Chapter 1: Introduction What are your motivations or interests in selecting this company? My motivation in selecting this company is such that Stonebridge Associates LLC has recently served as financial advisor to Serica Technologies, Inc. in regards to the company’s acquisition by Allergan, Inc. Following matriculation, I plan to enter the investment banking industry and would greatly like to work as an analyst for Stonebridge Associates. However, first I would need to secure an internship with Stonebridge Associates.
It is my belief that demonstrating my abilities through this report on a topic of relevance would aid in my application.
What questions are you seeking to answer? The question I am seeking to answer through my research is to determine if Allergan, Inc. is a financially healthy company. Question 1: What is the company’s complete name? Allergan, Incorporated Question 2: What is the address of the company’s corporate headquarters? Street Address: 2525 DuPont Drive, Irvine, California 92612 Mailing Address: P. O. Box 19534, Irvine, California 92623-9534 Question 3: Identify the company’s Internet site.
ttp://www. allergan. com/ Question 4: Identify the telephone number and e-mail address of the Investor Relations Department Phone: (714) 246-4500 Fax: (714) 246-4971 Investor Contacts: Jim Hindman (714) 246-4636 Joann Bradley (714) 246-4766 Emil Schultz (714) 246-4474 Shareholder’s services are handled by Wells Fargo Bank, N. A. www. wellsfargo. com/com/shareowner_services Question 5: On which stock exchange is the company listed? New York Stock Exchange Question 6: What is the company’s stock exchange trading symbol? AGN Question 7: What is the company’s Standard Industrial Classification (SIC) and code?
SIC Code: 2834 – Pharmaceutical Preparation Question 8: How many board members does the company have? Twelve Question 9: How many of the directors are company employees, labeled inside directors? And how many are non-company directors, labeled outside directors? Why does a company want and need outside directors? There is one current employee (chief executive officer – David E. I. Pyott) that serves as a board member, specifically as Chairman. Additionally, Gavin S. Herbert (founder and Chairman Emeritus) serves as a board member. The other ten board members are outside directors.
The reason a company would chose to have a mix of inside and outside directors is to ensure the company does not lose sight of big picture issues while being familiar with the day-to-day tactical aspects of the company. Question 10: Where and when is the annual stockholder meeting? The Annual Meeting of Stockholders of Allergan, Inc. was held at the Hyatt Regency Irvine, 17900 Jamboree Road, Irvine, CA 92614, on April 30, 2009, at 10:00 a. m. Pacific Time. Chapter 1: Company Strategy and Business Environment Question 1: Review the chairman’s message of the company’s annual report.
Based on the chairman’s (David E. I. Pyott) message in the 2009 annual report, it is my opinion that the company is optimistic in regards to its future despite less than desired performance in 2008, which was stated as being due to the general contraction of the economy. David E. I. Pyott stated the following: “2008 was a challenging year financially given the worldwide economic downturn. However, 2008 also represented a time for reflection and assessment of our short- and long-term opportunities, enabling us to emerge from 2008 stronger and better prepared for the challenges ahead…
We are confident about our ability to produce top quartile results as we have exceptional employees in operations all over the globe who have consistently demonstrated their ability to not only work very hard but to handle day-to-day operations with excellence while executing considerable change programs and launching new products. ” Question 2: Identify from the primary company strategy identified in the chairman’s message. As a pharmaceutical company, it is imperative that Allergan continually strive to expand horizontally while simultaneously creating new markets with developed products.
Research and development is a fundamental aspect of the industry and it is in that capacity that Allergan attempts to expand, by creating new patents in addition to the development of horizontal reach of existing products. In his message to investors, David E. I. Pyott, chairman and CEO, stated, “ Even in a difficult economic climate with various external, uncontrollable factors impacting our businesses, Allergan draws stability, strength and value from its Growth Equation — a business model that balances diverse specialties with a focused approach and a leadership presence in markets around the globe. ” Question 3:
Type of business: Specialty pharmaceuticals Major business segments: ophthalmic, dermatological, cosmetic and neurological products Primary customers: Individuals, whom are affected by various medical conditions Primary products: Restasis, Refresh, Botox, Combigan, Zymar, Acular, Lumigan, Orbera system, Lap-band and Natrelle breast implants. Question 4: Identify broad-based social, political, economic and technological concerns Social & Global: Shifts in social norms from one culture to another may pose serious restrictions on Allergan’s ability to create a market for a product in difference geographies.
