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 September 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 November 10, 2000 was
79,624,829.
ICN PHARMACEUTICALS, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets -
September 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income -
Three and nine months ended September 30, 2000 and 1999 4
Consolidated Condensed Statements of Comprehensive Income -
Three and nine months ended September 30, 2000 and 1999 5
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 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
September 30, 2000 and December 31, 1999
(unaudited, in thousands, except per share data)
September 30, December 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 227,958 $177,577
Restricted cash 343 414
Accounts receivable, net 243,219 231,902
Inventories, net 157,609 136,762
Prepaid expenses and other current assets 21,882 18,075
Total current assets 651,011 564,730
Property, plant and equipment, net 349,351 332,360
Deferred income taxes, net 76,712 81,095
Other assets 33,649 37,625
Goodwill and intangibles, net 446,735 456,451
$1,557,458 $1,472,261
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 53,294 $ 65,195
Accrued liabilities 86,079 66,185
Notes payable 6,580 8,762
Current portion of long-term debt 1,739 312
Income taxes payable 9,967 168
Total current liabilities 157,659 140,622
Long-term debt, less current portion 593,600 596,961
Deferred income and other liabilities 38,244 28,628
Minority interest 19,024 22,478
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value; 200,000 shares authorized;
79,753 (September 30, 2000) and 78,950 (December 31, 1999)
shares outstanding (after deducting shares in treasury of
814 and 814, respectively) 796 789
Additional capital 962,559 949,181
Accumulated deficit (119,493) (197,602)
Accumulated other comprehensive loss (94,931) (68,796)
Total stockholders' equity 748,931 683,572
$1,557,458 $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 nine months ended September 30, 2000 and 1999
(unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
Product sales $158,342 $148,125 $466,013 $459,209
Royalties 49,000 33,527 125,102 75,678
Total revenues 207,342 181,652 591,115 534,887
Costs and expenses:
Cost of product sales 64,230 54,133 185,931 186,178
Selling, general and
administrative expenses 66,164 60,855 205,029 178,479
Research and development costs 5,711 2,613 12,564 7,875
Amortization of goodwill
and intangibles 7,453 7,390 22,863 21,910
Total expenses 143,558 124,991 426,387 394,442
Income from operations 63,784 56,661 164,728 140,445
Translation and exchange
losses, net 491 54 4,547 8,114
Interest income (3,241) (2,166) (9,053) (7,060)
Interest expense 15,339 14,920 45,974 41,794
Income before provision for income
taxes and minority interest 51,195 43,853 123,260 97,597
Provision for income taxes 15,045 12,469 29,587 24,369
Minority interest (459) (426) (1,428) (7,046)
Net income $36,609 $31,810 $95,101 $80,274
Basic earnings per common share $0.46 $0.41 $1.20 $1.03
Shares used in per share
computation 79,548 78,193 79,200 77,603
Diluted earnings per
common share $ 0.45 $ 0.39 $ 1.16 $ 0.98
Shares used in per
share computation 82,099 82,288 81,883 82,055
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 nine months ended September 30, 2000 and 1999
(unaudited, in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Net income $36,609 $31,810 $95,101 $80,274
Other comprehensive income (loss):
Foreign currency translation
adjustments (10,830) 1,138 (26,135) (13,840)
Comprehensive income $25,779 $32,948 $68,966 $66,434
The accompanying notes are an integral part of these consolidated
condensed financial statements.
