee be granted a Stock Option under the Plan.
(b) At the time of the grant of each Stock Option pursuant to the Plan, the
Committee shall deliver, or cause to be delivered, to the Participant to whom
the Stock Option is granted a statement evidencing the Stock Option and setting
forth such terms and conditions applicable to the Stock Option as the Committee
may in its discretion determine consistent with the Plan.
II. STOCK OPTIONS
2.1 OPTION PRICE
The purchase price of Common Stock under each Stock Option (the "Option
Exercise Price") shall be determined by the Committee at the date such Stock
Option is granted, as follows: (i) the Option Exercise Price for the first Stock
Option Tranche (the "First Tranche") shall be equal to one hundred twenty
percent (120%) of the Fair Market Value of a share of Common Stock on the date
the Stock Option is granted, (ii) the Option Exercise Price for the second Stock
Tranche Option (the "Second Tranche") shall be equal to one hundred twenty
percent (120%) of the Option Exercise Price for the First Tranche and (iii) the
Option Exercise Price for the third Stock Option Tranche (the "Third Tranche")
shall be equal to one hundred twenty percent (120%) of the Option Exercise Price
for the Second Tranche.
2.2 EXERCISABILITY OF STOCK OPTIONS AND OPTION PERIOD
Each Stock Option Tranche shall first vest and become exercisable upon the
earlier of (i) the date upon which the closing price of a share of Common Stock
on the principal exchange on which shares of common stock are then trading
equals or exceeds the Option Exercise Price for such Stock Option Tranche or
(ii) the
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87
fifth (5th) anniversary of the date of grant of such Stock Option. Each
unexercised Stock Option shall expire and become unexercisable on the sixth
(6th) anniversary of the date of grant of such Stock Option.
2.3 EXERCISE OF STOCK OPTIONS
At the time of the exercise of a Stock Option, the purchase price shall be
paid in full in cash or other equivalent consideration acceptable to the
Committee and consistent with the Plan's purpose and applicable law, including
without limitation Common Stock or restricted stock or other contingent awards
under any other incentive compensation plan of the Company denominated in either
stock or cash. Any shares of Company Stock assigned and delivered to the Company
in payment or partial payment of the purchase price shall be valued at their
Fair Market Value on the exercise date. No fractional shares shall be issued
pursuant to the exercise of a Stock Option nor shall any cash payment be made in
lieu of fractional shares.
2.4 TERMINATION OF EMPLOYMENT
(a) Except as otherwise provided in a written agreement between the Company
and the Participant, in the event of the termination of a Participant's
employment with the Company for Cause, all of the Participant's unexercised
Stock Options shall expire as of the earlier of the date of such termination or
the date such Stock Options expire in accordance with their terms.
(b) Except as otherwise provided in a written agreement between the Company
and the Participant, in the event of a Participant's termination of employment
for:
(i) Any reason other than for Cause, death, total disability (as
defined in the instrument evidencing the grant of the Stock Option), normal
retirement (as defined in the instrument evidencing the grant of the Stock
Option) or Job Elimination (as defined below), the Participant's Stock
Options shall expire and become unexercisable as of the earlier of (A) the
date such Stock Options expire in accordance with their terms or (B) three
calendar months after the date of termination.
(ii) Death or total disability, all of the Participant's unvested
Stock Options shall become vested as of the last date of employment, and
the Participant (or his or her successor in interest) shall have twelve
(12) months after the date of termination within which to exercise Stock
Options that have not expired on or before such date, regardless of the
date upon which such Stock Options would otherwise expire in accordance
with their terms.
(iii) Normal retirement, the Participant's Stock Options shall expire
and become unexercisable as of the earlier of (A) the date such Stock
Options expire in accordance with their terms or (B) three (3) years after
the date of termination.
