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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
[ ] 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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 545-0100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
- ------------------------------- ----------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(INCLUDING ASSOCIATED PREFERRED
STOCK PURCHASE RIGHTS)
8 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 1999 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
The aggregate market value of the Registrant's voting stock held by
non-affiliates on March 14, 1997, was approximately $870,503,000.
The number of outstanding shares of common stock as of March 14, 1997
was 34,320,429.
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List hereunder the following documents if incorporated by reference and the part
of the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated: ICN Pharmaceuticals, Inc.'s definitive Proxy Statement for the
1997 Annual Meeting of Stockholders, to be filed not later than 120 days after
the end of the fiscal year covered by this report, is incorporated by reference
into Part III.
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ii
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION
PART I
PAGE NO.
--------
1. Business ............................................................................ 2
2. Properties .......................................................................... 12
3. Legal Proceedings ................................................................... 12
4. Submission of Matters to a Vote of Security Holders ................................. 12
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters ........... 13
6. Selected Financial Data ............................................................. 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
8. Financial Statements and Supplementary Data ......................................... 25
9. Changes in and Disagreements with Auditors on Accounting and Financial Disclosure ... 61
PART III
10. Directors and Executive Officers of the Registrant .................................. 62
11. Executive Compensation and Related Matters .......................................... 62
12. Security Ownership of Certain Beneficial Owners and Management ...................... 62
13. Certain Relationships and Related Transactions ...................................... 62
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..................... 63
(ii)
2
PART I
ITEM 1. BUSINESS
INTRODUCTION
On November 1, 1994, the stockholders of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN
Biomedicals, Inc. ("Biomedicals") (collectively, the "Predecessor Companies")
approved the Merger of the Predecessor Companies ("the Merger"). On November 10,
1994, SPI, ICN and Viratek merged into ICN Merger Corp. and Biomedicals merged
into ICN Subsidiary Corp., a wholly-owned subsidiary of ICN Merger Corp. In
conjunction with the Merger, ICN Merger Corp. was renamed ICN Pharmaceuticals,
Inc. ("the Company"). For accounting purposes, SPI is the acquiring company and,
as a result, has reported the historical financial data of SPI in its financial
results. Subsequent to the Merger, the results of the newly merged company
include the combined operations of all Predecessor Companies.
The Company is a multinational research based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, research products
and related services, immunodiagnostic reagents and instrumentation and provides
radiation monitoring services. The Company pursues a strategy of international
expansion which includes (i) the research and development of proprietary
products which have the potential to be significant contributors to the
Company's global operations; (ii) the penetration of major pharmaceutical
markets by means of targeted acquisitions; and (iii) the expansion in these
major markets through the development or acquisition of pharmaceutical products
that meet the particular needs of each market.
The Company distributes and sells a broad range of prescription and over
the counter ("OTC") pharmaceutical products in over 60 countries worldwide,
primarily in North America, Latin America, Western Europe and Eastern Europe.
These pharmaceutical products treat a broad range of conditions including viral
and bacterial infections, diseases of the skin, myasthenia gravis,
cardiovascular disease, diabetes and psychiatric disorders. Among the Company's
products is the broad spectrum antiviral agent ribavirin, which is marketed in
the United States, Canada and most of Europe under the Virazole(R) trademark.
Virazole(R) is currently approved for commercial sale in over 40 countries for
one or more of a variety of viral infections, including respiratory syncytial
virus ("RSV"), herpes simplex, influenza, chicken pox, hepatitis and HIV. In the
United States and Europe, Virazole(R) is approved only for use in hospitalized
infants and young children with severe lower respiratory infections due to RSV.
The Company believes it has substantial opportunities to realize growth
from its internally developed compounds. These compounds are the result of
significant investments in research and development activities related to
nucleic acids conducted over three decades.
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "Agreement") and a Stock Purchase Agreement with a subsidiary of
Schering-Plough Corporation ("Schering") to license the Company's proprietary
anti-viral drug ribavirin as a treatment for chronic hepatitis C in combination
with Schering's alpha interferon. The Agreement provided the Company an initial
non-refundable payment by Schering of $23,000,000 and future royalty payments to
the Company for marketing of the drug, including certain minimum royalty rates.
Schering will have exclusive marketing rights for ribavirin for hepatitis C
worldwide, except that the Company will retain the right to co-market in the
countries of the European Economic Community. In addition, Schering will
purchase up to $42,000,000 in common stock of the Company upon the achievement
of certain regulatory milestones. Under the Agreement, Schering is responsible
for all clinical development and regulatory activities worldwide. During 1996,
clinical trials commenced with the enrollment of more than 2,000 patients.
The Company believes it is positioned to expand its presence in the
pharmaceutical markets of Eastern and Central Europe. In 1991, a 75% interest
was acquired in Galenika Pharmaceuticals, a large drug
3
ITEM 1. BUSINESS-CONTINUED
manufacturer and distributor in Yugoslavia. Galenika Pharmaceuticals was
subsequently renamed ICN Yugoslavia. This acquisition added new products and
significantly expanded the sales volume of the Company. With the investment in
ICN Yugoslavia, the Company became one of the first Western pharmaceutical
companies to establish a direct investment in Eastern Europe. ICN Yugoslavia
continues to be a significant part of the Company's operations although its
sales and profitability have, at times, been substantially diminished owing
principally to the imposition of sanctions on Yugoslavia by the United Nations
("UN"). However, in December 1995, the United Nations Security Council ("UNSC")
adopted a resolution that suspended economic sanctions imposed on the Federal
Republic of Yugoslavia since May 1992. The suspension of economic sanctions
enabled ICN Yugoslavia to resume exporting certain of its product lines to
Russia, other Eastern European markets, Africa, the Middle East and the Far
East. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - ICN Yugoslavia".
In 1995, the Company acquired a 75% interest in Oktyabr, one of the largest
pharmaceutical companies in the Russian Federation. In 1996, the Company
purchased an additional 15% interest in Oktyabr, raising its ownership to 90%.
Additionally, the Company greatly expanded its Russian presence through the
acquisition of two additional pharmaceutical companies: Leksredstva, located in
Kursk and Polypharm, located in Chelyabinsk. The combined sales of these three
companies establish the Company among the largest pharmaceutical companies in
Russia today and a pioneer and leader in the privatization movement.
In 1996, the Company acquired a 60% interest in Alkaloida, one of the
largest pharmaceutical companies in Hungary and a major world producer of
morphine and related compounds. (See "Acquisitions" below for a description of
additional acquisitions in 1996.)
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells a broad range of research products and related services,
immunodiagnostic reagents and instrumentation and radiation monitoring services.
The Company markets these products internationally to major scientific,
academic, health care and governmental institutions through catalog and direct
mail marketing programs.
BUSINESS SEGMENTS
The Company operates in two business segments: pharmaceutical and
biomedical. For financial information about business segments, see Note 11 of
Notes to Consolidated Financial Statements.
PRODUCTS
ETHICAL DRUGS
ANTI-INFECTIVES: The Company sells approximately 70 antibacterial products
and sells its antiviral drug, ribavirin, under the tradename Virazole(R) in
North America and most European countries. Ribavirin is sold as Vilona(R) and
Virazid(R) in Latin America and Virazid(R) in Spain. References to the sale of
Virazole(R) in this Form 10-K include sales made under the trademarks Vilona(R)
and Virazid(R).
ANTIVIRALS: Virazole(R) accounted for approximately 5%, 10% and 13% of the
Company's net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. Virazole(R) is currently approved for sale in various
pharmaceutical formulations in over 40 countries, depending upon the particular
country, for the treatment of several different human viral diseases, including
RSV, hepatitis, herpes, influenza, measles, chicken pox and HIV.
In the United States and Canada, Virazole(R) has only been approved for
hospital use in aerosolized form to treat infants and young children who have
severe lower respiratory infections caused by RSV. In the United States, RSV
infection is sufficiently severe to require hospitalization of an estimated
90,000 children annually. Similar approvals for the use of Virazole(R) for the
treatment of RSV have been granted by governmental authorities in 22 other
countries.
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ITEM 1. BUSINESS-CONTINUED
In treating RSV, Virazole(R) is administered by a small particle
aerosolized generator ("SPAG"), a system that permits direct delivery of
Virazole(R) to the lungs, the site of infection.
A variety of small, independent clinical studies comparing the results of
combining Virazole(R) capsules and interferon alpha 2b therapies versus
interferon monotherapy for the treatment of hepatitis C demonstrated enhanced
efficacy of the combination. Based upon these clinical findings, the Company has
entered into an agreement with Schering whereby Schering has assumed
responsibility for worldwide clinical development and registration of oral
ribavirin in combination with their product INTRON-A(R) (interferon alpha 2b)
for the treatment of hepatitis C. Phase III clinical trials are underway.
ANTIBACTERIALS: Antibacterials accounted for approximately 22%, 21% and 22%
of the Company's net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. Most of the antibacterials manufactured and sold by the Company
are primarily exclusive licenses held by ICN Yugoslavia for specific
geographical areas from manufacturers that include Roche Holding AG,
Bristol-Meyers Squibb and Eli Lilly.
OTHER ETHICAL DRUGS: Other ethicals accounted for approximately 41%, 40%
and 41% of net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company manufactures and/or markets a wide variety of other
ethical pharmaceuticals, including analgesics, anticholinesterases,
antirheumatics, cardiovasculars, dermatologicals, endocrine agents,
gastrointestinals, hormonals and psychotropics. The Company manufactures and
markets approximately 60 dermatological products, primarily in North America and
Eastern Europe. The Company markets three anticholinesterase product lines in
North America under the trade names Mestinon(R), Prostigmin(R) and Tensilon(R).
These products, manufactured by and licensed from Roche Holding AG, are used to
treat myasthenia gravis, a progressive neuromuscular disorder, and in reversing
the effects of certain muscle relaxants. Bensedin(R) is a tranquilizer
manufactured by ICN Yugoslavia and is used in the treatment of psychological and
emotional disorders. ICN Yugoslavia also sells insulin for the control of
diabetes. Albumina(R) is sold in Spain and Mexico for use in emergency treatment
of shock due to burns, trauma, operations and infections, and conditions where
the restoration of blood volume is urgent.
OTHER OVER THE COUNTER PRODUCTS
Other OTC products accounted for approximately 22%, 17% and 18% of the
Company's net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. Other OTC products encompass a broad range of ancillary products
sold through the Company's existing distribution channels.
RESEARCH CHEMICALS, DIAGNOSTIC AND RADIATION MONITORING SERVICES
Research chemicals, diagnostic and other biomedical products accounted for
approximately 10% and 12% of the Company's net sales for the years ended
December 31, 1996 and 1995, respectively. The Company serves life science
researchers throughout the world through a catalog sales operation, direct sales
and distributors. The Company's general catalog lists approximately 55,000
products which are used by medical, diagnostic and scientific researchers
involved in the fields of molecular biology, cell biology, immunology,
biochemistry, microbiology and other areas. A majority of these products are
purchased from third party manufacturers and distributed globally by the
Company.
The diagnostic product line includes instruments and reagents that are
routinely used by physicians and medical laboratories to accurately and quickly
diagnose hundreds of patient samples for a variety of disease conditions.
5
ITEM 1. BUSINESS-CONTINUED
The dosimetry product line provides radiation monitoring services to
dentists, veterinarians, chiropractors, podiatrists, hospitals, universities,
governmental institutions, nuclear power plants and small office practitioners
and others exposed to ionizing radiation. The Company's service includes both
Film and Thermo Luminescent badges in several configurations to accommodate a
broad scope of users. This service includes the manufacture of badges,
distribution to and from clients, analysis of badges and a radiation report
including exposure.
ACQUISITIONS
The Company has pursued a strategy of targeted expansion into regional
markets which are considered to have significant potential for pharmaceutical
and related products. This strategy has been implemented in large part through
the acquisition of compatible businesses and product lines and the formation of
strategic alliances and joint ventures in targeted markets.
During 1996, the Company undertook a series of strategic acquisitions
designed to strengthen its product lines and geographic presence.
GLYDERM ACQUISITION: In February 1996, the Company acquired 100% of
GlyDerm, Inc., a dermatological business specializing in skin care products
containing alpha hydroxy acid. This acquisition further strengthened the
Company's North American dermatological presence and provided a substantial
opportunity for international development.
LEKSREDSTVA ACQUISITION: During 1996, the Company acquired its second
pharmaceutical company in Russia with its purchase of a 95% interest in
Leksredstva, headquartered in Kursk. Leksredstva manufactures a broad line of
products including analgesics, antibiotics, cardiovasculars and gastroenterology
related compounds.
POLYPHARM ACQUISITION: During 1996, the Company further enhanced its
presence in Russia with the purchase of a 84% interest in Polypharm, located in
Chelyabinsk. Polypharm manufactures a wide assortment of products including
analgesics, cardiovasculars, antiallergy products, sedatives, antispasmodics,
and anti-infectives. The combined product lines of Polypharm, Oktyabr, and
Leksredstva reflect very little overlap and make ICN Russia one of the largest
pharmaceutical companies operating in Russia today.
SIEMENS ACQUISITION: In July 1996, the Company acquired the radiation
monitoring services division of Siemens Medical Systems, Inc. This acquisition
greatly enhances the current ICN dosimetry business, making it the number two
provider in the U.S. and giving it the critical mass required for international
expansion.
ALKALOIDA ACQUISITION: In September 1996, the Company acquired a 60%
interest in Alkaloida, a pharmaceutical company located in Tiszavasvari,
Hungary. Alkaloida is a major producer of medicinal opiates and morphine, as
well as raw materials used in pharmaceutical manufacturing.
CAPPEL ACQUISITION: In September 1996, the Company acquired the Cappel
Division ("Cappel") of Organon Teknika Corporation. Cappel manufactures and
sells immunochemical reagents used in biotechnology and biomedical laboratories
around the world.
WUXI ACQUISITION: In October 1996, ICN China, Inc., a wholly-owned
subsidiary of the Company, entered into a joint venture agreement with Wuxi
Pharmaceutical Corporation for the production and sale of pharmaceutical
products. The Chinese Joint Venture Entity is 75% owned by ICN China and 25%
owned by Wuxi. The terms and conditions of the joint venture were finalized in
the first quarter of 1997.
6
ITEM 1. BUSINESS-CONTINUED
FOREIGN OPERATIONS
The Company primarily operates in North America, Latin America (principally
Mexico), Western Europe and Eastern Europe. For financial information about
domestic and foreign operations and export sales, see Note 11 of Notes to
Consolidated Financial Statements.
Foreign operations are subject to certain risks inherent in conducting
business abroad, including possible nationalization or expropriation, price and
exchange controls, limitations on foreign participation in local enterprises,
health-care regulation and other restrictive governmental actions. Changes in
the relative values of currencies take place from time to time and may
materially affect the Company's results of operations. Their effects on the
Company's future operations are not predictable. The Company does not currently
provide a hedge on its foreign currency exposure as it is too costly or not
readily available. The current political and economic circumstances in
Yugoslavia create certain risks particular to that country. Between May 1992 and
December 1995, Yugoslavia had been operating under sanctions imposed by the
United Nations which had severely limited the ability to import raw materials
for manufacturing and had prohibited all exports. While the sanctions have been
suspended, certain risks such as hyperinflation, currency devaluations, wage and
price controls and potential government action could have a material adverse
effect on the Company's results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Inflation and
Changing Prices and ICN Yugoslavia".
MARKETING AND CUSTOMERS
The Company has a worldwide marketing and sales staff of approximately
1,900 persons, including sales representatives in North America, Latin America,
Western Europe and Eastern Europe, who promote its pharmaceutical products.
Sales representatives call on physicians, pharmacists, distributors and other
health care professionals. As part of its marketing program for pharmaceuticals,
the Company also uses direct mailings, advertises in trade and medical
periodicals, exhibits products at medical conventions, sponsors medical
education symposia, and sells through distributors in countries where it does
not have its own sales staff.
In the United States, the Company currently promotes its pharmaceutical
products to physicians through its own sales force. These products are
distributed to drug stores and hospitals through wholesalers. In Latin America,
the Company promotes to physicians and distributes products either directly or
indirectly to hospitals and pharmacies. The Company's Spanish and Dutch
subsidiaries promote and sell pharmaceutical products through their own sales
forces to physicians, hospitals, retail outlets, pharmacies and wholesalers. In
other Western European markets, namely the United Kingdom and Germany, sales
forces have been recently established and distribution methods are in transition
as ICN affiliates are formed. In Canada, the Company has its own sales force and
promotes and sells directly to physicians, hospitals, wholesalers, and large
drug store chains.
ICN Yugoslavia sells a broad range of pharmaceutical and other products in
Yugoslavia through approximately 30 wholesalers, 6 sales offices and 85 sales
representatives. In December 1995, the United Nations Security Council adopted a
resolution that suspended economic sanctions imposed on the Federal Republic of
Yugoslavia. The suspension of economic sanctions enabled ICN Yugoslavia to
resume exporting certain of its product lines to Russia, other Eastern European
markets, Africa, the Middle East and the Far East during this past year.
During 1996, approximately 80% of ICN Yugoslavia's domestic sales were to
government sponsored entities of the Federal Republic of Yugoslavia. Future
domestic sales by ICN Yugoslavia could be dependent on the ability of the
Yugoslavian government to continue to subsidize purchases of pharmaceutical
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - ICN Yugoslavia".
7
ITEM 1. BUSINESS-CONTINUED
The research chemical and diagnostic product lines are sold worldwide
primarily through the Company's mail order catalogs, with additional sales being
generated through affiliates and a network of distributors.
RESEARCH AND DEVELOPMENT
The Company's research and development activities utilize the resources
accumulated by the Company and its predecessors in over thirty years of research
involving nucleic acids. In addition, the Company develops a variety of
innovative products targeted to address the specific needs of the Company's
various local markets.
The Company's predecessors include one of the first firms to engage in the
study of analogs of nucleic acid precursors. This effort provided a large
library of compounds which provide a resource for continued evaluation as new
research reveals additional therapeutic opportunities.
LONG-TERM RESEARCH AND DEVELOPMENT
The Company's long-term research and development activities are focused on
the identification and development of novel therapeutic and diagnostic agents
for the treatment of viral diseases, cancer, immunologic dysfunction, diseases
of the skin, hormonal therapy, and cardiovascular diseases.
The Company is engaged in two research areas which both involve nucleic
acids. One area is based on extending the library of nucleoside analogs through
new synthesis and screening efforts. This is a proven approach which led to the
identification of Virazole(R) by the Company and to other nucleoside
therapeutics by other companies. The second area is the use of "antisense"
oligonucleotide technology. This approach seeks to block the undesirable
expression of genetic material in a highly selective way through the
construction of short sequences of nucleotides which uniquely bind and
inactivate the disease-causing genetic material. Both these approaches take
advantage of the Company's knowledge base in nucleic acids.
NEAR AND MEDIUM-TERM RESEARCH AND DEVELOPMENT
The Company's short-term development pipeline includes the registration of
a number of products in regional markets, including, but not limited to, Latin
America and Eastern and Central Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets.
The Company's medium-term research and development pipeline involves the
preclinical and clinical evaluation of certain nucleotide compounds which have
broad market attractiveness and which have shown promise for successful
commercialization (although there can be no assurances that these products will
be commercialized successfully). The majority of these compounds arose from the
nucleic acids programs, but certain other compounds are in development to
broaden the portfolio of the Company. These compounds include:
VIRAZOLE(R) (RIBAVIRIN): A number of small, independent clinical studies
which compared the results of combining Virazole(R) capsules with interferon
alpha versus interferon alpha alone, found enhanced efficacy for the
combination. Based on these clinical findings, the Company entered into an
agreement with Schering whereby Schering assumes responsibility for worldwide
clinical development and registration of oral ribavirin in combination with
their product Intron A (interferon alpha 2b), for the treatment of hepatitis C
virus infections and receives certain geographically exclusive marketing rights.
