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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2000.
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:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(INCLUDING ASSOCIATED PREFERRED
STOCK PURCHASE RIGHTS)
9 1/4% SENIOR NOTES DUE 2005 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 of the Registrant on March 12, 2001, was approximately
$1,870,154,941.
The number of outstanding shares of the Registrant's common stock as of
March 12, 2001 was 80,236,646.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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TABLE OF CONTENTS
PAGE
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PART I
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 1
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 11
8. Financial Statements and Supplementary Data................. 14
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 42
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EXPLANATORY NOTE
This Amendment No. 3 on Form 10-K/A to the Annual Report on Form 10-K of
ICN Pharmaceuticals, Inc. filed on April 2, 2001 amends Item 7, Item 8 and Item
14 for the purpose of among other things amending certain disclosures in
response to comments received from the Securities and Exchange Commission.
The amendment to Item 7 restates in its entirety the third paragraph under
"Year Ended December 31, 2000 Compared to 1999" and restates in its entirety the
eighth and ninth paragraph and adds the tenth paragraph under "Liquidity and
Capital Resources." The amendment to Item 8 restates in its entirety the third
to last paragraph of Note 6 and the third and fourth paragraphs of Note 12. Item
14 was amended to amend the description of Exhibits 10.8, 10.32 through 10.39
and Exhibit 21. In addition, the text of Exhibit 23 was revised. Other than
these amendments, Items 7, 8 and 14 remain in the same form as initially filed.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Certain financial information for the Company's business segments is set
forth below. This discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this document. For
additional financial information by business segment, see Note 13 of Notes to
Consolidated Financial Statements for the year ended December 31, 2000.
REVENUE
--------------------------------
2000 1999 1998
-------- -------- --------
REVENUES:
Pharmaceuticals
North America................................. $275,687 $254,694 $182,778
Western Europe................................ 187,206 185,417 154,346
Latin America................................. 127,485 100,325 85,351
Russia........................................ 106,271 91,648 163,691
Yugoslavia.................................... -- -- 141,740
Asia, Africa, Australia....................... 45,133 54,131 48,649
-------- -------- --------
Total Pharmaceuticals.................... 741,782 686,215 776,555
Biomedicals...................................... 58,522 61,197 61,509
-------- -------- --------
Total revenues........................... $800,304 $747,412 $838,064
======== ======== ========
Product sales.................................... $645,190 $638,475 $800,639
Royalty revenues................................. 155,114 108,937 37,425
-------- -------- --------
Total revenues........................... $800,304 $747,412 $838,064
======== ======== ========
Cost of product sales.............................. $262,818 $256,146 $353,600
Gross profit margin on product sales............... 59% 60% 56%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO 1999
Royalty Revenues: Royalty revenues represent amounts earned under the
Company's Exclusive License and Supply Agreement (the "License Agreement") with
Schering-Plough. Under the License Agreement, Schering-Plough licensed all oral
forms of ribavirin for the treatment of chronic hepatitis C ("HCV") in
combination with Schering-Plough's alpha interferon (the "Combination Therapy").
In 1998, Schering-Plough received approval from the United States Food and Drug
Administration ("FDA") to market Rebetron(TM) Combination Therapy. Rebetron(TM)
combines Rebetol(R) (ribavirin) Capsules and Intron(R)A (interferon alfa-2b,
recombinant) Injection, for the treatment of HCV in patients with compensated
liver disease. In May 1999, the European Union's ("EU") Commission of the
European Communities granted marketing authorization to Schering-Plough to
market Rebetol(R) (ribavirin) Capsules for use in combination with interferon
alfa-2b injection (marketed as Intron(R)A in certain countries) for the
treatment of both relapsed and previously untreated (naive) HCV patients. The
Commission's approval resulted in a single Marketing Authorization with unified
labeling was immediately valid in all 15 European Union-Member States.
Schering-Plough commenced marketing Rebetol(R) in Germany (May 1999), the United
Kingdom (July 1999), Italy (October 1999), France (May 2000) and Spain (May
2000). The Company anticipates that Schering-Plough will introduce Rebetol(R) in
the other EU markets upon receiving pricing approvals, where necessary, from
individual EU countries.
Royalty revenues for the year ended December 31, 2000 were $155,114,000
compared to $108,937,000 for 1999, an increase of 42%, reflective of additional
sales of Rebetron(TM) by Schering-Plough resulting from the 1999 and 2000
launches into certain European markets.
