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Alcon 2002 Annual Report

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The smile on your granddaughters face.

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Over 2 million people a year lose central vision due to age-related macular degeneration.

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A drive to the city.

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Half of all people with glaucoma remain undiagnosed or untreated.

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A vacation in Thailand.

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Surgeons perform 10 million cataract surgeries globally each year.

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The skyline at sunset.

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More than 300 million adults in the developed world are near- or far-sighted.

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Maybe the only

thing more frighteningthan losing onessense of sightis losing ones

sense of independence.At Alconwe understandthat fear, and

we are committedto helping doctorspreserve, restoreand enhance vision

throughout the world.

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Maybe the only

thing more frighteningthan losing onessense of sightis losing ones

sense of independence. At Alconwe understandthat fear, and

we are committedto helping doctorspreserve, restoreand enhance vision

throughout the world.

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Dear Shareholders

The images you see in thepening pages of this yearsnnual report dramatically lustrate the impact of theoss of clear vision on a

ersons quality of life. Formore than half a century,Alcon has been dedicatedo developing and commer-ializing specialized phar-

maceutical, surgical andonsumer products thatrevent the loss of visionr restore visual functiono the eye.

Glaucoma patientsround the world use ourharmaceutical therapies toontrol elevated intraocularressure and delay deterio-ation of their visual capabil-ies. Surgeons implant

more than three and a halfmillion of our intraocularenses each year to restorelear vision to people

whose eyesight is impairedy cataracts, and they pre-cribe our powerful topicalntibiotics to prevent infec-

ons from occurring afterurgery.Millions of contact lens

wearers depend on ourision care products to

moisten their eyes and toeep their lenses free ofacteria and other contami-ants that can lead to eyenfections and discomfort.Thanks to our advancedefractive surgery systemhat customizes treatment

to each patient, more andmore people each year whoare near-sighted, far-sightedor suffer from astigmatismwill see clearly without

glasses or contact lenses.Though there is no curetoday for age-related macu-lar degeneration (AMD), ourresearch into treatmentsfor this disease has beenpromising. We are opti-mistic it will yield importantcontributions to managingthis debilitating disease,the leading cause of blind-ness among people overthe age of 50 in the devel-oped world.

Preservation, restorationand enhancement of eye-sight and care for the healthof peoples eyes: this is ourfocus, this is our commit-ment, this is our passion.Our success in this effortdepends on inspired re-search, quality people andproducts, dedicated techni-cal and customer service,

knowledge development,global reach and compas-sion for those who sufferfrom eye disease or visualdysfunction. We undertakethese efforts in partnershipwith a community of eyecare professionals aroundthe world who help peoplesee clearly and live theirlives to the fullest. Theseattributes have dened

Alcon for more than half a

century. They have madeour company the largestand, we believe, the mostinnovative eye care com-pany in the world. They also

have led to a history ofnancial stability and suc-cess, exemplied by another

year of solid growth in rev-enues and prots in 2002.

Alcon reportedhealthy salesgrowth andstrong nancialresults for 2002

Highlighting Alcons per-formance in 2002 was a9.5% increase in globalsales to $3.01 billion, pacedby exceptionally stronggrowth of our pharmaceu-tical products. All vefeatured products in thissector experienced double-digit growth, and Alconstotal pharmaceutical salesgrew 17.4% over the pre-

vious year.

Strong performance inophthalmic pharmaceuti-cals was complemented by solid growth of our surgicalproducts, with sales rising6.0% in 2002, despite adecline in the refractivesurgery segment that heldback overall surgicalgrowth. Consumer eyecare sales performed wellin a at market, growing4.1% for the year.

We capitalized on ourestablished global infra-structure to translate thisstrong and balanced salesgrowth into even faster

growth in operating income,which increased 19.5% to$703.7 million. Reducedinterest costs, derived fromdeclining interest rates andthe repayment of almost$500 million in debt sinceour IPO, along with a lowereffective tax rate, allowed

Alcon to achieve netincome of $466.9 million, a47.9% increase over 2001.

Research anddevelopmentof new productsis at the heartof our success

As important as our nan-cial performance was in2002, our progress in ad-

vancing our research anddevelopment pipeline waseven more encouraging

and it bodes well for Alconsfuture. New products arethe lifeblood of our busi-ness. We invested $323million in research anddevelopment programs in2002, and we expect toinvest a total of $2 billion ina broad range of researchand development programsover the next ve years.We believe this will be thelargest eye-related research

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and development invest-ment by any company inthe world, feeding our exist-ing pipeline of products andleading to new therapies

and products to treat eyedisease and prevent blind-nessproducts we canonly dream of today.

Of course, what really matters to us, to our share-holders and to the oph-thalmic community is trans-forming research anddevelopment projects intomarket-ready products. Inthis regard, we had a very productive year in 2002,receiving 343 regulatory approvals and ling 340new product submissionsin more than 75 countriesaround the world. Theselings and approvals in-cluded key future revenuedrivers such as AcrySof

Natural intraocular lens,CustomCornea TM wave-front system, once-a-day

Patanol ophthalmic solu-

tion, Vigamox TM

ophthalmicsolution and CiproDex oticsolution ( CIPRO is a trade-mark of and licensed fromBayer AG) in the UnitedStates, Opatanol oph-thalmic solution in Europeand Azopt ophthalmicsuspension and Betoptic S ophthalmic suspensionin Japan.

We also made signi-cant progress on several

important developmentprojects, as we moved intoPhase III clinical studieswith Anecortave Acetatefor AMD, 15(S)-HETE for dry

eye and Patanase nasalspray for allergies. We havebeen achieving powerfulclinical results with our

AcrySof Re Stor TM intraocu-lar lens. Early results ofclinical trials show theunique design of this inno-

vative lens has the potentialto deliver excellent vision,both far and near, virtually eliminating the need forreading glasses aftercataract surgery. If theseearly results are conrmedby additional study, this lenscould also prove importantin the correction of refrac-tive errors and presby-opiathe inevitable age-driven inability to focus onnearby objectsby far themost prevalent vision de-ciencies in the world.

Finally, in April of 2003

we commenced the globallaunch of the Inniti TM visionsystem at the annual meet-ing of the American Society of Cataract and RefractiveSurgery. This new systembrings revolutionary tech-nology to lens removal forthe rst time in many years.With its tri-modal design,incorporating advancedphacoemulsication,

NeoSonix oscillation and

our innovative AquaLase TMliquefaction device, it repre-sents a new platform to fur-ther enhance our cataractequipment market position.

AquaLase TM uses pulses ofwarm uid to remove theeyes natural lens materialwith enhanced safety.

Of great importanceto our future, more than2,500 registered patentsand 1,600 pending patentssupport our broad offeringof current products and ourrich pipeline of potentialnew ones. We look forwardto the commercial successof many of these pipelineproducts in 2003 and formany years to come.

By maintainingour focus weincreased ourindustry leadership

As we have been for morethan 50 years, Alconremains focused almost

entirely on one healthcareneed: the treatment of eyedisease and dysfunction.Unlike other companiesthat offer a limited productline or serve only onesegment of the eye careindustry, our strategy is toprovide doctors who treateye diseases and condi-tions with a broad suite ofhigh-quality products tomeet their every need.

This commitment be-came even more importantin 2002, as favorablechanges in the competitiveenvironment gave Alcon

unparalleled access tocustomers, and furtherenhanced our ability tocapitalize on the individualstrengths of each Alconproduct segment to ad-

vance the entire breadthof our product line. Thesechanges also allowed us towiden our lead in terms ofdirect geographic reach,positioning Alcon betterthan our competitors forthe inevitable return to eco-nomic growth in developingcountries. We rmly believethat emerging markets willbe important sources offuture growth. Finally, theseindustry changes havehelped to strengthen ourleadership position inthe eye care market andallowed us to expand thedepth and breadth of our

customer relationshipsaround the world.

Sales forceexpansiondrove marketshare gains inseveral segments

One of the hallmarks of Alcons success is that wenever take our leadershipposition for granted, and we

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worked hard to strengthenhat position in 2002. Theemendous efforts andnergies of our more than,300 person global sales

orce led to market shareains in most of our majorroduct lines and in many eographic areas. In the

United States, we gainedhare in glaucoma, allergy,cular anti-infectives andombinations, otic anti-nfectives and soft contactens care disinfectants.

Outside the U.S., we exe-uted a highly successfulollout of Travatan oph-halmic solution in Europe,which, combined with theontinuing growth of Azopt ,xpanded our glaucoma

market share in most majormarkets around the world.On a global basis, weemented our leadership inphthalmic surgery as wedded another year of mar-et share gains in intraocu-ar lenses, viscoelastics,

ataract and vitreoretinalquipment and the surgicalassettes used to performye surgery.

We gainedaluable operatingynergies withur broadroduct line

With our intense focus onhe eye, we are committed

to being all things to all eyecare professionals through-out the world. As we re-entered the public arena in2002, our product portfolio

boasted entries in every sig-nicant segment of the eyecare market except eye-glasses and contact lenses.

No other company matches our breadth ofproduct offerings. Withthese products spanningthe three major medicalsegments of eye care, webelieve we are able toachieve marketing syner-gies where others may not.

As an example, in 2002almost 10% of our pharma-ceutical sales in the UnitedStates came from prescrip-tions written by optom-etrists, a group of eye careprofessionals that hasgained the right to prescribemost ophthalmic medica-tions in each of the 50states. We also incorporatesamples of our anti-infec-

tive, anti-inammatory orcombination products intosurgical post-operative kits,increasing the frequency ofa prescription being lledfor one or more of them.

