UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-11397
ICN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0628076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Hyland Avenue
Costa Mesa, California 92626
(Address of principal executive offices)
(Zip Code)
(714) 545-0100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of outstanding shares of the registrant's
Common Stock, $.01 par value, as of August 9, 2000 was
79,438,762.
ICN PHARMACEUTICALS, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets -
June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income -
Three months and six months ended June 30, 2000 and 1999 4
Consolidated Condensed Statements of Comprehensive Income -
Three months and six months ended June 30, 2000 and 1999 5
Consolidated Condensed Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 6
Management's Statement Regarding Unaudited Financial Statements 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(unaudited, in thousands, except per share data)
June 30, December 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 188,808 $177,577
Restricted cash 343 414
Accounts receivable, net 224,143 231,902
Inventories, net 139,161 136,762
Prepaid expenses and other current assets 17,229 18,075
Total current assets 569,684 564,730
Property, plant and equipment, net 320,679 332,360
Deferred income taxes, net 76,720 81,095
Other assets 58,556 37,625
Goodwill and intangibles, net 447,109 456,451
$1,472,748 $1,472,261
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 42,156 $ 65,195
Accrued liabilities 70,735 66,185
Notes payable 7,526 8,762
Current portion of long-term debt 293 312
Income taxes payable -- 168
Total current liabilities 120,710 140,622
Long-term debt, less current portion 584,584 596,961
Deferred income and other liabilities 29,381 28,628
Minority interest 18,939 22,478
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value; 200,000 shares authorized;
79,142 (June 30, 2000) and 78,950 (December 31, 1999)
shares outstanding (after deducting shares in treasury
of 814 and 814, respectively) 791 789
Additional capital 952,727 949,181
Accumulated retained deficit (150,283) (197,602)
Accumulated other comprehensive loss (84,101) (68,796)
Total stockholders' equity 719,134 683,572
$1,472,748 $1,472,261
The accompanying notes are an integral part of these consolidated
condensed financial statements.
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the three months and six months ended June 30, 2000 and 1999
(unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
Product sales $148,331 $150,838 $307,671 $311,084
Royalties 43,102 26,323 76,102 42,151
Total revenues 191,433 177,161 383,773 353,235
Costs and expenses:
Cost of product sales 60,935 65,649 121,701 132,045
Selling, general and
administrative expenses 71,430 62,424 138,865 117,624
Research and development costs 2,852 3,020 6,853 5,262
Amortization of goodwill
and intangibles 7,837 7,058 15,410 14,520
Total expenses 143,054 138,151 282,829 269,451
Income from operations 48,379 39,010 100,944 83,784
Translation and exchange
losses, net 2,465 801 4,056 8,060
Interest income (3,117) (3,250) (5,812) (4,894)
Interest expense 15,414 13,774 30,635 26,874
Income before provision for income
taxes and minority interest 33,617 27,685 72,065 53,744
Provision for income taxes 3,431 7,120 14,542 11,900
Minority interest (907) (5,280) (969) (6,620)
Net income $31,093 $25,845 $58,492 $48,464
Basic earnings per common share $0.39 $0.33 $0.74 $ 0.63
Shares used in per
share computation 79,072 77,748 79,024 77,303
Diluted earnings per common share $ 0.38 $ 0.32 $ 0.72 $ 0.59
Shares used in per share
computation 81,957 81,891 81,790 81,846
The accompanying notes are an integral part of these consolidated
condensed financial statements.
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and six months ended June 30, 2000 and 1999
(unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Net income $31,093 $25,845 $58,492 $48,464
Other comprehensive income:
Foreign currency
translation adjustments (8,947) (828) (15,305) (14,978)
Comprehensive income $22,146 $25,017 $43,187 $33,486
The accompanying notes are an integral part of these consolidated
condensed financial statements.
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(unaudited, in thousands)
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
Net income $ 58,492 $ 48,464
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,377 33,325
Provision for losses on accounts receivable 4,638 3,929
Provision for inventory obsolescence 3,784 3,104
Translation and exchange losses, net 4,056 8,060
Deferred income -- (4,908)
Loss (gain) on sale of assets 696 (336)
Other non-cash losses 1,167 2,506
Deferred income taxes 4,338 (7,711)
Minority interest (969) (6,620)
Change in assets and liabilities,
net of effects of acquisitions:
Accounts receivable (3,085) (19,296)
Inventories (9,098) (7,260)
Prepaid expenses and other assets 2,156 2,408
Trade payables and accrued liabilities (17,839) (40,505)
Income taxes payable 226 2,068
Other liabilities 2,324 3,184
Net cash provided by operating activities 82,263 20,412
Cash flows from investing activities:
Capital expenditures (13,923) (19,947)
Proceeds from sale of assets 603 710
Decrease (increase) in restricted cash 71 (9)
Acquisition of license rights,
product lines and businesses (9,697) (1,948)
Deposit for acquisition (24,456) --
Net cash used in investing activities (47,402) (21,194)
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 26,719
Proceeds from issuance of notes payable 4,856 12,220
Payments on long-term debt (12,734) (65,556)
Payments on notes payable (6,080) (17,565)
Proceeds from exercise of stock options 2,994 10,957
Proceeds from issuance of common stock -- 27,000
Purchase of treasury stock -- (5,550)
Dividends paid (11,173) (10,043)
Net cash used in financing activities (22,137) (21,818)
Effect of exchange rate changes on cash
and cash equivalents (1,493) (246)
Net increase (decrease) in cash and cash equivalents 11,231 (22,846)
Cash and cash equivalents at beginning of period 177,577 104,921
Cash and cash equivalents at end of period $188,808 $82,075
The accompanying notes are an integral part of these consolidated
condensed financial statements.
MANAGEMENT'S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been condensed or
omitted pursuant to such rules and regulations. The results of
operations presented herein are not necessarily indicative of the
results to be expected for a full year. Although the Company
believes that all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the
interim periods presented are included and that the disclosures
are adequate to make the information presented not misleading,
these consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Forms 10-
K and 10-K/A for the year ended December 31, 1999.
1. Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated
condensed financial statements include the accounts of ICN
Pharmaceuticals, Inc. and Subsidiaries (the "Company") and all of
its majority-owned subsidiaries. Investments in 20% through 50%
owned affiliated companies are included under the equity method
where the Company exercises significant influence over operating
and financial affairs. Investments in less than 20% owned
companies are recorded at the lower of cost or fair value. All
significant intercompany account balances and transactions have
been eliminated.
Effective November 26, 1998, the Yugoslavian Ministry of Economic
and Property Transformation issued a decree reducing the
Company's equity ownership in ICN Yugoslavia from 75% to 35%.