Phase III clinical trials are underway.
Clinical studies have been performed with Virazole(R) in various
formulations for the treatment of several other viral diseases. Among diseases
for which at least one governmental health regulatory agency, in countries other
than the United States, has approved commercialization of Virazole(R) are herpes
zoster, genital herpes, chicken pox, hemorrhagic fever with
8
ITEM 1. BUSINESS-CONTINUED
renal syndrome, Lassa Fever, measles, influenza and HIV. The Company is
initiating carefully focused clinical studies evaluating the use of Virazole(R)
in the treatment of papilloma virus infections and for early intervention
against RSV infections in persons whose immune defenses are compromised as a
consequence of bone marrow transplantation.
TIAZOLE(TM) (TIAZOFURIN): The Company has maintained an active research
program centered on tiazofurin, which the Company is developing under the
tradename Tiazole(TM). This product is a nucleoside analog demonstrated to cause
inhibition of IMP-dehydrogenase, whose activity is elevated in a number of
cancers. Studies of Tiazole(TM) by independent investigators indicate
significant activity in myelogenous leukemia. The Company is in the process of
conducting Phase II/III evaluation of Tiazole(TM) for use in the treatment of
the late stages of refractory chronic myelogenous leukemia. The Company is also
evaluating Tiazole(TM) for the treatment of ovarian carcinoma.
ADENAZOLE(TM) (8-CL-C-AMP): This nucleotide has been shown to control cell
proliferation and differentiation in certain cancers. Independent investigators
in Italy and Scotland have conducted human trials which indicate significant
utility of this compound. The Company is planning to continue to pursue the
development of Adenazole(TM).
SOMATORELIN (HGRF1-44): Somatorelin is a peptide which causes the synthesis
and release of human growth hormone. The Company believes that somatorelin
offers advantages over treatment with growth hormone. Notable among these
advantages are the induction of a normal daily cycle of growth hormone levels
and the induction of the ability of the body to produce growth hormone, which
should offer significant benefit to patients. The Company is currently
sponsoring Phase III trials in short stature pediatric patients.
A2545: This compound was acquired as part of the 1996 purchase of
Alkaloida. A2545 has a favorable preclinical profile and has shown good activity
in Phase I/II studies for the treatment of irregular heartbeat. The Company is
in the process of extending these studies.
There can be no assurance of the results of the Company's research and
development efforts or the ultimate commercial success of any of the products in
development.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources,
marketing capabilities and larger research and development staffs and
facilities, are actively engaged in marketing products similar to those of the
Company and in developing new products similar to those proposed to be developed
and sold by the Company. Competitive factors vary by product line and customer
and include service, product availability and performance, price and technical
capabilities. The Company does business in an industry characterized by
extensive and ongoing research efforts. Others may succeed in developing
products that are more effective than those presently marketed or proposed for
development by the Company. Progress by other researchers in areas similar to
those being explored by the Company may result in further competitive
challenges.
Competitors of the Company's biomedical research product group include
companies such as Sigma-Aldrich Corporation, Amersham International and New
England Nuclear.
ORDER BACKLOG
As is customary in the pharmaceutical industry, all the Company's products
are sold on an "open order" basis. Consequently, order backlog is not considered
a significant factor.
9
ITEM 1. BUSINESS-CONTINUED
RAW MATERIALS
The Company manufactures pharmaceuticals at 11 facilities. Those facilities
are located in Bryan, Ohio; Mexico City, Mexico (at two locations); Montreal,
Canada; Zoetermeer, The Netherlands; Barcelona, Spain; Belgrade, Yugoslavia; St.
Petersburg, Chelyabinsk and Kursk, Russia; and Tiszavasvari, Hungary. The
Company believes it has sufficient manufacturing capacity to meet its needs for
the foreseeable future. The manufacturing facilities which require good
manufacturing practices ("GMP") approval from the FDA or foreign agencies, have
obtained such approval.
In Bryan, Ohio, the Company manufactures topical and oral dosages of
several pharmaceutical products for the United States market. All of the U.S.
sales of the Company's dermatology products are formulated, packaged and
distributed from the Bryan, Ohio facility. The Bryan, Ohio facility also
packages and distributes Virazole(R) for RSV on a worldwide basis.
At the two facilities in Mexico City, the Company manufactures a variety of
pharmaceuticals in topical, oral and injectable dosage forms to serve the Latin
America market. In Montreal, Canada, the Company manufactures medical devices
units for the administration of Virazole(R) in the treatment of RSV, and other
related medical devices, a variety of topical and oral pharmaceuticals including
a line of generics to serve the Canadian and United States markets and a line of
products using the controlled drug substance morphine for the management of pain
in cancer and post-surgical states. In Spain, the Company manufactures ethical
pharmaceuticals principally for distribution in Spain and Holland. In
Yugoslavia, ICN manufactures over 450 pharmaceutical, veterinary, dental and
other products in topical, oral and injectable forms. At its three manufacturing
sites in Russia, the Company manufactures primarily pharmaceutical products in
oral and injectable forms. In Hungary, ICN manufactures a broad line of products
for the domestic and international market and is one of the foremost producers
of morphine on a worldwide basis.
The Company subcontracts all of the manufacture of bulk ribavirin to third
party suppliers. Most of the finishing and packaging of Virazole(R) is done by
the Company and the balance by third party subcontractors. The capacities
Company believes that capacities of these manufacturers are sufficient to meet
the current demand for Virazole(R).
The Company's biomedical products are primarily manufactured in three
domestic facilities and one foreign facility: Irvine, California
(radiochemicals), Orangeburg, New York (diagnostics and immunobiologicals),
Aurora, Ohio (biochemicals and immunobiologicals) and Eschwege, Germany
(chromatography products).
In general, raw materials used by the Company in the manufacturing of all
of its products are obtainable from multiple sources in the quantities desired.
LICENSES, PATENTS AND TRADEMARKS (PROPRIETARY RIGHTS)
The Company may be dependent on the protection afforded by its patents
relating to Virazole(R) and no assurance can be given as to the breadth or
degree of protection which these patents will afford the Company. The Company
has patent rights in the United States expiring in 1999 relating to the use of
Virazole(R) to treat specified human viral diseases. If future development of
Virazole(R) in combination with interferon is successful and approval granted in
the United States, an additional award of exclusivity should be granted of up to
three years from date of approval (Waxman-Hatch Act). The Company has patents in
certain foreign countries covering use of Virazole(R) in the treatment of
certain diseases which expire at various times through 2006. The Company has no,
or limited, patent rights with respect to Virazole(R) and/or its use in certain
foreign countries where Virazole(R) is currently, or in the future may be,
approved for commercial sale, including France, Germany and Great Britain.
However, it is expected that the Company will be granted a favorable review
classification
10
ITEM 1. BUSINESS-CONTINUED
(Concertation Procedure) for Virazole(R) as a treatment for chronic hepatitis C
in all European Union countries (including France, Germany and Great Britain).
As a result, approval of the application of Virazole(R) for treatment of chronic
hepatitis C (if such approval is granted) could, in the European Union, provide
the Company six or more years of marketing exclusivity, from the date of such
approval of the application, against competitors' application to manufacture,
market or sell generic substitutes of Virazole(R) for treatment of chronic
hepatitis C. There can be no assurance that the loss of the Company's patent
rights with respect to Virazole(R) upon expiration of the Company's patent
rights in the United States, Europe and elsewhere will not result in competition
from other drug manufacturers or will not otherwise have a significant adverse
effect upon the business and operations of the Company. Marketing approvals in
certain foreign countries provide an additional level of protection for products
approved for sale in such countries. As a general policy, the Company expects to
seek patents, where available, on inventions concerning novel drugs, techniques,
processes or other products which it may develop or acquire in the future.
However, there can be no assurance that any patents applied for will be granted,
or that, if granted, they will have commercial value or as to the breadth or the
degree of protection which these patents, if issued, will afford the Company.
Patents for pharmaceutical compounds are not available in certain countries in
which the Company markets its products.
ICN Yugoslavia manufactures and sells three of its top-selling
antibacterial products: Pentrexyl(R), Longaceph(R) and Palitrex(R) under
licenses from Bristol-Myers Squibb, Roche Holding AG and Eli Lilly,
respectively. See "Products".
Many of the names of the Company's products are registered trademarks in
the United States, Yugoslavia, Mexico, Canada, Spain, The Netherlands and other
countries. The Company anticipates that the names of future products will be
registered as trademarks in the major markets in which it will operate. Other
organizations may in the future apply for and be issued patents or own
proprietary rights covering technology which may become useful to the Company's
business. The extent to which the Company, at some future date, may need to
obtain licenses from others is not known.
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by the
FDA, the Nuclear Regulatory Commission, other Federal and state agencies and
comparable foreign governmental agencies.
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by humans. Obtaining FDA
approval for new products and manufacturing processes can take a number of years
and involves the expenditure of substantial resources. To obtain FDA approval
for the commercial sale of a therapeutic agent, the potential product must
undergo testing programs on animals, the data from which is used to file an
Investigational New Drug Application with the FDA. In addition, there are three
phases of human testing. Phase I: safety tests for human clinical experiments,
generally in normal, healthy people; Phase II: expanded safety tests conducted
in people who are sick with a particular disease condition that the drug is
designed to treat; and Phase III: greatly expanded clinical trials to determine
the effectiveness of the drug at a particular dosage level in the affected
patient population. The data from these tests is combined with data regarding
chemistry, manufacturing, and animal toxicology and is then submitted in the
form of an NDA to the FDA. The preparation of an NDA requires the expenditure of
substantial funds and the commitment of substantial resources. The review by the
FDA could take up to several years. If the FDA determines that the drug is safe
and effective, the NDA is approved. No assurance can be given that authorization
for the commercial sale by the Company of any new drugs or compounds for any
application will be secured in the United States or any other country, or that,
if such authorization is secured, those drugs or compounds will be commercially
successful. The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities.
11
ITEM 1. BUSINESS-CONTINUED
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in permitted
price increases in Yugoslavia and Mexico which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
LITIGATION: See Note 7 of Notes to Consolidated Financial Statements for a
description of the Company's litigation.
PRODUCT LIABILITY: The Company could be exposed to possible claims for
personal injury resulting from allegedly defective products. The Company
generally self-insures against potential product liability exposure with respect
to its marketed products, including Virazole(R). While to date no material claim
for personal injury resulting from allegedly defective products, including
Virazole(R), has been successfully maintained against the Company or any of the
Predecessor Companies, a substantial claim, if successful, could have a material
adverse effect on the Company.
ENVIRONMENTAL MATTERS: The Company has not experienced any material impact
on its capital expenditures, earnings or competitive position as a result of
compliance with any laws or regulations regarding the protection of the
environment. The Company believes it is in compliance in all material respects
with applicable laws relating to the protection of the environment. For a
description of environmental exposure related to the Company's acquisition of
Alkaloida Chemical, see Note 7 of Notes to Consolidated Financial Statements.
EMPLOYEES
As of December 31, 1996, the Company employed 12,784 persons, an increase
from 7,880 in 1995. The increase is primarily due to acquiring the controlling
interest in ICN Russia, Kursk, ICN Russia, Chelyabinsk, and ICN Alkaloida. At
year-end, the Company employed 1,901 persons in sales and marketing, an increase
from 1,780 in 1995. Additionally, at year-end, the Company employed 572 in
research and development, 8,633 in production and 1,678 in general and
administrative matters. All of the employees employed by ICN Yugoslavia and ICN
Alkaloida, 1,740 of the employees of ICN Russia, St. Petersburg, 1,250 of the
employees of ICN Russia, Kursk, 99 of the employees of ICN Russia, Chelyabinsk,
222 of the employees of the Company's Mexican subsidiaries, 247 employees of the
Company's Spanish subsidiary and 38 employees of the Company's German subsidiary
are covered by collective bargaining agreements, or similar such agreements.
National labor laws in some foreign countries in which the Company has
substantial operations, including Yugoslavia, Russia and Spain, govern the
amount of wages and benefits paid to employees and establish severance and
related provisions. The Company currently considers its relations with its
employees to be satisfactory and has not experienced any work stoppage or
serious labor problems.
12
ITEM 2. PROPERTIES
The following are the principal facilities of the Company and its
subsidiaries:
OWNED OR SQUARE
LOCATION PURPOSE LEASED FOOTAGE
- -------- ------- ------ -------
Costa Mesa, California Corporate headquarters and administrative offices Owned 178,000
Moscow, Russia Administrative and sales office Leased 8,450
Budapest, Hungary Administrative and sales office Leased 8,740
High Wycombe, United Kingdom Administrative office Leased 5,000
Irvine, California Manufacturing facility Leased 27,000
Orangeburg, New York Manufacturing facility Owned 100,000
Aurora, Ohio Manufacturing and repackaging facility Leased 67,000
Montreal, Canada Offices and manufacturing facility Owned 93,519
Zoetermeer, The Netherlands Offices and manufacturing facility Owned 23,430
Eschwege, Germany Offices and manufacturing facility Owned 13,278
Mexico City, Mexico Offices and manufacturing facility Owned 290,000
Belgrade, Yugoslavia Offices and manufacturing facility Owned 781,000
St. Petersburg, Russia Offices and manufacturing facility Owned 319,102
Kursk, Russia Offices and manufacturing facility Leased 167,791
Chelyabinsk, Russia Offices and manufacturing facility Owned 157,873
Tiszavasvari, Hungary Offices and manufacturing facility Owned 623,489
Barcelona, Spain Offices and manufacturing facility Owned 93,991
Brussels, Belgium Sales Office Leased 6,000
Paris, France Sales Office Leased 3,885
Thame, United Kingdom Offices and warehouse Leased 19,500
Opera, Italy Sales Office and warehouse Owned 153,777
Bryan, Ohio Warehouse and manufacturing facility Owned 37,000
Sydney, Australia Sales Office Leased 10,650
During the third quarter of 1994, ICN Yugoslavia commenced a construction
and modernization program at its pharmaceutical complex outside Belgrade,
Yugoslavia. This program includes the construction of two new pharmaceutical
manufacturing plants (one to produce cephalosporins, which are broad spectrum
penicillin resistant antibiotics and the other to produce steroids and hormones)
and the modernization of the existing facility. It is estimated that this
program will have an aggregate cost of $136,000,000. ICN Yugoslavia intends to
fund their construction and modernization through existing funds and funds from
local operations and locally funded debt.
In the opinion of the Company's management, all facilities occupied by the
Company are adequate for present requirements, and the Company's current
equipment is considered to be in good condition and suitable for the operations
involved.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
See Note 7 of Notes to Consolidated Financial Statements
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company began trading its common stock on the New York Stock Exchange
beginning November 14, 1994, the first trading day after the Merger was
completed and New ICN common stock was approved for listing on the New York
Stock Exchange (Symbol: ICN). Prior to the Merger, SPI common stock was first
listed on NASDAQ (National Association of Securities Dealers Automated Quotation
System) on October 7, 1983 and was subsequently listed on the American Stock
Exchange on July 22, 1988.
The following table sets forth the high and low sales prices of the
Company's common stock on the New York Stock Exchange. During 1995, the Company
issued stock distributions which totaled 5.6%. The market prices set forth below
have been retroactively adjusted for these distributions.
1995 HIGH LOW
---- ---- ---
First Quarter $ 22 7/8 $ 12 1/8
Second Quarter 17 3/8 13 7/8
Third Quarter 24 1/8 15
Fourth Quarter 22 1/8 17 1/4
1996
----
First Quarter 24 1/2 17
Second Quarter 28 21 1/4
Third Quarter 25 20 1/8
Fourth Quarter 20 3/4 17 5/8
As of March 14, 1997, there were 6,598 holders of record of the Company's
common stock.
In 1995, the Company issued the majority of its annual dividend in the form
of stock distributions. Beginning with the first quarter dividend of 1996, the
Board of Directors elected to discontinue the issuances of stock distributions
while increasing its quarterly per share cash dividend to 7.7 cents per quarter
from 7 cents per quarter in 1995, an increase of 10%.
In March 1997, the Company increased its quarterly per share cash dividend
to 8 cents per quarter from 7.7 cents per quarter.
The Board of Directors will continue to review the Company's dividend
policy. The amount and timing of any future dividends will depend upon the
financial condition and profitability of the Company, the need to retain
earnings for use in the development of the Company's business, contractual
restrictions and other factors.
ITEM 6. SELECTED FINANCIAL DATA
Effective November 1, 1994, SPI, ICN and Viratek merged into ICN Merger
Corp., and Biomedicals merged into ICN Subsidiary Corp., a wholly-owned
subsidiary of ICN Merger Corp. In conjunction with the Merger, ICN Merger Corp.
was renamed ICN Pharmaceuticals, Inc. The Merger was accounted for using the
purchase method of accounting. Additionally, for accounting purposes, SPI was
treated as the acquiring company and as a result, the Company has reported the
historic financial data of SPI in its financial results and included the results
of ICN, Viratek and Biomedicals from the effective date of the Merger.
14
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
The following table sets forth certain consolidated financial data for the
five years ended December 31, 1996, 1995, 1994, 1993 and 1992. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements
included elsewhere in this Form 10-K.
(Amounts in thousands, except per share information).
DECEMBER 31
----------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------
Statement of
OPERATIONS DATA:
- ----------------
Net sales(1) $614,080 $507,905 $366,851 $403,957 $476,118
Cost of sales 291,807 206,049 182,946 211,923 208,745
----------------------------------------------------------------
Gross profit 322,273 301,856 183,905 192,034 267,373
Selling, general and
administrative
expenses 192,441 191,459 112,919 134,895 172,395
Royalties to
affiliates, net -- -- 7,468 6,121 5,511
Research and development 15,719 17,231 7,690 11,516 7,836
Purchased research
and development(2) -- -- 221,000 -- --
---------------------------------------------------------------
Income (loss) from operations 114,113 93,166 (165,172) 39,502 81,631
Interest income (3,001) (6,488) (4,728) (8,033) (9,679)
Interest expense 15,780 22,889 9,317 23,750 13,065
Translation and exchange (gains)
losses, net 2,282 (9,484) 191 (3,282) 25,039
---------------------------------------------------------------
Income (loss) before
provision for income
taxes and minority
interest 99,052 86,249 (169,952) 27,067 53,206
Provision (benefit) for
income taxes (6,815) 2,997 10,360 5,368 9,095
Minority interest 18,939 15,915 3,269 189 9,608
---------------------------------------------------------------
Net income (loss) $ 86,928 $67,337 $(183,581) $ 21,510 $ 34,503
===============================================================
PER SHARE INFORMATION: (3)
- --------------------------
Net income (loss) $ 2.40 $ 2.20 $ (7.93) $ .99 $ 1.61
===============================================================
Common shares used in computation(3) 34,919 30,623 23,138 21,746 21,413
===============================================================
Cash dividends paid $ .23 $ .28 $ .26 $ .24 $ .74
===============================================================
Historical dividends declared(4) $ .31 $ 1.26 $ 1.19 $ 1.12 $ 1.06
===============================================================
BALANCE SHEET DATA:
- -------------------
Working capital $306,764 $190,802 $137,802 $127,259 $120,942
Total assets 778,651 518,298 441,473 302,017 333,218
Long-term debt 176,489 154,193 195,181 16,980 21,016
Stockholders' equity 315,350 162,172 88,908 155,879 135,427
See accompanying notes to Selected Financial Data.