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(unaudited, in thousands)
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
Net income $ 95,101 $ 80,274
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 47,090 48,922
Provision for losses on
accounts receivable 6,361 1,072
Provision for inventory obsolescence 4,388 3,558
Translation and exchange losses, net 4,547 8,114
Deferred income -- (4,983)
(Gain) loss on sale of assets 642 (506)
Other non-cash losses 1,750 3,089
Deferred income taxes 4,302 4,198
Minority interest (1,428) (7,046)
Change in assets and liabilities,
net of effects of acquisitions:
Accounts receivable (18,608) (38,770)
Inventories (20,912) (14,975)
Prepaid expenses and other assets (1,245) (2,451)
Trade payables and accrued
liabilities (1,687) (28,365)
Income taxes payable 10,212 1,172
Other liabilities 4,250 (2,446)
Net cash provided by
operating activities 134,763 50,857
Cash flows from investing activities:
Capital expenditures (28,617) (32,661)
Proceeds from sale of assets 729 802
Decrease (increase) in restricted cash 71 (9)
Acquisition of license rights,
product lines and businesses (30,854) (8,960)
Net cash used in investing
activities (58,671) (40,828)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt -- 144,574
Proceeds from issuance of notes payable 5,724 17,544
Payments on long-term debt (12,746) (87,477)
Payments on notes payable (7,890) (26,954)
Proceeds from exercise of stock options 7,248 11,849
Proceeds from issuance of common stock -- 27,000
Purchase of treasury stock -- (5,550)
Dividends paid (16,992) (15,540)
Net cash (used in) provided by
financing activities (24,656) 65,446
Effect of exchange rate changes on
cash and cash equivalents (1,055) (132)
Net increase in cash and cash equivalents 50,381 75,343
Cash and cash equivalents at beginning
of period 177,577 104,921
Cash and cash equivalents at end
of period $ 227,958 $ 180,264
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 Form 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 realizable 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 were 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 deconsolidated the financial statements
of ICN Yugoslavia as of November 26, 1998, and reduced the
carrying value of its investment to fair value, at that time
estimated to be zero. The Company accounts 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 nine month
periods ended September 30, 1999 and 2000. [See Note 5]
Comprehensive Income: The balance of accumulated other
comprehensive income at September 30, 2000 and December 31, 1999
consists of accumulated foreign currency translation adjustments.
Other comprehensive income has not been recorded net of any tax
benefit or provision 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 2000, the
Company's Board of Directors declared a quarterly cash dividend
of $0.0725 per share for each quarter, including the third
quarter dividend paid on October 30, 2000 to stockholders of
record on October 16, 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
On July 1, 2000, the Company acquired 100% ownership of the Swiss
pharmaceuticals company Solco Basel AG for $30,368,000, of which
$25,068,000 was paid in cash ($4,026,000 of cash was received as
part of the Solco assets) 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 guarantee
period, the Company will be required to satisfy the aggregate
guarantee amount by payment in cash. This acquisition was
accounted for as a purchase and is not material to the financial
position or results of operations of the Company.
During 2000, the Company acquired various other 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 an additional 6.47% interest in its subsidiary in Poland
for $3,194,000 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.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Income:
Numerator for basic earnings per share-
Net income $36,609 $31,810 $95,101 $80,274
Effect of dilutive securities (3) 6 (2) --
Numerator for diluted earnings
per share-income available to
common stockholders after
assumed conversions $36,606 $31,816 $95,099 $80,274
Shares:
Denominator for basic earnings
per share-weighted-average
shares outstanding 79,548 78,193 79,200 77,603
Effect of dilutive securities:
Employee stock options 2,482 2,366 2,513 2,810
Written put options -- 1,092 47 364
Series D Preferred Stock -- 616 -- 616
Convertible debt 21 21 21 21
Other dilutive securities 48 -- 102 641
Dilutive potential common shares 2,551 4,095 2,683 4,452
Denominator for diluted earnings per
share-adjusted weighted-average
shares outstanding and
assumed conversions 82,099 82,288 81,883 82,055
Basic earnings per
common share $ 0.46 $ 0.41 $ 1.20 $ 1.03
Diluted earnings per common share $ 0.45 $ 0.39 $ 1.16 $ 0.98
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 September 30, 2000, the
guaranteed value of the shares subject to such guarantee exceeded
the market value by approximately $1,491,425.