(iv) Job Elimination, all of the Participant's unvested Stock Options
shall become vested as of the last date of employment, and the
Participant's Stock Options shall expire and become unexercisable as of the
earlier of (A) the date such Stock Options expire in accordance with their
terms or (B) three calendar months after the date of termination. "Job
Elimination" occurs when a Participant ceases to be an Employee of the
Company as a result of a reduction in force or transfer to a new
organization outside of the Company as a result of a divestiture, other
than in a spin-off or other distribution to the Company's stockholders. A
"reduction in force" occurs under the Plan when no alternative job is
offered to the Participant at the Company and there is a net headcount
reduction (i.e. if the Participant is replaced, there is no reduction in
force, even if the duties of the position change).
(c) Notwithstanding anything to the contrary in subsections (a) or (b)
above but subject to Section 2.2, the Committee may in its discretion designate
such shorter or longer periods to exercise Stock Options following a
Participant's termination of employment; provided, however, that any shorter
periods determined by the Committee shall be effective only if provided for in
the instrument that evidences the grant to the Participant of such Stock Options
or if such shorter period is agreed to in writing by the Participant. The Plan
provides for automatic acceleration of vesting of Stock Options in the event of
a Participant's termination due to death or total disability or Job Elimination.
In all other situations, with the exception of terminations for Cause, Stock
Options shall be exercisable by a Participant (or the Participant's successor in
interest)
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following such Participant's termination of employment only to the extent that
installments thereof had become exercisable on or prior to the date of such
termination; provided, however, that the Committee, in its discretion, may elect
to accelerate the vesting of all or any portion of any Stock Options that had
not become exercisable on or prior to the date of such termination.
2.5 TAX WITHHOLDING
The Company shall be entitled to require payment in cash or deduction from
other compensation payable to each Participant of any sums required by federal,
state or local tax law to be withheld with respect to the exercise of any Stock
Option. The Committee may in its discretion and in satisfaction of the foregoing
requirement allow such Participant to elect to have the Company withhold shares
of Common Stock otherwise issuable under such Stock Option (or allow the return
of shares of Common Stock) having a Fair Market Value equal to the sums required
to be withheld. Notwithstanding any other provision of the Plan, the number of
shares of Common Stock which may be withheld with respect to the exercise of any
Stock Option (or which may be repurchased from the Participant of such Award
within six months after such shares of Common Stock were acquired by the
Participant from the Company) in order to satisfy the Participant's federal and
state income and payroll tax liabilities with respect to the exercise of a Stock
Option shall be limited to the number of shares which have a Fair Market Value
on the date of withholding or repurchase equal to the aggregate amount of such
liabilities based on the minimum statutory withholding rates for federal and
state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.
III. OTHER PROVISIONS
3.1 ADJUSTMENT PROVISIONS
(a) Subject to Section 3.1(b) below, (i) if the outstanding shares of
Common Stock of the Company are increased, decreased or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed in respect of
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), through merger, consolidation, sale or exchange of all or
substantially all of the properties of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, spin-off or other distribution with respect to such shares of Common
Stock (or any stock or securities received with respect to such Common Stock),
or (ii) if the value of the outstanding shares of Common Stock of the Company is
reduced by reason of an extraordinary cash dividend, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares provided in Section 1.3, (y) the number and kind of shares or other
securities subject to then outstanding Stock Options, and (z) the price for each
share or other unit of any other securities subject to then outstanding Stock
Options. No fractional interests shall be issued under the Plan resulting from
any such adjustments.
(b) In addition to the adjustments permitted by Section 3.1(a) above,
except as otherwise expressly provided in the statement evidencing the grant of
a Stock Option, upon the occurrence of a Change in Control of the Company any
outstanding Stock Options not theretofore exercisable shall immediately become
exercisable (subject to any restrictions required by applicable law or any
national securities exchange upon which any securities of the Company are then
listed), in their entirety.