15
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
NOTES TO SELECTED FINANCIAL DATA:
(1) ICN Yugoslavia's sales have been adversely affected since the imposition in
May 1992 of United Nations sanctions on Yugoslavia, suspended in December
1995.
(2) The Merger resulted in $221,000,000 or $9.55 per share being ascribed to
purchased research and development for which no alternative use existed and
was written-off immediately. This write-off was a one-time, non-cash charge
and is not related to the Company's ongoing research and development
activities for Virazole(R). Net income, excluding this one-time, non-cash
write-off, was $37,419,000 or $1.62 per share in 1994.
(3) In January 1993, SPI issued a fourth quarter 1992 stock dividend of 2%.
During 1993, SPI issued additional stock dividends which totaled 6%. During
1994, SPI and the Company issued additional stock dividends and
distributions which totaled 4.8%. During 1995, the Company issued quarterly
stock distributions which totaled 5.6%. All share and per share amounts
have been restated to reflect these stock dividends and distributions,
except for historical dividends issued which are unadjusted for stock,
dividends and distributions.
(4) On a historical basis, dividends for 1996 equaled cash distributions of
$.31, including the fourth quarter dividend declared on January 31, 1997 of
$.077 per share. Dividends for 1995 include cash distributions of $.28 on a
historical basis and stock distributions of $.98. Dividends for 1994
include cash dividends of $.26 on a historical basis and stock dividends
and distributions of $.93. Dividends for 1993 include cash dividends of
$.25 on a historical basis and stock dividends equivalent to $.87. The
dividends in 1992 include cash dividends of $.86 on a historical basis and
stock dividends equivalent to $.20 per share. The stock dividends and
distributions are based upon the market value of SPI's and the Company's
common stock at the declaration date.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Prior to November 1994, the ICN group of companies included a
pharmaceuticals products company, SPI Pharmaceuticals, Inc. ("SPI"); a research
products company, ICN Biomedicals, Inc. ("Biomedicals"); a research and
development company, Viratek, Inc. ("Viratek"); and the parent company, ICN
Pharmaceuticals, Inc. ("ICN"). Until November 1, 1994, the effective date of the
Merger, ICN maintained a controlling interest in the subsidiary companies.
Effective November 1, 1994, SPI, ICN and Viratek merged into ICN Merger
Corp., and Biomedicals merged into ICN Subsidiary Corp., a wholly-owned
subsidiary of ICN Merger Corp. (the "Merger"). In conjunction with the Merger,
ICN Merger Corp. was renamed ICN Pharmaceuticals, Inc. The Merger was accounted
for using the purchase method of accounting. Additionally, for accounting
purposes, SPI was treated as the acquiring company and as a result, the Company
has reported the historical financial data of SPI in its financial results and
the results of ICN, Viratek and Biomedicals have been included with the results
of the Company since the effective date of the Merger.
As part of the Merger, the Company issued approximately 6,476,770 common
shares valued on November 10, 1994 at $20.75 per share, which was the publicly
traded price for SPI's common shares at that date. Accordingly, the purchase
price, including direct acquisition costs of $3,654,000, has been allocated to
the estimated fair value of the net assets, including amounts ascribed to
purchased research and development costs for which no alternative use existed of
$221,000,000 or $9.55 per share, which was written-off to operations immediately
following the consummation of the Merger. Net income, excluding this one-time,
non-cash write-off, was $37,419,000 or $1.62 per share in 1994.
The Merger resulted in the acquisition of a biomedical business with
pre-merger annual sales of approximately $58,000,000, direct access to Viratek's
research and development resources including its scientific expertise,
substantial tax net operating loss carryforwards and the elimination of royalty
payments to Viratek on the sales of Virazole(R).
RESULTS OF OPERATIONS
For financial reporting purposes, the Company's operations are divided into
two business segments, the Pharmaceutical segment and the Biomedical segment.
Certain financial information for the two business segments is set forth below.
This discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this document. For
additional financial information by business segment, see Note 11 of Notes to
Consolidated Financial Statements.
1996 1995 1994
---- ---- ----
NET SALES (IN THOUSANDS)
- ------------------------
Pharmaceutical.............. $ 549,753 $ 446,566 $ 357,821
Biomedical.................. 64,327 61,339 9,030
---------- ----------- -----------
Total Company............... $ 614,080 $ 507,905 $ 366,851
========== =========== ===========
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
NET SALES: Eastern Europe was the major contributor for sales growth in
1996. Pharmaceutical net sales in Eastern Europe for the year ended December 31,
1996 were $355,415,000 compared to $254,961,000 for the same period in 1995. The
increase of $100,454,000 or 39% reflects an active expansion program that
includes three acquisitions in 1996. In Russia, the Company acquired and began
consolidating Leksredstva in the second quarter which added $21,068,000 of sales
and in the third quarter it acquired and began consolidating Polypharm which
added $7,397,000 of sales. In Hungary, the Company acquired and began
consolidating Alkaloida in the fourth quarter which added $21,461,000 of sales.
Sales at ICN Oktyabr in Russia have increased $18,023,000 due to price and
volume increases and the inclusion of a full twelve months of activity this year
compared to three quarters of ICN Oktyabr sales in 1995. During 1996, ICN
Yugoslavia has been recovering from the effects of a November 1995 devaluation.
Net sales at ICN Yugoslavia amounted to $267,166,000 in 1996, an increase of
$32,505,000 or 14% over the previous year, primarily due to higher prices
partially offset by currency fluctuations due to the impact of the 1995
devaluation. With the lifting of United Nations sanctions, ICN Yugoslavia was
able to begin exporting in 1996, which contributed $20,227,000 of sales. See
discussion regarding ICN Yugoslavia at "Management's Discussion and Analysis of
Financial Condition and Results of Operations - ICN Yugoslavia".
Pharmaceutical net sales in Eastern Europe for the year ended December 31,
1995 were $254,961,000 compared to $172,124,000 for the same period in 1994. The
increase of $82,837,000 or 48% is primarily due to increased sales of
$62,537,000 or 36% at ICN Yugoslavia due to improved unit sales and favorable
price increases for the year compared to 1994. Also contributing to the increase
in sales in 1995 compared to the previous year were the sales of $20,300,000
contributed by the second quarter 1995 acquisition of ICN Oktyabr.
Pharmaceutical net sales in North America for the year ended December 31,
1996 were $106,442,000 compared to $109,505,000 for the same period in 1995. The
decrease of $3,063,000 or 3% reflects a decrease in unit sales of Virazole(R) in
the amount of $22,393,000, partially offset by an increase in unit sales
primarily in the dermatological, medicinal, and myasthenia gravis product lines.
Virazole(R) is used in aerosol form to treat infants hospitalized with severe
respiratory infection caused by respiratory syncytial virus ("RSV") and is the
only antiviral therapeutic for this infection. RSV is a seasonal illness which
occurs primarily in late fall through early spring. Early in the 1995/1996
season, the number of hospital admissions and positive cultures for RSV
suggested a heavy incidence of infection. However, the severity of infection in
this season was not as high as the prior seasons nor as heavy as such earlier
evidence indicated resulting in a lower hospital demand for Virazole(R) and
consequently an increased level of inventory at the wholesale level. The
increased wholesale inventory levels combined with trends in the industry toward
managed health care during the first part of the 1996/1997 season adversely
impacted total 1996 Virazole(R) sales despite additional sales promotional
efforts which included more favorable credit terms and sales discounts.
Additionally, sales of Virazole(R) may have been (and may continue to be)
affected by a January 1996 change in the American Academy of Pediatrics
guidelines for the use of Virazole(R) in RSV from "should be used" to "may be
considered". Future sales may also be impacted by the severity of the next RSV
season and the increased level of inventory still remaining at the wholesale
level as well as by a recently approved product designed to prevent RSV. Sales
of Virazole(R) in the first quarter of 1997 are expected to be negligible
compared to $8,100,000 in the first quarter of 1996. Due to the fact that RSV is
a seasonal disease, Virazole(R) sales from year to year are subject to the
incidence and severity of the disease which cannot be predicted with certainty.
Pharmaceutical net sales in North America for the year ended December 31,
1995 were $109,505,000 compared to $92,112,000 for the same period in 1994, an
increase of $17,393,000 or 19%. Unit sales of virtually all pharmaceutical
products increased in the United States in 1995. Sales of Virazole(R) increased
to $44,768,000 in 1995 from $35,868,000 in 1994, an increase of 25%.
Prescription dermatologicals increased to $22,769,000 in 1995 from $18,437,000
in 1994, an increase of 24%.
Pharmaceutical net sales in Western Europe for the year ended December 31,
1996 were $35,826,000 compared to $37,226,000 in 1995. The decrease of
$1,400,000 or 4% reflects primarily a decline in vision care sales in Holland
and decline in other pharmaceutical sales, partially offset by an increase in
Virazole(R) sales.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Pharmaceutical sales in Western Europe rose to $37,226,000 in 1995 from
$28,949,000 in 1994. This increase in net sales of 29% is primarily a result of
strong unit sales of Calcitonina (calcitonin) for osteoporosis and
Huberdoxina(TM), an antibiotic in Spain. In addition, expanded resources were
used to promote Virazole(R) sales in Western Europe for the 1995/1996 RSV season
contributing to an increase in net sales of $2,151,000.
Pharmaceutical net sales in Latin America for the year ended December 31,
1996 were $47,359,000 compared to $41,984,000 for the same period in 1995, an
increase of $5,375,000 or 13%. Such increases were primarily due to price
increases, partially offset by a small decrease in unit sales and currency
exchange fluctuations. Pharmaceutical net sales in Latin America decreased to
$41,984,000 in 1995 from $56,393,000 in 1994, a decrease of 26%. In 1995, sales
were negatively impacted by inflation and the devaluation of the Mexican peso.
The biomedicals business had net sales for 1996 of $64,327,000 compared to
$61,339,000 in 1995, an increase of $2,988,000 or 5%. This increase is primarily
due to the effect of the additional sales of diagnostic products acquired from
Becton-Dickinson in May 1995 of $1,837,000 and additional Dosimetry sales
resulting from the acquisition of the former Siemens Dosimetry Service in July
1996 of $446,000, which were partially offset by a decrease in Instrument sales
of approximately $4,423,000 resulting from the sale of the instrument business
division in March 1996.
Biomedicals net sales for 1995 of $61,339,000, were $4,612,000 or 8% higher
than 1994 net sales of $56,727,000, assuming the Merger occurred on January 1,
1994, primarily due to the additional sales of diagnostic products acquired from
Becton-Dickinson in 1995.
GROSS PROFIT: Gross profit as a percentage of sales was 52% for 1996
compared to 59% for 1995. The decrease in gross profit margins is primarily due
to a decrease in gross margins at ICN Yugoslavia reflecting the impact of the
November 1995 devaluation which was partially offset by an 83% price increase in
December 1995 and a 30% price increase in April 1996. Typically, sales made
subsequent to a devaluation are lower due to higher exchange rates and a lack of
sufficient price increases while the cost of sales for inventory manufactured
prior to the devaluation is expensed at a higher historical exchange rate.
Margins will begin to improve after a devaluation if price increases are
obtained and when older, higher priced inventory is replaced with inventory
manufactured after the devaluation. ICN Yugoslavia's gross margins for the
first, second, third and fourth quarters of 1996 were 29%, 37%, 43% and 53%,
respectively. Additionally, the gross profit margin of the newly acquired
companies of Leksredstva, Polypharm and Alkaloida, 36%, 36% and 22%,
respectively, also contributed to the relative decline. The gross profit margin
in the Company's operating units outside of Eastern Europe remained consistent
with 1995 at 69%.
Gross profit as a percentage of sales was 59% for 1995 compared to 50% for
1994. The increase in gross profit was primarily due to improved unit costs at
ICN Yugoslavia where gross profit margins increased to 50% in 1995 from 29% in
1994. During 1993, the unit cost of inventory had risen due to higher material
prices resulting from the economic conditions that existed in Yugoslavia. This
higher priced inventory is reflected in cost of sales for 1994 and in 1995 was
replaced with inventory having a lower unit cost, as a result of an improved
economic environment in Yugoslavia and higher production levels. The gross
profit margin in the Company's operating units, other than ICN Yugoslavia,
decreased to 67% in 1995 from 69% in 1994 due primarily to a full year impact of
biomedical sales in 1995 compared to two months of biomedical sales in 1994. The
biomedical business gross profit margins were 56% compared to the pharmaceutical
business gross profit margins, excluding ICN Yugoslavia, of 71%.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $192,441,000 or 31% of sales in 1996 compared to
$191,459,000 or 38% in 1995. For 1996, these costs reflect decreasing expenses
primarily at ICN Yugoslavia principally due to differences in exchange rates of
the Yugoslavian dinar in 1996 compared to 1995 and lower level of expenditures.
Offsetting such decrease are increases in selling, general and administrative
expenses in North America and Western Europe due to expanded marketing efforts
in these regions and a charge of $3,500,000 related to the settlement of a
commercial dispute and a penalty imposed by the Canadian Patent Price Review
Board. Additionally, the new Eastern European acquisitions contributed
$4,504,000 of expenses in 1996.
Under the Exclusive License and Supply Agreement with a subsidiary of
Schering Plough Corporation ("Schering") to develop Virazole(R) for the
treatment of hepatitis C, the Company retains the right to co-market in the
countries of the European Economic Community. The Company expects to incur
significant pre-launch marketing expenses over the next two years. These efforts
may cause the ratio of selling, general and administrative expenses to sales to
increase during this period of time resulting from additional expenses without
immediate incremental revenues.
Selling, general and administrative expenses were $191,459,000 or 38% of
sales in 1995 compared to $112,919,000 or 31% of sales in 1994. This increase
was primarily due to higher operating expenses at ICN Yugoslavia resulting from
inflationary pressures and the impact of a full year of biomedical operations in
1995 compared to two months of biomedical operations in 1994. The biomedical
selling, general and administrative expenses as a percentage of sales were 46%
compared to 29% for the pharmaceutical business.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs decreased
$1,512,000 in 1996 compared to 1995. Such decrease occurred primarily at ICN
Yugoslavia and is principally due to differences in exchange rates of the
Yugoslavian dinar. The increase in research and development costs, excluding the
write-off of purchased research and development of $221,000,000 in 1995 compared
to 1994 of $9,541,000, is primarily due to the acquisition of the Viratek
research programs in the Merger and increased spending at ICN Yugoslavia.
TRANSLATION AND EXCHANGE GAINS AND LOSSES, NET: Foreign exchange losses,
net, in 1996 were $2,282,000 compared to foreign exchange gains, net, of
$9,484,000 in 1995. For the year ended December 31, 1996, ICN Yugoslavia's and
ICN Oktyabr's translation losses were $4,290,000 and $1,033,000, respectively,
which related to changes in local currency and its impact on their net monetary
asset position. Partially offsetting these losses were translation gains of
$3,276,000 related to the Company's foreign denominated debt.
Foreign exchange gains, net, in 1995 were $9,484,000 compared to foreign
exchange losses, net, of $191,000 in 1994. Foreign exchange gains at ICN
Yugoslavia of $12,063,000 in 1995 related to exchange rate fluctuations of the
dinar and a devaluation of the dinar on November 24, 1995 (See "Management's
Discussion and Analysis of Financial Condition and Results of Operation - ICN
Yugoslavia") which was partially offset by foreign exchange losses of $2,688,000
on the Company's foreign denominated debt.
INTEREST EXPENSE: The decrease in interest expense in 1996 compared to 1995
of $7,109,000 is primarily due to the effect of the retirement of $34,160,000 of
the Company's 12 7/8% Sinking Fund Debentures during 1995 and the capitalization
of interest related to plant construction at ICN Yugoslavia. For the year ended
1996, the Company capitalized $3,770,000 compared to $1,978,000 in 1995.
The increase in interest expense in 1995 compared to 1994 of $13,752,000 is
primarily due to interest expense on additional debt assumed in the Merger and
the issuance of $115,000,000 Convertible Notes in November 1994, the proceeds of
which were used to pay a portion of the debt assumed in the Merger.
Additionally, the weighted average interest rate on short-term borrowings
increased to 58% in 1995 compared to 9% in 1994. This increase reflects a
hyperinflationary 66% average short-term borrowing rate at ICN Yugoslavia in
1995 compared to a stabilized rate of 9.5% in 1994.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
INCOME TAXES: The Company's effective income tax rate was (7%), 3% and 6%
for 1996, 1995 and 1994, respectively. The Company operates in many regions
where the tax rate is low or it benefits from a tax holiday. In Yugoslavia, the
Company benefited from tax credits arising from the acquisition of ICN
Yugoslavia and in Russia the tax rate was low due to special tax relief afforded
to pharmaceutical companies. In 1996, the Company recorded a tax benefit of
$6,815,000 primarily resulting from the favorable outcome of tax audits and the
tax benefit from the Company's current year tax loss in the U.S which was
carried back to prior tax years resulting in the recovery of taxes previously
paid. This trend of low tax rates may not continue in the future. The special
tax relief for Russia applied to only 1996.
In 1995, the Company benefited from a devaluation of ICN Yugoslavia's tax
liability balances, utilization of construction tax credits in Yugoslavia and
the revaluation of the Company's deferred tax assets. The Company's effective
tax rate of 6% in 1994 was significantly different than the expected United
States statutory rate of 35% due to the write-off of purchased research and
development related to the Merger for which there is no related tax benefit.
In 1997, certain tax benefits that were acquired in the acquisition of ICN
Yugoslavia will expire. The expiration of these tax benefits will raise the
overall effective tax rate for ICN Yugoslavia. However, this increase may be
partially offset by tax credits provided by Yugoslavia for plant construction.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in 1996 was $25,548,000, reflecting the
effect of increased levels of accounts receivable of $181,726,000 primarily at
ICN Yugoslavia and North America, partially offset by a decrease in inventory
levels of $43,306,000 primarily at ICN Yugoslavia. The increase in accounts
receivable at ICN Yugoslavia of $136,571,000 relates to increasing sales and the
lengthening of the collection period of receivables resulting from the lack of
availability of dinars in Yugoslavia. See Management's Discussion and Analysis
of Financial Condition and Results of Operations - ICN Yugoslavia for expanded
discussion regarding liquidity at ICN Yugoslavia. Additionally, the level of
accounts receivable at December 31, 1995 was relatively low due to the
devaluation in November 1995, the postponement of sales in anticipation of a
December price increase and the effect of actions to reduce its overall monetary
exposure. Cash provided by operations in 1995 was $79,326,000. Included in cash
from operations for 1995 is an advance payment from Schering of $23,000,000
related to the use of Virazole(R) for the treatment of hepatitis C and cash
payments used for increased inventory levels at ICN Yugoslavia of $23,336,000.
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "Agreement") and a Stock Purchase Agreement with Schering to
license the Company's proprietary anti-viral drug ribavirin as a treatment for
chronic hepatitis C in combination with Schering's alpha interferon. The
Agreement provided the Company an initial non-refundable payment by Schering of
$23,000,000 and future royalty payments to the Company for marketing of the
drug, including certain minimum royalty rates. Schering will have exclusive
marketing rights for ribavirin for the treatment of hepatitis C worldwide,
except that the Company will retain the right to co-market in the countries of
the European Economic Community. In addition, Schering will purchase up to
$42,000,000 in common stock of the Company upon the achievement of certain
regulatory milestones. Under the Agreement, Schering is responsible for all
clinical developments worldwide.