Additionally for certain periods, 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 in the fourth quarter of
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. As of September 30, 2000, no shares were considered
outstanding for the purpose of computing diluted earnings per
share based upon the market price of the Company's common stock
on that date.
4. Detail of Certain Accounts
September 30, December 31,
(in thousands) 2000 1999
Accounts receivable, net:
Trade accounts receivable $ 195,055 $ 206,766
Other receivables 19,307 16,958
Royalty receivable 49,081 34,725
263,443 258,449
Allowance for doubtful accounts (20,224) (26,547)
$ 243,219 $ 231,902
Inventories, net:
Raw materials and supplies $ 49,698 $ 32,683
Work-in-process 18,675 12,610
Finished goods 99,817 99,429
168,190 144,722
Allowance for inventory obsolescence (10,581) (7,960)
$ 157,609 $ 136,762
Property, plant and equipment, net:
Property, plant and equipment, at cost$ 439,904 $ 409,482
Accumulated depreciation and
amortization (90,553) (77,122)
$ 349,351 $ 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. 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 is principally comprised of Mexico.
The following table sets forth the amounts of segment revenues
and operating income of the Company for the three months and nine
months ended September 30, 2000 and 1999 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues
Pharmaceuticals
North America $74,474 $71,482 $207,335 $181,630
Western and Central Europe 46,502 43,262 136,576 134,499
Latin America 32,422 24,010 90,406 70,742
Russia 25,486 19,330 75,520 63,688
Asia, Africa, Australia 14,425 9,033 36,449 38,281
Total Pharmaceuticals 193,309 167,117 546,286 488,840
Biomedicals 14,033 14,535 44,829 46,047
Consolidated revenues $207,342 $181,652 $591,115 $534,887
Operating Income
Pharmaceuticals
North America $57,379 $50,660 $159,580 $122,600
Western and Central Europe 6,750 7,086 17,400 8,542
Latin America 11,687 8,532 29,100 24,300
Russia (983) 3,309 (3,054) 4,390
Asia, Africa, Australia 1,114 3,118 2,957 11,238
Total Pharmaceuticals 75,947 72,705 205,983 171,070
Biomedicals 2,324 1,295 3,945 5,365
Consolidated segment
operating income 78,271 74,000 209,928 176,435
Corporate expenses 14,487 17,339 45,200 35,990
Interest income (3,241) (2,166) (9,053) (7,060)
Interest expense 15,339 14,920 45,974 41,794
Translation and exchange
losses, net 491 54 4,547 8,114
Income before provision
for income taxes and
minority interest $51,195 $43,853 $123,260 $97,597
The following table sets forth the segment total assets of the
Company as of September 30, 2000 and December 31, 1999 (in
thousands):
Assets
September December
2000 1999
Pharmaceuticals
North America $500,329 $516,231
Western and Central Europe 265,883 218,577
Latin America 118,834 100,118
Russia 167,333 174,838
Asia, Africa, Australia 109,808 98,402
Total Pharmaceuticals 1,162,187 1,108,166
Biomedicals 63,012 67,692
Corporate 332,259 296,403
$1,557,458 $1,472,261
7. Supplemental Cash Flow Information
Cash paid for income taxes for the nine months ended September
30, 2000 and 1999 was $16,658,000 and $14,256,000, respectively.
Cash paid for interest, net of amounts capitalized, for the nine
months ended September 30, 2000 and 1999 was $41,824,000 and
$39,090,000 respectively. Other non-cash losses for the nine
months ended September 30, 2000 and 1999 include $1,750,000 and
$2,154,000, respectively, for compensation expense related to the
vesting of restricted stock under the Company's Long Term
Incentive Plan.