While Botox injections and breast implantations may be admissible in the United States, other countries with different cultural norms may shun such products, thus limiting if not negating the possible market. Political: political concerns, specifically in the form of regulators is a primary concern for a pharmaceutical company as denial by FDA regulators can instantly stop a product from going to market and will result in billions of dollars in lost R&D expenses. Economic: As a great many of Allergan’s products are cosmetic or non-vital in nature, economic shifts can drastically affect the company’s earnings.
An example would be in 2008 when the nation experienced an economic crisis, sales of Botox and Natrelle breast implants fell dramatically as these are considered luxury goods and are not necessary for survival. Technological: As a bio-tech company, technological shifts can have beneficial or massively deleterious effects. The creation of a new drug by a competitor could cause the particular market for one of Allergan’s products to collapse. However, improved analysis software would allow researchers to develop new compounds which could lead to the development of a new drug and thus a new market.
Chapter 1 Wrap Up Question 1: Check the primary company strategy identified in the chairman’s message. Support you answer with phrases. As Identified in David E. I. Pyott’s, Board Chairman and CEO, Allergan is in a constant pursuit of horizontal expansion as well as developing entirely new markets with the production of every new product. A pharmaceutical company such as Allergan has a limited life expectancy for its products as competitors are constantly developing competing drugs and that patents on products eventually expire thus making the market saturated with competing enerics. Therefore Allergan must constantly pursue the research and development of new products to bring to market. Once developed, Allergan expands the individual product’s market horizontally, bringing it to a wider array of consumers. However, this horizontal expansion occurs only as long as the drug is under patent and leading competitors. Once, the patent expires or competitors develop alternate drugs then the market drastically shrinks. Thus Allergan is in a perpetually renewing cycle of horizontal expansion. Chairman and CEO David E. I.
Pyott states, “2008 marked our strongest R&D performance ever — reflecting not only the competence of our scientists, but also our steadily increasing investment in the R&D component of our Growth Equation… In addition, as we increase our footprint in emerging markets and solidify our share in existing ones, we are continuing to expand our leadership presence in more than 100 countries around the globe. ” Chapter 2: Financial Highlights Based on a preliminary review, the company is performing better than prior years. This is based on a strong growth in net sales, net income and both basic and diluted EPS.
Chapter 2: General Company and Marketing Information Question 1: Identify other types of general information found within the annual report. Look for pictures and people found within the report that send signals to the reader. Allergan’s annual report does host a number of pictures. However, they are all related to research and development (several pictures of beakers and test tubes and also a person looking through a microscope). These pictures address Allergan’s core focus, which is the research and development of new pharmaceuticals. Chapter 2: Management’s Discussion and Analysis
Question 1: The primary drivers of performance found in the MD&A section are as follows: •Increased retained earnings aiding to greater R&D expenditures •Greater R&D expenditures resulting in advancements in FDA scheduling •Creation or new markets and enhancement of existing resulting in higher net sales •Newly acquired products causing an increase in amortization •Decreased availability of credit leading to greater dependence on operating cash flows •Decreased disposable income of general public due to recession effecting sales negatively
Over the last several years, Allergan has been able to increase its liquidity by both increasing both current and fixed assets as well as by decreasing current and long term liabilities. In regards to capital resources, Allergan has expressed agreement with senior debt holders for the issuance of additional debt in the future if such actions are desired in additional to a large reserve of additional shares of stock that may be sold if such an action was needed.