3.2 NON-TRANSFERABILITY OF STOCK OPTIONS
Any Stock Option granted to any Participant pursuant to the Plan shall not
be transferable other than by will or the laws of descent and distribution and
shall be exercisable during such Participant's lifetime only by the Participant
or by the Participant's guardian or legal representative. No Stock Option
granted to any Participant and no right of any Participant under the Plan,
contingent or otherwise, shall be assignable or made subject to any encumbrance,
pledge or charge of any nature except that, under such rules and regulations as
the Committee may establish pursuant to the terms of the Plan, a beneficiary may
be designated with respect to a Stock Option in the event of death of the
Participant. If such beneficiary is the executor or
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administrator of the estate of the Participant, any rights with respect to such
Stock Option may be transferred to the person or persons or entity (including a
trust) entitled thereto under the will of such Participant.
3.3 CONTINUATION OF EMPLOYMENT
(a) Nothing in the Plan or in any statement evidencing the grant of a Stock
Option pursuant to the Plan shall be construed to create or imply any contract
of employment between any Participant and the Company, to confer upon any
Participant any right to continue in the employ of the Company, or to confer
upon the Company any right to require any Participant's continued employment.
Except as expressly provided in the Plan or in any statement evidencing the
grant of a Stock Option pursuant to the Plan, the Company shall have the right
to deal with each Participant in the same manner as if the Plan and any such
statement evidencing the grant of a Stock Option pursuant to the Plan did not
exist, including, without limitation, with respect to all matters related to the
hiring, discharge, compensation and conditions of the employment of the
Participant. Unless otherwise expressly set forth in a separate employment
agreement between the Company and a Participant, the Company may terminate the
employment of any Participant with the Company at any time for any reason, with
or without cause.
(b) Any question(s) as to whether and when there has been a termination of
a Participant's employment, the reason (if any) for such termination, and/or the
consequences thereof under the terms of the Plan or any statement evidencing the
grant of a Stock Option pursuant to the Plan shall be determined by the
Committee's and the Committee's determination thereof shall be final and
binding.
3.4 COMPLIANCE WITH GOVERNMENT REGULATIONS
No shares of Common Stock shall be issued pursuant to a Stock Option unless
and until all applicable requirements imposed by federal and state securities
and other laws, rules and regulations and by any regulatory agencies having
jurisdiction and by any stock exchanges upon which the Common Stock may be
listed have been fully met. As a condition precedent to the issuance of shares
of Common Stock pursuant to a Stock Option, the Company may require the
Participant to take any reasonable action to comply with such requirements.
3.5 ADDITIONAL CONDITIONS
The award of any benefit under the Plan may also be subject to such other
provisions (whether or not applicable to the benefit award to any other
Participant) as the Committee determines appropriate including, without
limitation, provisions to assist the Participant in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Common
Stock acquired under any form of benefit, provisions giving the Company the
right to repurchase shares of Common Stock acquired under any form of benefit in
the event the Participant elects to dispose of such shares, and provisions to
comply with federal and state securities laws and federal and state income tax
withholding requirements.
3.6 PRIVILEGES OF STOCK OWNERSHIP
No Participant and no beneficiary or other person claiming under or through
such Participant shall have any right, title or interest in or to any shares of
Common Stock allocated or reserved under the Plan or subject to any Stock
Option, except as to such shares of Common Stock, if any, that have been issued
to such Participant in accordance with the terms and conditions of the
applicable Stock Option.
3.7 AMENDMENT AND TERMINATION OF PLAN: AMENDMENT OF STOCK OPTIONS
(a) The Board may alter, amend, suspend or terminate the Plan at any time.
No such action of the Board, unless taken with the approval of the stockholders
of the Company, may increase the maximum number of shares that may be sold or
issued under the Plan or alter the class of Employees eligible to participate in
the Plan. With respect to any other amendments of the Plan, the Board may in its
discretion determine that such amendments shall only become effective upon
approval by the stockholders of the
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Company if the Board determines that such stockholder approval may be advisable,
such as for the purpose of obtaining or retaining any statutory or regulatory
benefits under federal or state securities law, federal or state tax law or any
other laws or for the purposes of satisfying applicable stock exchange listing
requirements.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of a Stock Option as it deems
advisable, provided, however, that the Committee may not reduce the exercise
price of an outstanding Stock Option by amending the terms of such Stock Option
or canceling such Stock Option in exchange for the grant of another Stock Option
without the approval of such amendment or exchange by the holders of the
outstanding shares of Common Stock.