Eye care professionalscan depend on Alcon to pro-

vide high quality productsand services, no matter theirspecialty or where they practice. We are the only company that comes close

to offering a one-stop shopfor ophthalmic products toeye care professionals.

We are a global

companycommitted toserving customersin all regionsof the world

In addition to our productline breadth, we approachthe eye care market with abroadly global perspective,a strategy that offers twopowerful benets. First, ithelps to protect us fromthe economic vagaries ofany one country or region.Second, and even moreimportant, we have learnedthat we maximize ourgrowth opportunities by dealing directly with ourcustomers wherever they are as soon as the practiceof ophthalmology takesroot. Alcon now has directsales and marketing opera-

tions in all key markets, andour products are sold inmore than 180 countries.

We generally develop ourleadership in new marketsby establishing surgicaltraining laboratories to fur-nish hands-on training insurgical techniques to doc-tors in countries wheresuch training may otherwisebe unavailable. We then aimto protably introduce the

rest of our product line intothese markets and reapgrowth from them for yearsto come. Furthermore, by being rst into a country

with a direct sales force,we are well-positioned toquickly gain a signicantfoothold in that countrysophthalmic market. Oncewe enter a country, weremain committed to it,because the specialistswho practice there dependon Alcon for the productsthat prevent blindnessand restore vision in theirpatients. It is our experiencethat we enhance our cus-tomer relationships andexpand our global leader-ship by being the rstophthalmic company in acountry, and by stayingthere through good andbad economic times.

As evidence of the suc-cess of this strategy, in2002 we celebrated the30th anniversary of our afl-

iates presence in Japan. Inthe course of the last threedecades, our Japanese afl-iate has grown from a smalloperation of 10 people toour second largest localoperating company, staffedwith more than 400 employ-ees serving eye care profes-sionals in this importantmarket. This very capableteam has led Alcon to thetop of the Japanese market

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Baby boom generation Eye disease years (45+)

90

2000

2010

2020

2030

8070605040 A G E

Demographics

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n ophthalmic surgery and inoft contact lens care disin-ection. With the launchesf Azopt and Betoptic S n 2002, and with several

harmaceutical productsxpected to be registeredn the next few years, were optimistic about ourhances to gain signicant

market share on the phar-maceutical side of theapanese market in theuture.

Alcons supportf medical

missions helpedhousands ofeople seelearly again

To be a true partner in thelobal eye care community,

Alcon has long believed thatwe must reach out to peo-le around the world whoannot afford or do not haveccess to the services thatan save or restore their

ght. For more than 40ears we have supportedens of thousands of caringhysicians in bringing the

miracle of sight to those ineed. In 2002, Alcon con-ibuted products at noharge to 840 independent,hilanthropic eye care med-cal missions in 82 coun-ies. We estimate that thisupport helped restore clearision to 19,000 individuals

in developing countries,allowing them to regaintheir independence andenjoy richer and fuller lives.In the United States, we

dramatically increasedour Glaucoma Patient Assistance Program, pro- viding free medication foralmost 27,000 glaucomapatients who could notafford such sight-savingdrugs on their own. This isan increase of almost 50%over the previous year. Alltold, Alcon contributedalmost $20 million in cashand retail value of productsin 2002 to these importantprograms, further demon-strating our strong supportfor the humanitarian effortsof our community of physi-cians and our deep concernfor those who can behelped with our products.

Globaldemographictrends are

particularlybenecial toophthalmology

The global market for eyecare products is already large, approximately $11 bil-lion in sales in 2002, and

Alcon accounted for morethan 25% of that gure.More importantly, the mar-ket is growing at a healthy pace, one that will likely con-

tinue in the years to comeas demographic factorsevolve and new therapiesthat address currently unmet eye care medical

needs reach the market. Although vision correctionneeds and eye disease canarise at virtually any stageof life, most of the eye prob-lems that Alcon addresseswith our products and re-search efforts are associ-ated with advancing age.

As people get older, theireyes are prone to a numberof diseases, especially thosethat can cause partial orcomplete blindness suchas cataracts, glaucoma andage-related macular degen-eration. Other age-relatedocular maladies that canaffect quality of life includepresbyopia and dry eyesyndrome.

The aging populationsof the worlds developedeconomiesthe baby-boomgeneration will begin turning

60 in 2007are enteringthe phase in life when eye-related problems are muchmore likely. As people reachthis stage of life and livelonger, there will be aninevitable increase in thenumber of people who expe-rience eye disease and

visual dysfunction, which willfuel the market for eye careproducts. Many in this gen-eration already suffer from

dry eye, while a large major-ity of them are presbyopic.

Despite their generally younger demographics,developing countries

account for the majority ofthe worlds population andrepresent an integral factorin eye care market growth.

As their national incomesrise, it is likely that thesecountries will spendincreasing amounts onhealth care. We expect eyecare to be a rst-line bene-ciary of this spendingbecause it is highly costeffective to treat many eye-related diseases to maintainpeoples independence,return them to productivity and enhance their qualityof life. Nowhere is this moreobvious than in cataractsurgery, where a relatively quick surgical procedure,combined with an intraocu-lar lens, can immediately restore clear vision, no mat-ter how long cataracts have

impaired the patients vision.While cataract surgery iscommonplace in developedcountries, it is in its infancy in many parts of the less-developed world. There is ahuge pool of people in thesecountries who could benetfrom cataract surgery.

As the clear leader in thisindustry, with the broadestproduct line, unmatchedglobal scope, the largest

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sales force of any oph-thalmic company and apromising pipeline of newproducts under develop-ment, Alcon expects to gain

a signicant share of thegrowth in the eye care mar-ket. We believe ground-breaking new products,aging populations andglobal economic growthshould expand the eye caremarket signicantly over thenext ve years. Factoring inpotential markets for theotic and nasal applicationsof some of our ophthalmicdrugs, we estimate that ourproduct lineup could com-pete in markets totaling asmuch as $20 billion in 2007.

We anticipate that muchof this market growth willcome in the pharmaceuti-cal segment of our busi-ness, especially in theUnited States. Recognizingthis, in the fourth quarter of2002 we again expandedour U.S. pharmaceutical

sales force. This highly capable team will continueto broaden our penetrationof the key markets that pre-scribe our products. They are well-prepared to sup-port the three major phar-maceutical launches wehave planned for 2003:Vigamox TM for eye infec-tions, once-a-day Patanol for eye allergies andCiproDex otic for ear infec-

tions. They will also beintegral to the launch ofSystane TM dry eye therapy,as this product will be pro-moted extensively with

ophthalmologists andoptometrists alike. We willcontinue to invest appropri-ately in our sales forcethroughout the world tosupport all of our growingproduct segments in orderto position ourselves to callon all eye care profession-als, no matter where they practice.

Our performancederives fromthe dedicationand talents ofour employeesand support ofour customers

I would be remiss if I endedthis letter without thankingthose people so critical to

Alcons success in 2002.They include the physicians

and other professionalswho make up the eye carecommunity, and who work so hard to advance thestandard of healthcare forthe eye in virtually every region around the world.They include our talentedand dedicated employees,now totaling almost 12,000people across the globe,who wake up every day with the desire to serve

these customers betterand to fulll our mission asa company. They includeour new shareholders, whoinvested their funds in our

company in the belief thattheir investment wouldincrease in value this yearand, we hope, for many

years to come. Finally, they include our colleagues atNestl, our exemplary cor-porate parent for a quarterof a century. With theirdecision to launch an IPO ofapproximately 25% of ourshares, they demonstratedcondence in our entiremanagement team to charta more open course and toshepherd their remaininginvestment as we pursueour corporate goals. I ampersonally honored to havethe support of this truly great global company.

In closing, we serve anattractive industry withexcellent demographiccharacteristics and several

signicant unaddresseddisease opportunities tobe explored. We have theglobal infrastructure andresources to penetrate andgrow new markets and tocontinue investing heavily in research and develop-ment to develop and deploy new products for existingand unmet needs. We com-pete in this industry as theclear leader, with the broad-

est product line and withenviable nancial strengthand exibility, all of whichposition us well to build onour long history of growth.Our excellent results in2002, our rst year as apublic company, give uscondence that we cansuccessfully execute ourstrategy for long-termgrowth, which we believewill create value for all ourshareholders as we moveforward. I want every share-holder to know that all ouremployees are hard at work transforming our global eyecare leadership and our

passion for preserving andrestoring sight into share-holder value.

Tim SearChairman, President, andChief Executive Ofcer

Alcon, Inc. April 18, 2003

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90 91 92 93 94 95 96 97 98 99 00 01 02

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Corporate HeadquartersU.S. General OfficeCountry Main OfficeScientific or Representative OfficeManufacturing Facility Research & Development

RenoIrvine

Mexico City

San Jose Panama City

Santo DomingoSan Juan

Orlando

Sinking SpringMississauga

Elkridge

Huntington

HamiltonFort Worth

Houston

Bogot

Quito

Lima

So Paulo

Santiago MontevideoBuenos Aires

Caracas

Strategic Locations Meeting eye care needs throughout the world

Honolulu

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Lisbon

Barcelona

Madrid

ParisPuurs Prague

Zug

KaysersbergFreiburg

Vienna

BudapestBratislava

Bucharest

Marousi

MilanIstanbul

Almaty

Karachi

Bangalore

Dhaka

Bangkok

Kuala Lumpur

Singapore

Ho Chi Minh City

Taipei

Hong Kong

Beijing

Manila

Tokyo

Seoul

Jakarta

Sydney

Auckland

Cairo

Jeddah

Randburg

Ljubljana

Zagreb

Sofia

Kiev

Minsk

Moscow Vilnius

Warsaw

Riga

Helsinki

OsloStockholm

Copenhagen

Gorinchem

HemelHempstead

Cork

Schaffhausen

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For more than

fty yearswe have been buildingwhat is nowthe worlds leading

eye care company.Alcon designs,develops, andmanufactures

the widest selectionof pharmaceutical,surgical, andconsumer products

for the eye.