The $23,000,000 non-refundable payment was recorded by the Company as
prepaid royalty income of $10,000,000, a license fee of $8,000,000 and a
liability to Schering for certain cost sharing agreements of $5,000,000. The
prepaid royalty is being amortized to income based upon future sales of the
product and the license fee is being amortized on a straight line basis to
income over the exclusive period of the Agreement, fifteen years.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Cash used in investing activities decreased $5,063,000 to $41,962,000. The
Company reduced its level of capital expenditures by $23,477,000 compared to
1995, primarily at ICN Yugoslavia, where the Company has an on-going plant
expansion program. However, as a result of certain liquidity problems in
Yugoslavia, the Company made a decision to reduce its 1996 capital expenditures.
While the capital expenditures related to this expansion were substantially
lower in 1996 compared to 1995, the estimated cost of completing this project is
approximately $100,000,000, with a planned completion date in 2000. From the
beginning of the project in 1994, ICN Yugoslavia has expended $52,360,000. ICN
Yugoslavia intends to fund this program through existing funds and funds
generated from local operations and locally funded debt.
Additionally, $51,222,000 was used in 1996 for acquisitions primarily in
Eastern Europe and the United States which was partially offset by the sale of
marketable securities of $27,663,000.
Cash provided by financing activities was $82,680,000. Included in 1996 are
$32,842,000 and $47,392,000 of net proceeds from the issuance of common stock
and preferred stock, respectively, primarily used to fund acquisitions in the
United States and Eastern Europe and working capital, $10,167,000 of proceeds
from the exercise of stock options partially offset by payment of short term and
long term debt of $42,288,000 and $6,999,000 of dividends paid.
In 1995, cash used by financing activities includes the early retirement of
the 12 7/8% Sinking Fund Debentures of $34,160,000 and a reduction of notes
payable, collateralized by marketable securities, of $8,103,000. In 1995, the
Company sold common stock in the amount of $5,753,000 of which approximately
$3,000,000 of the proceeds were utilized to purchase the radioimmunoassay
product line from Becton-Dickinson and the remainder utilized for working
capital purposes.
PRODUCT LIABILITY: In December 1985, the Company discontinued product
liability insurance in the United States. 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 material adverse effect on the Company's liquidity and financial
performance. See Note 7 of Notes to Consolidated Financial Statements.
DEMANDS ON LIQUIDITY: Management believes that funds generated from
operations will be sufficient to meet its normal operating requirements during
the coming year. The Company's recent acquisitions in Hungary, Russia and China
will require $23,000,000 of cash in 1997. Also, if the historic rate of growth
in Eastern Europe continues, these operations will require increasing levels of
working capital and funds for additional facilities or upgrading of existing
facilities. Additionally, the Company has several preliminary acquisition
prospects that may require significant funds in 1997. Management believes that
funds generated from operations will not be sufficient for all of these needs
and will seek refinancing of existing short term debt, some of which was assumed
in the 1996 acquisitions, and additional financing through debt or equity
issues, although there can be no assurance that the Company can raise additional
funds.
INFLATION AND CHANGING PRICES: 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 certain instances, materially
affect the Company's results of operations. The effect of these risks remains
difficult to predict.
During the last three years, the cumulative inflation rate in Mexico has
exceeded 100%. Starting in 1997, the Company will begin translating the
financial statements of its operations in Mexico using accounting methods that
apply to hyperinflationary economies. At December 31, 1996, Mexico had a net
monetary asset position of $7,459,000 which would be subject to loss if a
devaluation were to occur.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The Company is subject to foreign currency risk on its foreign denominated
debt of $19,134,000, which is primarily denominated in Swiss francs, at December
31, 1996 and to devaluation losses on net monetary assets positions in
Yugoslavia and Russia. See "ICN Yugoslavia" below and Note 13 of Notes to
Consolodated Financial Statements for further discussion. At December 31, 1996,
the net monetary asset position of the Company's Russian operations was
$9,744,000 which would be subject to a loss if a devaluation were to occur.
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 has been affected by the lag in
allowed price increases in Yugoslavia and Mexico, which has created lower sales
in U.S. dollars and reductions in gross profit. Future sales and gross profit
could be materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation. From a global perspective the Russian
pharmaceutical market and the United States market are unique in that
pharmaceutical prices are not heavily regulated by the government.
ICN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary, operates in a business environment
that is subject to significant economic volatility and political instability.
The current economic trend in Yugoslavia is toward unfavorable economic
conditions that includes continuing liquidity problems, inflation and monetary
exposures, potential devaluation, government spending limitations, credit risk,
political instability, sanctions and price controls. The future of the economic
and political environment of Yugoslavia is uncertain and could deteriorate to
the point that a material adverse impact on the Company's financial position and
results of operations could occur.
The Company is pursuing actions to reduce its monetary exposure. These
actions include converting $50,000,000 of dinar denominated receivables from the
government into a one year note, with interest at LIBOR plus 1%. The note would
be in dinars equivalent to $50,000,000 at the time of payment. The Company is
currently seeking to convert an additional $50,000,000 of receivables into a one
year note payable in dinars equivalent to $50,000,000.
Yugoslavia is subject to political instability. With Presidential and
parliamentary elections taking place later in 1997 and with the potential for
continued economic deterioration, political instability may continue. Management
believes that the 1997 elections may result in political change that would lead
to economic reform.
Management believes that economic reform and privatization is necessary
before the Yugoslavian economy will improve. The lifting of sanctions has
provided opportunities to export outside of Yugoslavia; however, Yugoslavia has
not fully recovered the international status it held before sanctions. The
Yugoslavian government is still negotiating to regain membership in the
International Monetary Fund and World Bank.
For additional information and expanded discussion regarding the impact of
ICN Yugoslavia, see Note 13 of Notes to Consolidated Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 on the computation
and presentation of earnings per share ("EPS"). SFAS No. 128 simplifies the
computation for and replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
face of the income statement. The statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods, and requires restatement of all prior period earnings per share data
presented. Earlier application is not permitted. The Company will implement the
accounting standard beginning with its annual financial statements for the year
ended December 31, 1997.
"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995.
This Annual Report on Form 10-K 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 Annual
Report on Form 10-K 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 Annual Report on Form 10-K 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, price and exchange control,
limitations on foreign participation in local enterprises, health-care
regulations and other restrictive governmental conditions); the risk of
operations in Yugoslavia, Eastern Europe, Russia and China in light of the
unstable economies, political and regulatory conditions in such countries; the
Company's ability to successfully develop and commercialize future products; the
limited protection afforded by the patents relating to Virazole(R), and possibly
on future drugs, techniques, processes or products the Company may develop or
acquire; the Company's ability to continue its expansion plan and to integrate
successfully any acquired companies; the results of lawsuits pending against the
Company; the Company's dependence on its management, including Milan Panic, its
Chairman and Chief Executive Officer; 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.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of quarterly financial data for the years ended
December 31, 1996 and 1995 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
Net sales $ 138,162 $ 143,746 $ 157,917 $ 174,255
Gross profit 70,134 71,439 87,402 93,298
Net income 22,003 14,893 20,835 29,197
Net income per share - primary $ .65 $ .42 $ .60 $ .74
Net income per share - fully diluted $ .64 $ .41 $ .59 $ .69
1995
- ----
Net sales $ 132,243 $ 128,773 $ 137,503 $ 109,386
Gross profit 77,927 72,398 83,972 67,559
Net income 17,034 13,894 16,933 19,476
Net income per share(1) - primary $ .57 $ .44 $ .52 $ .61
Net income per share(1) - fully diluted $ -- $ .43 $ .51 $ .59
(1) Net income per share has been restated to reflect quarterly stock dividends
and distributions totaling 5.6% during 1995.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 1996
Report of independent accountants ........................................ 26
Financial statements:
Consolidated balance sheets at December 31, 1996 and 1995.............. 27
For the years ended December 31, 1996, 1995 and 1994:
Consolidated statements of income...................................... 28
Consolidated statements of stockholders' equity........................ 29
Consolidated statements of cash flows.................................. 30
Notes to consolidated financial statements............................. 31
Schedule supporting the consolidated financial statements for the
years ended December 31, 1996, 1995 and 1994:
II.-- Valuation and qualifying accounts................................ 60
The other schedules have not been submitted because they are not
applicable.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and stockholders
of ICN Pharmaceuticals, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of ICN Pharmaceuticals, Inc. (a Delaware corporation,
formerly SPI Pharmaceuticals, Inc.) and Subsidiaries listed in the index on page
25 of this Form 10-K. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 13 to the financial statements, as of December 31,
1996, the Company has net monetary assets of $134,000,000 at ICN Yugoslavia
which would be subject to foreign exchange loss if a devaluation of the
Yugoslavian dinar were to occur.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ICN Pharmaceuticals, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 4, 1997
27
ICN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
1996 1995
---- ----
Current Assets:
Cash and cash equivalents $ 39,366 $ 24,094
Restricted cash 552 538
Marketable securities -- 27,536
Receivables, net 258,531 68,513
Inventories, net 120,973 138,756
Prepaid expenses and other current assets 24,979 24,179
------------ -----------
Total current assets 444,401 283,616
Property, plant and equipment (at cost), net 234,209 172,487
Deferred taxes, net 34,334 34,692
Other assets 32,230 21,828
Goodwill and intangibles, net 33,477 5,675
------------ -----------
$ 778,651 $ 518,298
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 62,049 $ 33,402
Accrued liabilities 55,383 39,031
Notes payable 13,231 4,426
Current portion of long-term debt 5,961 7,650
Income taxes payable 1,013 8,305
------------ -----------
Total current liabilities 137,637 92,814
Long-term debt, less current portion:
Convertible into common stock 130,941 140,951
Other long-term debt 45,548 13,242
Deferred license and royalty income 13,850 15,139
Other liabilities 15,622 31,444
Minority interest 96,583 62,536
Common stock subject to Put Agreement,
1,065 shares 23,120 --
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000 shares
authorized; 50 shares of Series B issued and
outstanding at December 31, 1996 ($50,000
liquidation preference) 1 --
Common stock, $.01 par value; 100,000 shares
authorized; 33,422 and 30,420 shares issued
and outstanding at December 31, 1996 and 1995,
respectively (including shares subject to
Put Agreement) 324 304
Additional capital 368,187 290,106
Retained deficit (25,915) (105,844)
Foreign currency translation adjustment (27,247) (22,624)
Unrealized gain on marketable securities -- 230
------------ -----------
Total stockholders' equity 315,350 162,172
------------ -----------
$778,651 $ 518,298
============ ===========
The accompanying notes are an integral part of these consolidated statements.
28
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994
---- ---- ----
Net sales $ 614,080 $ 507,905 $ 366,851
Cost of sales 291,807 206,049 182,946
----------- ----------- -----------
Gross profit 322,273 301,856 183,905
Selling, general and administrative expenses 192,441 191,459 112,919
Royalties to affiliates, net -- -- 7,468
Research and development costs 15,719 17,231 7,690
Write-off of purchased research
and development -- -- 221,000
----------- ----------- -----------
Income (loss) from operations 114,113 93,166 (165,172)
Translation and exchange (gain) loss, net 2,282 (9,484) 191
Interest income (3,001) (6,488) (4,728)
Interest expense 15,780 22,889 9,317
----------- ----------- -----------
Income (loss) before provision (benefit) for
income taxes and minority interest 99,052 86,249 (169,952)
Provision (benefit) for income taxes (6,815) 2,997 10,360
Minority interest 18,939 15,915 3,269
----------- ----------- -----------
Net income (loss) $ 86,928 $ 67,337 $ (183,581)
=========== =========== ===========
Primary:
Net income (loss) per share $ 2.40 $ 2.20 $ (7.93)
=========== =========== ===========
Common shares used in computation 34,919 30,623 23,138
=========== =========== ===========
Fully Diluted:
Net income per share $ 2.27 $ 2.19
=========== ===========
Common shares used in computation 40,138 37,981
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
29
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS), EXCEPT PER SHARE DATA)
FOREIGN UNREALIZED GAIN
RETAINED CURRENCY (LOSS) ON
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS TRANSLATION MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENTS SECURITIES TOTAL
------ ------ ------ ------ ------- --------- ----------- ----------- -----
BALANCE AT DECEMBER 31, 1993 -- $ -- 20,101 $ 202 $ 91,449 $ 70,973 $ (6,745) $ -- $ 155,879
Exercise of stock options -- -- 80 1 587 -- -- -- 588
Translation adjustments -- -- -- -- -- -- (9,964) -- (9,964)
Tax benefit of stock options
exercised -- -- -- -- 134 -- -- -- 134
Stock issued in Merger -- -- 6,477 65 134,328 -- -- -- 134,393
Net unrealized loss on
marketable securities -- -- -- -- -- -- -- (3,432) (3,432)
Shares issued as employee
compensation -- -- 70 1 1,090 -- -- -- 1,091
Cash dividend ($.26 per share) -- -- -- -- -- (6,181) -- -- (6,181)
Effect of 1994 quarterly stock
dividends and distributions -- -- 832 8 17,410 (17,437) -- -- (19)
Effect of stock distribution
declared in March 1995 -- -- 468 5 6,715 (6,720) -- -- --
Net loss -- -- -- -- -- (183,581) -- -- (183,581)
---------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 -- -- 28,028 282 251,713 (142,946) (16,709) (3,432) 88,908
Exercise of stock options -- -- 503 4 3,698 -- -- -- 3,702
Translation adjustments -- -- -- -- -- -- (5,915) -- (5,915)
Issuance of common stock in
connection with acquisitions -- -- 715 7 11,073 -- -- -- 11,080
Net unrealized gain on
marketable securities -- -- -- -- -- -- -- 3,662 3,662
Tax benefit of stock options
exercised -- -- -- -- 1,300 -- -- -- 1,300
Cash dividends ($.28 per share) -- -- -- -- -- (7,902) -- -- (7,902)
Effect of 1995 quarterly stock
distributions -- -- 1,174 11 22,322 (22,333) -- -- --
Net income -- -- -- -- -- 67,337 -- -- 67,337
-----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 -- -- 30,420 304 290,106 (105,844) (22,624) 230 162,172
Exercise of stock options -- -- 868 9 10,158 -- -- -- 10,167
Translation adjustments -- -- -- -- -- -- (4,623) -- (4,623)
Issuance of preferred stock 50 1 -- -- 47,391 -- -- 47,392
Issuance of common stock in
connection with acquisitions -- -- 357 4 6,841 -- -- -- 6,845
Issuance of common stock -- -- 712 7 12,091 -- -- 12,098
Net unrealized gain on
marketable securities -- -- -- -- -- -- -- (230) (230)
Tax benefit of stock options
exercised -- -- -- -- 1,600 -- -- -- 1,600
Cash dividends ($.23 per share) -- -- -- -- -- (6,999) -- -- (6,999)
Net income -- -- -- -- -- 86,928 -- -- 86,928
----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 50 $ 1 32,357 $ 324 $ 368,187 $ (25,915) $(27,247) -- $315,350
==============================================================================================
The accompanying notes are an integral part of these consolidated statements.
30
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 86,928 $ 67,337 $ (183,581)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,292 13,814 9,248
(Decrease) increase in allowance for losses on
accounts receivable 4,345 (1,262) 1,410
Write-off of purchased research and development -- -- 221,000
Foreign exchange (gains) losses, net 2,282 (9,484) 191
Loss (gain) on sale of fixed assets 982 10 (294)
(Decrease) increase in inventory allowances 106 (2,310) 3,835
Other non-cash gains (387) (331) --
Minority interest 18,939 15,915 3,451
Change in assets and liabilities, net of effects of
acquired companies:
Receivables (181,726) 524 (30,270)
Inventories 43,306 (33,950) 25,823
Prepaid expenses and other assets (11,618) (11,461) (20,137)
Proceeds from license and royalty fees -- 23,000 --
Other liabilities and deferred income taxes (10,795) 19,120 699
Trade payables and accrued liabilities 13,683 5,410 6,795
Income taxes payable (7,885) (7,006) 4,387
---------- ---------- ---------
Net cash (used in) provided by operating activities (25,548) 79,326 42,557
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures (26,216) (49,693) (20,205)
Proceeds from sale of fixed assets 6,954 64 164
Sale of marketable securities 27,663 6,204 --
Decrease in restricted cash -- 887 --
Cash acquired in connection with acquisitions
(including $1,425 of restricted cash in 1994) 859 -- 9,921
Acquisition of foreign license rights,
product lines and businesses (51,222) (4,495) --
Other, net -- 8 (1,270)
---------- ---------- ---------
Net cash used in investing activities (41,962) (47,025) (11,390)
---------- ---------- ---------
Cash flows from financing activities:
Net increase (decrease) in notes payable (10,908) 268 (9,174)
Proceeds from issuance of long-term debt 20,975 284 117,008
Payments on long-term debt (13,984) (52,623) (82,409)
Payments to former affiliates -- -- (23,718)
Proceeds from issuance of preferred stock 47,392 -- --
Proceeds from stock issuance 32,842 5,753 --
Proceeds from issuance of stock put right 3,195 0 0
Proceeds from exercise of stock options 10,167 3,702 588
Dividends paid (6,999) (7,902) (5,214)
---------- ----------- ---------
Net cash (used in) provided by financing activities 82,680 (50,518) (2,919)
---------- ---------- ---------
Effect of exchange rate changes on cash 102 (65) (649)
---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents 15,272 (18,282) 27,599
Cash and cash equivalents at beginning of year 24,094 42,376 14,777
---------- ---------- ---------
Cash and cash equivalents at end of year $ 39,366 $ 24,094 $ 42,376
========== ========== =========
The accompanying notes are an integral part of these consolidated statements.
31
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BACKGROUND:
On November 1, 1994, the stockholders of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN
Biomedicals, Inc. ("Biomedicals") (collectively, the "Predecessor Companies")
approved the Merger of the Predecessor Companies ("the Merger"). Effective
November 1, 1994, SPI, ICN and Viratek merged into ICN Merger Corp. and
Biomedicals merged into ICN Subsidiary Corp., a wholly-owned subsidiary of ICN
Merger Corp. In conjunction with the Merger, ICN Merger Corp. was renamed ICN
Pharmaceuticals, Inc. ("the Company").
The Merger was accounted for using the purchase method of accounting.
Additionally, for accounting purposes, SPI was treated as the acquiring company
and, as a result, the Company has reported the historical financial data of SPI
in its financial results and includes the results of ICN, Viratek and
Biomedicals since the effective date of the Merger.
SPI was incorporated on November 30, 1981, as a wholly-owned subsidiary of
ICN and was 39%-owned by ICN prior to the Merger. Viratek and Biomedicals were
63%-owned and 69%-owned by ICN, respectively, prior to the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements for 1996 and 1995 include the accounts of the Company and all of its
majority owned subsidiaries. The consolidated financial statements for 1994
include the full year financial results of SPI and majority owned subsidiaries
and the financial results of ICN, Viratek and Biomedicals from the effective
date of the Merger. 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 cost. The accompanying consolidated financial
statements reflect the elimination of all significant intercompany account
balances and transactions.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents at December 31, 1996
and 1995 includes $28,687,000 and $1,017,000, respectively, of certificates of
deposit which have maturities of three months or less. For purposes of the
statements of cash flows, the Company considers highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. The
carrying amount of these assets approximates fair value due to the short-term
maturity of these instruments.
MARKETABLE SECURITIES: In 1995, the Company classified its investment in
corporate bond securities, with maturities ranging from 1999 to 2003, as
available for sale. Changes in market values were reflected as unrealized gains
and losses, calculated on the specific identification method, in stockholders'
equity. The contractual maturity value of these securities was $26,700,000. In
January 1996, the Company sold $26,663,000 of corporate bond securities for a
total of $26,952,000 resulting in a realized gain of $289,000.