Although the Company disputes such action, representatives of the
Company and ICN Yugoslavia's management have been denied access
to the premises and any representation as to the management of
ICN Yugoslavia. As a result, the Company is no longer able to
influence the operating and financial affairs of ICN Yugoslavia.
Accordingly, the Company has deconsolidated the financial
statements of ICN Yugoslavia as of November 26, 1998, and reduced
the carrying value of its investment to fair value, currently
estimated to be zero. The Company will account for its ongoing
investment in ICN Yugoslavia under the cost method. The Company
did not recognize any revenues or expenses related to its
investment in ICN Yugoslavia in the three month or six month
periods ended June 30, 1999 and 2000.
Comprehensive Income: The balance of accumulated other
comprehensive income at June 30, 2000 and December 31, 1999
consists of accumulated foreign currency translation adjustments.
Other comprehensive income has not been recorded net of any tax
provision or benefit as the Company does not expect to realize
any significant tax benefit or expense from this item.
Dividend Information: In January 2000, the Company's Board of
Directors declared a fourth quarter 1999 cash dividend of $0.07
per share, which was paid in February 2000. In April 2000, the
Company's Board of Directors declared a first quarter cash
dividend of $0.0725 per share, which was paid in May 2000. In
July 2000, the Company's Board of Directors declared a second
quarter cash dividend of $0.0725 per share, which was paid on
August 3, 2000, to stockholders of record on July 20, 2000.
Reclassifications: Certain prior year amounts have been
reclassified to conform with the current period presentation,
with no effect on previously reported net income or stockholders'
equity.
2. Acquisitions
During the six months ended June 30, 2000 the Company acquired
various businesses for a total of $3,242,000 in cash. These
acquisitions were accounted for as purchases and are not material
to the financial position or results of operations of the
Company. In addition, the Company acquired 6.47% of the minority
interest in its subsidiary in Poland for $3,079,000 in cash,
which increased the Company's ownership to 97.73%.
Product Acquisitions: In 2000, the Company acquired the rights to
certain products principally in North America for the total
consideration of $3,376,000. None of the product acquisitions
are material to the financial position or results of operations
of the Company.
During July 2000, the Company acquired 100% ownership of the
Swiss pharmaceuticals company Solco Basel AG for approximately
$30,000,000, of which $24,456,000 was paid in cash in June 2000
and is included in other assets on the balance sheet at June 30,
2000 and the balance in 125,000 shares of the Company's common
stock. Under the terms of the Company's agreement with the
sellers, the Company has guaranteed a per share price initially
at $40.00, increasing at a rate of 4% per annum through June 30,
2002. If the holders of the ICN shares sell any of the shares
prior to June 30, 2002, the Company is entitled to one-half
of any proceeds realized in excess of the guaranteed price. If
the market price of the Company's common stock is below the
guaranteed price at the end of the guaranteed period, the Company
will be required to satisfy the aggregate guarantee amount by
payment in cash or in additional shares of the Company's common
stock. This acquisition will be accounted for as a purchase and
is not material to the financial position or results of
operations of the Company.
3. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Income:
Net income $31,093 $25,845 $58,492 $48,464
Numerator for basic earnings
per share- income available
to common stockholders 31,093 $25,845 $58,492 $48,464
Effect of dilutive securities 3 (6) 1 (6)
Numerator for diluted earnings
per share-income available
to common stockholders
after assumed conversions $31,096 $25,839 $58,493 $48,458
Shares:
Denominator for basic earnings
per share- weighted-average
shares outstanding 79,072 77,748 79,024 77,303
Effect of dilutive securities:
Employee stock options 2,705 3,244 2,545 2,943
Series D Preferred Stock -- 616 -- 616
Convertible debt 21 21 21 21
Other dilutive securities 159 262 200 963
Dilutive potential common shares 2,885 4,143 2,766 4,543
Denominator for diluted earnings
per share-weighted-average shares
adjusted for assumed conversions 81,957 81,891 81,790 81,846
Basic earnings per common share $ 0.39 $ 0.33 $ 0.74 $ 0.63
Diluted earnings per common share $ 0.38 $ 0.32 $ 0.72 $ 0.59
Other dilutive securities includes the effect of shares which
would be contingently issuable in satisfaction of a guarantee
made in connection with the issuance of shares for the
acquisition of the rights to certain products from F. Hoffmann-La
Roche Ltd. ("Roche") during 1998. Under the terms of the
agreement, in the event that the market value of the Company's
common stock at the guarantee date does not meet the specified
guarantee price, the Company will be obligated to satisfy the
guarantee amount in cash or, in certain circumstances, in
additional shares of its common stock. Based upon the market
price of the Company's common stock at June 30, 2000, the
guaranteed value of the shares subject to such guarantee exceeded
its market value by approximately $3,106,000.
Additionally, other dilutive securities includes the dilutive
effect of certain put options. During 1999, the Company sold
certain put options to an independent third party; the proceeds
were used to purchase call options from the same party in a
private placement transaction not requiring any net cash outlay
at the time. The put options and the corresponding call options
each expire from November 2000 through December 2000 and are
exercisable only at the expiration dates. The Company may, at
its option, make a physical settlement, a cash settlement, or a
net share settlement of its positions under the put options and
the call options. The Company has a maximum potential obligation
under the put options to purchase 2,380,953 shares of its common
stock for an aggregate price of approximately $67,500,000. The
call options entitle the Company to buy 1,064,085 shares of its
common stock for approximately $33,519,000. The net shares
issuable in settlement of the put options are considered
outstanding for the purpose of computing diluted earnings per
share, based upon the market price of the Company's common stock
on June 30, 2000. The net settlement obligation of the Company
was approximately $1,280,000 or 46,014 shares at June 30, 2000.