Schering-Plough has informed the Company that it believes royalties for
the fourth quarter should not include royalties of approximately $1,800,000 on
products distributed as part of an indigent patient marketing program. It also
informed the Company that amounts that had previously been paid under this
program, which they estimate to be approximately $11,900,000, should be
returned to Schering-Plough. In raising the dispute, Schering-Plough has not
clearly articulated a contractual basis for the nonpayment of royalties. Rather
it has based its arguments on primarily moral or humanitarian grounds,
essentially equitable arguments, indicating that they believe they should not
have an obligation to pay royalties on product given to indigent patients. The
Company has not been provided with appropriate information or documentation,
and does not agree with such adjustment as the Agreement articulates those
programs for which royalties would not be due. Should Schering-Plough
successfully apply this adjustment retroactively, it could have an impact on
the Company's results of operations. Further, if Schering-Plough were to apply
the proposed adjustment to future royalty payments, royalties could be reduced
in approximately the same proportion as the proposed historical adjustment.
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Segment Revenues: In the North America Pharmaceuticals segment, revenues
for the year ended December 31, 2000 were $275,687,000, compared to $254,694,000
for 1999. The increase in revenue of $20,993,000 (8%) was primarily the result
of an increase of $46,177,000 (42%) in royalty revenues from sales of Rebetol(R)
(ribavirin) by Schering-Plough and sales price increases of $12,066,000 (5%)
partially offset by lower unit sales of $37,288,000 (15%) primarily resulting
from production and supply problems that affected Efudex(R) and Librax(R) and
decreased sales of other ethical products.
In the Western Europe Pharmaceuticals segment, revenues for the year ended
December 31, 2000 were $187,206,000 compared to $185,417,000 for 1999, an
increase of $1,789,000 (1%). In 2000, revenues include sales attributable to the
Solco acquisition in the third quarter 2000 of $7,036,000, product acquisitions
(1999) of $6,834,000 (4%) and the effect of an increase in sales prices of
$13,591,000 (7%), offset by the negative impact of the stronger US Dollar of
$27,324,000 (15%).
In the Latin America Pharmaceuticals segment, revenues for the year ended
December 31, 2000 were $127,485,000, compared to $100,325,000 for 1999. The
increase of $27,160,000 (27%) primarily reflects increases in sales volume of
$17,128,000 (17%) including sales of Bedoyecta(R), an injectable vitamin B-12
supplement, Virazole(R) (ribavirin), from the launching of OTO ENI, ear drops
for external infectious and inflammatory otitis for pediatric use, and from the
launching of a new line of dermatological products including Microskin,
MicroVITA and MicroKA.
In the Russia Pharmaceuticals segment, revenues for the year ended December
31, 2000 were $106,271,000, compared with $91,648,000 for 1999, an increase of
$14,623,000 (16%). The increase was primarily the result of the expansion of the
Company's retail pharmacy business in 1999 of $13,324,000 (15%).
In the Asia, Africa and Australia Pharmaceuticals segment ("AAA"), revenues
for the year ended December 31, 2000 were $45,133,000 compared to $54,131,000
for 1999, a decrease of $8,998,000 (17%). In 2000, revenues include sales
attributable to the Solco acquisition in the third quarter of $7,037,000. The
decrease, after excluding the sales from Solco ($16,035,000), is due to sales
volume decrease of $10,820,000 (21%) resulting from the shift by the Company to
new distribution channels a year ago resulting in higher than normal sales in
the second quarter of 1999, and the termination of a joint venture agreement in
China of $4,720,000 (8%).
In the Company's Biomedicals segment, revenues for the year ended December
31, 2000 were $58,522,000 compared to $61,197,000 for 1999, a decrease of
$2,675,000 (4%). The decrease is primarily due to lower sales volume in the
Company's diagnostics and research product lines, partially offset by increased
revenues from dosimetry services.
Gross Profit: Gross profit margin on product sales decreased to 59% for the
year ended December 31, 2000, compared to 60% for 1999. The decrease in gross
profit margin is primarily due to lower gross profit margin in AAA. The gross
profit margin for AAA was 42% in 2000 compared to 54% in 1999, reflecting a
higher cost of goods purchased from toll manufacturers, which were purchased
from SKB and Roche in 1999 and a decrease in gross profit margin of 6% in 2000
related to the termination of a joint venture in China. The gross profit margin
for all other regions was relatively the same for 2000 and 1999.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $304,314,000 for the year ended December 31, 2000,
compared to $252,207,000 for 1999, an increase of $52,107,000 (21%). In 1999,
selling, general and administrative expenses included approximately $11,981,000
of costs associated with an asset revaluation in the Hungarian business.
Excluding the asset revaluation charge in 1999, selling, general and
administrative expenses increased $64,088,000. This increase is primarily due to
a rise in selling and advertising expenses of $28,184,000, an increase in
corporate expenses, including compensation and legal expenses of $13,825,000
primarily due to a $9,250,000 reserve for potential legal
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settlements and all other related costs (see note 12 of Notes to the
Consolidated Financial Statements), lease termination costs of approximately
$3,000,000 and 1999 non-recurring reductions of expense of $6,131,000.
Research and Development: Research and development expenses for the year
ended December 31, 2000 were $18,769,000, compared to $10,963,000 in 1999. The
increase reflects the Company's expanded and intensified research and
development efforts in 2000. Total research and development spending for 2000
was $37 million, which included capital for new equipment and facilities, as
well as accelerated research programs to focus on the pipeline and new product
development.