INVENTORIES: Inventories, which include material, direct labor and factory
overhead, are stated at the lower of cost or market. Cost is determined on a
first-in, first-out ("FIFO") basis.
PROPERTY, PLANT AND EQUIPMENT: The Company primarily uses the straight-line
method for depreciating property, plant and equipment over their estimated
useful lives. Buildings and related improvements are depreciated from 7-50
years, machinery and equipment from 3-30 years, furniture and fixtures from 3-15
years and leasehold improvements and capital leases are amortized over their
useful lives, limited to the life of the related lease.
32
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The Company follows the policy of capitalizing expenditures that materially
increase the lives of the related assets and charges maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and the resulting
gain or loss is included in income.
The Company capitalizes interest on borrowed funds during construction
periods. Capitalized interest is charged to Property, Plant and Equipment and
amortized over the lives of the related assets.
GOODWILL AND INTANGIBLES: The difference between the purchase price and the
fair value of net assets acquired at the date of acquisition is included in the
accompanying consolidated balance sheets as goodwill and intangibles. Goodwill
and intangibles amortization periods range from 5 to 23 years depending upon the
nature of the business or products acquired. The Company periodically evaluates
the carrying value of goodwill and intangibles including the related
amortization periods. The Company determines whether there has been impairment
by comparing the anticipated undiscounted future operating income of the
acquired entity or product line with the carrying value of the goodwill. Based
on its review, the Company does not believe that an impairment of its goodwill
and intangibles has occurred.
NOTES PAYABLE: The Company classifies various borrowings with initial terms
of one year or less as notes payable. The weighted average interest rate on
short-term borrowings outstanding at December 31, 1996 and 1995 was 17% and 58%,
respectively. The December 31, 1995 weighted average interest rate reflects a
hyperinflationary 66% rate at ICN Yugoslavia.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of the Company's
foreign operations, except those in highly inflationary economies, are
translated at the end of period exchange rates. Revenues and expenses are
translated at the average exchange rates prevailing during the period. The
effects of unrealized exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are accumulated in stockholders'
equity. The monetary assets and liabilities of foreign subsidiaries in highly
inflationary economies are remeasured into U.S. dollars at the end of period
exchange rates and non-monetary assets and liabilities at historical exchange
rates. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Foreign Currency Translation", the Company has included in earnings all
foreign exchange gains and losses arising from foreign currency transactions and
the effects of foreign exchange rate fluctuations on subsidiaries operating in
highly inflationary economies. The recorded (gains) losses from foreign exchange
translation and transactions for 1996, 1995 and 1994, were $2,282,000,
$(9,484,000) and $191,000 respectively.
INCOME TAXES: Income taxes are calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequence of
events that have been recognized in the Company's financial statements or tax
returns. A valuation allowance is established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. In estimating future
tax consequences, SFAS No. 109 generally considers all expected future events
other than an enactment of changes in the tax law or rates.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
PER SHARE INFORMATION: Net income (loss) per share is based on net income
(loss) after preferred stock dividend requirements, the weighted average number
of common shares outstanding, including shares issued subject to put option, and
33
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
the dilutive effect of common share equivalents. Common share equivalents
represent shares issuable for outstanding options, on the assumption that the
proceeds would be used to repurchase shares in the open market, and the shares
issuable related to the Company's convertible preferred stock and to certain of
the Company's convertible debentures. Such convertible preferred stock and
convertible debentures are considered common stock equivalents if they meet
certain criteria at the time of issuance and have a dilutive effect, if
converted.
During 1996, the Company's Board of Directors declared quarterly cash
distributions for the first, second and third quarters totaling $.23 per share.
On January 31, 1997, the Company's Board of Directors declared a fourth quarter
cash distribution of $.077 per share, payable to stockholders of record on
February 13, 1997. In 1995, the Company issued quarterly stock distributions
which totaled 5.6%. In 1994, the Company issued stock dividends and
distributions which totaled 4.8%. All share and per share amounts used in
computing earnings per share have been restated to reflect these stock dividends
and distributions.
STOCK BASED COMPENSATION: The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 defines a fair value based method of accounting for an employee stock
option. Fair value of the stock option is determined considering factors such as
the exercise price, the expected life of the option, the current price of the
underlying stock and its volatility, expected dividends on the stock, and the
risk-free interest rate for the expected term of the option. Under the fair
value based method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period. Pro forma
disclosures for entities that elect to continue to measure compensation cost
under the intrinsic method provided by Accounting Principles Board No. 25 must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
RECLASSIFICATIONS: Certain prior year items have been reclassified to
conform with the current year presentation.
3. ACQUISITION OF THE PREDECESSOR COMPANIES:
As part of the Merger, the Company issued approximately 6,476,770 common
shares valued on November 10, 1994 at $20.75 per share, which was the publicly
traded price of SPI's common shares at that date. Accordingly, the purchase
price, including direct acquisition costs of $3,654,000, has been allocated to
the estimated fair value of the net assets, including amounts ascribed to
purchased research and development costs which were charged to operations
immediately following the consummation of the Merger.
The purchase price allocation, as of the effective date of the Merger, is
summarized as follows (in thousands):
Current assets (including cash of $9,921 of which $1,425 was restricted)... $ 37,711
Property, plant and equipment.............................................. 44,335
Acquired intangibles and goodwill.......................................... 35,000
Other non-current assets................................................... 8,724
Current liabilities........................................................ (52,931)
Long-term liabilities...................................................... (155,792)
Purchased research and development......................................... 221,000
---------
Total purchase price................................................... $ 138,047
=========
34
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The Company obtained independent third party appraisals for the acquired
in-process research and development costs and certain other intangible costs,
primarily patents and trademarks. The $221,000,000 which represents the
valuation of acquired in-process research and development for which no
alternative use exists, has been charged to operations immediately upon
consummation of the Merger in accordance with generally accepted accounting
principles. In the fourth quarter of 1995, the purchase price allocation was
finalized by recording a liability for a pre-acquisition contingency, in an
amount that the Company considers adequate.
4. RELATED PARTY TRANSACTIONS:
GENERAL: Prior to the Merger, ICN controlled Biomedicals and Viratek
through stock ownership and board representation and was affiliated with SPI.
Certain officers of ICN occupied similar positions with SPI, Biomedicals, and
Viratek. Prior to the Merger, ICN, SPI, Biomedicals, and Viratek engaged in
certain transactions with each other.
ROYALTY AGREEMENTS: Effective December 1, 1990, SPI entered into a royalty
agreement with Viratek whereby a royalty of 20% of all sales of Virazole(R) was
paid to Viratek. Sales of Virazole(R), for purposes of determining royalties to
Viratek for 1994 were $35,855,000, which generated royalties to Viratek for 1994
of $7,171,000. As a result of the Merger, the Company is no longer required to
pay this royalty on Virazole(R).
The Company, under an agreement amended in 1993 between the Company and the
employer of a former director, is required to pay $20.00 for each new aerosol
drug delivery device manufactured and a 2% royalty on all sales of Virazole(R)
in aerosolized form. Such royalties for 1995 and 1994 were $905,000 and
$741,000, respectively.
COST ALLOCATIONS: Prior to the Merger, the affiliated corporations occupied
ICN's facility in Costa Mesa, California. The accompanying consolidated
statements of income include a charge for rent from ICN of $230,000 in 1994. In
addition, the costs of common services such as maintenance, purchasing and
personnel were incurred by SPI and allocated to ICN, Viratek and Biomedicals
based on services utilized. The total of such costs was $2,207,000 for 1994 of
which $1,579,000 was allocated to affiliated corporations. It is management's
belief that the methods used and amounts allocated for facility costs and common
services were reasonable based upon the usage by the respective companies. As a
result of the Merger, such cost allocations are no longer required.
OTHER: Following is a summary of transactions incurred prior to the Merger,
as described above, between the Company and the former affiliated corporations
for 1994 (in thousands) :
1994
----
Cash payments to former affiliates, net........................ $ 23,718
Royalties to affiliates, net.................................... (7,469)
Allocation of common service costs to ICN and its subsidiaries.. 1,579
Rent charged by ICN............................................. (230)
Interest expense with affiliates, net........................... (359)
Dividends payable to ICN........................................ (967)
Other, net ................................................... 2,041
------------
$ 18,313
===========
35
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
In July 1995, the Company loaned the Chief Operating Officer $93,000 for
the exercise of stock options which was repaid in March 1996.
In August 1996, the Company loaned the Chairman and CEO $428,000 in regards
to tax matters relating to the exercise of stock options. This loan along with
accrued interest was repaid in November 1996.
In June 1996, the Company made a short-term loan to the Chairman and CEO in
the amount of $3,500,000 for certain personal obligations. During August 1996,
this amount was repaid to the Company. In connection with this transaction, the
Company guaranteed $3,600,000 of debt of the Chairman with a third party bank.
In addition to the guarantee, the Company deposited $3,600,000 with this bank as
collateral to the Chairman's debt. This deposit is recorded as a long-term asset
on the balance sheet. The Chairman has provided collateral to the Company's
guarantee in the form of a right to the proceeds of the exercise of stock
options in the amount of 100,000 options with an exercise price of $22.75 and
the rights to a $4,000,000 life insurance policy provided by the Company. In the
event of any default on the debt to the bank, the Company has recourse that is
limited to the collateral described above. Both the transaction and the
sufficiency of the collateral for the guarantee were approved by the Board of
Directors.
5. INCOME TAXES:
Pretax income (loss) from continuing operations before minority interest
for each of the years ended December 31, consists of the following (in
thousands):
1996 1995 1994
---- ---- ----
Domestic..................... $ 5,039 $ 7,145 $ (194,756)
Foreign...................... 94,013 79,104 24,804
----------- ----------- ----------
$ 99,052 $ 86,249 $ (169,952)
=========== =========== ==========
The income tax (benefit) provision for each of the years ended December 31,
consist of the following (in thousands):
1996 1995 1994
---- ---- ----
Current
Federal................... $ (9,469) $ -- $ 5,829
State..................... 68 425 100
Foreign................... 2,228 4,392 4,931
---------- ---------- ----------
(7,173) 4,817 10,860
Deferred
Federal................... -- (1,820) --
Foreign................... 358 -- (500)
---------- ---------- ----------
358 (1,820) (500)
---------- ---------- ----------
Total $ (6,815) $ 2,997 $ 10,360
========== ========== ==========
The current federal tax provision has not been reduced for the tax benefit
associated with the exercise of employee stock options of $1,600,000,
$1,300,000, and $134,000 in 1996, 1995 and 1994, respectively, which were
credited directly to additional capital.
36
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
In connection with the Merger, the Company acquired approximately
$226,000,000 of net operating loss carryforwards ("NOLs"). Included in the total
acquired NOLs were $191,000,000 of domestic NOLs and $35,000,000 of foreign
NOLs. Internal Revenue Service Code Section 382 imposes an annual limitation on
the availability of NOLs that can be used to reduce taxable income after certain
substantial ownership changes of a corporation. Consequently, the Company's
annual limitation on utilization of the acquired domestic NOLs is approximately
$33,000,000 per year.
In accordance with SFAS No. 109, any realization of acquired tax benefits
must be used to first, reduce goodwill, secondly, reduce acquired noncurrent
intangible assets and lastly, reduce income tax expense. During 1995, the
Company utilized $27,000,000 of acquired domestic NOLs having a tax benefit of
$9,400,000 for which a valuation allowance had been established as of the
effective date of the Merger. The corresponding reduction in the valuation
allowance of $9,400,000 resulted in a reduction of goodwill and intangibles
acquired in connection with the Merger.
In addition to the utilization of the NOLs described above, the Company
recognized during 1995 a $27,000,000 tax benefit of an additional $76,000,000 of
acquired NOLs and other deferred tax assets through a reduction in the Company's
deferred tax asset valuation allowance. This reduction resulted in a $24,000,000
reduction in goodwill and intangibles acquired in connection with the Merger and
a $3,000,000 reduction in deferred income tax expense. Realization of the
deferred tax assets is dependent upon generating sufficient taxable income prior
to expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the remaining net deferred
tax assets will be realized. The amount of the deferred tax assets considered
realizable, however, could be reduced in the future if estimates of future
taxable income during the carryforward period are reduced.
At December 31, 1996, the Company's domestic NOLs were approximately
$160,000,000. These domestic NOLs expire in varying amounts from 1998 to 2008.
37
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The primary components of the Company's net deferred tax asset at December
31, 1996 and 1995 are as follows (in thousands):
1996 1995
---- ----
Deferred tax assets:
NOL carryforward $ 71,019 $ 69,260
Inventory and other reserves 11,011 13,229
Tax credit carryover 554 554
Deferred income 4,848 7,776
Long-term debt 4,745 3,921
Other 855 --
Valuation allowance (55,769) (54,181)
----------- -----------
Total deferred tax asset 37,263 40,559
Deferred tax liabilities:
Property, plant and equipment (223) (3,886)
Inventory (1,770) (1,249)
Other (936) (732)
----------- -----------
Total deferred tax liability (2,929) (5,867)
----------- -----------
Net deferred tax asset $ 34,334 $ 34,692
=========== ===========
The Company's effective tax rate differs from the applicable U.S. statutory
federal income tax rate due to the following:
1996 1995 1994
------ ------ ------
Statutory rate (benefit) 35% 35% (35%)
Write-off of purchased research and development -- -- 46
Foreign source income taxed at
lower effective rates (31) (24) (3)
Utilization of foreign NOL -- (1) --
Recognition of fully reserved deferred tax debits -- (4) (1)
Utilization of foreign tax/AMT credits -- -- (1)
Favorable audit settlement (5) (2) (1)
State Income taxes, net of federal income taxes benefit -- (1) --
Domestic NOL loss carryback (5) -- --
Other, net (1) -- 1
------- ------ ------
Effective rate (7)% 3% 6%
======= ====== ======
During 1996, no U.S. income or foreign withholding taxes were provided on
the undistributed earnings of the Company's foreign subsidiaries with the
exception of the Company's Panamanian subsidiary, Alpha Pharmaceuticals, since
management intends to reinvest those undistributed earnings in the foreign
operations. Included in consolidated retained deficit at December 31, 1996, is
approximately $192,000,000 of accumulated earnings of foreign operations that
would be subject to U.S. income or foreign withholding taxes, if and when
repatriated.
38
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The Company is under examination by the Internal Revenue Service for the
tax years ended November 30, 1991 and 1990. Currently, the proposed adjustments,
if upheld, would not result in a significant additional tax liability or a
significant reduction in NOLs available to the Company in the future. During
1995, the Company settled audits for tax years 1989 and 1988 which resulted in a
reduction in net operating loss carryforwards of $5,000,000 (pretax) and a
corresponding decrease in the pretax valuation allowance.
6. DEBT:
Long-term debt consists of the following (in thousands):
1996 1995
---- ----
Convertible debt:
8.5% Convertible Subordinated Notes due 1999 $ 114,980 $ 115,000
Swiss Franc Subordinated Bonds due 1988-2001 with effective
interest rate of 8.5% (net of unamortized discount of $542
and $890 in 1996 and 1995, respectively) 11,149 14,965
Zero Coupon Guaranteed Swiss Franc Bonds with an effective interest rate of
8.5%, maturing in 2002 (net of unamortized discount of $261 and $495 in
1996 and 1995,
respectively) 7,536 9,751
3-1/4% Subordinated Double Convertible Swiss Franc Bonds
due 1997 (net of unamortized discount of $53
in 1995) -- 4,240
Zero Coupon ECU Subordinated Bonds due 1987-1996 with an
effective interest rate of 8.5% -- 1,396
---------- ----------
133,665 145,352
Other Debt:
Hungarian mortgages with interest rates ranging from
LIBOR + 1.5% to LIBOR + 2% due in various
installments through 2001 assumed in connection
with the acquisition of Alkaloida 6,625 --
U.S. mortgages with variable interest rates ranging from 7.1% to 8.9%
interest and principal payable monthly through 2022 13,098 11,318
U.S. capital leases with interest rates ranging from 4.91%
to 6.12% payable monthly through 1999 2,589 --
Loans from various Hungarian banks collateralized by property, plant
and equipment and inventory having a net book value of $23,599 at
December 31, 1996, with interest rates ranging from LIBOR +0.75% to
25.5% maturing at various dates through 2001 assumed in connection with
the acquisition
of Alkaloida 24,328 --
Other long-term debt due in U.S. dollars and
various foreign currencies with interest rates ranging
from 5.75% to 9.4% 2,145 5,173
---------- ----------
182,450 161,843
Less current portion 5,961 7,650
---------- ----------
Total long-term debt $ 176,489 $ 154,193
========== ==========
39
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
On November 17, 1994, the Company completed an underwritten public offering
in the principal amount of $115,000,000 of 8.5% Subordinated Convertible Notes
(the "Convertible Notes"), due in November 1999. These notes are convertible at
the option of the holder either in whole or in part, at any time prior to
maturity, into the Company's stock at a current conversion price of $22.117 per
share, subject to adjustment in certain events. The Convertible Notes are also
redeemable, in whole or in part, at the option of the Company at any time on or
after November 15, 1997 at the specified redemption prices, plus accrued
interest. During 1996, $20,000 of the Convertible Notes were converted into 904
shares of common stock of the Company. The fair value of the Convertible Notes
was approximately $125,903,000 at December 31, 1996.
In October 1986, Xr Capital Holding ("Xr Capital"), a trust established by
ICN, completed an underwritten public offering in Switzerland of Swiss francs
100,000,000 principal amount of 5-5/8% Swiss Franc Exchangeable Certificates
(the "Xr Certificates") of which SFr. 66,510,000 remain outstanding at December
31, 1996. Currently and as a result of the Merger, the face value of the
outstanding Xr Capital are convertible into 1,501,172 shares of the Company's
common stock at the exchange price of $43.62 per share using a fixed exchange
rate of SFr. 1.66 to U.S. $1.00. The net proceeds of the offering were used by
Xr Capital to purchase from ICN 14 series of Swiss Franc Subordinated Bonds due
1988-2001 (the "ICN-Swiss Franc Xr Bonds") for approximately $27,944,000 and
SFr. 45,700,000 principal amount of cumulative coupon 5.4% Italian Electrical
Agency Bonds due 2001 for approximately $27,202,000. The Company has no
obligation with respect to the payment of the face amount of the Xr Certificates
since these are to be paid upon maturity by the Italian Bonds, except for
payment of certain additional amounts, in the event of the imposition of U.S.
withholding taxes on either the Xr Certificates or ICN Swiss Franc Xr Bonds, for
redemption of the Xr Certificates in the event the Company exercises its
optional right to redeem. The fair value of the ICN-Swiss Franc Xr Bonds was
approximately $11,691,000 at December 31, 1996.