4. Detail of Certain Accounts
June 30, December 31,
(in thousands) 2000 1999
Accounts receivable, net:
Trade accounts receivable $ 185,842 $ 206,766
Other receivables 18,976 16,958
Royalty receivable 42,322 34,725
247,140 258,449
Allowance for doubtful accounts (22,997) (26,547)
$ 224,143 $ 231,902
Inventories, net:
Raw materials and supplies $ 40,331 $ 32,683
Work-in-process 12,137 12,610
Finished goods 97,142 99,429
149,610 144,722
Allowance for inventory obsolescence (10,449) (7,960)
$ 139,161 $ 136,762
Property, plant and equipment, net:
Property, plant and equipment, at cost $ 408,927 $ 409,482
Accumulated depreciation and amortization (88,248) (77,122)
$ 320,679 $ 332,360
5. Commitments and Contingencies
On August 11, 1999, the United States Securities and Exchange
Commission filed a complaint in the United States District Court
for the Central District of California captioned Securities and
Exchange Commission v. ICN Pharmaceuticals, Inc., Milan Panic,
Nils O. Johannesson, and David C. Watt, Civil Action No. SACV 99-
1016 DOC (ANx) (the "SEC Complaint"). The SEC Complaint alleges
that the Company and the individual named defendants made untrue
statements of material fact or omitted to state material facts
necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading and
engaged in acts, practices, and courses of business which
operated as a fraud and deceit upon other persons in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-
5 promulgated thereunder. The action concerns the status and
disposition of the Company's 1994 Hepatitis C monotherapy NDA.
The SEC Complaint seeks injunctive relief, unspecified civil
penalties, and an order barring Mr. Panic from acting as an
officer or director of any publicly-traded company.
The Company has received subpoenas from a Grand Jury in the
United States District Court for the Central District of
California requesting the production of documents covering a
broad range of matters over various time periods. The Company
understands that the Company, Mr. Panic, two current senior
executive officers, a former senior officer, a current employee,
and a former employee of the Company are targets of the
investigation. The Company also understands that a senior
executive officer and a director are subjects of the
investigation. The United States Attorney's office has advised
counsel for the Company that the areas of its investigation
include disclosures made and not made concerning the 1994
Hepatitis C monotherapy NDA to the public and other third
parties; stock sales for the benefit of Mr. Panic following
receipt on November 28, 1994 of a letter from the FDA informing
the Company that the 1994 Hepatitis C monotherapy NDA had been
found not approvable; possible violations of the economic embargo
imposed by the United States upon the Federal Republic of
Yugoslavia, based upon alleged sales by the Company and Mr. Panic
of stock belonging to Company employees; and, with respect to Mr.
Panic, personal disposition of assets of entities associated with
Yugoslavia, including possible misstatements and/or omissions in
federal tax filings. The Company has, and continues to, cooperate
in the Grand Jury investigation. A number of current and former
employees of the Company have been interviewed by the government
in connection with the investigation. The United States
Attorney's office has issued subpoenas requiring various current
and former officers and employees of the Company to testify
before the Grand Jury. Certain current and former officers and
employees testified before the Grand Jury beginning in July 1998.
On or about February 9, 1999, the Company commenced an action in
the United States District Court for the District of Columbia
("District Court") against the Federal Republic of Yugoslavia
("FRY"), the Republic of Serbia ("ROS"), and the State Health
Fund of Serbia ("State Fund") seeking damages in the amount of at
least $500,000,000 and declaratory relief arising out of the FRY
and ROS's seizure of the Company's majority ownership interest in
ICN Yugoslavia and the failure of the ROS and State Fund to pay
ICN Yugoslavia for goods sold and delivered. On or about March
9, 1999, the State Fund commenced an arbitration against the
Company before the International Chamber of Commerce ("ICC") for
unquantified damages due to alleged breaches of the agreement
pursuant to which the Company acquired its majority ownership
interest in ICN Yugoslavia, and for unspecified injunctive
relief. The Company, in turn, counterclaimed against the State
Fund, and commenced an arbitration against the FRY and the ROS in
the ICC arising out of the seizure of ICN Yugoslavia and the
failure to pay for goods sold and delivered, seeking damages and
other relief. By Stipulation and Order dated August 10, 1999,
the District Court stayed the action (while retaining
jurisdiction) so that issues of jurisdiction by and among the
parties can be resolved at the ICC. The Company intends to
prosecute vigorously its claims against the FRY, the ROS, and the
State Fund, and to defend against the State Fund's claims against
the Company, which the Company believes to be meritless and filed
solely as a response to the action filed earlier by the Company
in the District Court.
The Company is a party to other pending lawsuits or subject to a
number of threatened lawsuits. While the ultimate outcome of
pending and threatened lawsuits and the Grand Jury investigation
cannot be predicted with certainty, and an unfavorable outcome
could have a material adverse effect on the Company, at this time
in the opinion of management, the ultimate resolution of these
matters will not have a material effect on the Company's
consolidated financial position, results of operations or
liquidity.
6. Business Segments
During 1999, the Company decided to manage its Central European
businesses from the Western European headquarters in anticipation
of the entry of Poland, Hungary and the Czech Republic into the
European Union. As a result, the Company integrated ICN Hungary,
ICN Czech Republic and ICN Poland, which were previously reported
under the other Eastern Europe segment, into the Western and
Central Europe segment. All amounts for 1999 have been restated
to conform with the current year presentation. The Company's
Latin America segment principally comprises Mexico.
The following table sets forth the amounts of segment revenues
and operating income of the Company for the three months and six
months ended June 30, 2000 and 1999 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues
Pharmaceuticals
North America $ 70,060 $ 55,892 $132,861 $110,148
Western and Central Europe 43,317 44,964 90,074 91,237
Latin America 28,757 24,121 57,984 46,732
Russia 23,464 21,350 50,034 44,358
Asia, Africa, Australia 10,625 15,308 22,024 29,248
Total Pharmaceuticals 176,223 161,635 352,977 321,723
Biomedicals 15,210 15,526 30,796 31,512
Consolidated revenues $191,433 $177,161 $383,773 $353,235
Operating Income
Pharmaceuticals
North America $ 54,682 $ 34,419 $102,201 $ 71,940
Western and Central Europe 4,395 (3,895) 10,650 1,456
Latin America 8,506 7,930 17,413 15,768
Russia (3,596) 3,530 (2,071) 1,081
Asia, Africa, Australia 590 3,957 1,843 8,120
Total Pharmaceuticals 64,577 45,941 130,036 98,365
Biomedicals (658) 1,982 1,621 4,070
Consolidated segment
operating income 63,919 47,923 131,657 102,435
Corporate expenses 15,540 8,913 30,713 18,651
Interest income (3,117) (3,250) (5,812) (4,894)
Interest expense 15,414 13,774 30,635 26,874
Translation and exchange losses, net 2,465 801 4,056 8,060
Income before provision for income
taxes and minority interest $ 33,617 $ 27,685 $ 72,065 $ 53,744
The following table sets forth the segment total assets of the
Company as of June 30, 2000 and December 31, 1999 (in thousands):
Assets
June 30, December 31,
2000 1999
Pharmaceuticals
North America $489,345 $516,231
Western and Central Europe 218,436 218,577
Latin America 108,345 100,118
Russia 167,666 174,838
Asia, Africa, Australia 96,515 98,402
Total Pharmaceuticals 1,080,307 1,108,166
Biomedicals 64,401 67,692
Corporate 328,040 296,403
$1,472,748 $1,472,261
7. Supplemental Cash Flow Information
Cash paid for income taxes for the six months ended June 30, 2000
and 1999 was $10,658,000 and $9,297,000, respectively. Cash paid
for interest for the six months ended June 30, 2000 and 1999 was
$28,883,000 and $24,843,000 respectively. Other non-cash losses
for the six months ended June 30, 2000 and 1999 include
$1,167,000 and $1,571,000, respectively, for compensation expense
related to the vesting of restricted stock under the Company's
Long Term Incentive Plan.