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For more than

fty yearswe have been buildingwhat is nowthe worlds leading

eye care company. Alcon designs,develops, andmanufactures

the widest selectionof pharmaceutical,surgical, andconsumer products

for the eye.

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Pharmaceutical Products

Our deepest roots at Alconre in the discovery andevelopment of pharmaceu-cals that address diseasesf the eye. Since Alcons

ounding 57 years ago, weave become the largestpecialty ophthalmic phar-

maceuticals company in theworld. Our leadership posi-on reects deep marketenetration and the mostomprehensive set of oph-halmic pharmaceuticalroducts in the eye carendustry. In 2002, Alconsharmaceutical revenuesrew 17.4% to $1.09 billion,epresenting an approxi-

mate 19% share of thelobal market for oph-halmic pharmaceuticals.harmaceutical productsave been our fastest grow-ng segment in recent years,limbing from about 30% ofotal sales in 1997 to over6% in 2002, a trend wexpect to continue.

Our pharmaceutical

uccess derives primarily rom the productivity of ouresearch and developmentfforts. New products intro-uced in the last ve years

were the major drivers ofur pharmaceutical salesrowth in 2002, includ-ng Patanol ophthalmicolution for eye allergies,ravatan ophthalmic solu-on and Azopt ophthalmicuspension for glaucoma,

and Cipro HC otic suspen-sion for ear infections( CIPRO is a trademark ofand licensed from Bayer

AG). We believe the produc-

tivity of our R&D efforts justies our optimism forthe future.

In 2003, we expect tolaunch Vigamox TM oph-thalmic solution, a fourth-generation uoroquinolonefor eye infections, CiproDex otic suspension for earinfections and a once-a-day

version of Patanol . Otherkey pipeline products thatwe expect to introduce inthe next few years includeCiproDex ophthalmic sus-pension for eye infections,

Anecortave Acetate for age-related macular degenera-tion (AMD), a combinationof Travatan and timololfor glaucoma, Patanase nasal spray for allergies and15(S)-HETE for dry eye.

Given the breadth of ourproduct pipeline, we made

the strategic decision in1998 to expand our phar-maceutical sales force.Since then we have almosttripled its size in the UnitedStates and broadened itsscope to reach all medicalspecialties that prescribeophthalmic products. Theseinclude not only ophthalmol-ogists and optometrists, butalso pediatricians, allergists,otolaryngologists and family

practice physicians.While the vast majority

of Alcons pharmaceuticalsales come from patent-protected drugs, we recog-

nize generic drugs play animportant role in todayshealthcare environment.In 1998, Alcon establishedFalcon Pharmaceuticals,Ltd., which is now the lead-ing U.S. producer of genericdrugs for the eye and ear,based on 2002 revenues.

Treatingglaucoma

Glaucoma is primarily caused by increased pres-sure within the eye thatprogressively damages theoptic nerve. Without treat-ment, this inevitably andirreversibly leads to loss of

visual function and ultimate-ly can result in total blind-ness. A chronic diseasegenerally associated withaging, glaucoma may afict

as many as 10 million peo-ple in the developed worldand countless more inless-developed countries.Glaucoma has no cure, sopatients will typically useone or more medications tocontrol its progress for therest of their lives.

Because it is usually painless, slow to advanceand typically begins by impairing peripheral vision

only, many people with glau-coma remain undiagnosed.Some experts estimate thatas many as 50% of peoplein the developed world with

glaucoma remain undiag-nosed or untreated. Inminority populations, whichstatistically suffer from glau-coma in greater numbersand with greater severity, aneven higher percentage isundiagnosed. These factorscreate a large pool of poten-tial patients who couldbenet from glaucomamedications and provide apowerful growth engine forwhat is already the largestophthalmic pharmaceuticalsegment.

Alcons agship therapy for glaucoma, Travatan ,was launched in the UnitedStates in April 2001 and hassteadily gained marketshare. Since then, Travatan has had successful launch-es in more than 50 othercountries, and is the second

leading prostaglandinanalogue in most of thesemarkets. Alcon also experi-enced rapid growth of

Azopt , which has doneespecially well outside theUnited States and waslaunched in Japan at theend of 2002. Rounding out

Alcons robust family ofglaucoma medications are

Betoptic S ophthalmic sus-pension and Timolol GFS .

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Treating infectionand inammation

The human eye has aremarkable ability to protect

itself from bacteria, butsometimes these defensesare insufcient to ght offinfections. A common typeof eye infection is bacterialconjunctivitis, more com-monly known as pink eye,which causes external eyetissues and eyelids tobecome red, swollen andpainful. It occurs most fre-quently in children and isusually diagnosed andtreated by pediatricians.On rare occasions, moreserious infections canoccur inside the eye itselfafter surgery. One of themain reasons such infec-tions are rare is that sur-geons typically use topicalocular antibiotics beforeand after surgery to killbacteria that could enterthe eye through incisions.

Alcon provides a fullcomplement of topicalantibiotics and steroids totreat infection and inam-mation, including TobraDex ophthalmic suspension andointment, a combinationtherapy that addressesinfection and inammationin a single medication. Webelieve the convenience ofTobraDex increases patientcompliance, which has

made it the most frequently prescribed combinationproduct for the preventionof post-surgical eye infec-tions in the United States,

with a market shareexceeding 65%. Ciloxan ophthalmic solution, a topi-cal version of ciprooxacin,is prescribed by doctorsto prevent and treat eyeinfections.

Alcon also marketsCipro HC , a combinationantibiotic/anti-inammatory formulation to treat outerear infections, commonly known as swimmers ear.This product demonstratesour successful strategy ofleveraging the effectivenessof a compound we knowwell, to deliver products forthe treatment of diseasesof organs other than theeye. While TobraDex andCiloxan are used exten-sively by ophthalmologistsand ophthalmic surgeons,more than half of the

prescriptions written forTobraDex and morethan two-thirds of theprescriptions for Ciloxan come from other medicalspecialties.

Treatingallergy

Allergies of the eye, mostly allergic conjunctivitis, affectsome 20 million Americans

and many millions morearound the world, causingitching, burning and red-ness. Systemic allergy med-ications have a relatively

small impact on the causesand symptoms of eyeallergies. Consequently,physicians are increasingtheir prescriptions for topi-cal medications to addresseye allergies.

Alcons Patanol is theleading topical eye allergy drug in the U.S. markettoday. It combines a fast-acting antihistamine toquickly treat the irritatingsymptoms of allergies and amast-cell stabilizer to calmthe cells causing the aller-gic reaction. These easy-to-use eye drops providefast, effective and long-lasting relief. After receivingapproval in Europe in 2002,Opatanol ophthalmicsolution was introducedin many of those marketsin time for the 2003 spring

allergy season.Treating age-relatedmacular degeneration

As the leading cause of visual impairment in peopleover the age of 50 in theUnited States, Europe andJapan, AMD is a very important disease category.There are two forms of

AMD, both of which can

lead to severe visual impair-ment. The dry form isassociated with the growthof fatty deposits on the reti-na, while the wet form is

caused by the proliferationand eruption of blood ves-sels underneath the retina.

As these two forms pro-gress, they impair central

vision, greatly limiting anindividuals independenceand lifestyle. Our AMDresearch currently focuseson the wet form, whichrepresents a small minority of total cases but accountsfor over 85% of blindnesscaused by AMD.

While Alcon does not yet have a pharmaceuticaltreatment for AMD, wemade good progress in2002 on the developmentof Anecortave Acetate,our lead AMD productcandidate. We reportedstatistically signicant clini-cal results from our rstpivotal study and began

recruiting for our secondpivotal study. Although the AMD mar-

ket opportunity remains virtually untapped, many observers believe thepotential market for AMDtherapies could be in thebillions of dollars; andone day could rival that ofglaucoma, currently thelargest market segment inophthalmology.