In 1987, Bio Capital Holding ("Bio Capital"), a trust established by ICN
and Biomedicals, completed a public offering in Switzerland of SFr. 70,000,000
principal amount of 5-1/2% Swiss Franc Exchangeable Certificates ("Old
Certificates"). The Bio Capital debt is senior, uncollateralized indebtedness of
the Company. At the option of the certificate holder, the Old Certificates are
exchangeable into shares of the Company's common stock. Net proceeds were used
by Bio Capital to purchase SFr. 70,000,000 face amount of zero coupon Swiss
Franc Debt Notes due 2002 of the Kingdom of Denmark (the "Danish Bonds") for
SFr. 33,772,000 and 15 series of zero coupon Swiss Franc Guaranteed Bonds of the
Company (the "Zero Coupon Guaranteed Bonds") for SFr. 32,440,000 which are
guaranteed by the Company. Each series of the Zero Coupon Guaranteed Bonds are
in an aggregate principal amount of SFr. 3,850,000 maturing February of each
year through 2002. The Company has no obligation with respect to the payment of
the principal amount of the Old Certificates since they will be paid upon
maturity by the Danish bonds. During 1990, Biomedicals offered to exchange, to
all certificate holders, the Old Certificates for newly issued certificates
("New Certificates"), the terms of which remain the same except that 71 shares
per SFr. 5,000 principal certificate can be exchanged at $47.15 using a fixed
exchange rate of SFr. 1.49 to U.S. $1.00. Substantially all of the outstanding
Old Certificates were exchanged for New Certificates (together referred to as
"Bio Certificates"). Currently, the face value of the outstanding Bio Capital,
SFr. 39,615,000, is convertible into 552,992 shares of the Company's common
stock at the exchange prices of $47.15 and $81.26 using fixed exchange rates of
SFr. 1.49 and SFr. 1.54 to U.S. $1.00 for New and Old Certificates,
respectively. The fair value of the Zero Coupon Guaranteed Bonds was
approximately $7,611,000 at December 31, 1996.
During 1996, SFr. 4,952,000 of the 3-1/4% Subordinated Double Convertible
Bonds due 1997 were converted into 6,190 shares of Ciba Geigy Ltd. Common stock.
The Company has the option to redeem the ICN-Swiss Franc Xr Bonds and Bio
Certificates in the event that the market price of the Company's common stock
meets certain conditions.
40
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The Company has mortgage notes payable totaling $20,842,000, payable in
U.S. dollars, Deutsche marks, Dutch guilders and Hungarian forints,
collateralized by certain real property of the Company, having a net book value
of $30,828,000 at December 31, 1996.
Annual aggregate maturities of long-term debt subsequent to December 31,
1996 are as follows (in thousands):
1997 $ 5,961
1998 21,104
1999 126,973
2000 11,602
2001 8,580
Thereafter 8,230
-------------
Total $ 182,450
=============
The fair value of the Company's debt is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The carrying amount of all
short-term and variable interest rate borrowings approximates fair value.
Subsidiaries of the Company have short and long-term lines of credit,
classified in notes payable, aggregating $18,901,000 of which $10,857,000 was
outstanding at December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
In the Consolidated Amended Class Action Complaint for Violations of
Federal Securities Laws (the "Securities Complaint") (the "1995 Actions"),
plaintiffs allege that Defendants made various deceptive and untrue statements
of material fact and omitted material facts regarding its hepatitis C NDA in
connection with: (i) the Merger of the Company, SPI, Viratek and Biomedicals in
November 1994 and the issuance of convertible debentures in connection
therewith; and (ii) information provided to the public. Plaintiffs also allege
that the Chairman of the Company traded on inside information relating to the
hepatitis C NDA. The Securities Complaint asserts claims for alleged violations
of Sections 11 and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule I 10b-5 promulgated thereunder.
Plaintiffs seek unspecified compensatory damages, pre-judgment and post-judgment
interest and attorneys' fees and costs. Plaintiffs motion seeking the
certification of (i) a class of persons who purchased ICN securities from
November 10, 1994 through February 17, 1995; and (ii) a subclass consisting of
persons who owned SPI and/or Biomedicals common stock prior to the Merger was
granted. Defendants filed their answer to the Securities Complaint, and are
actively engaged in the pre-trial discovery process. This trial is currently
scheduled to commence in January 1998. Defendants intend to vigorously defend
this action.
41
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Four lawsuits have been filed with respect to the Merger in the Court of
Chancery in the State of Delaware (the "1994 Actions"). Three of these lawsuits
were filed by stockholders of SPI and, in one lawsuit, of Viratek against ICN,
SPI, Viratek (in the one lawsuit) and certain directors and officers of ICN, SPI
and/or Viratek (including the Chairman) and purport to be class actions on
behalf of all persons who held shares of SPI and Viratek common stock. The
fourth lawsuit was filed by a stockholder of Viratek against ICN, Viratek and
certain directors and officers of ICN, SPI and Viratek (including the Chairman)
and purports to be a class action on behalf of all persons who held shares of
Viratek common stock. These suits allege that the consideration provided to the
public stockholders of SPI and/or Viratek in the Merger was unfair and
inadequate, and that the defendants breached their fiduciary duties in approving
the Merger and otherwise. The 1994 Actions have been inactive. The Company
believes that these suits are without merit and intends to defend them
vigorously.
Management believes that, having extensively reviewed the issues in the
above referenced matters, there are strong defenses and the Company has and
continues to defend the litigation vigorously. While the ultimate outcome of the
1995 Actions and 1994 Actions cannot be predicted with certainty, and an
unfavorable outcome could have a material adverse effect on the Company, at this
time management does not expect these matters will have a material adverse
effect on the financial position and results of operations of the Company.
ICN, SPI and Viratek and certain of their current and former officers and
directors (collectively, the "ICN Defendants") were named defendants in certain
consolidated class actions. Plaintiffs alleged that the ICN Defendants made, or
aided and abetted PaineWebber, Inc. in making, misrepresentations of material
fact and omitted material facts concerning the business, financial condition and
future prospects of ICN, Viratek and SPI in certain public announcements,
PaineWebber research reports and filings with the Securities and Exchange
Commission. In October, 1996, the Company entered into a settlement agreement
with the plaintiffs. Under the terms of the settlement, the Company agreed to
pay $4,500,000 in cash and $10,000,000 in common stock of the Company, based
upon the fair market value of the stock on the date of settlement. On January 6,
1997, the court approved the settlement and signed the order and judgment
dismissing the amended complaint with prejudice.
INVESTIGATIONS: Pursuant to an Order Directing Private Investigation and
Designating Officers to Take Testimony, entitled In the Matter of ICN
Pharmaceuticals, Inc., (P-177) (the "Order"), a private investigation is being
conducted by the SEC with respect to certain matters pertaining to the status
and disposition of the hepatitis C NDA. As set forth in the Order, the
investigation concerns whether, during the period June 1994 through February
1995, the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of ICN common stock,
engaged in possible violations of Section 17(a) of the Securities Act of 1933
and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
42
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
thereunder, by having possibly: (i) made false or misleading statements or
omitted material facts with respect to the status and disposition of the
hepatitis C NDA; or (ii) purchased or sold ICN common stock while in possession
of material, non-public information concerning the status and disposition of the
hepatitis C NDA; or (iii) conveyed material, non-public information concerning
the status and disposition of the hepatitis C NDA, to other persons who may have
purchased or sold ICN stock. The Company is cooperating with the SEC in its
investigation. The Company has and continues to produce documents to the SEC
pursuant to its request and the SEC has taken the depositions of certain current
and former officers, directors, and employees of the Company.
In addition, the Company received a Subpoena from a Grand Jury of the
United States District Court, Central District of California, requesting the
production of documents covering a broad range of matters over various time
periods. The Company and Milan Panic are subjects of the investigation. The
Company has and continues to cooperate in the production of documents pursuant
to the Subpoena. A number of current and former employees of the Company have
been interviewed by the government in connection with the investigation.
The Company is a party to a number of other pending or threatened lawsuits.
In the opinion of management, the ultimate resolution of these other matters
will not have a material effect on the Company's consolidated financial position
or results of operations.
PRODUCT LIABILITY INSURANCE: The Company could be exposed to possible
claims for personal injury resulting from allegedly defective products. 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 material adverse effect on the
Company.
BENEFITS PLANS: The Company has a defined contribution plan that provides
all U.S. employees the opportunity to defer a portion of their compensation for
payout at a subsequent date. The Company can voluntarily make matching
contributions on behalf of participating and eligible employees. The Company's
expense related to such defined contribution plan was not material in 1996, 1995
and 1994.
In connection with the Merger, the Company assumed deferred compensation
agreements with certain officers and certain key employees of the Predecessor
Companies, with benefits commencing at death or retirement. As of December 31,
1996, the present value of the deferred compensation benefits to be paid has
been accrued in the amount of $2,914,000. Interest accrues on the outstanding
balance at rates ranging from 9.5% to 12.6%. No new contributions are being
made; however, interest continues to accrue on the present value of the benefits
expected to be paid.
ENVIRONMENTAL ISSUES IN HUNGARY: In connection with the acquisition of
Alkaloida from the government of Hungary, an environmental remediation fund (the
"Fund") of approximately $7,200,000 was established by the government from the
proceeds that the Company tendered. This Fund will be used to remediate a waste
disposal site adjacent to Alkaloida, contaminated by past plant operations, by
1998. If the cash from this Fund is insufficient to fully remediate the waste
disposal site, the Company is liable for the shortfall. The Company believes,
based upon current third party studies and estimates, that the cash in the Fund
is adequate to remediate the waste disposal site.
43
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
OTHER: Milan Panic, the Company's Chairman of the Board and Chief Executive
Officer, is employed under a contract expiring December 31, 1998 that provides
for, among other things, certain health and retirement benefits. The contract is
automatically extended at the end of each year for successive one year periods
unless either the Company or Mr. Panic terminates the contract upon six months
prior written notice. Mr. Panic, at his option, may provide consulting services
upon his retirement for $120,000 per year for life, subject to annual
cost-of-living adjustments from the base year of 1967, and will be entitled when
serving as a consultant to participate in the Company's medical and dental
plans. Including such cost-of-living adjustments, the annual cost of such
consulting services is currently estimated to be in excess of $535,000. The
consulting fee shall not at any time exceed the annual compensation as adjusted,
paid to Mr. Panic. Upon Mr. Panic's retirement, the consulting fee shall not be
subject to further cost of living adjustments.
The Company has employment agreements with six key executives which contain
"change in control" benefits. Upon a "change in control" of the Company as
defined in the contract, the employee shall receive severance benefits equal to
three times salary and other benefits.
8. COMMON STOCK:
Prior to the Merger, each of the Predecessor Companies had their own stock
option plans. Upon consummation of the Merger, the Company assumed all options
outstanding under the existing stock option plans. The existing stock option
plans were exchanged for shares of the Company. Each option of SPI common stock,
ICN common stock, Viratek common stock and Biomedicals common stock was
exchanged for 1.0, 0.512, 0.499 and 0.197 options of the Company common stock,
respectively. Subsequent to the Merger, no new grants are being issued under
these plans.
The 1994 Stock Option Plan was adopted on January 26, 1995 and subsequently
approved by stockholders. This plan provides for the granting of a maximum of
3,236,000 stock options. Under the plan each nonemployee director is granted
15,000 options on the day following the annual meeting of stockholders.
44
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Under the terms of all stock option plans, the option price may not be less
than the fair market value at the date of the grant and may not have a term
exceeding 10 years. Option grants vest ratably over a four year period from the
date of the grant. The options granted are reserved for issuance to officers,
directors, key employees, scientific advisors and consultants. The Company has
adopted the disclosure only provisions of SFAS No. 123. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards in 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1996 1995
--------- ---------
Net income as reported $ 86,928 $ 67,337
pro forma 82,835 63,856
Primary earnings per share as reported 2.40 2.20
pro forma 2.28 2.09
Fully diluted earnings per share as reported 2.27 2.19
pro forma 2.17 2.09
The schedule below reflects the number of outstanding and exercisable
shares as of December 31, 1996 segregated by price range:
OUTSTANDING EXERCISABLE
-------------------- --------------------
Number Average Number Average
of Exercise of Exercise
Dollar Range Shares Price Shares Price
- ------------ ------ ----- ------ -----
$3.80 to $12.76 1,272,925 9.48 1,007,029 9.43
$13.38 to $22.88 3,548,935 17.93 1,882,234 17.95
$23.00 to $43.63 988,140 29.32 883,737 29.77
--------- ---------
5,810,000 3,773,000
========= =========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: Dividend yield of 1.4%, expected
volatility of 60.42%; risk-free interest rate of 6.25%; and expected lives of
6.5 years.
Because the determination of the fair value of all options granted includes
the factors described in the preceding paragraph and, because additional option
grants are expected to be made each year, the above pro forma disclosures are
not representative of pro forma effects of reported net income for future years.
45
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The following table sets forth information relating to stock option plans
during the years ended December 31, 1996, 1995 and 1994 (in thousands, except
per share data):
AVERAGE
OPTION
TOTAL PRICE
-------- -----
Shares under option, December 31, 1993 3,212 $ 15.67
Granted 1,277
Exercised (84) $ 6.95
Canceled (159)
Effect of Merger 2,086
--------
Shares under option, December 31, 1994 6,332 $ 17.66
Granted 621
Exercised (515) $ 8.02
Canceled (192)
--------
Shares under option, December 31, 1995 6,246 $ 16.86
Granted 532
Exercised (868) $ 12.01
Canceled (100)
--------
Shares under option, December 31, 1996 5,810 $ 18.13
========
Exercisable at December 31, 1996 3,773
========
Options available to grant at December 31, 1995 2,149
========
Options available to grant at December 31, 1996 1,717
========
46
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
In January 1996, the Company sold approximately 400,000 shares of its
common stock to a foreign bank for net proceeds of $6,000,000. The proceeds were
used by the Company for the acquisition of GlyDerm, a Michigan based skin care
company, and several smaller acquisitions.
In conjunction with and conditioned upon the consummation of the sale of
the Siemens Shares (See Note 15), the Company entered into an agreement (the
"Put Agreement") with the Purchasers pursuant to which the Company sold 100,000
additional shares of common stock for $1,950,000 (together with the Siemens
shares, the "Purchaser Shares") and sold the Purchaser the right to put (the
"Put Right") 1,064,833 shares of common stock, valued at $23,120,000 at December
31, 1996, to the Company at $30 per share on January 10, 2000 for $3,200,000.
The exercisability of the Put Right is subject to acceleration under certain
circumstances as described in the Put Agreement. If an acceleration event
occurs, the exercise price of the put would be $22.50 per share plus an
incremental increase at the annual rate of 10% for the period from the closing
date to the date of exercise of the Put Right. Additionally, the number of
shares subject to the Put Right would be reduced by one third during each of the
three years after the closing date if certain closing price thresholds and
conditions as specified in the Put Agreement are achieved. The number of shares
subject to the Put Right may also be reduced if the Purchaser sells any
Purchaser Shares in excess of certain specified prices during each of the years
after the closing date and until the Put Right expires.
In connection with the Merger, the Company adopted a Stockholder Rights
Plan to protect stockholders' rights in the event of a proposed or actual
acquisition of 15% or more of the outstanding shares of the Company's common
stock. As part of this plan, each share of the Company's common stock carries a
right to purchase one one-hundredth (1/100) of a share of Series A Preferred
Stock (the "Right"), par value $.01 per share, of the Company at a price of $125
per one one-hundredth of a share, subject to adjustment, which becomes
exercisable only upon the occurence of certain events. The Rights are subject to
redemption at the option of the Board of Directors at a price of $.01 per right
until the occurrence of certain events. The Rights expire on November 1, 2004.
In 1995, the Company issued quarterly stock distributions which totaled
5.6%. In 1994, the Company issued quarterly stock dividends and distributions
which totaled 4.8%. Accordingly, all relevant stock option data and per share
data have been restated to reflect these dividends and distributions.
In 1994, the Company issued common stock for certain bonuses accrued in
1993. The number of shares issued was based upon the fair value of the shares at
the date of issuance and a fixed amount related to the bonuses paid.
9. PREFERRED STOCK
In October, 1996, the Company issued 50,000 shares of Series B preferred
stock for net proceeds of $47,392,000 with a liquidation preference of $1,000
per share. The preferred stock is convertible at the option of the holder into
common stock based on a conversion price calculated using the average daily low
for the five trading days preceding the conversion date and applying a discount
ranging from 3% to 13%. The preferred stock has a 6% annual dividend that is
cumulative and payable quarterly. The Company has the option to pay the dividend
in either cash or common stock of the Company. The aggregate amount of preferred
stock that can be converted within the first two six-month periods following the
issuance of the preferred stock is restricted. The preferred stock is also
mandatorily convertible into common stock on the fifth anniversary of its
issuance. However, this provision is subject to extension under certain
circumstances. Dividends paid in common stock are based on the fair value of
common stock at the time of declaration. Net income attributable to common stock
reflects for purposes of computing earnings per share adjustments for cumulative
preferred dividends and an embedded dividend arising from discounted conversion
terms of the Series B preferred stock. The preferred stock was issued as a
private placement.
47
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10 . DETAIL OF CERTAIN ACCOUNTS (IN THOUSANDS):
1996 1995
---- ----
RECEIVABLES, NET:
Trade accounts receivable............... $ 257,619 $ 71,539
Other receivables....................... 9,782 5,044
--------- ---------
267,401 76,583
Allowance for doubtful accounts (8,870) (8,070)
--------- ---------
$ 258,531 $ 68,513
========= =========
INVENTORIES, NET:
Raw materials and supplies.............. $ 48,656 $ 56,227
Work-in-process......................... 14,625 14,865
Finished goods.......................... 67,845 80,373
--------- ---------
131,126 151,465
Allowance for inventory obsolescence (10,153) (12,709)
--------- ---------
$ 120,973 $ 138,756
========= =========
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Advances to inventory suppliers........ $ 14,335 $ 14,088
Tax receivable......................... 6,100 --
Prepaid expenses and other current assets.. 4,544 10,091
--------- ---------
$ 24,979 $ 24,179
========= =========
48
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
PROPERTY, PLANT AND EQUIPMENT:
Land................................... $ 17,708 $ 18,173
Buildings.............................. 84,054 62,967
Machinery and equipment................ 91,602 62,965
Furniture and fixtures................. 18,819 12,418
Leasehold improvements................. 3,019 2,603
---------- ---------
215,202 159,126
Accumulated depreciation and amortization.. (46,420) (37,358)
Construction in progress................... 65,427 50,719
---------- ---------
$ 234,209 $ 172,487
========== =========
During the third quarter of 1994, ICN Yugoslavia commenced a construction
and modernization program at its pharmaceutical complex outside Belgrade,
Yugoslavia. At December 31, 1996 and 1995, construction in progress primarily
relates to costs incurred to date for these facilities and includes capitalized
interest of $3,770,000 in 1996 and $1,978,000 in 1995.
1996 1995
---- ----
ACCRUED LIABILITIES:
Payroll and related items.............. $ 18,149 $ 11,579
Interest............................... 3,687 3,739
Legal Settlement....................... 10,000 --
Other.................................. 23,547 23,713
---------- ---------
$ 55,383 $ 39,031
========== =========
49
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. BUSINESS SEGMENTS AND GEOGRAPHIC DATA:
The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research chemical and
diagnostic products. The principal markets for its products are Yugoslavia and
the United States. For 1996, approximately 44% of the Company's sales are from
Yugoslavia while sales in the United States represent 20% of total Company
sales. Operations in Yugoslavia are subject to business risks described in Note
13.
The Company's largest selling product, Virazole(R), accounts for
approximately 5% of total Company sales for 1996 and is sold principally in the
United States for the treatment of respiratory syncytial virus ("RSV") in young
infants. In July 1995, the Company entered into a licensing agreement with a
subsidiary of Schering-Plough Corporation ("Schering") to license Virazole(R) as
a treatment for chronic hepatitis C in combination with alpha interferon. Under
an agreement, Schering is responsible for all clinical developments worldwide.