(c) Except as otherwise provided in the Plan or in the statement evidencing
the grant of the Stock Option, no amendment, suspension or termination of the
Plan shall, without the consent of the Participant, alter, terminate, impair or
adversely affect any right or obligation under any Stock Option previously
granted under the Plan.
3.8 OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option, incentive
or other compensation plans in effect for the Company, nor shall the Plan
preclude the Company from establishing any other forms of incentive or other
compensation for Employees of the Company.
3.9 PLAN BINDING ON SUCCESSORS
The Plan shall be binding upon the successors and assigns of the Company.
3.10 SINGULAR, PLURAL; GENDER
Whenever used herein, nouns in the singular shall include the plural, and
the masculine pronoun shall include the feminine gender.
3.11 HEADINGS NOT PART OF PLAN
Heading of Articles and Sections hereof are inserted for convenience and
reference; they constitute no part of the Plan.
3.12 PARTICIPATION BY FOREIGN EMPLOYEES
Notwithstanding anything to the contrary herein, the Committee may, in
order to fulfill the purposes of the Plan, modify grants of Stock Options to
Participants who are foreign nationals or employed outside of the United States
to recognize differences in applicable law, tax policy or local custom.
IV. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the later of (a) the date of its
adoption by the Board or (b) the date of its approval by the holders of the
outstanding shares of Common Stock (by a vote of a majority of such outstanding
shares present in person or by proxy and entitled to vote at a meeting of
stockholders of the Company). The Plan shall terminate at such time as the
Board, in its discretion, shall determine. No Stock Option may be granted under
the Plan after the date of such termination, but such termination shall not
affect any Stock Option theretofore granted.
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EXHIBIT C
[ALLERGAN LOGO]
CHARTER
AUDIT AND FINANCE COMMITTEE
AS APPROVED AT THE JULY 25, 2000 BOARD OF DIRECTORS' MEETING
I. PURPOSE
The Audit and Finance Committee ("AFC") is appointed by the Board of
Directors to assist the Board (1) in fulfilling its audit oversight
responsibilities and (2) in the review and approval of corporate financial
policy and strategy.
In its audit oversight role, the AFC shall have the following primary
duties and responsibilities:
- To monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance;
- To monitor the independence and performance of the Company's independent
auditors and internal auditing department; and
- To provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of Directors.
In its role overseeing financial policy and strategy, the AFC shall be
responsible for the review and oversight of the following areas:
- Capital Structure;
- Financial Operations;
- Banking;
- Employee Benefit Plan Assets and Investment Strategy; and
- Financial Organization.
The AFC shall have the authority to conduct any investigation appropriate
to fulfilling its responsibilities and it shall have direct access to the
independent auditors as well as to anyone in the company. In fulfilling its
audit oversight responsibilities, the AFC shall have the ability to retain, at
the Company's expense, special legal, accounting, or other consultants or
experts it deems necessary in the performance of its duties.
II. AUDIT AND FINANCE COMMITTEE COMPOSITION AND MEETINGS
The AFC shall be composed of three or more directors as determined by the
Board, each of whom shall be independent nonemployee directors, free from any
relationship that would interfere with the exercise of his or her independent
judgment. All members of the AFC shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements,
and at least one member of the AFC shall have accounting or related financial
management expertise. AFC members shall be appointed by the Board, which shall
also elect one AFC member as Chairman of the AFC.
The AFC shall meet at least three times annually, or more frequently as
circumstances dictate. An agenda shall be circulated in advance of each meeting.
The AFC should meet privately in executive session at least annually with
management, the director of the internal auditing department, the independent
auditors and as a committee to discuss any matters that the AFC or any of these
groups believe should be discussed. In addition, the Chairman of the AFC should
communicate with management and the independent auditors
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quarterly to review the Company's financial statements and significant findings
based upon the auditors' limited review procedures.