8. Subsequent Events
In November 2000, the Company entered into an agreement to
provide Schering-Plough with rights to certain rights to license
various products the Company may develop. Under the terms of
the strategic agreement, Schering-Plough has the option to
exclusively license on a worldwide basis up to three compounds
that the Company may develop for the treatment of hepatitis C on
terms specified in the agreement. The option does not apply to
Levovirin or Viramidine. The option is exercisable as to a
particular compound at any time prior to the start of Phase II
clinical studies for that compound. Once it exercises the option
with respect to a compound Schering-Plough is required to take
over all developmental costs and responsibility for regulatory
approval for that compound.
Under the terms of the agreement, the Company also granted
Schering-Plough the right of first/last refusal to license
compounds relating to the treatment of infectious diseases
(other than Hepatitis C) or cancer or other oncology indications
as well as the right of first/last refusal with respect to
Levovirin and Viramidine (collectively, the "refusal rights").
Under the terms of the refusal rights, if the if the Company
intends to offer a license or other rights with respect to any of
these compounds to a third party, the Company is required to
notify Schering-Plough. At Schering-Plough's request, the
Company is required to negotiate in good faith with Schering-
Plough on an exclusive basis the terms of a mutually acceptable
exclusive worldwide license or other form of agreement on
commercial terms to be mutually agreed upon. If the Company
cannot reach an agreement with Schering-Plough, the Company is
permitted to negotiate a license agreement or other arrangement
with a third party. Prior to entering into any final arrangement
with the third party, the Company is required to offer
substantially similar terms to Schering-Plough, which terms
Schering-Plough has the right to match.
If Schering-Plough does not exercise its option or Refusal Rights
as to a particular compound, the Company may continue to develop
that compound or license that compound to other third parties.
The agreement with Schering-Plough will terminate the later of
12 years from the date of the agreement or the termination of
the 1995 license agreement with Schering-Plough. The agreement
was entered into as part of the resolution of claims asserted
by Schering-Plough against the Company, including claims
regarding the Company's alleged improper hiring of former
Schering-Plough research and development personnel and claims
that the Company was not permitted to conduct Hepatitis C
research.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues
Pharmaceuticals
North America $74,474 $71,482 $207,335 $181,630
Western and Central Europe (1) 46,502 43,262 136,576 134,499
Latin America principally Mexico 32,422 24,010 90,406 70,742
Russia 25,486 19,330 75,520 63,688
Asia, Africa, Australia 14,425 9,033 36,449 38,281
Total Pharmaceuticals 193,309 167,117 546,286 488,840
Biomedicals 14,033 14,535 44,829 46,047
Consolidated revenues $207,342 $181,652 $591,115 $534,887
Product sales $158,342 $148,125 $466,013 $459,209
Royalty revenues 49,000 33,527 125,102 75,678
Total revenues $207,342 $181,652 $591,115 $534,887
Cost of product sales $64,230 $54,133 $185,931 $186,178
Gross profit margin on
product sales 59% 63% 60% 59%
(1) The Western and Central Europe segment includes ICN Czech
Republic, ICN Hungary and ICN 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 September 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 September 30, 2000
were $49,000,000 compared to $33,527,000 for the same period of
1999, reflective of additional sales of RebetronT by Schering-
Plough resulting from the 1999 and 2000 launches into certain
European markets and heightened worldwide demand for the
combination therapy.
Segment Revenues: In the North America Pharmaceuticals segment,
revenues for the three months ended September 30, 2000 were
$74,474,000, compared to $71,482,000 for the same period of 1999.
The increase in revenue of $2,992,000 (4%) was primarily the
result of an increase of $15,502,000 (46%) in royalty revenues
from sales of Rebetolr (ribavirin) by Schering-Plough and sales
price increases of $3,688,000 (5%) partially offset by lower unit
sales of $16,246,000 (23%) primarily resulting from production
and supply problems that affected Efudexr and Libraxr and
decreased sales of dermatological products.
In the Western and Central Europe Pharmaceuticals segment,
revenues for the three months ended September 30, 2000 were
$46,502,000 compared to $43,262,000 in the same period of 1999.