Results of Operations
Certain financial information for the Company's business segments
is set forth below. This discussion should be read in conjunction
with the consolidated condensed financial statements of the
Company included elsewhere in this document. For additional
financial information by business segment, see Note 6 of Notes to
Consolidated Condensed Financial Statements included elsewhere in
this Quarterly Report.
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
[S] [C] [C] [C] [C]
Revenues
Pharmaceuticals
North America $70,060 $55,892 $132,861 $110,148
Western and Central Europe (1) 43,317 44,964 90,074 91,237
Latin America
principally Mexico 28,757 24,121 57,984 46,732
Russia 23,464 21,350 50,034 44,358
Asia, Africa, Australia 10,625 15,308 22,024 29,248
Total Pharmaceuticals 176,223 161,635 352,977 321,723
Biomedicals 15,210 15,526 30,796 31,512
Consolidated revenues $191,433 $177,161 $383,773 $353,235
Product sales $148,331 $150,838 $307,671 $311,084
Royalty revenues 43,102 26,323 76,102 42,151
Total revenues $191,433 $177,161 $383,773 353,235
Cost of product sales $60,935 $65,649 $121,701 $132,045
Gross profit margin on
product sales 59% 56% 60% 58%
(1) The Western and Central Europe segment includes Czech
Republic, Hungary and Poland, which were previously included in
the Other Eastern Europe segment in 1999. All amounts for 1999
have been restated to conform with the current year presentation.
Quarter ended June 30, 2000 compared to 1999
Royalty Revenues: Royalty revenues, which are included in the
North America Pharmaceuticals segment revenues, represent amounts
earned under the Company's Exclusive License and Supply Agreement
(the "License Agreement") with Schering-Plough. Under the License
Agreement, Schering-Plough licensed all oral forms of ribavirin
for the treatment of chronic hepatitis C ("HCV") in combination
with Schering-Plough's alpha interferon (the "Combination
Therapy"). In 1998, Schering-Plough received approval from the
United States Food and Drug Administration ("FDA") to market
RebetronT Combination Therapy. RebetronT combines Rebetolr
(ribavirin) capsules and Intronr A (interferon alfa-2b,
recombinant) injection, for the treatment of HCV in patients with
compensated liver disease. In May 1999, the European Union's
("EU") Commission for the European Communities granted marketing
authorization to Schering-Plough to market Rebetolr (ribavirin)
capsules for use in combination with interferon alfa-2b injection
(marketed as Intronr A in certain countries) for the treatment of
both relapsed and previously untreated (naive) HCV patients. The
Commission's approval resulted in a single Marketing
Authorization with unified labeling that is immediately valid in
all 15 European Union-Member States. Schering-Plough commenced
marketing Rebetolr in Germany (May 1999), the United Kingdom
(July 1999), Italy (October 1999), France (May 2000) and Spain
(May 2000). The Company anticipates that Schering-Plough will
introduce Rebetolr in the other EU markets upon receiving pricing
approvals, where necessary, from individual EU countries.
Royalty revenues for the three months ended June 30, 2000 were
$43,102,000 compared to $26,323,000 for the same period of 1999,
reflective of additional sales of RebetronT by Schering-Plough
resulting from the 1999 and 2000 launch into certain European
markets.
Segment Revenues: In the North America Pharmaceuticals segment,
revenues for the three months ended June 30, 2000 were
$70,060,000, compared to $55,892,000 for the same period of 1999.
The $14,168,000 (25%) increase is reflective of the $16,800,000
(64%) increase in royalty income offset by lower unit sales
primarily resulting from production and supply problems that
affected several products. The Company has addressed the issues
and expects to return to normal sales levels in future periods.
In the Western and Central Europe Pharmaceuticals segment,
revenues for the three months ended June 30, 2000 were
$43,317,000 compared to $44,964,000 in the same period of 1999.
The decrease in revenues of $1,647,000 (4%) is primarily due to
currency fluctuations of 13% and to a decrease in volume of 4%
partially offset by sales price increases of 13% and increased
sales in Spain of antisteoporises, anti-inflammatory and
antiulcerant drugs.
In the Latin America Pharmaceuticals segment, revenues for the
three months ended June 30, 2000 were $28,757,000, compared to
$24,121,000 for the same period of 1999. The increase of
$4,636,000 (19%) primarily reflects sales volume increases of 10%
and price increases of 10%. The volume increases were in the
hospital formulation of Eni (ciprofloxacin) and Virazoler
(ribavirin).
In the Russia Pharmaceuticals segment, revenues for the three
months ended June 30, 2000 were $23,464,000, compared with
$21,350,000 for the same period in 1999. The increase of
$2,114,000 (10%) was primarily the result of the expansion of the
Company's retail pharmacy business in 1999 partially offset by
sales volume decreases in Ascorbic Acid, for vitamin C deficiency
and Corvalol, a sedative.
In the Asia, Africa and Australia Pharmaceuticals segment,
revenues for the three months ended June 30, 2000 were
$10,625,000 compared to $15,308,000 for the same period of 1999,
a decrease of $4,683,000 (31%). The decrease in sales reflects
the shift by the Company to new distribution channels a year ago
resulting in higher than normal sales in 1999.
In the Company's Biomedicals segment, revenues for the three
months ended June 30, 2000 were $15,210,000 compared to
$15,526,000 for the same period of 1999, a decrease of $316,000
(2%). The decrease is primarily due to lower sales volume of
research products in Europe, partially offset by increased
revenues from dosimetry services.