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$5.2 billion ophthalmic pharmaceuticals market (in millions)

360$Anti-infective/Anti-inflammatory

680$Anti-infective

780$Allergy

1,080$Other

2,300$Glaucoma

A n t i - i n f e c t i v e /

A n t i - i n f l a m m a t o r y 2 1 %

O t h e r 8 %

G l a u c o m a 3 0 %

A n t i - i n f e c t i v e 1 4 % O t i c 8 %

A l l e r g y 1 9 %

Market

Alcon had an estimated 19 share of theophthalmic pharmaceuticals market.

ompany estimates as of March 31, 2002

By segmentRevenue

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P h a s

e 1Pipeline Pharmaceuticals

15(S)-HETE

Travatan /Timolol

Patanase

Anecortave Acetate

CiproDex *** Ophthalmic

Vigamox TM

CiproDex *** OticPatanol

once-a-day 03

03

03

05

05

0505

06

P h a s

e 2

P h a s

e 3

F i l e d

* L a

u n c h

*

*with U.S. FDA **Expected in U.S. ***CIPRO is a registered trademark of and licensed from Bayer AG

Eye Allergies

Ear Infections

Eye Infections

Eye Infections

Age-Related Macular Degeneration

Nasal Allergies

Glaucoma

Dry Eyes

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Surgical Products

A large number of eye con-itions, including cataracts,itreal and retinal disease,efractive errors and presby-pia, do not respond to drug

herapies but can be cor-ected or treated with sur-ery. Alcon provides the

most comprehensive offer-ng of high-quality oph-halmic surgical products inhe eye care industry. Ourales of surgical productsnd services increased.0% in 2002 to $1.44 bil-on, or 48% of our totalales. Alcons surgical busi-ess has become the cleareader with an estimated5% of the global marketor ophthalmic surgicalroducts. We have consis-ently enhanced the capabil-ies of the equipment andupplies used by doctorso treat these conditions.

Most eye problemsddressed surgically aressociated with aging, sohe number of people who

eed eye surgery will grows the baby boom genera-on enters the age range

when eye disease andisual dysfunction become

more common. Additionally,he number of ophthalmolo-ists in developing countriesained to perform eye sur-ery increases every year.

Our global presence and0 clinical training centersround the world increase

the likelihood that surgeonsin these countries aretrained on Alcon equipment.

Armed with our advancedtechnology, we expect these

surgeons to play a majorrole in treating the largepool of patients sufferingfrom cataracts in countrieswhere cataract surgery isnot yet commonplace.

Alcons pipeline of newsurgical products embodiesinnovative designs to aidsurgeons in restoring andpreserving sight. A key product we plan to intro-duce in 2003 is the Inniti TM

vision system, which addsthe AquaLase liquefactiondevice to current lensremoval technology.

AquaLase uses pulses of asurgical solution to safely break up and remove lensmaterial.

We have high hopes forour new intraocular lenses(IOLs). IOLs are used toreplace the human crys-

talline lens after it has beenremoved. With a CE mark already in hand, we expectto receive United StatesFood & Drug Administration(FDA) approval of the

AcrySof Natural IOL in2003. AcrySof Natural isspecially designed to mimicthe light-ltering propertiesof the human crystallinelens by ltering high fre-quencies of blue light asso-

ciated with retinal damage.Other planned additions tothe AcrySof family includea toric version to correctastigmatism in 2004 and

AcrySof Re Stor TM, which isdesigned to allow patientsto eliminate or signicantly reduce their dependenceon eyeglasses for distanceand near vision after theirnatural lens has beenremoved. This exciting newlens is scheduled for intro-duction in 2003 in selectedinternational markets and in2005 in the United States.

Cataract surgicalproducts

As people age, the eyesnatural crystalline lens hard-ens and becomes clouded,which can impair vision andeventually lead to blindness.Thanks to modern micro-surgical equipment andtechniques to remove andreplace the clouded lens,

this debilitating conditioncan be addressed in a safeand highly successful surgi-cal procedure. For this rea-son, cataract surgery hasbecome one of the mostfrequently performed med-ical procedures in the devel-oped world. Cataract sur-gery involves the use of awide variety of products,including IOLs, sophisti-cated electronic equipment,

precision handpieces, cut-ting instruments, sutures,irrigating solutions and vis-coelastic devices (com-pounds that protect sur-

rounding ocular tissue andmaintain the structuralintegrity of the eye duringsurgery).

The success of Alconscataract business today begins with the Legacy Series 20000 cataractremoval system. This sys-tem uses ultrasound andmechanical action to break up the cataract, along witha sophisticated irrigationand aspiration system toremove the lens materialfrom the eye. The advancedtechnology of the Legacy has made it the preferredcataract removal system inthe world today. These sys-tems generate a continuingstream of revenue for Alconthrough the sale of consum-able supplies used in sur-gery. The global introduction

of the NeoSonix

handpiece,a record number of systemupgrades to existing equip-ment and signicant in-creases in the share ofcataract surgeries donewith our equipment all ledto especially robust salesin this part of our surgicalbusiness in 2002.

Under todays standardof care for cataract surgery,the surgeon removes the

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damaged natural lens andreplaces it with an IOL. Thepurpose of this lens is toreplace the function of thenatural lens and properly

focus light on the retinato restore vision. Alcons AcrySof lenses were byfar the most frequently implanted foldable lensesin the developed worldin 2002, with an estimat-ed global market shareexceeding 40%. Afterbeing introduced in 2001,the single-piece versionof the AcrySof now com-prises almost 75% of total

AcrySof sales in the UnitedStates, and we hope toduplicate this in othercountries in the future.

Refractive surgicalproducts

The most prevalent eyeproblems in the world today are refractive errors:myopia (near-sightedness),

hyperopia (far-sightedness)and astigmatism (irregularcornea shape). Althoughdoctors usually correctthese conditions with pre-scription eyeglasses or con-tact lenses, many patientsdo not want to be depend-ent on glasses or contactsso they turn to refractivesurgery. The most commonform of refractive surgery,LASIK (laser assisted in situ

keratomilieusis), employs alaser that reshapes thecornea to the desiredcurvature. LASIK is an elec-tive procedure that most

patients pay for themselves,so it is highly affected bythe economic environment.Nevertheless, in 2002 doc-tors performed more thantwo million LASIK proce-dures around the world.

We believe Alcons LADARVision 4000excimer laser is the mostadvanced refractive lasersystem on the markettoday. With a true small-spot laser beam and thefastest and most preciseeye tracker, it has gained apowerful reputation amongsurgeons for its ability toperform the most compli-cated refractive surgeries.In 2002 we became therst company to receiveFDA approval to use awavefront device to guideLASIK procedures. The

CustomCornea

wavefrontsystem employs our LadarWave TM measurementdevice that captures opticalerrors across a patientsentire visual system, devel-ops a treatment customizedfor each individual eye,matches it precisely withthe eye and directs thelaser to treat the cornealimperfections unique toeach patient. Alcon was the

rst company to receiveFDA approval of a wave-front-guided refractive pro-cedure, and we launchedthis new technology in the

fourth quarter of 2002.

Vitreoretinal surgicalproducts

Cataracts and refractiveerrors are relatively com-mon, but diseases of andinjuries to the eyes poste-rior segment and retina arerarer and more challenging.The posterior segment con-tains vitreous, a clear, jelly-like substance that providesstructural integrity to theeye. Visual impairmentcaused by problems in thispart of the eye is usually the result of undesirable tis-sue or blood vessel growththat distorts light waves asthey pass through the eye.The retina is the light-sensi-tive membrane lining theinside of the back of the

eye and is directly con-nected by the optic nerve tothe brain. The most com-mon retina-related causesof vision loss are retinaldetachment, maculardegeneration, diabeticretinopathy and macularedema. Surgeries to repairdamaged tissues andrestore or slow the loss of

vision are extremely compli-cated and require special-

ized skills and equipment.Over the last ten years,

Alcon has assembled aportfolio of high-quality pre-cision equipment and hand-

held microsurgical instru-ments that vitreoretinalsurgeons depend on toperform these delicate pro-cedures. Our agshipproduct in this arena is the

Accurus surgical system,which we estimate wasused in more than half ofall vitreoretinal proceduresperformed globally in 2002.We delivered a completesoftware upgrade to the

Accurus in 2002 and cre-ated a new performancestandard for vitreoretinalprobe dynamics with theintroduction of a 2500 cuts-per-minute probe. Togetherthese advances improvestability, control and ef-ciency during surgery,reducing the potential fordamage to the retina andother eye tissues.

Alcon also introduced theGrieshaber Revolution TMmicro-scissor and forceps,the rst product of its kindwith 360-degree activationtechnology. This remarkablesystem established a newperformance standardby providing more preciseinstrument placement,which is critical when oper-ating on delicate tissueslike the retina.

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$3.2 billion ophthalmic surgical market (in millions)

300$Vitreoretinal

600$Refractive

2,300$Cataract

Market

Alcon had an estimated 45 share of theophthalmic surgical market.

ompany estimates as of March 31, 2002

R e f r a c t i v e 5 %

C a t a r a c t 8 4 %

V i t r e o r e t i n a l 1 1 %

By segmentRevenue

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E a r l y

D e

v e l o p

m e n t

Pipeline Ophthalmic Surgical

AcrySof

Re StorTM

AcrySof

Toric

New Viscoelastic

Enhanced Accurus

Infiniti TM System

AcrySof

Natural03

03

03

04

04

05

A c t i v

e

D e

v e l o p

m e n t

A d v a

n c e d

D e

v e l o p

m e n t

F i l e d *

L a u n

c h *

*with U.S. FDA **Expected in U.S.

Cataract IOL

Cataract Removal

Vitreoretinal Surgery

Cataract and Vitreoretinal Surgery

Astigmatic Cataract IOL

Cataract/Refractive IOL

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Consumer Products

With a 19% share of thelobal market, Alcon is theecond largest manufac-urer and marketer of con-umer products for the eye

excluding eyeglasses orontact lenses, which we doot make or sell). Our port-olio of products includesontact lens care solutions,rticial tears and ocularitamins. Within these three

main areas, Alcon is themarket leader in the multi-urpose soft lens disinfec-on markets in the Unitedtates and Japan, and theumber two company glob-lly in total contact lensolutions, articial tears andcular vitamins. Total con-umer eye care sales for002 were $480 million,.1% ahead of the previousear, which represented6% of our total revenues.