Chapter 2: Reports by Management Question 1: Who is responsible for maintain the internal controls designed to provide reasonable assurance that the books and records reflect the transactions of the company? The responsibility of maintaining internal controls to assure financial records are accurate at Allergan is carried out by the Chief Financial Officer (Jeffery Edwards), Principle Accounting Officer (James Barlow) and Chief Executive Officer (David E. I. Pyott).
Management’s conclusion about internal controls is as follows: “Our management, including our Principal Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls or procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision- making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, we have investments in certain unconsolidated entities.
As we do not control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries. We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008, the end of the annual period covered by this report.
The evaluation of our disclosure controls and procedures included a review of the disclosure controls’ and procedures’ objectives, design, implementation and the effect of the controls and procedures on the information generated for use in this report. In the course of our evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm the appropriate corrective actions, including process improvements, were being undertaken.
Based on the foregoing, our Principal Executive Officer and our Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and were operating at the reasonable assurance level. ” Auditing management’s assessment of the effectiveness of the internal controls over financial reporting is the duty of the Principal Accounting Officer (James Barlow). Chapter 2: Independent Auditors’ Report Allergan’s auditor was Ernst & Young LLP, which is headquartered in New York but the actual auditing for Allergan took place in the Orange County, CA office.
The responsibility of an independent auditor is to ensure financial records are factually correct, without the bias of working for the audited company. The audit was conducted in accordance to Public Company Accounting Oversight Board (United States). The opinion of the auditor was that Allergan maintained “in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria. ” Chapter 2: Five- or Ten-Year Summary of Operating Results Over the last 5 years, Allergan has experienced a wide range of market forced.
However, it has continued to show increased sales over the years. Additionally, profitability in the form of net income has increased throughout this period. Allergan has made it imperative that profitable, stabile growth be the focus. As such net-assets has increased, all the while working to reduce liabilities. Such actions are characteristic of profitable growth. Chapter 3: Balance Sheet Question 1: Identify the date shown at the top the balance sheet/ Current Year: December 31st, 2008 Previous Year: December 31st, 2007 Allergan’s fiscal year follows the calendar year.
Question 2: Explain why the order of individual items begins with cash. Would it be more or less appropriate to order these items according to dollar magnitude? The reason why assets are listed with cash first then various other current assets is based on their liquidity. Cash obviously is the most liquid and additional assets are then listed in ascending order based on the relative ease in which they could be converted to a cash liquid state. It would not be appropriate for these items to be listed according to dollar magnitude as this would make the determination of the company’s relative liquidity much more difficult.
Question 3: Compute the following: Accumulated Depreciation / Plant and Equipment Percentage Accumulated Depreciation of Plant and Equipments is 9. 1%. Since this is a rather low number in comparison to total fixed assets, it can be concluded that fixed assets are relatively new. Question 4: Since property, plant and equipment (PPE) and long-term investments in stock represent a company’s investment, why do we distinguish between them in the balance sheet? PPE and long-term investments are differentiated on the balance sheet because they represent different classes of investments.
PPE represents internal investments, whereas long-term investments (represented as Investments on Allergan’s Balance Sheet) depicts external investments by Allergan in financial products or other companies. Question 5: Are any intangible assets listed? Identify the types of intangible assets and the percent of total assets that intangible assets represent. If this company were to be acquired by another company, would the intangible assets influence the purchase price? Intangible Asset 1: Developed technology Patents Intangible Asset 2: Licensing Intangible Asset 3: Trademarks
Total Intangible Assets / Total Assets = 1447. 4 million / 6791. 8 million = 21. 3% If Allergan was to be acquired by another company, intangible assets would most certainly affect purchase price. Although Allergan’s intangible assets cannot be physically held, they none-the-less hold an inherent value in their use within Allergan’s business actions. Whether protecting the sovereignty of Allergen’s product names or in Allergan’s ability to sell them in particular markets without infringement of developed technologies, intangible assets hold a tremendous value.