Gross Profit: Gross profit margin on product sales increased to
59% for the three months ended June 30, 2000, compared to 56% for
1999. The improvement in gross margin is reflective of the
continuing shift toward higher margin products in all regions and
cost improvements from the centralization of purchasing. In
addition, gross profit margins in 1999 were lower in the
Company's Russian operations by the decline in sales volume
resulting from the Russian economic crisis and the decline in the
value of the ruble.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses were $71,430,000 for the three months
ended June 30, 2000, compared to $62,424,000 for the same period
in 1999, an increase of $9,006,000 (14%). 1999 selling, general
and administrative expenses included approximately $11,981,000 of
costs associated with an asset revaluation in the Hungarian
business. Excluding the asset revaluation charge in 1999,
selling, general and administrative expenses increased
$20,987,000. This increase is primarily due to a rise in selling
and advertising expenses of $12,967,000 throughout most of the
regions and $1,700,000 of costs associated with the cancellation
of its lease in Irvine, California.
Research and Development: Research and development expenditures
for the 2000 second quarter were $2,852,000, compared to
$3,020,000 for the same period in 1999. The decrease primarily
resulted from reallocating regional programs to its facilities in
Costa Mesa, California. The level of research and development
investment reflects the beginning of the research and development
buildup that started in the second quarter. The Company continues
to expect to increase its research and development spending,
which includes laboratory upgrades and installation of state-of-
the-art equipment, in the second half of the year.
Amortization of goodwill and intangibles: Amortization of
goodwill and intangibles was $7,837,000 for the three months
ended June 30, 2000, compared to $7,058,000 for the same period
of 1999. The increase of $779,000 was primarily the result of the
amortization of intangibles related to products acquired in late
1999.
Translation and Exchange Losses, Net: Translation and exchange
losses, net, were $2,465,000 for the three months ended June 30,
2000 compared to $801,000 for the same period in 1999. In the
second quarter of 2000, transaction losses principally consisted
of losses of $1,516,000 related to our operations in Puerto Rico
and $374,000 in the Company's Italian subsidiary. In addition,
the Company incurred translation losses of $478,000 related to
the net monetary asset position of the Company's Russian
subsidiaries during the second quarter of 2000. In the second
quarter of 1999, translation losses principally consisted of
losses of $682,000 at the Company's subsidiary in Poland
resulting from foreign denominated debt.
Interest Income and Expense: Interest expense during the three
months ended June 30, 2000 increased $1,640,000 compared to the
same period in 1999, primarily due to interest on the
$125,000,000 principal amount 8-3/4% Senior Notes due 2008 issued
in July 1999 offset by a reduction of debt during the second half
of 1999 in the Company's subsidiaries in Hungary, Poland and
Czech Republic. Interest income decreased from $3,250,000 in 1999
to $3,117,000 in 2000.
Income Taxes: The Company's effective income tax rate for the
three months ended June 30, 2000 was 10% compared to 26% for the
same period of 1999. The decrease in the effective tax rate
results from the recognition, during the quarter, of deferred tax
assets through the reduction of the related valuation allowance
for capital tax loss carryforwards amounting to $12,250,000. The
Company has announced its intention to restructure the Company
and divide the Company into three separately traded companies.
This restructure will include the sale of stock of two newly
formed companies, which is expected to result in a net capital
gain. The Company will be able to utilize its capital loss
carryforwards to offset the gain generated on the sale of stock.
Ultimate realization of the deferred tax asset is dependent upon
the Company generating sufficient capital gains prior to the
expiration of the capital loss carryforwards. Although
realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized.
Six months ended June 30, 2000 compared to 1999
Royalty Revenues: Royalty revenues for the six months ended June
30, 2000 were $76,102,000 compared to $42,151,000 for the same
period of 1999, reflective of additional sales of RebetronT by
Schering-Plough resulting from the 1999 and 2000 launch into
certain European markets.
Segment Revenues: In the North America Pharmaceuticals segment,
revenues for the six months ended June 30, 2000 were
$132,861,000, compared to $110,148,000 for the same period of
1999. Revenues for the six months ended June 30, 2000 reflect a
$33,972,000 increase in royalty revenues from sales of Rebetolr
(ribavirin) by Schering-Plough, offset by $11,259,000 of lower
product sales. The decrease in product sales was due to a 26%
reduction in sales volume that resulted from production and
supply problems that affected several products. The Company has
addressed the issues and expects to return to normal sales levels
in future periods. Additionally, product sales in the first
quarter of 1999 were higher than the same period in 2000 due to
the fulfillment of back-orders from 1998 and increased sales to
wholesalers in anticipation of April 1999 price increases.
In the Western and Central Europe Pharmaceuticals segment,
revenues for the six months ended June 30, 2000 were $90,074,000
compared to $91,237,000 in the same period of 1999. The decrease
in revenues of $1,163,000 (1%) is primarily due to foreign
currency fluctuation (15%) and a decrease in volume (5%)
partially offset by an 18% increase in average sales prices.
In the Latin America Pharmaceuticals segment, revenues for the
six months ended June 30, 2000 were $57,984,000, compared to
$46,732,000 for the same period of 1999. The increase of
$11,252,000 (24%) primarily reflects an 18% increase in volume
including the hospital formulation of Eni (ciprofloxacin),
Virazoler (ribavirin) and Bedoyectar, an injectable Vitamin B-12
supplement.
In the Russia Pharmaceuticals segment, revenues for the six
months ended June 30, 2000 were $50,034,000, compared with
$44,358,000 for the same period of 1999. The increase of
$5,676,000 (13%) was primarily the result of the expansion of the
Company's retail pharmacy business in 1999 partially offset by
sales volume decreases in Ascorbic Acid, for vitamin C deficiency
and Corvalol, a sedative.
In the Asia, Africa and Australia Pharmaceuticals segment,
revenues for the six months ended June 30, 2000 were $22,024,000
compared to $29,248,000 for the same period of 1999, a decrease
of $7,224,000 (25%). The decrease in sales reflects the shift by
the Company to new distribution channels a year ago resulting in
higher than normal sales in 1999. In addition, 2000 reflects a
change in product mix and discontinuance of certain low margin
product sales.
In the Company's Biomedicals segment, revenues for the six months
ended June 30, 2000 were $30,796,000 compared to $31,512,000 for
the same period of 1999, a decrease of $716,000 (2%). The
decrease is primarily due to lower sales volume in the Company's
diagnostics and radiochemicals product lines, partially offset by
increased revenues from dosimetry services.