The increase in revenues of $3,240,000 (7%) was primarily from
sales attributable to the Solco Basel AG ("Solco") acquisition in
the third quarter 2000 of $3,453,000.
In the Latin America Pharmaceuticals segment, revenues for the
three months ended September 30, 2000 were $32,422,000, compared
to $24,010,000 for the same period of 1999. The increase of
$8,412,000 (35%) primarily reflects sales volume increases of
$5,771,000 (24%) and price increases of $2,641,000 (11%). This
region benefited from continued strong sales of Bedoyectar, an
injectable vitamin B-12 supplement, the launch of OTO ENI ear
drops for external infectious and inflammatory otitis for
pediatric use, and the launch of a new line of dermatological
products, which include Microskin, MicroVITA and MicroKA.
In the Russia Pharmaceuticals segment, revenues for the three
months ended September 30, 2000 were $25,486,000, compared with
$19,330,000 for the same period of 1999, an increase of
$6,156,000 (32%). The increase primarily reflects a $5,549,000
(29%) increase in unit volume resulting from the expansion of the
Company's retail pharmacy business and a $2,569,000 (13%)
increase in unit prices offset by the negative impact of the
stronger U.S. Dollar of $1,962,000 (10%).
In the Asia, Africa and Australia Pharmaceuticals segment,
revenues for the three months ended September 30, 2000 were
$14,425,000 compared to $9,033,000 for the same period of 1999.
The increase of $5,392,000 (60%) is primarily due to unit volume
increases in Ancotil rand Dalmadormr ($5,592,000) and from the
sales attributable to the Solco acquisition in the 2000 third
quarter of $2,461,000 partially offset by decreases in the base
business products.
In the Company's Biomedicals segment, revenues for the three
months ended September 30, 2000 were $14,033,000 compared to
$14,535,000 for the same period of 1999, a decrease of $502,000
(3%) primarilly the result of the negative impact of the stronger
U.S. Dollar.
Gross Profit: Gross profit margin on product sales decreased from
63% for the three months ended September 30, 1999 to 59% for the
same period of 2000. The decrease in gross margin is reflective
of the sale of lower margin products in the Russian region as a
result of a shift in product mix during the third quarter of
2000. In addition, the AAA region experienced a decrease in
gross margin as a result of higher manufacturing costs incurred
on the transfer of products acquired from Roche and SmithKline
Beecham to company owned facilities or toll manufacturers. Gross
profit margins in North America, Western and Central Europe and
Latin America regions for the three months ended September 30,
2000 were consistent with the comparable period of 1999.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses were $66,164,000 for the three months
ended September 30, 2000, compared to $60,855,000 for the same
period in 1999, an increase of $5,309,000 (9%). This increase is
primarily due to a rise in selling and advertising expenses of
$4,841,000 and $2,442,000 in the Russia and Latin America
Pharmaceutical segments associated with the increase in revenue
mentioned above and $2,098,000 of selling and advertising costs
associated with the Solco business acquired in the quarter. These
increases were partially offset by a decrease in legal expenses
of $3,732,000.
Research and Development: Research and development expenses were
$5,711,000 for the three months ended September 30, 2000,
compared to $2,613,000 for the same period in 1999 an increase of
$3,098,000 (119%). The increase reflects the higher level of
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 at its Costa Mesa
facility, in the fourth quarter.
Amortization of goodwill and intangibles: Amortization of
goodwill and intangibles was $7,453,000 for the three months
ended September 30, 2000, compared to $7,390,000 for the same
period of 1999. The increase of $63,000 was primarily the result
of the amortization of intangibles related to products acquired
in late 1999 and in early 2000.