In Allergan’s particular case, it has a rather high Intangible Asset balance when compared to its total assets. This is due to the fact that it is a pharmaceutical company and therefore relies on the patents of it products to defend their value and thus offset research and development expenses. Without such patents, Allergan’s inventory’s value would drop dramatically as the value would equal only the marginal production costs as market forces would force Allergan to reduce its price as competitors would produce Allergan’s products but without accounting for any R&D expenses, as a competitor would have none.
However, since Allergan has patents and copyrights on its products and the marketing of those products, it has exclusive rights to sell them at whichever price they deem acceptable, thus allowing Allergan it increase its product price to offset R&D expenses and thus make a profit. Question 6: What percentage of total assets is current? Non-current? Current Assets: 2,270,600,000 Non-current Assets: 6,791,800,000 Percentage Current: 33. 4% The percentage of assets that should be current greatly depends on the nature of the business.
Given that Allergan is a pharmaceutical company, it is understood that a large amount of assets should be non-current in the form of intangibles and research facilities. Since Allergan’s products’ true value is in the research and development of the products, it is only right that the balance sheet reflect that. However, in other industries such as retail or the sale of commodities, it would be expected for a company to have a very high current asset ratio as there are no R&D expenses to account for and PP&E would be kept to a minimum.
Question 7: Does the company’s balance sheet report a deferred tax asset? A deferred tax asset? A deferred tax liability? If so what are the deferred tax assets and/or liabilities reported as current and non-current? Deferred tax asset: No; non-current Deferred tax liability: Yes; non-current Question 8: Par value per share of common stock – $. 01 Number of shares authorized – 500,000,000 Number of shares issued – 307,512,000 Number of common shares outstanding – 304,088,000 Number of treasury shares held – 3,424,000
Question 9: By what amount did retained earnings increase or decrease from the prior year? Retained earnings increased by $100,800,000. The amount of the increase was not equal to the net income. Question 10: List each financial statement element as shown in your company’s balance sheet. Question 11: Question 12: Identify the three balance sheet groups that changed most significantly. What events might explain these changes? The three groups that changed the most were other liabilities, retained earnings and other equity components.
Events that might explain these changes are as follows: Retained Earnings: A larger percentage of net income is retained to fund new R&D projects Other Equity Components: Increases in minority interest caused equity to increase Other Liability Components: Decrease in deferred tax liabilities and long term callable notes Question 13: Question 14: The three groups that changed the most were other liabilities, retained earnings and other equity components. Events that might explain these changes are as follows: Retained Earnings: A larger percentage of net income is retained to fund new R&D projects Other Equity Components: Increases n minority interest caused equity to increase Other Liability Components: Decrease in deferred tax liabilities and long term callable notes Question 15: Did Allergan become more or less liquid than previous year? 2008: 1,573,600,000 2007: 1,408,500,000 Decreases in accounts payable, accrued compensation and notes payable, coupled with increases in trade receivables, inventories and other current assets would explain the increased liquidity. Question 16: Did Allergan increase or decrease its financial leverage when comparing total debt to total equity from this year to last? 2008: 68% 2007: 76%
Decreases in liabilities, materialized as reduced tax liabilities and long term callable notes, along with enlargements in stockholders’ equity in the form of increased additional paid in capital with minority interest would result in Allergan reducing its financial leveraging. Chapter 3: Income Statement – Question 1 5 Years of data is provided for comparison in the income statement. The SEC requires balance sheets to provide two years of financial information and income statements to provide three years of information so that investors may easily compare the current data with previous years thus making analysis easier and more beneficial.
Question 2: Did operating income increase or decrease from the prior year? 2008: $719,400,000 2007: $796,100,000 Difference: Increase of $76,700,000 Question 3: Did non-operating income increase or decrease from the prior year? 2008: $ -8,900,000 2007: $ -31,700,000 Difference: non-operating income, which was negative thus expenses, increased by $22,800,000, thus reducing the level of expense by the same figure. Question 4: It is absolutely imperative that one know the different sources of income in the forms of operating and non-operating income as this determines the company’s sources of revenue and thus its financial strength.