Consumer eye care prod-cts are sold primarily overhe counter through drugtores and other retailers

n the United States andhrough opticians elsewheren the world. Although con-umers purchase most ofhese products at retail,heir purchase decisionsre highly inuenced by theroduct recommendationsiven to them by eye carerofessionals, includingphthalmologists, optom-trists and opticians. Weelieve we earn their pro-

fessional recommendationsto consumers because of

Alcons dedication to apply-ing quality science to devel-oping all our consumer

products. We implement acomprehensive program ofclinical studies to supportthe science behind ourproducts. In the U.S., Japanand several other markets,we also use consumeradvertising programs togenerate awareness of ourproducts and the new anddifferentiated benets they deliver. We believe the com-bination of these two mar-keting strategies is integralto our success with eyecare professionals and con-sumers in this segment ofthe ophthalmic market.

An important aspect ofour consumer eye carebusiness is its contributionto our position as the lead-ing provider of ophthalmicpharmaceuticals. Optom-etrists in the U.S. that rec-

ommend our consumerproducts also prescribewith increasing frequency ophthalmic drugs to treatmany eye diseases andconditions. In fact, oph-thalmic prescriptionswritten by optometristsapproached 10% of ourtotal prescription volumein the United States.

Alcon is well-positionedto meet the needs of these

eyecare professionals, many of whom have expandedtheir primary eye care role inmanaged care organizations.Our U.S. consumer sales

force calls on these eye doc-tors and our sales peoplehave been trained to pro-mote not only our consumerproducts, but also our entireline of pharmaceuticalproducts applicable to anoptometrists practice.

We also gain synergies inthe research and develop-ment and manufacturing ofour consumer products. Forexample, the effort that goesinto the development ofsome of the preservativesfor our contact lens solu-tions can also be applied topreservatives in our pharma-ceutical products. Finally, theproduction volumes associ-ated with many of our con-sumer products contributeto the cost efciency of ourmanufacturing processes atseveral of our plants.

Contactlens care

Contact lenses are worn by millions of people aroundthe world, and every userneeds to keep his or herlenses clean, clear and freefrom germs that mightcause eye infections. Alconentered the contact lenscare business more than

20 years ago, but only recently have we gained theleadership position in softlens disinfection in thelargest and most important

markets, the United Statesand Japan. This is the resultof diligently applying ourresearch efforts to developsuperior lens cleaning sys-tems that can be differenti-ated in the minds of botheye care professionals andcontact lens wearers, sup-ported by aggressive mar-keting and sales efforts.

In 1999, we introduceda solution that cleaned anddisinfected so well thatmanual rubbing of lenseswas unnecessary: ourOPTI-FREE EXPRESS

No Rub TM multi-purposedisinfecting solution. Thisrevolutionary product hassignicantly enhanced ourposition in the contact lenscare market. Upon its intro-duction in the United States,OPTI-FREE EXPRESS

No RubTM

rapidly gainedshare in this competitivemarket, going from 17% atthe beginning of 2000 to26% by the end of 2002.

The innovative benetsof this product were furtherdemonstrated in 2002,when we were the rst andonly company to receiveFDA approval for a claimof Lasting Comfort in ourlabeling. Alcon achieved

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this distinction by clinically demonstrating the superiorcomfort of OPTI-FREE

EXPRESS No Rub TM com-pared to other leading

contact lens solutions. Webegan promoting this attrib-ute to the professionalcommunity in October 2002and commenced consumeradvertising in the rst quar-ter of 2003. We expectthese advertisements toincrease patient awarenessand further differentiate ourproduct from other contactlens solutions.

We also sell productsfor the care and cleaningof rigid gas-permeablelenses (hard lenses), led by Unique-pH multi-purposedisinfecting and cleaningsolution, as well as a full lineof other cleaning products.These products includeCLERZ Plus lens rewettingdrops that reduce proteinbuild-up and keep lensesmoist while in the eye and

OPTI-FREE

SupraClens

preservative-free activecleaning solution.

Articial tearsfor dry eyes

Many people experienceperiodic or chronic eye dis-comfort caused by cornealdryness, which may bethe result of low tear pro-duction, poor tear quality,

reduced mucin productionor inammation. Dry eyealso is associated with envi-ronmental pollution andlifestyle changes, but age

and hormonal changes aremore important factors,especially in women aftermenopause. As a result, theglobal market for productsto treat dry eye conditionsis growing in the range of6% to 8% annually.

Doctors primarily haveused articial tears to treatthe symptoms of dry eyeand provide temporary relieffor this irritating condition.Periodic application of theseproducts works relatively well for intermittent casesof moderate dry eye. Moresevere, chronic cases re-quire frequent applicationand products that includespecial polymers and othercompounds to make themmore effective.

Alcon currently sells a variety of articial tears,

including Tears Naturale

Forte lubricant eye dropsfor mild to moderate dry eye conditions and Bion Tears lubricant eye dropsfor more severe cases.Tears Naturale Forte is

very similar to natural tearsin composition but includesa polymer that helps re-tain moisture in the eye.

Bion Tears adds zinc andbicarbonate to the formula

to improve effectivenessin patients with severesymptoms.

In 2002, Alcon com-pleted development of a

revolutionary product thatwe believe will bring a newlevel of relief to peoplesuffering from dry eyesymptoms. Systane TM dry eye therapy has a uniqueformula that bonds withdamaged portions of thecornea to form a protectivelayer, allowing the body torepair the damaged por-tions of the cornea. Clinicalstudies demonstratedthat Systane TM, launchedin early 2003, providedrelief by reducing both thesigns and the symptomsof dry eye better than theleading articial tear on themarket today.

Ocular vitamins

Recently published results

from long-term clinicalstudies demonstrate thatcertain vitamins have abenecial impact on eyehealth. The Age-RelatedEye Disease Study (AREDS)conducted by the NationalEye Institute revealed thatconsumption of high levelsof antioxidants are associ-ated with reduced inci-dences of age-related mac-ular degeneration. Because

many people do not receivesufcient levels of these

vitamins, ophthalmologistsfrequently recommendspecially formulated eye

vitamins for patients whoare at a higher risk of retinaldisease. The publication ofthis study led to an acceler-ation of demand for ocular

vitamins in 2002.To meet the needs of

this rapidly growing market, Alcon introduced ICAPS AREDS ocular vitamins in2002. This is a reformula-tion of our previous ICAPS

vitamins to include all the vitamins and compoundsthe AREDS study foundbenecial to the health ofthe eye. We expanded ourpromotion of this productto reach all eye care pro-fessionals who recommend

vitamin therapy, with aspecial focus on retinalspecialists. Our strongrelationships with thesesurgeons, who are the

specialists who treat most AMD patients, should helpus gain increased physicianrecommendations for

ICAPS vitamins in thecoming years. We believe

ICAPS AREDS formula hasa bright future as the popu-lation ages and more peo-ple become aware of thebenets of ocular vitaminsin reducing the incidence ofretinal disease.

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$2.5 billion consumer eye care market (in millions)Market

Alcon had an estimated 19 share of theconsumer eye care market.

ompany estimates as of March 31, 2002

500$Artificial Tears

500$Other Vision Care

1,500$Contact Lens Care

A r t i f i c i a l T e a r s 2 0 %

O t h e r V i s i o n C a r e 1 1 %

C o n t a c t L e n s C a r e

D i s i n f e c t a n t s 6 9 %

By segmentRevenue

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P r e - C l i n

i c a l

Pipeline Consumer Eye Care

New Disinfectant

InteliPORT Punctal Plug

Systane TM

Opti-Free

Lasting Comfort03

03

03

04

A c t i v

e C l i n

i c a l

A d v a n

c e d C

l i n i c a

l

A p p r o

v e d *

L a u n

c h *

*by U.S. FDA as required **Expected in U.S.

Contact Lens Care

Dry Eyes

Dry Eyes

Contact Lens Care

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The nearly

12,000 employeeswho make up Alconsglobal workforceare guided by

an experienced teamof senior executives.We are committedto leveraging

Alcons position asthe global eye caremarket leader inthe quest for enhanced

shareholder value.

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For the last several years, we have added moresalespeople to optimizethe potential sales impactresulting from new phar-

maceutical product launch-es. With our sights set fur-ther into the future, in 2002we invested signicantadditional funds into ourdevelopment of treatments

for age-related maculardegeneration, specically our lead drug candidate

Anecortave Acetate. This iscritical to our long-termsuccess because it repre-sents our value creationstrategy: investments inresearch lead to new prod-ucts which increase salesthrough our establishedoperational infrastructureto grow earnings and cash

ow that are then reinvest-ed into more research.More simply put, productow equals cash ow, and

Alcon has over 50 years

experience delivering prod-uct ow through the com-bination of our researchand sales and marketingorganizations.

Strong operational cashow combined with diligentasset management allowedus to reduce our net debtby almost $500 millionsince our IPO in March

(adjusted for the redemp-tion of Nestl-owned pre-ferred stock with IPO pro-ceeds). Net debt reduction,along with lower interestrates, drove net interestexpense down by $29.5million in 2002. We also

beneted from a signicantdecline in our effective tax rate, partly as a result ofa change in accountingstandards, but also due to

settlements of certain tax audits and changes in themix of income earned in

various countries. Thesenancial factors had a rela-tively large impact on ourearnings in 2002, but arenot expected to be asimportant, in a relativesense, to earnings growthgoing forward.