Translation and Exchange Losses, Net: Translation and exchange
losses, net, were $491,000 for the three months ended September
30, 2000 compared to $54,000 for the same period in 1999. In the
third quarter of 2000, transaction losses principally consisted
of losses of $715,000 related to our operations in Puerto Rico
and $274,000 in the Company's Biomedical Segment offset by
transaction gains of $233,000 in the Western and Central Europe
Segment and translation gains of $188,000 related to the net
monetary asset position of the Company's Russian subsidiaries
during the third quarter of 2000.
Interest Income and Expense: Interest expense during the three
months ended September 30, 2000 increased $419,000 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 mid July 1999 offset by a reduction of debt during the end of
the second quarter of 1999. Interest income increased from
$2,166,000 in 1999 to $3,241,000 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
three months ended September 30, 2000 was 29% compared to 28% for
the comparable period of 1999. The provision for income taxes
reflects higher taxable income in the United States.
Nine months ended September 30, 2000 compared to 1999
Royalty revenues: Royalty revenues for the nine months ended
September 30, 2000 were $125,102,000 compared to $75,678,000 for
the same period of 1999, reflective of additional sales of
RebetronT by Schering-Plough resulting from the 1999 and 2000
launches into certain European markets.
Segment Revenues: In the North America Pharmaceuticals segment,
revenues for the nine months ended September 30, 2000 were
$207,335,000, compared to $181,630,000 for the same period of
1999. Revenues for the nine months ended September 30, 2000
reflect a $49,424,000 increase in royalty revenues from sales of
Rebetolr (ribavirin) by Schering-Plough and $9,741,000 due to
sales price increases partially offset by lower unit sales of
$33,653,000 (32%) primarily resulting from production and supply
problems that affected Efudexr and Libraxr and decreased sales of
dermatological products.
In the Western and Central Europe Pharmaceuticals segment,
revenues for the nine months ended September 30, 2000 were
$136,576,000 compared to $134,499,000 in the same period of 1999.
The increase in revenues of $2,077,000 (2%) is primarily due to
the Company's acquisition of Solco in the third quarter 2000.
In the Latin America Pharmaceuticals segment, revenues for the
nine months ended September 30, 2000 were $90,406,000, compared
to $70,742,000 for the same period of 1999. The increase of
$19,664,000 (28%) primarily reflects increases in sales volume of
$11,175,000 (16%) from sales of Bedoyectar, an injectable vitamin
B-12 supplement, Virazoler (ribavirin), from the launching of OTO
ENI, ear drops for external infectious and inflammatory otitis
for pediatric use, and from the launching of a new line of
dermatological products including Microskin, MicroVITA and
MicroKA,
In the Russia Pharmaceuticals segment, revenues for the nine
months ended September 30, 2000 were $75,520,000, compared with
$63,688,000 for the same period of 1999, an increase of
$11,832,000 (19%). The increase was primarily the result of the
expansion of the Company's retail pharmacy business in 1999 and
increases in unit prices partially offset by sales volume
decreases in Ascorbic Acid, for vitamin C deficiency, Corvalol, a
sedative and other products.
In the Asia, Africa and Australia Pharmaceuticals segment,
revenues for the nine months ended September 30, 2000 were
$36,449,000 compared to $38,281,000 for the same period of 1999,
a decrease of $1,832,000 (5%). Nine month 2000 revenues include
sales attributable to the Solco acquisition in the third quarter
of $2,461,000. The decrease, after excluding the sales from
Solco ($4,293,000), is primarily due to unit volume decreases of
$4,970,000 (13%) resulting from the shift by the Company to new
distribution channels a year ago resulting in higher than normal
sales in the second quarter of 1999.
In the Company's Biomedicals segment, revenues for the nine
months ended September 30, 2000 were $44,829,000 compared to
$46,047,000 for the same period of 1999, a decrease of $1,218,000
(3%). The decrease is primarily due to lower sales volume in the
Company's diagnostics and research product lines, partially
offset by increased revenues from dosimetry services.