Question 5: Describe any irregular events shown on the income statement. On July 2, 2007, Allergan completed the sale of an ophthalmic division it had acquisition as part of its acquisition of Corneal in January of that year. Net cash proceeds were $28. 6 million. The division consisted of current assets of $24. 3 million, non-current assets of $9. 8 million and current liabilities of $4. 2 million. Allergan recorded a loss of $1. 3 million (1. 0 net tax). An additional $400 thousand in losses were incurred in investment advisory services involved in the sale. Question 6: Did net income (loss) increase or decrease from the year prior? 008: $578,600,000 2007: $499,300,000 Difference: Net income increased by $79,300,000 Question 7: Question 8: The three income statement accounts/categories that changed the most were net income, income tax expense and non-operating income. The events that caused this were largely due to the acquisition of Corneal in 2007. The purchase of Corneal resulted in large non-recurring expenses for the purchase as well as advisory services entailed. Once the integration of Corneal was complete, this resulted in increased sale thus the increase of income tax expense. Question 9:
Diluted EPS is always equal to or less than earnings per share as diluted shares considers options, contingent shares and convertible securities, which are assumed to be exercised, issued or converted. This would then increase the average of outstanding shares on which EPS is computed. Therefore diluted EPS assumes a larger volume of shares (when earnings are positive) thus a lower gain per share. However, when earnings are negative, diluted EPS generally equals basic EPS as investor desire to exercise such securities features diminishes. Chapter 3: Statement of Cash Flows
Question 1: Is the SCF dates in the title for a period of time similar to the income statement of for a point in time similar to the balance sheet? The Statement of Cash Flows’ dates are labeled the same ways as the income statement such that they include the year ending December 31st. Question 2: *All figures in millions of dollars Question 3: *All figures in millions of dollars Net sales, net income and net operating cash flows have been trending together positively for the last several years with the exception of net operating cash flows in 2008.
The reason for this discrepancy is due to increases in various liabilities. Question 4: Primary cash outflows and inflows from investing activities Cash outflow: additions to property, plant and equipment: $190,200,000 Cash inflow: proceeds from sale of assets: $6,100,000. Allergan is replacing assets but in an aggressive growth manner. Additions to PPE are more 31 times in value to the amount of assets sold. Activity such as this illustrates that Allergan in not just replacing old assets but adding a larger amount of new ones as well.
Question 5: Primary cash outflows and inflows from financing activities Cash outflow: Payments to acquire treasury stock, repayment of notes payable, dividends Cash inflow: Sale of stock to employees Allergan is being financed primarily through equity as shares were issued and long term debts were repaid. The sale of stock was to employees. This certainly does point to the fact that the business environment is unstable for Allergan. This assumption is further supported by the fact that Allergan purchased a substantial amount of treasury stock, which means Allergan views its stock as being under-valued.
This combined with a decreased amount of repayment from previous years which points to the fact that Allergan is being cautious in uncertain times. However, one must also consider that this report was made after the 2008 crash. Once considering the condition of the market as a whole, Allergan’s precautions do not seem nearly as ominous as at first glance. Chapter 3: Statement of Stockholders’ Equity Question 1: Identify the elements that comprise the statement of stockholders’ equity. •Common stock (as both shares and par value) •Additional paid-in capital •Accumulated other comprehensive loss Retained Earnings •Treasury stock (as both number of shares and value) Question 2: Cash dividends per share: $0. 20 Dividend payout percentage: 10. 5% Dividend yield (share price at $59. 82 as on March 2): 0. 3% The company’s dividend yield is rather small given market conditions. At 0. 3% it is roughly equivalent to a 1 year T-Bill. On that assumption, based on a discounted dividend model it does not look like an attractive investment as it has a beta of almost 1 but some inherent risk. However, evaluated on discounted corporate cash flows model it becomes much more ttractive due in large part to its large amount of retained earning that are represented in the form of increased PPE. Chapter 3: Notes to the Financial Statements Question 1: Cash and cash equivalents are defined as cash in banks, repurchase agreements, commercial paper and deposits with financial institutions with maturities of three months or less when purchased and can be liquidated without prior notice or penalty. Question 2: Inventories are valued at the lower of cost or market (net realizable value). Cost is determined by the first-in, first-out method (FIFO). Question 3:
