Allergan Announces Corporate Restructuring Plan; Special Charges of Approximately $103 Million for Work Force Reductions, Plant Consolidations and Asset Write-offs

Business Wire, Sept 15, 1998

IRVINE, Calif.--(BW HealthWire)--Sept. 15, 1998--Today, Allergan, Inc. (NYSE: AGN) announced comprehensive plans to streamline operations and reduce costs through global general and administrative staff and services (G&A) restructuring and manufacturing plant consolidations. These plans are part of an on-going business initiative targeting greater operational efficiencies. The operational efficiency initiative complements two other business initiatives, one to improve global sales performance and the other to evaluate longer-term growth and other strategic value-creation opportunities.

The G&A and plant consolidation plans announced today will result in a net worldwide workforce reduction of approximately 550 positions over a three-year period. Currently, there are approximately 6,150 employees worldwide. In addition, management has completed a critical review of its asset bases as a result of a number of recent management decisions relating to the future strategic direction of the Company, and management has made business decisions around the anticipated future use of certain assets. Such decisions resulted in a reassessment of the carrying value of such assets.

As a result of these actions, special charges will be incurred in the third quarter which management estimates to be approximately $103 million pretax, or $1.12 per share after tax. Included in the charges are approximately $43 million resulting from the G&A restructuring, approximately $26 million from the manufacturing plant consolidations and approximately $34 million from write-downs in asset values. The actual amounts to be included in the third quarter special charges will be determined upon close of the quarter and disclosed when the actual results for the third quarter are announced. As a result of certain business initiatives anticipated to be completed in the fourth quarter, additional restructuring charges of up to $10 million may be incurred in the fourth quarter of 1998.

There are significant operating savings associated with the G&A and plant consolidation components of the restructuring charge. Significant streamlining of Allergan's general and administrative functions will result in estimated savings of $18 million in 1999, $23 million in 2000, and $22 million in 2001 versus our expected 1998 G&A expenses.

Rationalizing Allergan's plant network to approximately half the number of manufacturing plants by 2001 will result in an estimated increase in operating expense of $3 million in 1999, and thereafter savings of $2 million in 2000 and $13 million in 2001. In combination, the G&A and plant consolidation plans are expected to yield estimated savings of $15 million in 1999, $25 million in 2000 and $35 million in 2001 against a restructuring charge of $69 million, resulting in a payback period of less than three years.

Strict expense controls in G&A areas will continue, and expenses and investments in all other areas including promotion, marketing, selling, and research and development will be actively managed to ensure appropriate levels of return and efficiencies are achieved. In 1999, increased operating expenses of some $10 million will be recognized in connection with the continued SAP implementation which is underway, and scheduled to be completed by mid-1999 at all Allergan sites globally. This will ensure that Allergan's financial systems are Year 2000 and Euro compliant.

"These actions are elements in our overall plan to substantially improve all aspects of Allergan's business," stated David E. I. Pyott, President and Chief Executive Officer of Allergan, Inc.

"When I assumed leadership of Allergan at the beginning of this year, I was given a clear mandate by the Board: to move Allergan into the ranks of top-quartile performing companies in our industry," continued Mr. Pyott. "I intend to do so by relentlessly focusing our management team on three key initiatives: First, improving global sales performance; sales and marketing functions have been restructured, and improved focus and execution plans are in place and being implemented. Second, improving operating efficiencies; the G&A restructuring is designed to reduce support costs and the plant consolidations should deliver lower cost of goods. Thirdly, developing, and then executing a clear set of options for longer-term growth; improved sales and profitability resulting from the first two initiatives will allow Allergan to invest a significant portion of additional earnings in opportunities to enhance performance in future years, including realizing the potential of our new products and capturing the value of our robust R&D pipeline."

"The actions announced today are essential elements in the foundation we are laying to build a new Allergan, one capable of continuing to deliver innovative products and superior performance," concluded Mr. Pyott. "We have delivered two solid quarters this year and, excluding the special charges, the third quarter is on track."

The Company previously noted that wholesaler demand in the U.S. market for pharmaceutical products needed to be monitored to determine whether it was supported by underlying in-market demand. Continued monitoring of U.S. wholesaler buying patterns indicates that in-market demand to date appears to be consistent with Allergan's U.S. ex-factory sales.