Balanced sales growthfrom new products, marketgrowth and share gains,combined with operationalleverage, reduced interestcosts, and a lower tax ratepushed net earnings to$466.9 million in 2002,47.9% ahead of last year.

All in all, 2002 was a suc-cessful rst year for us as apublic company and ourresults bolstered Alconsnancial strength, leaving

us with the nancial exi-bility that is so critical tothe continuation of our

value creation cycle. Alcon is a new company

to many of our sharehold-ers, but we have beenbuilding our leadershipposition in this industry forover half a century. Duringthat time we have learnedthat our nancial successis not just about the next

quarters numbers. Instead,it is about remaining intent-ly focused on the longer-term opportunities thatexist in our industry and

maintaining a high ethicalstandard in our businessconduct. We are a compa-ny that cares deeply aboutour reputation with ourcustomers, our employees,our communities and ourshareholders. I want toreassure you that Alconis committed to reportingour nancial results withintegrity, clarity and trans-parency. Furthermore, eventhough we have had goodnancial controls and pro-cedures in the past, wehave strengthened themeven further in the last yearto take into account thenancial reporting obliga-tions that accompany ournew status as a publiccompany and new lawsreecting heightenedconcerns about corporate

governance.Thank you for yoursupport and condencein Alcon.

Jacqualyn FouseSenior Vice President,Finance andChief Financial Ofcer

00 01 02

$332

Net Earnings (in millions)

$316

$467

00 01 02

$246

Research and DevelopmentExpense (in millions)

$290

$323

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Alcon achieved

or exceededour nancial goalseach quarter of scal 2002.Our unwavering focus

on creatingand deliveringthe best productsand services for

eye care professionals,patients and consumersis what has driven andwill continue to fuel

Alcons growth.

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Table of Contents

Managements Discussion and Analysis of Financial Condition and Results of Operations 40

Overview of Our Business 40Results of Operations 44Sales by Quarter 51Liquidity and Capital Resources 52

Critical Accounting Estimates 54Market Risk; In-Process Research and Development 56New Accounting Standards 57

Report of Independent Auditors 59Consolidated Balance Sheets 60Consolidated Statements of Earnings 61Consolidated Statements of Shareholders Equity and Comprehensive Income 62Consolidated Statements of Cash Flows 63Notes to Consolidated Financial Statements 64

Report of the Group Auditors to the General Meeting of Alcon, Inc. 81 Alcon, Inc. and Subsidiaries Swiss Disclosure Requirements 82Report of the Statutory Auditors to the General Meeting of Alcon, Inc., Hnenberg 83Balance Sheet 84Statement of Earnings and Retained Earnings 85Notes to the Financial Statements 86Proposed Appropriation of Available Earnings 89

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You should read the following discussion and analysisconjunction with our financial statements and notes

hereto included elsewhere in this report. This Manage-ments Discussion and Analysis of Financial Condition and

esults of Operations contains forward-looking statements.

ease see Cautionary Note Regarding Forward-Lookingtatements for a discussion of the risks, uncertaintiesnd assumptions relating to these statements.

Overview of Our Business

General

Alcon, Inc. and its subsidiaries develop, manufacture andmarket pharmaceuticals, surgical equipment and devicesnd contact lens care and other vision care products thateat eye diseases and disorders and promote the generalealth and function of the human eye. Founded in 1945,

we have local operations in over 75 countries and ourroducts are sold in more than 180 countries around theworld. In 1977, we were acquired by Nestl S.A. Sincehen, we have operated largely as an independent com-any, separate from most of Nestls other businessesnd have grown our annual sales from $82 million to over3.0 billion primarily as a result of internal developmentnd selected acquisitions. In March 2002, Nestl soldpproximately 25% of its ownership of Alcon throughn initial public offering (IPO).

We conduct our global business through two businessegments: Alcon United States and Alcon International.

Alcon United States includes sales to unaffiliated cus-omers located in the United States of America, excludinguerto Rico. Alcon United States operating profit is derivedrom operating profits within the United States, as wells operating profits earned outside of the United Stateselated to the United States business. Alcon Internationalncludes sales to all other unaffiliated customers. Eachusiness segment markets and sells products principally n three product categories of the ophthalmic market:) pharmaceutical (e.g., prescription ophthalmic drugs);i) surgical equipment and devices (e.g., cataract, vitreo-etinal and refractive); and (iii) contact lens care (e.g.,isinfecting and cleaning solutions) and other vision

care products (e.g., artificial tears). Business segmentoperations generally do not include research and develop-ment, manufacturing and other corporate functions. Wemarket our products to eye care professionals as well asto the direct purchasers of our products, such as hospi-

tals, managed care organizations, government agencies/ entities and individuals.

Market Environment

Demand for health care products and services is increas-ing in established markets as a result of the aging of thepopulation and the emergence of new drug therapies andtreatments for previously untreatable conditions. Likewise,demand for health care products and services in emergingmarkets is increasing primarily due to the adoption ofmedically advanced technologies and improvements inliving standards. As a result of these factors, health carecosts are rising at a faster rate than economic growthin many countries. This faster rate of growth has led gov-ernments and other purchasers of health care productsand services, either directly or through patient reimburse-ment, to exert pressure on the prices of health careproducts and services. These cost-containment efforts

vary by jurisdiction.

In the United States, Medicare reimbursement policiesand the influence of managed care organizations continueto impact the pricing of health care products and services.For example, a Medicare prescription drug benefit pro-gram is being considered which would present opportuni-ties and challenges for pharmaceutical companies. Somestates are also moving to implement more aggressiveprice control programs and more liberal generic substitu-tion rules that could result in price reductions. In addition,managed care organizations use formularies and theirbuying power to demand more effective treatmentsat lower prices. Both governments and managed careorganizations have supported increased use of genericpharmaceuticals at the expense of branded pharma-ceuticals. We are well-positioned to address this marketopportunity with Falcon Pharmaceuticals, Ltd., our genericpharmaceutical business, which currently has the #1 mar-ket share position in generic ophthalmic pharmaceuticals

ManagementsDiscussion and Analysisof Financial Conditionand Results of Operations

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mounts denominated in the same currency. From time tome, we purchase or sell currencies forward to hedge cur-ency risk in obligations or receivables; these transactionsre designed to address transaction risk, not translationsk. Our Japanese and South African subsidiaries pur-

hase goods from some of our subsidiaries in U.S. dollarsnd hedge a portion of these intercompany liabilities usingorward contracts. We have not experienced significantains or losses as a result of these hedging activities.

Generally, a weakening of the U.S. dollar against otherurrencies has a positive effect on our sales and profits

while a strengthening of the U.S. dollar against otherurrencies has a negative effect on our sales and profits.

We experienced negative currency impacts as a result ofhe strengthening of the U.S. dollar during 2002, 2001 and000. In 2002, we experienced the positive effect of the

weakening of the U.S. dollar against the major European

urrencies; however, this positive effect was offset by thencrease in the value of the U.S. dollar versus the Japaneseen and Latin American currencies. During 2001, therimary cause of the negative currency impact was thetrengthening of the U.S. dollar against the Japanese yennd the major European currencies, with lesser negativempacts relating to the Canadian, Australian and Brazilianurrencies. During 2000, the negative currency impact

was primarily due to the increase in the value of theU.S. dollar versus the major European currencies. We refero the effects of currency fluctuations and exchange ratemovements throughout this Managements Discussionnd Analysis of Financial Condition and Results of Opera-ons, which we have computed by applying translationates from the prior comparative period to the more recenteriod amounts and comparing those results to the moreecent period actual results.

Operating Revenues and Expenses

We generate revenues largely from sales of ophthalmicpharmaceutical products, ophthalmic surgical equipmentand devices and contact lens care and other vision careproducts. Our operating revenues and operating incomeare affected by various factors including unit volume,price, currency fluctuations, acquisitions, licensing and themix between lower-margin and higher-margin products.

Sales of ophthalmic pharmaceutical products are primarily driven by the development of safe and effective productsthat can be differentiated from competing products inthe treatment of ophthalmic diseases and disorders andincreased market acceptance of these new products.Inclusion of pharmaceutical products on managed careformularies covering the largest possible number ofpatients is another key competitive factor. We face signifi-cant competition in ophthalmic pharmaceuticals, includingcompetition from other companies with an ophthalmicfocus and from larger pharmaceutical companies. In gen-eral, sales of our pharmaceutical products are not affectedby general economic conditions, although we face pres-sure to reduce prices from governments and United Statesmanaged care organizations. We experience seasonality inour ocular allergy medicines, with a large increase in salesin the spring and a lesser increase during the fall. Costsof goods sold for our pharmaceutical products includematerials, labor, overhead and royalties.