The Company operates in two business segments: pharmaceutical (the
"Pharmaceutical group") and, since the effective date of the Merger, biomedical
(the "Biomedical group"). The Pharmaceutical group produces and markets
pharmaceutical products principally in the United States, Mexico, Canada and
Europe. The Biomedical group markets research products and related services,
immunodiagnostic reagents and instrumentation, and provides radiation monitoring
services.
The following tables set forth the amount of net sales, operating income
(loss), identifiable assets of the Company by business segment and geographical
areas for 1996, 1995 and 1994 (in thousands):
BUSINESS SEGMENTS
1996 1995 1994
---- ---- ----
NET SALES
Pharmaceutical ........ $ 549,753 $ 446,566 $ 357,821
Biomedical............. 64,327 61,339 9,030
------------ ----------- -----------
Total.................. $ 614,080 $ 507,905 $ 366,851
============ =========== ===========
OPERATING INCOME (LOSS):
Pharmaceutical......... $ 155,344 $ 129,753 $ (152,092)(1)
Biomedical............. 4,985 5,707 410
Corporate.............. (46,216) (42,294) (13,490)
------------ ----------- ------------
Total.................. $ 114,113 $ 93,166 $ (165,172)
============ =========== ============
(1) Includes a write-off of purchased research and development for which no
alternative use exists of $221,000,000 as a result of the Merger.
IDENTIFIABLE ASSETS:
Pharmaceutical........ $ 600,019 $ 373,027 $ 314,517
Biomedical............ 78,095 51,407 49,769
Corporate............. 100,537 93,864 77,187
------------ ----------- -----------
Total................. $ 778,651 $ 518,298 $ 441,473
============ =========== ===========
50
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
DEPRECIATION AND AMORTIZATION:
1996 1995 1994
---- ---- ----
Pharmaceutical.................... $ 11,305 $ 9,549 $ 8,303
Biomedical........................ 2,718 2,221 524
Corporate......................... 2,269 2,044 421
---------- ---------- --------
Total............................. $ 16,292 $ 13,814 $ 9,248
========== ========== ========
CAPITAL EXPENDITURES:
Pharmaceutical..................... $ 15,785 $ 56,363 $ 19,745
Biomedical......................... 5,230 2,680 299
Corporate.......................... 8,317 450 161
---------- ---------- --------
Total.............................. $ 29,332 $ 59,493 $ 20,205
========== ========== ========
GEOGRAPHIC DATA
SALES:
United States....................... $ 121,782 $ 124,865 $ 81,563
Canada.............................. 18,953 18,765 15,973
---------- --------- ---------
North America ................... 140,735 143,630 97,536
Latin America (principally Mexico).. 49,444 43,684 56,737
Western Europe...................... 59,294 58,170 31,789
Yugoslavia.......................... 267,166 234,661 172,124
Russia.............................. 66,788 20,300 --
Hungary............................. 21,461 -- --
---------- --------- ---------
Eastern Europe................... 355,415 254,961 172,124
Asia, Africa, and Australia ..... 9,192 7,460 8,665
---------- --------- ---------
Total............................ $ 614,080 $ 507,905 $ 366,851
========== ========= =========
OPERATING INCOME (LOSS):
United States.................... $ 52,461 $ 64,810 $(183,681)(1)
Canada........................... 1,399 4,501 3,771
----------- --------- ---------
North America................ 53,860 69,311 (179,910)
Latin America (principally Mexico 11,246 8,757 9,318
Western Europe................... 607 4,712 1,496
Yugoslavia....................... 70,616 46,296 15,505
Russia........................... 22,021 6,179 --
Hungary.......................... 1,964 -- --
----------- --------- ---------
Eastern Europe............... 94,601 52,475 15,505
Asia, Africa, and Australia ..... 15 205 1,909
Corporate........................ (46,216) (42,294) (13,490)
----------- --------- ---------
Total............................ $ 114,113 $ 93,166 $(165,172)
=========== ========= =========
(1) Includes a write-off of purchased research and development for which no
alternative use exists of $221,000,000 as a result of the Merger.
51
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
IDENTIFIABLE ASSETS:
United States.................... $ 105,670 $ 57,070 $ 66,942
Canada........................... 7,433 8,865 8,858
---------- --------- ---------
North America................. 113,103 65,935 75,800
Latin America (principally Mexico) 30,691 23,823 26,787
Western Europe................... 56,578 57,950 52,469
Yugoslavia....................... 342,983 262,272 203,357
Russia........................... 54,990 12,668 --
Hungary.......................... 77,245 -- --
---------- ---------- ---------
Eastern Europe............... 475,218 274,940 203,357
Asia, Africa, and Australia ..... 2,524 1,786 3,773
Corporate........................ 100,537 93,864 79,287
---------- ---------- ---------
Total............................ $ 778,651 $ 518,298 $ 441,473
========== ========== =========
52
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
12. SUPPLEMENTAL CASH FLOWS DISCLOSURES:
NON-CASH TRANSACTIONS:
- ----------------------
During 1996, a principal amount of SFr. 4,952,000 of the 3-1/4%
Subordinated Double Convertible Bonds due 1997 were converted into 6,190 shares
of Ciba-Geigy Ltd. common stock. The effect of the conversion was to reduce long
term debt by $4,240,000 and other assets by $3,988,000.
On March 29, 1996, the Company sold its instrument business division to
Titertek Instruments, Inc. ("Titertek"), an Alabama corporation, for
approximately $4,400,000 in the form of a note receivable from Titertek. Such
amount represents the net book value of the assets and liabilities of the
division, excluding certain assets and liabilities as specified in the contract,
plus a deferred gain of $2,000,000 to be recognized as cash is collected. As of
December 31, 1996, approximately $500,000 has been recognized into income.
During 1996, the Company issued 964,833 shares of common stock for the
acquisition of the Siemens dosimetry business, 213,385 shares for the Cappel
acquisition and 144,000 shares for the GlyDerm acquisition (See Note 15). The
increase in goodwill and intangibles from the beginning of the year is
principally due to these acquisitions.
During 1996, the Company entered into capital leases of approximately
$2,973,000 for the purchase of computer equipment.
In November 1995, ICN Yugoslavia exchanged, in a non-recourse transaction,
accounts receivable for $10,900,000 of inventories and $9,800,000 for
construction materials for its plant expansion.
During 1995 and 1994, the Company issued common stock dividends and
distributions of $29,187,000 and $24,157,000, respectively. There were none
issued in 1996.
Cash and non-cash financing activities consisted of the following (in
thousands):
MERGER OF PREDECESSOR COMPANIES:
1994
----
Fair value of assets acquired (other than cash)....... $ 336,849
Fair value of liabilities assumed..................... (208,723)
-----------
128,126
Stock issued in connection with Merger................ (134,393)
Direct acquisition costs........................... (3,654)
-----------
Cash received......................................... $ (9,921)
===========
In the fourth quarter of 1995 the purchase price allocation was finalized
by recording a liability for a pre-acquisition contingency, in an amount that
the Company considers adequate.
53
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The following table sets forth the amounts of interest and income taxes
paid during 1996, 1995 and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Interest paid (including amounts capitalized
in 1996 and 1995 of $3,770
and $1,978, respectively)............... $ 24,247 $ 23,308 $ 5,237
========= ========= =========
Income taxes paid......................... $ 6,845 $ 6,915 $ 2,062
========= ========= =========
13. ICN YUGOSLAVIA:
The summary balance sheets of ICN Yugoslavia as of December 31, 1996 and
1995, and the summary statements of income before provision for income taxes and
minority interest for the years ended December 31, 1996, 1995 and 1994, are
presented below.
ICN YUGOSLAVIA SUMMARY BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
1996 1995
---- ----
Cash............................... $ 27,074 $ 2,696
Marketable securities.............. -- 27,374
Receivables, net................... 158,292 21,721
Inventories, net................... 53,016 103,511
Other current assets............... 11,452 14,267
Other long-term assets............. 104,983 104,112
---------- ----------
$ 354,817 $ 273,681
========== ==========
Current liabilities................ $ 38,386 $ 22,424
Minority interest and
long term liabilities........... 76,344 59,680
Stockholders' equity............... 240,087 191,577
---------- ----------
$ 354,817 $ 273,681
========== ==========
54
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
ICN YUGOSLAVIA SUMMARY STATEMENTS OF INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
Sales....................................... $ 267,166 $ 234,661 $ 172,124
Cost of sales............................... 157,981 116,748 121,701
--------- ---------- ---------
Gross profit................................ 109,185 117,913 50,423
Operating expenses.......................... 38,569 71,617 34,918
--------- ---------- ---------
Income from operations...................... 70,616 46,296 15,505
Interest income............................. (2,132) (4,087) (2,049)
Interest expense............................ 1,478 3,610 933
Translation and exchange losses (gains), net 4,290 (12,063) 1,417
--------- ---------- ---------
Income before provision for income
taxes and minority interest............ $ 66,980 $ 58,836 $ 15,204
========== ========== =========
BUSINESS ENVIRONMENT: ICN Yugoslavia, a 75% owned subsidiary, operates in a
business environment that is subject to significant economic volatility and
political instability. The current trend in Yugoslavia is toward unfavorable
economic conditions that include continuing liquidity problems, inflationary
pressures, unemployment, a weakened banking system and a high trade deficit. The
future of the economic and political environment of Yugoslavia is uncertain and
could deteriorate to the point that a material adverse impact on the Company's
financial position and results of operations could occur.
LIQUIDITY PROBLEMS: In an effort by the Central Bank of Yugoslavia to
control inflation through tight monetary controls, Yugoslavia is now
experiencing severe liquidity problems. This has resulted in longer collection
periods on ICN Yugoslavia's receivables. Most of ICN Yugoslavia's customers are
slow to pay due to delays of health care payments by the government. This has
also resulted in ICN Yugoslavia being unable to make timely payments on its
payables. In 1997, ICN Yugoslavia will attempt to reduce its receivables and
improve its cash flow by restricting future sales; however, these actions may
result in sales and earnings in 1997 that are lower than 1996. ICN Yugoslavia
holds approximately $26,000,000 of cash in a bank outside of Yugoslavia
originally intended to be used for future plant expansion in Yugoslavia. These
funds may be available for working capital purposes if necessary.
INFLATION AND MONETARY EXPOSURE: ICN Yugoslavia operates in a highly
inflationary economy and uses the dollar as the functional currency rather than
the Yugoslavian dinar. Before the enactment of an economic stabilization program
in January 1994, the rate of inflation in Yugoslavia was over 1 billion percent
per year. The rate of inflation was dramatically reduced when, on January 24,
1994, the Yugoslavian government enacted a "Stabilization Program" designed to
strengthen its currency. Throughout 1994, this program was successful in
reducing inflation to approximately 5% per year, increasing the availability of
hard currency, stabilizing the exchange rate of the dinar, and improving the
overall economy in Yugoslavia.
Throughout 1995, the effectiveness of the stabilization program weakened
and ICN Yugoslavia began experiencing a decline in the availability of hard
currency and inflation levels accelerated to an approximate annual rate of 90%
by the end of the year. In expectation of a devaluation late in 1995, ICN
Yugoslavia took action early in the fourth quarter of 1995 to reduce its
monetary exposure by shortening the payment terms on its receivables, reducing
sales levels, accelerating the purchase of inventory and accelerating the
purchase of building materials for its plant expansion. On November 24, 1995,
the dinar devalued from a rate of 1.4 dinars per U.S. $1 to a rate of 4.7 dinars
per U.S. $1. On this date, ICN Yugoslavia had a net monetary liability position
that resulted in a gain of $8,724,000.
55
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Throughout 1996, the level of inflation in Yugoslavia has been relatively
stable with a Yugoslavian government reported inflation rate of 60%. During this
time the government has exercised restraint on the amount of dinars in
circulation. The net monetary asset position of ICN Yugoslavia has increased due
to rising accounts receivable balances resulting from higher sales and a
lengthening of the collection period of receivables. From a beginning balance of
$7,396,000 at December 31, 1995, the net monetary asset position of ICN
Yugoslavia has risen to $134,000,000 at December 31, 1996 which is subject to
foreign exchange loss if a devaluation of the dinar were to occur.
As required by generally accepted accounting principles ("GAAP"), the
Company translates ICN Yugoslavia financial results at the dividend payment rate
established by the National Bank of Yugoslavia. To the extent that changes in
this rate lag behind the level of inflation, sales and expenses will, at times,
tend to be inflated. Future sales and expenses can increase substantially if the
timing of future devaluations falls significantly behind the level of inflation.
POTENTIAL DEVALUATION: The potential loss arising from a devaluation will
depend on the size of the devaluation and the magnitude of the net monetary
asset position at the time of the devaluation. The timing and the size of a
devaluation are strongly influenced by the amount of inflation and length of
time from the last devaluation. Since the last devaluation on November 24, 1995,
the overall level of inflation has been at an approximate annual rate of 60%.
The risk of devaluation increases as time passes and inflation continues. The
Company is unable to predict when a devaluation will occur.
GOVERNMENT SPENDING LIMITATIONS: The government has expressed its intention
to limit total 1997 health care spending on pharmaceuticals. Currently, ICN
Yugoslavia maintains a 50% market share for pharmaceutical products in
Yugoslavia. With approximately 80% of ICN Yugoslavia sales arising from
government or government funded entities, ICN Yugoslavia is economically
dependent on the government. If the government continues to follow this course
of action it could result in a significant decrease in 1997 domestic sales. ICN
Yugoslavia plans to partially mitigate the effects of decreased domestic
spending by placing more emphasis on its export business and by promoting sales
to privately funded pharmacies. The extent that these actions will mitigate the
decreases in government spending is uncertain. The government decision to reduce
health care spending could have a material adverse affect on the financial
results of the Company.
CREDIT RISK: ICN Yugoslavia is subject to credit risk in that 80% or
$196,873,000 of 1996 Yugoslavian domestic sales are to the government or
government funded entities of which $123,706,000 is included in accounts
receivable at December 31, 1996. Included in Yugoslavian domestic sales and
accounts receivable to government funded entities are $82,001,000 and
$88,069,000, respectively, to three major customers.
56
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
SANCTIONS: In December 1995, the United Nations Security Council adopted a
resolution that suspended economic sanctions that had been imposed on the
Federal Republic of Yugoslavia since May 1992. A substantial majority of ICN
Yugoslavia's business is conducted in the Federal Republic of Yugoslavia.
Sanctions had contributed to an overall deteriorating business environment
in which ICN Yugoslavia operated and denied ICN Yugoslavia access to export
sales which previously totaled approximately $30,000,000 a year. Sanctions also
created restrictions on ICN Yugoslavia's overseas investments and imposed
administrative burdens in obtaining raw materials outside of Yugoslavia.
The Company believes the suspension of sanctions continues to provide a
more favorable business environment; however, the beneficial effects of the
suspension will not take place immediately as the economy needs to adjust to new
opportunities. If Yugoslavia does not fully comply with the Dayton Accords,
there is a risk that sanctions could be reinstated.
PRICE CONTROLS: ICN Yugoslavia is subject to price controls in Yugoslavia.
The size and frequency of government approved price increases is influenced by
local inflation, devaluations, cost of imported raw materials and demand for ICN
Yugoslavia products. During 1996 and 1995, ICN Yugoslavia received fewer price
increases than in the past due to relatively lower levels of inflation. As
inflation rises, the size and frequency of price increases are expected to
increase. During the third quarter of 1995, ICN Yugoslavia received a 30% price
increase on its pharmaceutical products. This was the first price increase the
government had allowed since the start of the Stabilization Program. Subsequent
to the devaluation on November 24, 1995, ICN Yugoslavia received an 80% price
increase on its pharmaceutical products. Price increases obtained by ICN
Yugoslavia are based on economic events preceding the price increase and not on
expectations of ongoing inflation. This lag in permitted price increases creates
downward pressure on the gross margins that ICN Yugoslavia receives on its
products. When necessary, ICN Yugoslavia will limit sales of products that have
poor margins until an acceptable price increase is received. The impact of an
inability to obtain adequate price increases in the future could have an adverse
impact on the Company as a result of declining gross profit margins or declining
sales in an effort to maintain existing gross margin levels.
DIVIDENDS: In 1992, ICN Yugoslavia paid a $10,000,000 dividend of which the
Company received 75% or $7,500,000. Yugoslavian law allows free distribution of
earnings whether to domestic (Yugoslavian) or international investors. Under
this law a dividend must be declared and paid immediately after year end.
Earnings that are not immediately paid as a dividend cannot be used for future
dividends. Additionally, ICN Yugoslavia is allowed to pay dividends out of
earnings calculated under local statutory tax basis rules, not earnings
calculated under GAAP. ICN Yugoslavia dividends are payable in dinars which must
be exchanged for dollars before the dividend is repatriated. During high levels
of inflation the dinar denominated dividend could devalue substantially by the
time the dividend is exchanged for dollars. Under GAAP, ICN Yugoslavia had
accumulated earnings, which are not available for distributions, of
approximately $165,521,000 at December 31, 1996. However, additional
repatriation of cash could be declared from contributed capital for Yugoslavian
purposes of $360,000,000 at December 31, 1996, as provided for in the original
purchase agreement. In 1992, the Company made the decision to no longer
repatriate the earnings of ICN Yugoslavia and instead will use these earnings
for local operations, plant expansion, reduction of debt and additional
investment in Eastern Europe.
57
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
14. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, consist primarily of cash deposits
and marketable securities. The Company places its cash and cash equivalents with
respected financial institutions and limits the amount of credit exposure to any
one financial institution. (See also Note 13.)
15. ACQUISITIONS:
In September 1996, the Company acquired a majority interest in Alkaloida, a
pharmaceutical company in Hungary. The Company is investing $22,115,000 for a
60% interest in Alkaloida. An initial payment of $9,115,000 was made in
September 1996 and the final payment of $13,000,000 for this acquisition was
paid in January 1997. Alkaloida is a major producer of medicinal opiates and
morphine, as well as raw materials used in pharmaceutical manufacturing. The
purchase price allocation is preliminary pending the outcome of environmental
remediation studies expected to be completed in 1997. (See also Note 7.)
In September 1996, the Company acquired the assets and liabilities of the
Cappel Division ("Cappel") of Organon Teknika Corporation. Cappel manufactures
and sells immunochemical reagents used in biotechnology and biomedical
laboratories around the world. The Company acquired the assets and liabilities
of Cappel, with a net book value of $2,078,000, for 213,385 shares of the
Company's common stock valued at approximately $4,327,000 based upon the market
price of the stock at the time the shares were issued.
In July 1996, the Company acquired the assets and liabilities of the
Dosimetry Service Division ("Dosimetry") of Siemens Medical Systems, Inc.
("Siemens") with a net book value of approximately $3,882,000, for $23,668,000,
for 964,833 shares of the Company's common stock, valued at approximately
$22,616,000, based upon the market price of the stock at the time the shares
were issued and a $982,000 cash payment. Under the terms of the purchase
agreement, Siemens had the right, exercisable on or before December 23, 1996, to
require the Company to repurchase the 964,833 shares of common stock owned by
Siemens (the "Siemens Shares") for $23.51 per share in cash. On December 23,
1996, Siemens sold 964,833 shares of the Company's common stock to certain
accounts over which an investment company exercises investment authority
(collectively the "Purchasers") for $19.50 per share. Upon the consummation of
the sale of the Company's shares to the Purchasers, the Company paid Siemens
$4,378,000, which represented the excess of $23.51 above $19.50 for the 964,833
shares ($3,869,000), plus interest, as specified in the purchase agreement. (See
also Note 8.)