Gross Profit: Gross profit margin on product sales increased to
60% for the six months ended June 30, 2000, compared to 58% for
1999. The improvement in gross margin is reflective of the
continuing shift toward higher margin products in all regions and
cost improvements from the centralization of purchasing. In
addition, gross profit margins in 1999 were lower in the
Company's Russian operations as a result of the decline in sales
volume resulting from the Russian economic crisis and the decline
in the value of the ruble.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses were $138,865,000 for the six months
ended June 30, 2000, compared to $117,624,000 for the same period
in 1999, an increase of $21,241,000. 1999 selling, general and
administrative expenses included approximately $11,981,000 of
costs associated with an asset revaluation in the Hungarian
business. Excluding the asset revaluation charge in 1999,
selling, general and administrative expenses increased
$33,222,000. This increase is primarily due to a rise in selling
and advertising expenses of $20,278,000 throughout most of the
regions and $1,700,000 of costs associated with the cancellation
of its lease in Irvine, California. In addition, corporate
expenses, including compensation and legal expenses increased
$5,096,000 in 2000.
Research and Development: Research and development expenditures
for the six months ended June 30, 2000 were $6,853,000, compared
to $5,262,000 for the same period in 1999. The 30% increase
resulted from the expansion of research and development primarily
in the areas of antiviral and anticancer drugs. The Company
continues to expect to increase its research and development
investment, which includes laboratory upgrades and installation
of state-of-the-art equipment, in the second half of the year.
Translation and Exchange Losses, Net: Translation and exchange
losses, net were $4,056,000 for the six months ended June 30,
2000 compared to $8,060,000 for the same period in 1999. In the
first half of 2000, translation losses principally consisted of
translation losses of $2,834,000 related to the net monetary
asset position of the Company's Russian subsidiaries and
transaction losses of $559,000 in the Company's Italian
subsidiary and $502,000 related to operations in Puerto Rico. In
1999, translation losses principally consisted of translation
losses of $4,418,000 related to the net monetary asset position
of the Company's Russian subsidiaries and losses of $2,705,000 in
Hungary and Poland resulting from foreign-denominated debt.
Interest Income and Expense: Interest expense during the six
months ended June 30, 2000 increased $3,761,000 compared to the
same period in 1999, primarily due to interest on the
$125,000,000 principal amount 8-3/4% Senior Notes due 2008 issued
in July 1999 offset by a reduction of debt during the second half
of 1999 in the Company's subsidiaries in Hungary, Poland and
Czech Republic. Interest income increased from $4,894,000 in 1999
to $5,812,000 in 2000 as a result of the increase in cash
generated during the second half of 1999.
Income Taxes: The Company's effective income tax rate for the six
months ended June 30, 2000 was 20% compared to 22% for 1999. The
decrease in the effective tax rate results from the recognition,
during the second quarter of 2000, of deferred tax assets through
the reduction of the related valuation allowance for capital loss
carryforwards amounting to $12,250,000. The Company has announced
its intention to restructure the Company and divide the Company
into three separately public traded companies. This restructure
will include the sale of stock of two newly formed companies,
which is expected to result in a net capital gain. The Company
will be able to utilize its capital loss carryforwards to offset
the gain generated on the sale of stock. Ultimate realization of
the deferred tax asset is dependent upon the Company generating
sufficient capital gains prior to the expiration of the capital
loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the deferred
tax assets will be realized.
Liquidity and Capital Resources
During the six months ended June 30, 2000 cash provided by
operating activities totaled $82,263,000 compared to $20,412,000
in 1999. Operating cash flows reflect the Company's net income
of $58,492,000 and net noncash charges (including depreciation,
minority interest, and foreign exchange gains and losses) of
$49,087,000, partially offset by working capital increases (after
the effect of business acquisitions and currency translation
adjustments) totaling approximately $25,316,000. The working
capital increases principally consists of a $17,839,000 decrease
in trade accounts payable resulting from the timing of payments
to vendors and an increase in inventories of $9,098,000.
Cash used in investing activities was $47,402,000 for the six
months ended June 30, 2000 compared to $21,194,000 for the same
period of 1999. In 2000, the Company made capital expenditures of
$13,923,000, principally representing production equipment in
Western and Central Europe and an increase in the investment in
research and development in North America. In addition, the
Company used $34,153,000 for the acquisition of a business and
product rights ($9,697,000) and for the deposit of cash required
for the acquisition of Solco Basel AG in early July
($24,456,000). In 1999, net cash used in investing activities
principally consisted of $19,947,000 in capital expenditures and
$1,948,000 for the acquisition of a pharmaceutical distributor in
Hungary.
Cash used in financing activities totaled $22,137,000 for the six
months ended June 30, 2000, including payments on long-term debt
of $12,734,000, payments of cash dividends on common stock of
$11,173,000 and payments on notes payable $6,080,000. These
payments were offset by proceeds on notes payable of $4,856,000
and proceeds from the exercise of stock options of $2,994,000.
In 1999, cash used in financing activities totaled $21,818,000
consisting of principal payments on long-term debt of
$65,556,000, cash dividends paid on common stock of $10,043,000,
and a net reduction of short-term borrowings of $5,345,000. Also
during 1999, the Company repurchased 223,967 shares of its common
stock for $5,550,000, completing the initial $10,000,000 portion
of the Stock Repurchase Program authorized by the Company's Board
of Directors in 1998. These amounts were partially offset by the
proceeds of long-term borrowings totaling $26,719,000. In
addition in 1999, as provided for under the terms of a Stock
Purchase Agreement entered into with Schering-Plough in 1995, the
Company sold to Schering-Plough 1,141,498 shares of its common
stock for $27,000,000. Proceeds from the exercise of employee
stock options provided an additional $10,957,000. At June 30,
2000, certain of the Company's lines of credit and long-term
borrowings include covenants restricting payment of dividends,
issuance of new indebtedness and repurchase of the Company's
common stock.
The current economic condition in Russia continues to impact the
Company's operating cash flows in Russia, as some of the
Company's Russian customers continue to experience liquidity
shortages. The Company may need to invest additional working
capital in Russia to sustain its operations, to provide
increasing levels of working capital necessary to support renewed
growth, and to fund the purchase or upgrading of facilities. The
Company also has several preliminary acquisition prospects that
may require funds through the year 2000. However, there is no
assurance that any such acquisitions will be consummated.
Management believes that the Company's existing cash and cash
equivalents and funds generated from operations will be
sufficient to meet its operating requirements in the near term
and to fund anticipated acquisitions and capital expenditures,
including the continued development of its research and
development program. The Company may also seek additional debt
financing or issue additional equity securities to finance future
acquisitions.
On June 15, 2000, the Company filed a registration statement on
Form S-1 to register shares in a new company called Ribapharm,
Inc. ("Ribapharm"). Ribapharm was incorporated on April 14, 2000
and was formerly a division of the Company. It is the Company's
intent to contribute substantially all of its research and
development assets and all rights to the license agreement
between the Company and Schering-Plough, which will entitle
Ribapharm to receive all of the royalties for sales of ribavirin.