Gross Profit: Gross profit margin on product sales increased to
60% for the nine months ended September 30, 2000, compared to 59%
for 1999. The improvement in gross margin is reflective of lower
gross profit margins in 1999 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 $205,029,000 for the nine months
ended September 30, 2000, compared to $178,479,000 for the same
period in 1999, an increase of $26,550,000. In 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
$38,531,000. This increase is primarily due to a rise in selling
and advertising expenses of $30,924,000 and an increase in
corporate expenses, including compensation and legal expenses of
$2,748,000 in 2000.
Research and Development: Research and development expenses for
the nine months ended September 30, 2000 were $12,564,000,
compared to $7,875,000 for the same period in 1999. The increase
reflects the higher level of research and development buildup
that started in the second quarter.
Translation and Exchange Losses, Net: Translation and exchange
losses, net were $4,547,000 for the nine months ended September
30, 2000 compared to $8,114,000 for the same period in 1999. In
the nine months of 2000, translation losses principally consisted
of translation losses of $2,646,000 related to the net monetary
asset position of the Company's Russian subsidiaries and
transaction losses of $1,217,000 related to operations in Puerto
Rico. In 1999, translation losses principally consisted of
translation losses of $5,056,000 related to the net monetary
asset position of the Company's Russian subsidiaries and losses
of $2,557,000 in Hungary and Poland resulting from foreign-
denominated debt.
Interest Income and Expense: Interest expense during the nine
months ended September 30, 2000 increased $4,180,000 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 $7,060,000 in 1999
to $9,053,000 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
nine months ended September 30, 2000 was 24% compared to 25% for
1999. The decrease in the effective tax rate results from higher
taxable income in 2000 offset by 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 separate publicly traded companies. This restructuring
will include the sale of stock of the 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 nine months ended September 30, 2000 cash provided by
operating activities totaled $134,763,000 compared to $50,857,000
in 1999. Operating cash flows reflect the Company's net income
of $95,101,000 and net noncash charges (including depreciation,
minority interest, and foreign exchange gains and losses) of
$67,652,000, partially offset by working capital increases (after
the effect of business acquisitions and currency translation
adjustments) totaling approximately $27,990,000. The working
capital increases principally consists of a $14,356,000 increase
in royalty receivable resulting from the increase in revenue
under the Company's license agreement with Schering-Plough and an
increase in inventories of $20,912,000 offset by an increase in
income taxes payable of $10,212,000 resulting from increased
income in higher tax regions.
Cash used in investing activities was $58,671,000 for the nine
months ended September 30, 2000 compared to $40,828,000 for the
same period of 1999. In 2000, the Company made acquisitions of
license rights, product lines and businesses amounting to
$30,854,000 (net of acquired cash $4,613,000) and capital
expenditures of $28,617,000, principally representing production
equipment in Western and Central Europe and an increase in the
investment in research and development in North America. In 1999,
net cash used in investing activities principally consisted of
$32,661,000 in capital expenditures and $8,960,000 (net of cash
acquired $469,000) for the acquisition of a chain of 88
pharmacies in Russia and the purchase of a pharmaceutical
distributor in Hungary.
Cash used in financing activities totaled $24,656,000 for the
nine months ended September 30, 2000, including payments of cash
dividends on common stock of $16,992,000, payments on long-term
debt of $12,746,000 and payments on notes payable of $7,890,000.
These payments were offset by proceeds from the exercise of stock
options of $7,248,000 and proceeds from the issuance of notes
payable of $5,724,000. Net cash provided by financing activities
totaled $65,446,000 for the nine months ended September 30, 1999.