During July 1996, the Company acquired a 49% interest in Polypharm, a
Russian pharmaceutical company located in Chelyabinsk. The Company paid
approximately $1,100,000 in exchange for shares of Polypharm. During the third
quarter of 1996, the Company acquired an additional 16% interest in Polypharm
for approximately $500,000, raising its ownership to 65%. During the fourth
quarter, the Company acquired an additional 19% interest, raising its ownership
to 84%. Polypharm produces analgesics, antibiotics and antihistamines.
In June 1996, the Company acquired a 73% interest in Leksredstva, a Russian
pharmaceutical company, headquartered in Kursk, for approximately $5,700,000 in
cash. During the third quarter of 1996, the Company acquired an additional 22%
interest in Leksredstva for $500,000, from existing stockholders, increasing its
interest in Leksredstva to 95%. Leksredstva manufactures chemical products,
pharmaceutical raw materials and finished form drugs that include
cardiovasculars, anticancer drugs, analgesics and iodine preparations.
58
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
On February 29, 1996, the Company acquired the assets and liabilities of
GlyDerm, Inc. ("GlyDerm"), a Michigan based privately held company that develops
proprietary glycolic acid and other skin care products, with a net book value of
$1,093,000, for a total purchase price of approximately $7,670,000, consisting
of a $2,250,000 cash payment, 144,000 shares of the Company's common stock
valued at approximately $3,000,000 and $2,420,000 which represents the adjusted
earn-out payable, as provided in the acquisition agreement, of which the first
$1,000,000 is payable in cash and the balance payable 50% in cash and 50% in
shares of common stock.
To fund the acquisition of GlyDerm and several other small acquisitions in
January 1996, the Company sold approximately 400,000 common shares to a foreign
bank for net proceeds of $6,000,000.
The following table presents unaudited consolidated pro forma financial
information for the twelve months ended December 31, 1996 and 1995, as though
the acquisitions made in 1996 had occurred on January 1, 1995.
(Unaudited)
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
Net sales $ 672,222 $ 618,795
Income before provision for income taxes
and minority interest $ 105,306 $ 101,332
Net income $ 90,523 $ 77,297
Net income per share $ 2.59 $ 2.21
The unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions taken place on January 1, 1995. In
addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might be achieved from the
combined operations.
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The excess of the purchase price over the fair value of net assets acquired is
included in goodwill and is being amortized on a straight-line basis over 5 to
23 years based upon the nature of the business or products acquired. These
acquisitions do not, in the aggregate, constitute the acquisition of a
significant business as defined by Regulation S-K promulgated by the Securities
and Exchange Commission.
A summary of the purchase price allocation of the above mentioned 1996
acquisitions is a follows (in thousands):
TOTAL
-----
Current assets (excluding cash of $1,214) $ 62,798
Property, plant and equipment 52,044
Goodwill and intangibles 28,687
Other non-current assets 640
Current liabilities (48,261)
Long-term liabilities (15,037)
Minority interest (16,505)
----------
Total purchase price $ 64,366
==========
59
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
In March 1996, the Company purchased an additional 15% interest in the
Russian pharmaceutical company, ICN Oktyabr, thereby raising the Company's
ownership from 75% to 90%.
On October 1, 1996, ICN China, Inc. ("ICN China"), a wholly-owned
subsidiary of the Company, entered into a joint venture agreement with Wuxi
Pharmaceutical Corporation ("Wuxi"), a Chinese state-owned company, to establish
a limited liability company (the "Chinese Joint Venture Entity") for the
production and sale of pharmaceutical products. The Chinese Joint Venture Entity
is 75% owned by ICN China and 25% owned by Wuxi. Wuxi is a supplier of
injectable antibiotics. Wuxi will contribute its existing operation, with an
approximate net book value of $6,000,000, to the Chinese Joint Venture Entity
and ICN China will contribute a total of $24,000,000 in cash over three years,
primarily for the construction of a new pharmaceutical production plant and the
purchase of related machinery and equipment. The terms and conditions of the
joint venture were finalized in the first quarter of 1997.
16. AGREEMENT WITH SCHERING-PLOUGH CORPORATION:
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "Agreement") and a Stock Purchase Agreement with a subsidiary of
Schering to license the Company's proprietary anti-viral drug ribavirin as a
treatment for chronic hepatitis C in combination with Schering's alpha
interferon. The Agreement provided the Company an initial non-refundable payment
by Schering of $23,000,000 and future royalty payments to the Company for
marketing of the drug, including certain minimum royalty rates. Schering will
have exclusive marketing rights for ribavirin for hepatitis C worldwide, except
that the Company will retain the right to co-market in the countries of the
European Economic Community. In addition, Schering will purchase up to
$42,000,000 in common stock of the Company upon the achievement of certain
regulatory milestones. Under the Agreement, Schering is responsible for all
clinical developments worldwide.
The $23,000,000 non-refundable payment has been recorded by the Company as
prepaid royalty income of $10,000,000, a license fee of $8,000,000 and a
liability to Schering for certain cost sharing agreements of $5,000,000. The
prepaid royalty will be amortized to income based upon future sales of the
product and the license fee will be amortized on a straight line basis to income
over the fifteen year exclusive period of the Agreement.
60
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED DEDUCTIONS BALANCE
BEGINNING COSTS AND TO OTHER FROM AT END
OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
--------- -------- -------- -------- ---------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful receivables $ 8,070 $ 4,345 $ 557 $ (4,102) $ 8,870
======== ======== ======== ======== ========
Reserve for inventory obsolescence $ 12,709 $ 106 $ -- $ (2,662) $ 10,153
======== ======== ======== ======== ========
Deferred tax asset valuation allowance $ 54,181 $ -- 1,588 $ -- $ 55,769
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful receivables $ 10,036 $ (1,262) $ (197) $ (507) $ 8,070
======== ======== ======== ======== ========
Reserve for inventory obsolescence $ 15,390 $ (2,310) $ 550 $ (921) $ 12,709
======== ======== ======== ======== ========
Deferred tax asset valuation allowance $ 86,492 $ -- $(29,123)(1) $ (3,188) $ 54,181
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful receivables $ 7,633 $ 1,410 $ 1,507 $ (514) $ 10,036
======== ======== ======== ======== ========
Reserve for inventory obsolescence $ 1,317 $ 3,835 $ 11,431(2) $ (1,193) $ 15,390
======== ======== ========= ======== ========
Deferred tax asset valuation allowance $ 2,307 $ -- $ 84,643(2) $ (458) $ 86,492
======== ======== ========= ======== ========
(1) The credit to other accounts represents the reduction of goodwill and
intangibles assets for the utilization and reevaluation of the ultimate
realization of acquired net operating losses and other deferred tax assets,
as a result of the Merger, and the settlement of an IRS examination for
1989 and 1988 (see Note 5 of Notes to the Consolidated Financial
Statements).
(2) These amounts relate to acquired net operating losses and reserves for
inventory obsolescence as a result of the Merger (see Note 1 and 5 of the
Notes to the Consolidated Financial Statements).
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
62
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item is incorporated by reference to
the Company's definitive Proxy Statement to be filed in connection with the
Company's 1996 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Information Concerning Nominees and Directors."
Information regarding the Company's executive officers is included in Part I of
this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference to
the Company's definitive Proxy Statement to be filed in connection with the
Company's 1996 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Executive Compensation and Related Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That information required under this Item is incorporated by reference to
the Company's definitive Proxy Statement to be filed in connection with the
Company's 1996 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Ownership of the Company's Securities."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That information required under this Item is incorporated by reference to
the Company's definitive Proxy Statement to be filed in connection with the
Company's 1996 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Executive Compensation and Related Matters" and
"Certain Transactions."
63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Financial Statements of the Registrant are listed in the index to
Consolidated Financial Statements and filed under Item 8, "Financial Statements
and Supplementary Data", included elsewhere in the Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of the Registrant is listed in the index to
Consolidated Financial Statements and filed under Item 8, "Financial Statements
and Supplementary Data," included elsewhere in this Form 10-K.
3. EXHIBITS
3.1. Restated Certificate of Incorporation of Registrant previously filed as
Exhibit 3.1 to Registration Statement No. 33-84534 on Form S-4, which is
incorporated herein by reference, as amended by the Certificate of Merger,
dated November 10, 1994, of ICN Pharmaceuticals, Inc., SPI Pharmaceuticals,
Inc. and Viratek, Inc. with and into ICN Merger Corp. previously filed as
Exhibit 4.1 to Registration Statement No. 333-08179 on Form S-3, which is
incorporated herein by reference.
3.2 Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock of the Registrant previously filed as Exhibit 4.4 to
Registration Statement No. 333-16409 on Form S-3, which is incorporated
herein by reference.
3.3. Bylaws of the Registrant previously filed as Exhibit 3.2 to Registration
Statement No. 33-84534 on Form S-4, which is incorporated herein by
reference.
3.4 Rights Agreement, dated as of November 2, 1994, between the Registrant and
American Stock Transfer and Trust Company, as trustee, previously filed as
Exhibit 4.3 to the Company's Registration Statement on Form 8-A, dated
November 10, 1994, which is incorporated herein by reference.
10.1 Indenture between ICN Pharmaceuticals, Inc. and American Stock Transfer and
Trust Company, as trustee, relating to $115,000,000 8 1/2% Convertible
Subordinated Notes due 1999.*
10.2 Leave of Absence and Reemployment Agreement between SPI Pharmaceuticals,
Inc. and Milan Panic dated July 25, 1992 previously filed as Exhibit 10.44
to SPI Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1992, which is incorporated herein by reference.
10.3 Application for Registration, Foundation Agreement, Joint Venture - ICN
Oktyabr previously filed as Exhibit 10.46 to ICN Pharmaceuticals, Inc.
Annual Report on Form 10-K for the year ended December 31, 1992, which is
incorporated herein by reference.
* None of the other indebtedness of the Registrant exceeds 10% of its total
consolidated assets. The Registrant will furnish copies of the instruments
relating to such other indebtedness upon request.
64
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
10.4 Charter of the Joint Stock Company - ICN Oktyabr previously filed as
Exhibit 10.47 to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1992, which is incorporated herein by
reference.
10.5 Agreement between ICN Pharmaceuticals, Inc. and Milan Panic, dated October
1, 1988 previously filed as Exhibit 10.51 to ICN Pharmaceuticals, Inc.'s
Annual Report on Form 10-K for the year ended November 30, 1989, which is
incorporated herein by reference.
10.6 Amendment to Employment Contract between ICN Pharmaceuticals, Inc., and
Milan Panic, dated September 6, 1995 previously filed as Exhibit 10.29 to
ICN Pharmaceutical, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995, which is incorporated herein by reference.
10.7 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and
Adam Jerney, dated March 18, 1993 previously filed as Exhibit 10.49 to SPI
Pharmaceuticals, Inc.'s Amendment No. 2 to the Annual Report on Form 10-K
for the year ended on December 31, 1992, which is incorporated herein by
reference.
10.8 Agreement among ICN Pharmaceuticals, Inc., Viratek, Inc. and John Giordani,
dated March 18, 1993 previously filed as Exhibit 10.3 to Registration
Statement No. 33-84534 on Form S-4 dated September 28, 1994, which is
incorporated herein by reference.
10.9 Agreement among ICN Pharmaceuticals, Inc., ICN Biomedicals, Inc., SPI
Pharmaceuticals, Inc. and Bill MacDonald, dated March 18, 1993 previously
filed as Exhibit 10.4 to Registration Statement No. 33-84534 on Form S-4
dated September 28, 1994, which is incorporated herein by reference.
10.10 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and
Jack Sholl dated March 18, 1993, previously filed as Exhibit. 10.49 to
Amendment No. 2 of SPI Pharmaceuticals, Inc.'s Annual Report on Form 10-K
filed on December 31, 1992, which is incorporated herein by Reference.
10.11 Agreement between ICN Pharmaceuticals, Inc. and John Julian, dated May 2,
1995, filed herewith.
10.12 Agreement between ICN Pharmaceuticals, Inc. and Devron Averett dated June
14, 1996, filed herewith.
10.13 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and
David Watt dated March 18, 1993, previously filed as Exhibit. 10.49 to
Amendment No. 2 of SPI Pharmacuticals, Inc.'s Annual Report on Form 10-K
filed on December 31, 1992, which is incorporated herein by reference.
10.14 ICN Pharmaceuticals, Inc. 1992 Employee Incentive Stock Option Plan,
previously filed as Exhibit 10.56 to ICN Pharmaceuticals, Inc.'s Form 10-K
for the year ended December 31, 1992, which is incorporated herein by
reference.
10.15 ICN Pharmaceuticals, Inc. 1992 Non-Qualified Stock Plan, previously filed
as Exhibit 10.57 to ICN Pharmaceuticals, Inc.'s Form 10-K for the year
ended December 31, 1992, which is incorporated herein by reference.
65
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
10.16 SPI Pharmaceuticals, Inc. 1992 Employee Incentive Stock Option Plan
previously filed as Exhibit 10.42 to SPI Pharmaceuticals, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1992, which is
incorporated herein by reference.
10.17 SPI Pharmaceuticals, Inc. 1992 Non-Qualified Stock Option Plan previously
filed as Exhibit 10.43 to SPI Pharmaceuticals, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1992, which is incorporated herein by
reference.
10.18 Viratek, Inc. 1992 Employee Incentive Stock Option Plan previously filed
as Exhibit 10.22 to Viratek, Inc.'s Registration Statement No. 33-54678
on Form S-2, which is incorporated herein by reference.
10.19 Viratek, Inc. 1992 Non-Qualified Stock Plan previously filed as Exhibit
10.23 to Viratek, Inc.'s Registration Statement No. 33-54678 on Form S-2,
which is incorporated herein by reference.
10.20 ICN Biomedicals, Inc. 1992 Employee Incentive Stock Option Plan previously
filed as Exhibit 10.22 to ICN Biomedicals, Inc.'s Form 10-K for the year
ended December 31, 1992, which is incorporated herein by reference.
10.21 ICN Biomedicals, Inc. 1992 Non-Qualified Stock Option Plan previously
filed as Exhibit 10.23 to ICN Biomedicals, Inc.'s Form 10-K for the year
ended December 31, 1992, which is incorporated herein by reference.
10.22 ICN Pharmaceuticals, Inc. 1981 Employee Incentive Stock Option Plan, as
amended, previously filed as Exhibit 4.1 to Registration Statement No.
33-60866 on Form S-3 dated April 9, 1993, which is incorporated herein by
reference.
10.23 SPI Pharmaceuticals, Inc. 1982 Employee Incentive Stock Option Plan, as
amended and restated as of January 21, 1992, previously filed as Exhibit
4.1 to SPI's Registration Statement No. 33-60872 on Form S-8 dated April 9,
1993, which is incorporated herein by reference.
10.24 SPI Pharmaceuticals, Inc. 1982 Non-Qualified Stock Option Plan, as amended
and restated as of January 21, 1992, previously filed as Exhibit 4.2 to
SPI's Registration Statement No. 33-60872 on Form S-8 dated April 9, 1993,
which is incorporated herein by reference.
10.25 Viratek, Inc. 1982 FDA Employee Special Stock Option Plan previously filed
as Exhibit 10.14 to Viratek, Inc.'s Form 10-K for the year ended November
30, 1982, which is incorporated herein by reference.
10.26 Viratek, Inc. 1981 Employee Incentive Stock Option Plan as amended on
January 21, 1992, previously filed as Exhibit 4.1 to Viratek, Inc.'s
Registration Statement No. 33-60876 on Form S-8 dated April 9, 1993, which
is incorporated herein by reference.
10.27 Viratek, Inc. 1980 Employee Stock Option Plan, as amended, previously
filed as Exhibit 4.2 to Viratek, Inc.'s Registration Statement No. 33-60870
on Form S-8 dated April 9, 1993, which is incorporated herein by reference.
66
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONTINUED
10.28 ICN Biomedicals, Inc. 1992 Employee Incentive Stock Option Plan previously
filed as Exhibit 4.1 to ICN Biomedicals, Inc.'s Registration Statement No.
33-60862 on Form S-8 dated April 9, 1993, which is incorporated herein by
reference.
10.29 ICN Biomedicals, Inc. 1983 Non-Qualified Stock Option Plan and 1983
Incentive Stock Option Plan, as amended and restated as of January 21,
1992, previously filed as Exhibits 4.1 and 4.2 to ICN Biomedicals, Inc.'s
Registration Statement No. 33-34943 on Form S-8 dated April 9, 1993, which
is incorporated herein by reference.
10.30 ICN Pharmaceuticals, Inc. 1994 Stock Option Plan previously filed as
Exhibit 10.30 to the Registrant's Form 10-K for the year ended December 31,
1995, which is incorporated herein by reference.
10.31 Exclusive License and Supply Agreement between ICN Pharmaceuticals, Inc.
and Schering-Plough Ltd. dated July 28, 1995 previously filed as Amendment
3 to the Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, which is incorporated herein by reference.
10.32 Collateral Agreement between Milan Panic and the Registrant, dated August
14, 1996, filed herewith.
10.33 Agreement dated December 23, 1996 by and among the Registrant and those
persons identified as purchasers on Schedule A thereto, previously filed as
Exhibit 4 (c) (1) to the Registrant's Current Report on Form 8-K dated
December 24, 1996, which is incorporated herein by reference.
11. Computation of Earnings per Share.
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P. Independent Accountants.
27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K IN FOURTH QUARTER
Form 8-K dated October 28, 1996
Form 8-K dated December 24, 1996
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 1997
By /S/ MILAN PANIC
---------------------------------------
Milan Panic,
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/S/ MILAN PANIC Date: March 27, 1997
- ----------------------------------------------
Milan Panic
Chairman of the Board and Chief Executive Officer
/S/ JOHN E. GIORDANI Date: March 27, 1997
- ----------------------------------------------
John E. Giordani
Executive Vice President, Chief Financial Officer
and Corporate Controller
/S/ NORMAN BARKER, JR. Date: March 27, 1997
- ----------------------------------------------
Norman Barker, Jr., Director
/S/ BIRCH BAYH Date: March 27, 1997
- ----------------------------------------------
Senator Birch Bayh, Director
/S/ ALAN F. CHARLES Date: March 27, 1997
- ----------------------------------------------
Alan F. Charles, Director
/S/ ROGER GUILLEMIN Date: March 27, 1997
- ----------------------------------------------
Roger Guillemin, M.D., Ph.D., Director
/S/ ADAM JERNEY Date: March 27, 1997
- ----------------------------------------------
Adam Jerney, President, Director
/S/ DALE M. HANSON Date: March 27, 1997
- ---------------------------------------------
Dale M. Hanson, Director
68
SIGNATURES - CONTINUED
/S/ WELDON B. JOLLEY Date: March 27, 1997
- ---------------------------------------------
Weldon B. Jolley, Ph. D., Director
/S/ JEAN-FRANCOIS KURZ Date: March 27, 1997
- ---------------------------------------------
Jean-Francois Kurz, Director
/S/ THOMAS LENAGH Date: March 27, 1997
- ---------------------------------------------
Thomas Lenagh, Director
/S/ CHARLES T. MANATT Date: March 27, 1997
- ---------------------------------------------
Charles T. Manatt, Director
/S/ STEPHEN MOSES Date: March 27, 1997
- ---------------------------------------------
Stephen Moses, Director
/S/ MICHAEL SMITH Date: March 27, 1997
- ---------------------------------------------
Michael Smith, Ph.D., Director
/S/ ROBERTS A. SMITH Date: March 27, 1997
- ----------------------------------------------
Roberts A. Smith, Ph.D., Director
/S/ RICHARD W. STARR Date: March 27, 1997
- ----------------------------------------------
Richard W. Starr, Director