Trading Securities: $0 Available-for-sale securities: $600,000 Held-to-maturity debt securities: $0 Commercial paper: $414,100,000 Question 4: Income Tax Expense: $298,500,000 Deferred: $91,500,000 Paid income taxes: $207,000,000 The three major elements that give rise to deferred tax assets are accrued expenses, operating loss for carryforwards / carrybacks and inventory reserves and adjustments. The three major elements that give rise to deferred tax liabilities are depreciation, interest rate swaps and developed intangible assets. Statutory tax rate: 35% Effective tax rate: 26. % Question 5: Question 6: Amount goodwill reported 2008: $1,981,800,000 Write-down of goodwill: $100,300,000 Management describes the accounting of goodwill based on an indefinite useful life but is evaluated yearly for impairment. Question 7: A financial user would prefer SFAS #123 over APBO #25 because SFAS spreads the expenses over a predetermined period rather than the date the company grants the option instead of reporting when issued. A user would prefer this because it gives a more realistic depiction of the financial status of the company based on its option issuance.
Since APBO #25 allows for the exercise price difference to be recorded on the date the issuance, which does not account for changes in the option and share difference that may occur later on as well as being incurred as a single expense, when the expense would be realized at later dates. Question 8: Minimum lease payments under operating leases: $47,300,000 Minimum lease payments under capital leases: $0 Ratio of operating lease payments to capital lease payments: N/A Allergan leases certain facilities, vehicles and office equipment in the course of its business.
All leases are labeled as operating leases. This listing is favorable for a company because it allows for expenses to be recognized later than equivalent capital leases. Allergan’s practices in relation to leases are in compliance with FASB rulings in regards to the classification of capital and operating leases. Question 9: Question 10: Omitted on request of Professor Andes Question 11: A contingency liability was created for pending litigation in regards to Allergan’s sales and marketing practices in connection to its Botox® product.
Expected costs for attorneys’ fees and associated costs are expected at $34. 0 million. Due to the uncertainties related to the incurrence, amount and range of loss, if any, Allergan is unable to predict a liability for the outcome, thus is not included under contingencies, although legal fees are because of their foreseeable nature. Question 12: Question 13: Question 14: Chapter 4: Financial Analysis Evaluate Profitability: Based on the data compiled from money. msn. com and from Allergan’s financial reports, it is my opinion that Allergan is experiencing strong profitability.
The profitability of Allergan is robust in relation to both its industry as well as the S&P 500. This conclusion is derived from Allergan’s increased gross margin, pre-tax margin and net profit margin. Additionally, sales have experienced constant growth over the last three years. Furthermore, operating income continues to grow, compounding my previous opinion. The only aspect that gives me pause for concern is the decrease in operating cash flows in the last year. However, this decrease is due to increased inventories and trade receivables. Evaluate Financial Condition:
Based on the data compiled, it is my opinion that Allergan is in a strong financial position. This is due to limited its exposure to liabilities while increasing assets through several acquisitions as well as development of new product markets as well as enhancement of existing ones. Allergan has been able to consistently reduce its debt/equity over the last three years as well as increase both its current ratio as well quick ration and interest coverage. Additionally, Allergan’s ratios are robust not only in regard to its industry but also the market as a whole.
It is my opinion that Allergan is experiencing strong growth that is expected to continue. Although these ratios would suggest that Allergan is utilizing a retrenchment strategy but strong increases in sale and profits speak to the contrary. Furthermore, Allergan’s recent acquisitions of Corneal as well as Serica technologies and multiple individual products such as Aczone and TransPyloric Shuttle (TPS), demonstrate that Allergan is most certainly pursuing a growth strategy. Investment Return: In conclusion, Allergan has delivered impressive return.