III. AUDIT AND FINANCE COMMITTEE RESPONSIBILITIES AND DUTIES
A. AUDIT OVERSIGHT. In its audit oversight role, the AFC shall have the
following responsibilities and duties:
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with management
and independent auditors of significant issues regarding accounting
principles, practices and judgments.
3. In consultation with management, the independent auditors and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control and report
such exposures. Review significant findings prepared by the independent
auditors and the internal auditing department, together with management's
responses thereto.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of earnings
and/or prior to the filing or distribution of the Company's quarterly
financial statements. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with SAS 61 (see item 9). The Chairman
of the AFC may represent the entire AFC for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the AFC and
the Board of Directors. Review the independence and performance of the
auditors and annually recommend to the Board of Directors the appointment
of the independent auditors or the discharge of the auditor's, when
circumstances warrant.
6. Approve the fees and other significant compensation to be paid to
the independent auditors.
7. On an annual basis, review and discuss with the independent
auditors all significant relationships they have with the Company that
could impair the auditors' independence.
8. Review the independent auditors' audit plan. Discuss scope,
staffing, locations, reliance upon management and internal audit and
general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of
the audit with the independent auditors. Discuss certain matters required
to be communicated by the auditors to audit committees in accordance with
AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Internal Audit Department and Legal Compliance
11. Review the budget, plan, changes in plan, activities,
organizational structure, and qualifications of the internal audit
department, as needed.
12. Review the appointment, performance and when necessary replacement
of the senior internal audit executive.
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13. Review significant reports prepared by the internal audit
department, together with management's response and follow-up to these
reports.
14. On at least an annual basis, review with the Company's counsel any
legal matters that could have a significant impact on the Company's
financial statements, compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
Other AFC Audit Oversight Responsibilities
15. Annually prepare a report to shareholders as required by the SEC.
The report should be included in the Company's annual proxy statement.
16. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, as the AFC or the Board deems
necessary or appropriate.
17. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
18. Establish, review and update periodically the Company's Code of
Ethics and ensure that management has established a system to enforce this
Code.
19. Annually review policies and procedures as well as audit results
associated with directors' and officers' expense accounts and perquisites.
Annually review a summary of directors' and officers' related party
transactions and potential conflicts of interest.
B. FINANCE OVERSIGHT. In its finance oversight role, the AFC shall have the
following responsibilities and duties:
Capital Structure
1. Review and recommend to the Board approval of the capital structure
and the financing plan for the year including approval of short-term and
long-term debt programs.
2. Review dividend strategy.
3. Review financing strategies for product/business acquisitions and
divestitures of more than $10 million.
4. Review interest rate and currency exposure management and hedging
strategies and monitor performance.
5. Review and evaluate financial management strategies designed to
enhance shareholder value.
6. Review cash flow forecasts on quarterly basis.
7. Review strategy for investment of corporate funds and monitor
performance.
8. Review balance sheet performance.
9. Review recommendations regarding stock splits and treasury share
purchases.
10. Review periodically the geographical source of the Company's
earning power and the location of the Company's principal assets.
Financial Operations
11. Review long-term tax strategy, the annual tax rate calculation and
the repatriation of Company earnings. Monitor effects of U.S. and
international tax regulations.
12. Review the risk management and insurance program.
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Banking
13. Review the major commercial banking, financial consulting and
other financial relations of the Company to assure adequacy of coverage.
Employee Benefit Plans
14. Review the performance of the Corporate Benefits Committee with
respect to plan actuarial assumptions, accounting determinations, funding
levels, asset investment and allocation strategies, manager and trustee
selection and overall operations.
15. Review areas of peripheral overlap with the Organization and
Compensation Committee.
Financial Organization
16. Review and evaluate the Company's financial organization, staffing
thereof, and succession planning.