Our surgical product category includes three product lines:cataract, vitreoretinal and refractive. Sales of our productsfor cataract and vitreoretinal surgery are driven by techno-logical innovation and aging demographic trends. However,the number of cataract and vitreoretinal surgical proce-dures is not generally affected by economic conditions.We believe that our innovative and leading technology andour ability to provide customized (i.e., tailored to each sur-geons preference) surgical procedure packs with a broadrange of proprietary products are the keys to our successin these product categories. Sales of our refractive surgi-cal equipment and the related technology fees are drivenby consumer demand for laser refractive surgery. We selllasers and other surgical equipment used to perform laser

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refractive surgeries and, in the United States, charge atechnology fee for each surgery performed (one eye equalsone surgery). Outside of the United States, we generallydo not charge a technology fee, although we charge atechnology fee when our LADARWave Custom Cornea

Wavefront System is used to guide our laser to perform acustomized procedure. Because governments and privateinsurance companies generally do not cover the costs oflaser refractive surgery, sales of laser refractive surgicalproducts and related technology fees are sensitive tochanges in general economic conditions and consumerconfidence. There is no significant seasonality in oursurgical business. Costs of goods sold for our surgicalproducts include raw materials, labor, overhead, royaltiesand warranty costs. Operating income from cataract and

vitreoretinal products is driven by the number of proce-dures in which our products are used. Operating incomefrom laser refractive surgical equipment depends primarily on the number of procedures for which we are able tocollect technology fees.

Sales of our contact lens care products are driven byophthalmologist, optometrist and optician recommenda-tions of lens care systems, our provision of starter kitsto eye care professionals, and consumer preferencesfor more convenient contact lens care solutions. Contactlens care products compete largely on product attributes,brand familiarity, professional recommendations and price.The use of less-advanced cleaning methods, especially outside of the United States, also affects demand for ourcontact lens care products. There is no seasonality insales of contact lens care products, and we have expe-rienced little impact from general economic conditionsto date, although in low-growth economic environmentsconsumers may switch to lower-priced brands. Costs ofgoods sold for contact lens care products include mate-rials, labor, overhead and royalties. Operating income fromcontact lens care products is driven by market penetrationand unit volumes.

Our selling, general and administrative costs include thecosts of selling, promoting and distributing our productsand managing the organizational infrastructure of ourbusiness. The largest portion of these costs is salary forsales and marketing staff.

Research and development costs include basic research,pre-clinical development of products, clinical trials, regula-tory expenses and certain technology licensing costs. Thelargest portion of our research and development expensesrelates to the research, development and regulatory approval of pharmaceutical products. During each of the

years 2002, 2001 and 2000, a greater proportion of ourresearch and development expenses were incurred duringthe second half of the year than during the first half.

Our amortization costs relate to our acquisitions and thelicensing of intangible assets. Effective July 7, 2000, weacquired Summit Autonomous Inc. for a total purchaseprice of $948.0 million, which resulted in goodwill andintangible assets of $954.5 million. Effective January 1,2002, Alcon adopted Statement of Financial AccountingStandards No. 142, Goodwill and Other Intangible Assets,which requires that goodwill and intangible assets withindefinite useful lives no longer be amortized, but insteadbe tested for impairment at least annually. See note 3 tothe consolidated financial statements. In the absence ofnew acquisitions, annual amortization expense on intan-gible assets with definite useful lives at December 31,2002 is estimated to decrease from $74.5 million in 2002to $51.4 million in 2007.

In connection with the IPO, Alcon changed certain provi-sions of its 1994 Phantom Stock Plan. These changesresulted in a one time $22.6 million charge to operatingincome during the first quarter of 2002.

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Results of Operations

The following table sets forth, for the periods indicated,elected items from our consolidated financial statements.

As a % of Sales2002 2001 2000 2002 2001 2000

n millions, except percentages)

nited States $ 1,632.6 $ 1,464.6 $ 1,333.4 54.3% 53.3% 52.2%ternational 1,376.5 1,283.1 1,220.2 45.7 46.7 47.8

Total sales 3,009.1 2,747.7 2,553.6 100.0 100.0 100.0osts of goodssold 892.7 798.3 749.7 29.7 29.1 29.4

Gross profit 2,116.4 1,949.4 1,803.9 70.3 70.9 70.6elling,general andadministrative 1,014.7 953.7 855.8 33.7 34.7 33.5

esearch anddevelopment 323.5 289.8 246.3 10.7 10.5 9.6

processresearch anddevelopment 18.5 0.7

mortization ofintangibles 74.5 117.0 86.5 2.5 4.3 3.4

Operatingincome 703.7 588.9 596.8 23.4 21.4 23.4

ain (loss)from foreigncurrency, net 4.2 (4.8) 0.1 0.1 (0.2)

terest income 22.2 46.6 44.1 0.8 1.7 1.7terest expense (53.8) (107.7) (86.3) (1.8) (3.9) (3.4)ther, net 1.2 (9.1) (0.3)

Earningsbeforeincometaxes 677.5 513.9 554.7 22.5 18.7 21.7

come taxes 210.6 198.3 223.0 7.0 7.2 8.7Net earnings $ 466.9 $ 315.6 $ 331.7 15.5% 11.5% 13.0%

The following table sets forth, for the periods indicated,our sales and operating profit by business segment.

As a % of Sales2002 2001 2000 2002 2001 2000

(in millions, except percentages)

Alcon United States:Pharmaceutical $ 707.7 $ 582.9 $ 513.9 43.3% 39.8% 38.5%Surgical 678.3 639.7 589.2 41.6 43.7 44.2Contact lens

care and other vision care 246.6 242.0 230.3 15.1 16.5 17.3

Total sales $ 1,632.6 $ 1,464.6 $ 1,333.4 100.0% 100.0%100.0%Segment

operatingincome (1) $ 675.3 $ 544.7 $ 527.7 41.4% 37.2% 39.6%

Alcon International:Pharmaceutical $ 381.8 $ 344.9 $ 322.3 27.7% 26.9% 26.4%Surgical 760.2 718.0 674.7 55.2 55.9 55.3

Contact lenscare and other

vision care 234.5 220.2 223.2 17.1 17.2 18.3Total sales $ 1,376.5 $ 1,283.1 $ 1,220.2 100.0% 100.0%100.0%Segment

operatingincome (1) $ 428.1 $ 405.9 $ 384.4 31.1% 31.6% 31.5%

(1) Beginning in 2002, segment performance is measured based on sales andoperating income reported in accordance with generally accepted accountingprinciples in the United States (U.S. GAAP). Prior to 2002, Alcon measuredperformance on the basis of International Accounting Standards. For consis-tency of presentation, business segment information for 2001 and 2000 hasbeen restated on a U.S. GAAP basis. Certain manufacturing costs and manufac-turing variances are not assigned to business segments because most manu-facturing operations produce products for more than one business segment.Research and development costs, excluding regulatory costs which are includedin the business segments, are treated as general corporate costs and are notassigned to business segments.

The following table sets forth, for the periods indicated, Alcon Internationals sales and our consolidated sales by product category, and includes the change in sales and

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change in sales in constant currency calculated by applying rates from the earlier period. All of Alcon United Statessales are in U.S. dollars, and therefore it does not experience any currency translation gains or losses.

Change in Change inConstant Constant

2002 2001 Change Currency (a) 2001 2000 Change Currency (a

(in millions, except percentages)

Alcon International:Pharmaceutical $ 381.8 $ 344.9 10.7% 13.7% $ 344.9 $ 322.3 7.0% 13.5%Surgical 760.2 718.0 5.9 5.6 718.0 674.7 6.4 14.2Contact lens care and other vision care 234.5 220.2 6.5 8.7 220.2 223.2 (1.3) 6.3

Total sales $ 1,376.5 $ 1,283.1 7.3 8.3 $ 1,283.1 $ 1,220.2 5.2 12.5

Total:Pharmaceutical $ 1,089.5 $ 927.8 17.4 18.6 $ 927.8 $ 836.2 11.0 13.5Surgical 1,438.5 1,357.7 6.0 5.8 1,357.7 1,263.9 7.4 11.6Contact lens care and other vision care 481.1 462.2 4.1 5.1 462.2 453.5 1.9 5.7

Total sales $ 3,009.1 $ 2,747.7 9.5% 10.0% $ 2,747.7 $ 2,553.6 7.6% 11.1%

(a) Currency effect is determined by comparing adjusted 2002 reported amounts, calculated using 2001 monthly average exchange rates, to the actual 2001reported amounts. The same process was used to compare 2001 to 2000. Sales change in constant currency is not a U.S. GAAP defined measure of revenuegrowth. This measure provides information on sales growth assuming that foreign currency exchange rates have not changed between years. Sales change inconstant currency, as defined and presented by the Company, may not be comparable to similar measures reported by other companies.

44 45 Alcon 2002

Year ended December 31, 2002 compared to yearended December 31, 2001

Sales

Global: Global sales increased 9.5% to $3,009.1 million in2002 from $2,747.7 million in 2001. Sales growth, in termsof constant currency, was slightly higher at 10.0%. Thenegative impact of foreign currency fluctuations on salesgrowth was mostly confined to Latin American countries

and Japan.Global sales growth was led by the performance of ourpharmaceutical business which delivered $1,089.5 millionin revenue for 2002, an increase of 17.4% (18.6% in con-stant currency) over 2001. TRAVATAN, our newest entrantinto the glaucoma market, generated $70.9 million in globalsales in 2002 compared to $15.8 million in 2001. The set-tlement of all pending patent and trademark litigation overTRAVATAN with Pharmacia Corporation during the fourthquarter of 2002 assured Alcons continued right to sellthe product globally without restriction. Our major allergy product, Patanol, had an outstanding year and generatedsales of $198.3 million in 2002, a 28.3% (29.0% in constant

currency) increase over 2001 sales of $154.5 million.2002 sales of our other key branded pharmaceuticalproducts Tobradex, Ciloxan and Cipro HC increasedby 10.9%, 19.8% and 41.1%, respectively, over 2001.