The Company intends to tender for all or part of the existing
public debt, using proceeds from the sale of Ribapharm shares
and additional financing. The Company intends to retain at least
80% ownership in the shares of Ribapharm. There are no
assumptions that this transaction will be consummated.
The Company evaluates the carrying value of its inventories at
least quarterly, taking into account such factors as historical
and anticipated future sales compared with quantities on hand,
the price the Company expects to obtain for its products in their
respective markets compared with historical cost, and the
remaining shelf life of goods on hand. The Company also evaluates
the collectibility of its receivables at least quarterly. The
Company's methodology for establishing the allowance for bad
debts varies with the regions in which it operates. With the
exception of Russia, the allowance for bad debts is based upon
specific identification of customer accounts and the Company's
best estimate of the likelihood of potential loss, taking into
account such factors as the financial condition and payment
history of major customers. In Russia, the allowance for bad
debts is based upon a combination of specific identification of
customer account balances and an overall provision based upon
anticipated developments and historical experience. In Russia,
factors such as the economic crisis in August 1998 and the
subsequent stabilization in the middle of 1999 were utilized in
the analysis. As of June 30, 2000, the Company believes that
adequate provision has been made for inventory obsolescence and
for anticipated losses on uncollectible accounts receivable.
The Company is currently self-insured with respect to product
liability claims. While to date, no material adverse claim for
personal injury resulting from allegedly defective products has
been successfully maintained against the Company, a substantial
claim, if successful, could have a negative impact effect on the
Company's liquidity and financial performance.
Foreign Operations
Approximately 63% and 66% of the Company's revenues for the six
months ended June 30, 2000 and 1999, respectively, were generated
from operations outside the United States. All of the Company's
foreign operations are subject to certain risks inherent in
conducting business abroad, including price and currency exchange
controls, fluctuations in the relative values of currencies,
political instability and restrictive governmental actions.
Changes in the relative values of currencies occur from time to
time and may, in some instances, materially affect the Company's
results of operations. The effect of these risks remains
difficult to predict. The Company does not currently provide any
hedges on its foreign currency exposure and, in some countries in
which the Company operates, no effective hedging programs are
available.
Russia
Russia continues to experience economic difficulties following
the financial crisis of August 1998, when the ruble was 6.3 to $1
and subsequently devalued to 27.5 rubles to $1 by the end of
1999. Consequently, the ruble continues to devalue, there is
continued volatility in the debt and equity markets,
hyperinflation persists, confidence in the banking sector has yet
to be restored and there continues to be general lack of
liquidity in the economy. In addition, laws and regulations
affecting businesses operating within Russia continue to evolve.
Russia's return to economic stability is dependent to a large
extent on the effectiveness of the measures taken by the
government, decisions of international lending organizations, and
other actions, including regulatory and political developments,
which are beyond the Company's control.
At June 30, 2000 the ruble exchange rate was 28.1 rubles to $1 as
compared with the rate at December 31, 1999 of 27.5 rubles to $1.
As a result of the change in the ruble exchange rate, the Company
recorded translation losses of $478,000 and $2,834,000,
respectively, related to its Russian operations during the three
and six month periods ended June 30, 2000. As of June 30, 2000,
ICN Russia had a net monetary asset position of approximately
$12,734,000, which is subject to foreign exchange loss as further
declines in the value of the ruble in relation to the dollar
occur. Due to the fluctuation in the ruble exchange rate, the
ultimate amount of any future translation and exchange loss the
Company may incur cannot presently be determined and such loss
may have a negative impact on the Company's results of
operations. The Company's management continues to work to reduce
its net monetary exposure by reducing accounts receivable
balances and lengthening its payments to suppliers. However,
there can be no assurance that such efforts will be successful.
The Company's collections on accounts receivable in Russia have
been adversely affected by the Russian economic situation. Prior
to the August 1998 devaluation of the ruble, the Company had
favorable experience with the collection of receivables from its
customers in the region. Subsequently, the Company has taken
additional steps to ensure the creditworthiness of its customers
and the collectibility of accounts receivable by tightening its
credit policies in the region. These steps include a shortening
of credit periods, suspension of sales to customers with past-due
balances and discounts for cash sales.
The Company believes that the economic and political environment
in Russia has affected the pharmaceutical industry in the region.
Many Russian companies, including many of the Company's
customers, continue to experience liquidity problems as monetary
policy has limited the money supply, and Russian companies often
lack access to an effective banking system. As a result, many
Russian companies have limited ability to pay their debts, which
has led to a number of business failures in the region. In
addition, the devaluation has reduced the purchasing power of
Russian companies and consumers, thus increasing pressure on the
Company and other producers to limit price increases in hard
currency terms.
Inflation And Changing Prices
The effects of inflation are experienced by the Company through
increases in the costs of labor, services and raw materials. The
Company is subject to price control restrictions on its
pharmaceutical products in the majority of countries in which it
operates. While the Company attempts to raise selling prices in
anticipation of inflation, the Company operates in some markets
which have price controls that may limit its ability to raise
prices in a timely fashion. Future sales and gross profit will be
reduced if the Company is unable to obtain price increases
commensurate with the levels of inflation.
The Russian government has recently instituted a process for
establishing prices for pharmaceutical products, which may lead
to price controls in the Russian market in the future. Currently,
this process requires the Company to register the prices for some
of its products included on the government's list of "products
important for health". The next procedure for registration
includes the negotiation and approval of such prices between the
Company and the relevant state bodies. The Company is currently
working with all relevant state bodies to approve its prices and
the Company is not presently able to determine the effect, if
any, that this process may have on its results of operations.
However, such developments could have a negative impact on the
Company's results of operations and cash flows in Russia.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the
European Union introduced a new currency called the "Euro". The
conversion rates between the Euro and the participating nations'
existing legacy currencies were fixed irrevocably as of January
1, 1999. Prior to full implementation of the new currency on
January 1, 2002, there will be a transition period during which
parties may, at their discretion, use either the legacy
currencies or the Euro for financial transactions.
The Company expects its affected subsidiaries to continue to
operate primarily in their respective legacy currencies through
December, 2000. The majority of the Company's affected
subsidiaries currently can accommodate transactions for customers
or suppliers operating in either the legacy currency or the Euro.