The return on assets has increased steadily over the last three years and is well above both the industry and the market as a whole. Additionally, Allergan’s 5 year returns on both equity and assets are well above the industry and in competition with the industry, although slightly below. However, although the 5 year returns are below that of the market, they are exceedingly high when compared to the rest of the pharmaceutical industry which has been hit rather badly over the last several years due to the overall decline in the market as well as the economy.
This rationale also translates to the last years ROE decline, such that although there was a decline, the total return is almost double that of the industry. It is on this data as well as previous aspects of evaluation that I assess Allergan as pursuing a growth strategy. Management Efficiency: In regards to the data evaluating management efficiency, it is my opinion that Allergan is highly efficient company. Allergan surpasses the industry average in all 5 of the metrics and has shown constituent growth over the last three years.
Additionally, last year the Instructional Investor named Allergan’s CEO one of the “Best CEO’s in America”, which can be found on page 12 of Allergan’s annual report to shareholders. However, ignoring non-material opinions, the data shows a strong position within the market place and that the company is poised for growth. Chapter 5: Question 1: Based on my analysis of Allergan Inc, it is my opinion that the financial results coincide with the company’s strategic focus as depicted by the Chairman’s message to investors.
Although certain aspects of the company’s financial record depict struggle over the last year, which is largely due to the decline of the economy as a whole, a great many metrics illustrate growth even in troubled times. Additionally, certain aspects which are not easily interpreted in the financial statements concur with this analysis such as multiple acquisitions as well as aggressive expansions into international markets, which will yield strong returns in coming years. Therefore in conclusion, I would state that Allergan has a strong growth profile that is expected to continue for the next several years.
Question 2: A) My motivation, as stated earlier is such that Allergan has recently acquired Serica Technologies, a client of a particular investment bank at which I would like to work or intern. The reason I chose Allergan specifically is to provide some documentation on my ability to evaluate a company, which if feel will be of value during the interview process. My final assessment would be to advise Serica to submit to Allergan’s offer. Allergan has a strong earnings profile which will allow for generous goodwill to be dispersed to shareholders.
Additionally, a promising growth projection for Allergan allows Serica stakeholders to be assured that the company will not be disposed of for assets but rather incorporated into a larger, stronger entity. The rationale applies to current employees of Serica whom may be concerned with the future of either position after the acquisition, but based off the strong growth profile of Allergan, so assurance can be made that Allergan is looking to expand its production and capabilities rather than to scrape an acquisition for market sale gains.
Thus, it is my recommendation that Serica Technologies accept Allergan’s offer for acquisition. *Note: This recommendation is based solely on the financial strength of the Acquirer and not only the mechanics of an actual proposal. An informed recommendation would require a discounted cash flow analysis, an accretion/dilution model, trading comparable analysis and a leveraged buyout analysis. However, what I have provided here would be adequate for a preliminary evaluation of potential targets prior to negotiating non-disclosure agreements and the initial letter of intent.
B)The question to which I was seeking an answer was whether or not Allergan is a financially healthy company. Based on the data I have analyzed and concurrent with my earlier statements, that Yes, in my opinion Allergan Inc is a financially healthy company. Chapter 5: Validate Your Conclusion Z-score current: 5. 54 Z-score year prior: 3. 01 Z-score 2 years prior: 2. 72 Based on the Altman Z-score, I believe my analysis has been accurate in predicting the growth of Allergan.
Although going back several years the company did not have the strongest of positions as major shifts in consumer spending negatively affected the economy, but I feel confident in my assessment of growth and opinion as a healthy company as confirmed by the Altman Z-score which is currently way above the cut off for a healthy company. *All figures in millions of dollars **Balance Sheet taken from Allergan Annual Report 2008 *All figures in millions of dollars except share information ** Income Statement taken from Allergan Annual Report 2008 *All figures in millions of dollars ** Cash Flows Statement taken from 2008 Allergan Annual Report
Cite this Allergan Financial Report
Allergan Financial Report. (2018, Jun 18). Retrieved from https://graduateway.com/allergan-financial-report-essay/