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[ALLERGAN LOGO]
CONFIDENTIAL PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY FOR THE ANNUAL MEETING
APRIL 25, 2001
The undersigned hereby constitutes and appoints Francis R. Tunney, Jr. and Aimee
S. Weisner, and each of them, his or her true and lawful agents and proxies with
full power of substitution in each to represent the undersigned at the Annual
Meeting of Stockholders of ALLERGAN, INC. to be held at the Irvine Marriott
Hotel, 18000 Von Karman Avenue, Irvine, California on Wednesday, April 25, 2001,
and at any adjournments thereof, on all matters coming before the meeting.
THE PROXIES WILL VOTE ON THE PROPOSALS SET FORTH IN THE NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT AS SPECIFIED ON THIS CARD (SEE REVERSE SIDE) AND ARE
AUTHORIZED TO VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS THAT MAY COME
PROPERLY BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, THE PROXIES WILL VOTE
IN FAVOR OF THE ELECTION OF HANDEL E. EVANS, MICHAEL R. GALLAGHER, GAVIN S.
HERBERT AND ANTHONY H. WILD AS DIRECTORS AND IN FAVOR OF PROPOSAL 2.
If this Proxy relates to shares held for the undersigned in the Allergan, Inc.
Employee Stock Ownership Plan or the Allergan, Inc. Savings and Investment Plan,
then, when properly executed, it shall constitute instructions to the plan
trustees to vote in the manner directed herein.
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU CAST YOUR VOTE ON THE INTERNET OR
BY TELEPHONE OR UNLESS YOU SIGN AND RETURN THIS CARD.
---------------------
SEE
REVERSE SIDE
---------------------
Fold and detach here
----------------
ADMISSION TICKET
----------------
RETAIN FOR ADMITTANCE
You are cordially invited to attend the
2001 ANNUAL MEETING OF STOCKHOLDERS
of ALLERGAN, INC.
Wednesday, April 25, 2001
10:00 a.m.
(Registration begins at 9:30 a.m.)
Irvine Marriott Hotel
18000 Von Karman Avenue
Irvine, California
If you plan to attend, please check the box on the proxy card.
This card is your admission ticket to the meeting and must be
presented at the meeting registration area.
[ALLERGAN LOGO]
96
----------
X Please mark your votes as
in this example 5893
---------- -----------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION
OF DIRECTORS AND FOR PROPOSAL 2.
The Board of Directors recommends The Board of Directors recommends
a vote FOR proposal 2. a vote FOR election of Directors
--------------------------------- ---------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approval of the Allergan, Inc.
Directors. 2001 Premium Priced Stock
(see reverse) Option Plan.
For, except vote withheld from
the following nominee(s):
--------------------------------------------------------------------------------
Please check the box if [ ] Please check the box if you wish to have [ ]
you plan to attend the your vote disclosed to the Company.
Annual Meeting The Company's Confidential Voting Policy
is described in the Proxy Statement
accompanying this Proxy.
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
-------------------------------------------------
-------------------------------------------------
SIGNATURE(S) DATE
Fold and detach here
[ALLERGAN LOGO]
PROXY VOTING INSTRUCTIONS
YOUR VOTE IS IMPORTANT. CASTING YOUR VOTE IN ONE OF THREE WAYS DESCRIBED ON THIS
INSTRUCTION CARD VOTES ALL COMMON SHARES OF ALLERGAN, INC. THAT YOU ARE ENTITLED
TO VOTE. WE URGE YOU TO PROMPTLY CAST YOUR VOTE BY:
[COMPUTER GRAPHIC] o Accessing the World Wide Web site
http://www.eproxyvote.com/agn to vote via the
Internet.
[PHONE GRAPHIC] o Using a touch-tone telephone to vote by telephone
toll free from the U.S. or Canada. Simply dial
1-877-779-8683 and follow the instructions. When
you are finished voting, your vote will be
confirmed and the call will end.
[ENVELOPE GRAPHIC] o Completing, dating, signing and mailing the proxy
card in the postage-paid envelope included with
the proxy statement or sending it to Allergan,
Inc., c/o First Chicago Trust Company of New York,
P.O. Box 8648, Edison, New Jersey 08818-9147.