Proceeds from long-term borrowings totaled $144,574,000,
including net proceeds of $118,985,000 from a private placement
of $125,000,000 principal amount of its 8-3/4% Senior Notes due
2008, which the Company completed in July 1999. Other sources of
cash included $27,000,000 from the sale to Schering-Plough of
1,141,498 shares of its common stock (as provided for under the
terms of a Stock Purchase Agreement entered into with Schering-
Plough in 1995) and proceeds from the exercise of employee stock
options of $11,849,000. The Company in 1999 used cash
(including a portion of the proceeds of the 8-3/4% Senior Notes)
for principal payments of $87,477,000 on long-term debt and for a
net $9,410,000 reduction of short-term borrowings. Cash was also
used for the payment of dividends on common stock of $15,540,000
and the repurchase of 223,967 shares of 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.
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 August 23, 2000, the Company filed registration statement
Amendment No. 1 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 Ribapham
shares and additional financing. Initially, the Company plans to
retain at least 80% ownership in the shares of Ribapharm.
However, subject to certain legal and tax regulations, the
Company intends to spin-off the remaining interest to
shareholders. There can be no assurance 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 September 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 64% of the Company's revenues for the nine
months ended September 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.
As a result of the changing political environment in Yugoslavia,
the Company is attempting to regain control of ICN Yugoslavia.
There can be no assurance that the Company will be successful in
its efforts.
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. To date, the ruble continues to fluctuate, 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 September 30, 2000 the ruble exchange rate was 27.8 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 gains of $188,000 and translation
losses of $5,056,000, respectively, related to its Russian
operations during the three and nine month periods ended
September 30, 2000. As of September 30, 2000, ICN Russia had a
net monetary asset position of approximately $14,511,000, 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 September 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 $25,500,000 as of September 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 in the
fourth quarter of 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 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 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 5 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
September 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: November 14, 2000 /s/ Milan Panic
Milan Panic
Chairman of the Board and
Chief Executive Officer
Date: November 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 its subsidiaries as of
September 30, 2000 and the related consolidated condensed
statements of income, comprehensive income and cash flows for
each of the three month and nine month periods ended September
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 auditing standards generally
accepted in the United States of America, 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 accounting principles generally accepted in the
United States of America.
We previously audited in accordance with auditing standards
generally accepted in the United States of America, 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 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
Orange County, California
November 6, 2000
Exhibit 15.2
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
November 13, 20000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated November 6, 2000 on our review
of interim financial information of ICN Pharmaceuticals, Inc.
(the "Company') as of and for the three month and nine month
periods ended September 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 No.
333-10661).
Very truly yours,
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Orange County, California
EXHIBIT 27.1
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information
extracted from ICN Pharmaceuticals, Inc.'s September 30, 2000
Consolidated Condensed Financial Statements and is qualified in
its entirety by reference to such financial statements.
Three months endedNine months ended
September 30, September 30,
2000 2000
Multiplier 1,000 1,000
Period-Type 3 MOS 9 MOS
Fiscal-Year-End Dec-31-00 Dec-31-00
Period-Start Jul-01-00 Jan-01-00
Period-End Sep-30-00 Sep-30-00
Cash $227,958 $ 227,958
Securities -- --
Receivables 263,443 263,443
Allowances (20,224) (20,224)
Inventory 157,609 157,609
Current assets 651,011 651,011
PP&E 439,904 439,904
Depreciation (90,553) (90,553)
Total assets 1,557,458 1,557,458
Current Liabilities 157,659 157,659
Bonds -- --
Preferred Mandatory -- --
Preferred -- --
Common 796 796
Other SE 748,135 748,135
Total Liabilities and Equity 1,557,458 1,557,458
Sales 158,342 466,013
Total Revenues 207,342 591,115
CGS 64,230 185,931
Total Costs 64,230 185,931
Other expenses 5,711 12,564
Loss provision -- --
Interest expense 15,339 45,974
Income pretax 51,195 123,260
Income tax 15,045 29,587
Income-continuing 36,609 95,101
Discontinued -- --
Extraordinary -- --
Changes -- --
Net income $36,609 $ 95,101
EPS-primary $ .46 $ 1.20
EPS-diluted $ .45 $ 1.16