Global sales of our surgical business grew 6.0% during2002 to $1,438.5 million from $1,357.7 million in 2001.The growth was primarily attributable to cataract and

vitrectomy products, which include intraocular lenses,surgical equipment, devices and disposable products.Sales of products in our refractive product line declined by $16.0 million, in line with the trend of the industry in 2002,and reflected a slowdown in global economic activity thatdiminished both consumer confidence and demand forelective laser corrective surgery. Excluding the refractiveline, sales for our surgical business increased 7.6% to$1,377.9 million from $1,281.1 million. We initiated a

voluntary recall and termination of our SKBM micro-keratome product line during the fourth quarter of 2002due to a small number of complaints that the applanationglass on the head of the handpiece could loosen orbecome misaligned. SKBM microkeratome sales in 2002were approximately $3 million.

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Our global consumer eye care business, which consistsf contact lens care and other general eye care products,rew 4.1% (5.1% in constant currency) to $481.1 millionn 2002 from $462.2 million in 2001. Sales of OPTI-FREE isinfectants accounted for over 50% of the consumer

ne, or $264.5 million, and grew 5.4% over 2001 salesf $250.9 million.

United States: Sales in the United States increased 11.5%o $1,632.6 million in 2002 from $1,464.6 million in 2001.ales in our pharmaceutical business were consistent

with the global trend and were primarily responsible forhe growth in U.S. sales, with 2002 sales of $707.7 mil-on, representing a 21.4% increase over 2001 sales of582.9 million. Sales of TRAVATAN, which was launchedn the U.S. for glaucoma treatment in 2001, increased to44.5 million in 2002 from $13.4 million in 2001. Strongouble-digit growth rates in U.S. sales were achieved

or key therapeutic market segments by our brandedroducts Patanol at 29.2%, Ciloxan at 21.3%, Tobradex t 12.0% and Cipro HC at 42.8%. Late in 2002, we filedNew Drug Application with the United States Food and

Drug Administration (FDA) for the ophthalmic use of moxi-oxacin, a fourth-generation fluoroquinolone antibiotic

hat we believe will be a significant advance in the topicaleatment and prevention of ocular infections.

ales in our U.S. surgical business totaled $678.3 millionn 2002, a 6.0% gain over prior year sales of $639.7 mil-on. Sales from our line of cataract and vitrectomyroducts increased 9.2% to $641.1 million in 2002 from

587.3 million in 2001, but were offset by a decline of9.0% in the refractive line to $37.2 million in 2002 from52.4 million in 2001. We were pleased to receive FDA pproval in late 2002 for our new LADARWave technol-gy for customized wavefront-guided laser eye surgery inhe treatment of myopia. Our consumer eye care businesschieved modest growth of 1.9% in 2002 to $246.6 mil-on from $242.0 million in 2001. Within the contact lensare line, sales related to our OPTI-FREE disinfectantanchise increased 2.9% in 2002 to $143.0 million from

$139.0 million in 2001 in a slow growing market seg-ment. Following FDA approval, we commenced shippingOPTI-FREE EXPRESS No Rub multipurpose disinfectingsolution during the fourth quarter of 2002 with our newLasting Comfort claim.

International: Sales outside the United States increased7.3% (8.3% in constant currency) to $1,376.5 million in2002 from $1,283.1 million in 2001. The market economiesof Brazil and Argentina were largely accountable for thenegative impact of currency exchange on sales growth.Sales growth in Japan, our second largest global market,lagged behind 2001 due to a weak yen and downwardpricing pressures inflicted by reimbursement reductionsand new generic competition against our BSS Plus surgical irrigating solution. The euro and other majorcurrencies strengthened against the U.S. dollar overthe course of the year.

Sales for our pharmaceutical business outside theUnited States in 2002 increased to $381.8 million from$344.9 million in 2001, registering growth of 10.7%(13.7% in constant currency). TRAVATAN was success-fully launched in several major European markets in 2002and recorded sales in more than 50 countries outside theUnited States. Tobradex and Ciloxan also made signifi-cant contributions to the pharmaceutical business totaling$55.5 million in 2002 sales. Sales of our international sur-gical business increased 5.9% (5.6% in constant currency)in 2002 to $760.2 million in 2002 from $718.0 million in2001 with broad based growth across our line of cataract

and vitrectomy products. Sales from our refractive busi-ness were also subject to difficult global economic condi-tions and declined 3.3% (3.7% in constant currency) in2002 to $23.4 million from $24.2 million in 2001. However,in December 2002, the first international sale of our new

LADARWave custom ablation system was recorded in Australia. Sales for our consumer eye care business out-side the United States advanced 6.5% (8.7% in constantcurrency) to $234.5 million in 2002 from $220.2 million in2001. Our OPTI-FREE disinfectant franchise grew 8.6%(9.4% in constant currency) to $121.5 million in 2002 from$111.9 million in 2001.

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Gross Profit

Gross profit increased 8.6% to $2,116.4 million in the yearended December 31, 2002 from $1,949.4 million in 2001.However, gross profit as a percent of sales decreasedto 70.3% in the year ended December 31, 2002 from70.9% in 2001. Some of this decrease was due to chargesof $2.5 million in 2002 related to changes made to anemployee deferred compensation plan (see note 1 to theconsolidated financial statements) and costs associatedwith the write-off of SKBM microkeratome inventory andrelated manufacturing equipment of $5.9 million, as wellas negative currency effects and variations in product mix.The impact of these particular charges and costs reducedgross profit as a percent of sales for the year endedDecember 31, 2002 by 0.3 percentage points.

Operating Expenses

Selling, general and administrative expenses increased6.4% to $1,014.7 million in the year ended December 31,2002 from $953.7 million in 2001. This increase inexpenses included charges of $9.3 million in 2002 relatedto changes made to an employee deferred compensationplan and $14.1 million of customer refunds and othercosts associated with the decision to recall and terminatethe SKBM microkeratome product line. Selling, generaland administrative expenses decreased as a percent ofsales to 33.7% in the year ended December 31, 2002from 34.7% in 2001. This percentage decrease is primarily due to overall attention to cost control, as well as lowerdirect-to-consumer advertising in 2002 as compared to2001 and reduction of legal expenses as certain intellec-tual property dispute cases were settled in 2002.

Research and development expenses increased 11.6%to $323.5 million in the year ended December 31, 2002from $289.8 million in 2001. This increase in research anddevelopment expenses represents a continued investmentacross pharmaceutical and surgical products and chargesof $4.8 million incurred in 2002 related to changes madeto an employee deferred compensation plan. Researchand development expenses increased slightly as a percentof sales to 10.7% in the year ended December 31, 2002from 10.5% in 2001.

Amortization of intangibles decreased 36.3% to$74.5 million in the year ended December 31, 2002from $117.0 million in 2001. The decrease is primarilydue to the implementation of the Financial AccountingStandards Boards Statement of Financial Accounting Stan-

dards No. 142, Goodwill and Other Intangible Assets, asdiscussed in note 3 to the consolidated financial state-ments. In connection with the voluntary recall and termi-nation of the SKBM microkeratome product line in thefourth quarter of 2002, a $5.9 million impairment loss onintangible assets was recorded as amortization.

Operating Income

Operating income increased 19.5% to $703.7 million inthe year ended December 31, 2002 from $588.9 millionin 2001. Operating income was negatively impactedby charges of $16.6 million in 2002 related to changesmade to an employee deferred compensation plan and$25.9 million of SKBM microkeratome recall and ter-mination costs. Compared to 2001, operating incomewas favorably impacted by $42.5 million due to the changein accounting for goodwill and intangibles resulting fromimplementation of FASB Statement 142. The impactof these items on operating income was a decrease of$42.5 million in 2002 and $42.5 million in 2001.

Alcon United States business segment operating incomeincreased 24.0% to $675.3 million in the year endedDecember 31, 2002 from $544.7 million in 2001. Operat-ing income was favorably impacted by $20.7 million dueto the change in accounting for goodwill and intangiblesresulting from implementation of FASB Statement 142. Inaddition, gross margin improvements and reduced selling,general and administrative spending were partially offsetby $12.6 million of costs associated with the decision torecall and terminate the SKBM microkeratome.

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Alcon International business segment operating incomencreased 5.5% to $428.1 million in the year endedDecember 31, 2002 from $405.9 million in 2001. Operat-ng income was favorably impacted by $21.8 million dueo the change in accounting for goodwill and intangibles

esulting from implementation of FASB Statement 142. Thisavorability was offset by one time costs of $13.3 millionelated to the decision to recall and terminate the SKBM

microkeratome. Gross margins as a percentage of saleswere negatively impacted due to the geographical salesmix and the difficult economic conditions in Latin America.Changes in exchange rates also negatively affectednternational business segment results.

Operating income for the Alcon United States and Alconnternational business segments does not include: (1) cer-ain manufacturing costs (e.g., manufacturing operationeriod costs and manufacturing variances); (2) all research

nd development costs other than regulatory costs; and3) certain other general corporate expenses. Operatingncome for these two business segments is determined inccordance with U.S. GAAP. Prior to 2002, Alcon meas-red performance on the basis of International Accountingtandards. For consistency of presentation, businessegment information for 2001 has been restated on a

U.S. GAAP basis.

nterest and Other Expenses

nterest income decreased 52.4% to $22.2 million inhe year ended Decemb