Action plans are currently being implemented which are expected
to result in full compliance with all laws and regulations
relating to the Euro conversion. Such plans include the
adaptation of information technology and other systems to
accommodate Euro-denominated transactions as well as the
requirements of the transition period. The Company is also
addressing the impact of the Euro on its currency exchange rate
risk, taxation, contracts, competition and pricing. While it is
not possible to accurately predict the impact the Euro will have
on the Company's business or on the economy in general,
management currently does not anticipate that the Euro conversion
will have a material adverse impact on the Company's market risk
with respect to foreign exchange, its results of operations, or
its financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's business and financial results are affected by
fluctuations in world financial markets. The Company evaluates
its exposure to such risks on an ongoing basis, and reviews its
risk management policy to manage these risks to an acceptable
level, based on management's judgment of the appropriate trade-
off between risk, opportunity and costs. The Company does not
hold any significant amount of market risk sensitive instruments
whose value is subject to market price risk.
In the normal course of business, the Company also faces risks
that are either non-financial or non-quantifiable. Such risks
principally include country risk, credit risk, and legal risk and
are not discussed or quantified in the following analysis.
Interest Rate Risk: The Company does not hold financial
instruments for trading or speculative purposes. The financial
assets of the Company are not subject to significant interest
rate risk due to their short duration. At June 30, 2000, the
Company does not have any significant financial instruments
denominated in foreign currencies that would subject it to both
interest and currency risk. The principal financial liabilities
of the Company that are subject to interest rate risk are its
fixed-rate long-term debt (principally its 8-3/4% Senior Notes
due 2008 and its 9-1/4% Senior Notes due 2005) totaling
$587,170,000. The Company does not use any derivatives or
similar instruments to manage its interest rate risk. A 90 basis-
point increase in interest rates (approximately 10% of the
Company's weighted-average interest rate on fixed-rate debt)
affecting the Company's financial instruments would have an
immaterial effect on the Company's 2000 pretax earnings. However,
such a change would reduce the fair value of the Company's fixed-
rate debt instruments (principally its 8-3/4% and 9-1/4% Senior
Notes) by approximately $25,600,000 as of June 30, 2000.
During 1999, the Company entered into certain option transactions
which allow the Company to establish a price range in which the
Company has the option to repurchase its stock at a later date,
without any immediate outlay of its cash resources. Under this
program, the Company sold put options, which entitle the holder
to sell the Company's stock to the Company at a specified price.
At the same time, in a cashless transaction, the Company
purchased call options, which entitle the Company to purchase its
stock at a specified price from the same party. The put and call
options have essentially established a price range within which
the Company can repurchase its stock. If the stock price rises
above the call option strike price, the repurchase of stock will
be at a favorable price compared to the market price. Conversely,
if the stock price falls below the put option strike price, the
repurchase of stock is more costly than the market price. The put
options and the corresponding call options each expire from
November 2000 through December 2000 and are exercisable only at
the expiration dates. The Company may, at its option, make a
physical settlement, a cash settlement, or a net share settlement
of its positions under the put and call options. The Company has
a maximum potential obligation under the put options to buy back
2,380,953 shares of its common stock for an aggregate price of
approximately $67,500,000. The call options entitle the Company
to buy 1,064,085 shares of its common stock for approximately
$33,519,000. The net settlement obligation of the Company, based
on the closing market price of the stock at June 30, 2000, was
approximately $1,280,000 or 46,014 shares. The Company
continually reevaluates the potential impact of these option
positions and believes its capital resources are sufficient to
meet the potential obligations of these option positions.
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION ACT OF 1995
This Quarterly Report on Form 10-Q contains statements that
constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Those
statements appear in a number of places in this Quarterly Report
on Form 10-Q and include statements regarding, among other
matters, the Company's growth opportunities, the Company's
acquisition strategy, regulatory matters pertaining to
governmental approval of the marketing or manufacturing of
certain of the Company's products and other factors affecting the
Company's financial condition or results of operations.
Stockholders are cautioned that any such forward looking
statements are not guarantees of future performance and involve
risks, uncertainties and other factors which may cause actual
results, performance or achievements to differ materially from
the future results, performance or achievements, expressed or
implied in such forward looking statements. Such factors are
discussed in this Quarterly Report on Form 10-Q and also include,
without limitation, the Company's dependence on foreign
operations (which are subject to certain risks inherent in
conducting business abroad, including possible nationalization or
expropriation, restrictions on the exchange of currencies,
limitations on foreign participation in local enterprises, health-
care regulations, price controls, and other restrictive
governmental conditions); the risk of operations in Eastern
Europe, Russia, Latin America, and China in light of the unstable
economic, political and regulatory conditions in such regions;
the potential impact of the Year 2000 issue; the potential impact
of the Euro currency; the Company's ability to continue its
expansion plan and to integrate successfully any acquired
companies; the Company's ability to maintain adequate supply of
products to meet customer demand; the results of lawsuits or the
outcome of investigations pending against the Company; the
Company's potential product liability exposure and lack of any
insurance coverage thereof; government regulation of the
pharmaceutical industry (including review and approval for new
pharmaceutical products by the FDA in the United States and
comparable agencies in other countries) and competition.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 6 of Notes to Consolidated Condensed Financial
Statements
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
15.1 Review Report of Independent Accountants
15.2 Awareness Letter of Independent Accountants
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter
ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ICN PHARMACEUTICALS, INC.
Registrant
Date: August 14, 2000 /s/ Milan Panic
Milan Panic
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2000 /s/ Richard A. Meier
Richard A. Meier
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit .
15.1 Review Report of Independent Accountants
15.2 Awareness Letter of Independent Accountants
27.1 Financial Data Schedule
Exhibit 15.1
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
ICN Pharmaceuticals, Inc.
We have reviewed the accompanying consolidated condensed balance
sheet of ICN Pharmaceuticals, Inc. and subsidiaries as of June
30, 2000 and the related consolidated condensed statements of
income, comprehensive income and cash flows for each of the three
month and six month periods ended June 30, 2000 and 1999. These
consolidated condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated condensed interim financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1999, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not
presented herein), and in our report dated March 4, 2000, which
included an emphasis of matter paragraph related to the Company's
change in method of accounting for ICN Yugoslavia, a previously
consolidated subsidiary, as more fully described in Notes 2 and
14 to the consolidated financial statements, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the consolidated
condensed balance sheet as of December 31, 1999, is fairly stated
in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Newport Beach, California
August 3, 2000
Exhibit 15.2
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
August 10, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated August 3, 2000 on our review
of interim financial information of ICN Pharmaceuticals, Inc.
(the "Company') as of and for the three month and six month
periods ended June 30, 2000 and included in the Company's
quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference in its Registration Statements on Form
S-8 (File Nos. 33-56971 and 333-81383) and on Form S-3 (File Nos.
333-10661).
Very truly yours,
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Newport Beach, California