Translation and Exchange Losses, Net: Translation and exchange losses, net
were $6,587,000 for the year ended December 31, 2000 compared to $11,823,000 for
1999. In the year of 2000, translation losses principally consisted of
translation losses of $3,525,000 related to the net monetary asset position of
the Company's Russian subsidiaries and transaction losses of $3,062,000. In
1999, translation losses principally consisted of translation losses of
$6,738,000 related to the net monetary asset position of the Company's Russian
subsidiaries and losses of $2,650,000 in Hungary and Poland resulting from
foreign-denominated debt.
Interest Income and Expense: Interest expense during the year ended
December 31, 2000 increased $4,413,000 compared to 1999, primarily due to
interest on the $125,000,000 principal amount 8 3/4% Senior Notes due 2008
issued in July 1999 partially offset by a reduction of debt during the second
half of 1999 in the Company's subsidiaries in Hungary, Poland and Czech
Republic. Interest income increased from $8,894,000 in 1999 to $12,542,000 in
2000 as a result of the increase in cash generated during the second half of
1999.
Income Taxes: The Company's effective income tax rate for the year ended
December 31, 2000 was 27% compared to 21% for 1999. The increase in the
effective tax rate results from higher taxable income in 2000 and the effect of
the losses in Hungary and China for which no tax benefit was recorded partially
offset by the recognition, during the second quarter of 2000, of deferred tax
assets through the reduction of the related valuation allowance for capital loss
carryforwards amounting to $12,250,000. During 1999, the Company reduced its
valuation allowance for capital loss carryforwards by $25,286,000. The Company
has announced its intention to restructure the Company and divide the Company
into three separate publicly traded companies. This restructuring will include
the sale of stock of the two newly formed companies, which is expected to result
in a net capital gain. The Company will be able to utilize its capital loss
carryforwards to offset the gain generated on the sale of stock. Ultimate
realization of the deferred tax asset is dependent upon the Company generating
sufficient capital gains prior to the expiration of the capital loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that the deferred tax assets will be realized.
In Russia, the Company continues to benefit from special tax relief that
benefits pharmaceutical companies. Under this relief approximately 75% of the
income generated in Russia related to the manufacture and sale of prescription
medicines is exempt from taxation. This reduces the statutory rate to
approximately 8%. The continuing tax benefits in Russia are subject to potential
changes in tax law that may be enacted in the future. Should these benefits be
repealed, income generated in Russia would require the Company to provide taxes
at the current statutory rate of 35%, which could have a material impact on the
consolidated results of operation and cashflows of the Company.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998
Royalty Revenues: Royalty revenues for 1999 were $108,937,000 compared to
$37,425,000 for 1998. The 1999 royalty amount reflects increasing United States
commercial sales of Rebetron(TM) by Schering-Plough subsequent to receipt of
initial FDA approval in June 1998, inception of commercial sales in the European
Union and an increase in compassionate use sales, primarily in Western Europe.
Royalty revenues for 1998 also include a one-time payment of $16,500,000
which the Company received from Schering-Plough for the settlement of past
royalties due on physician initiated clinical trials and free product
distributed by Shering-Plough ($8,467,000), as reimbursement for expenses
incurred by the Company in preparation for the launch of ribavirin capsules in
the European Union ($3,033,000) and a
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forgiveness of a $5,000,000 obligation to Schering-Plough. In addition, the
Company forfeited the right to co-market oral forms of ribavirin for the
treatment of HCV in the European Union in exchange for an increase in worldwide
royalty rates.
The Company recorded the entire amount of the one-time payment as revenue
as well as the previously unamortized portion of the 1995 license revenue paid
to the Company by Schering-Plough of $3,689,000. At the time of the initial sale
of the rights and technology to Schering-Plough in 1995, the Company maintained
the rights to co-market in the European Union, was obligated under a supply and
manufacturing agreement and participated on scientific advisory committees
during the clinical trial process being conducted by Schering-Plough. In 1998,
when the Company gave up the rights to co-market in the European Union in
exchange for increased royalty rates, the Company no longer had any continuing
obligations with respect to the transfer of the rights and technology to
Schering-Plough.
Segment Revenues: The decrease in revenues for the Company's Pharmaceutical
segments of $90,340,000 (or 12%) for 1999 reflects the impact of the loss of the
Yugoslavian operations ($141,740,000 in 1998) and the decrease in revenues of
$72,043,000 in Russia, which was adversely impacted by the Russian economic
situation. The decrease was partially offset by the increase in royalty revenues
of $71,512,000 and the increase in product sales from acquisitions in 1999 and
1998 of $80,528,000.
In the North America Pharmaceuticals segment, revenues were $254,694,000
for 1999, compared to $182,778,000 for 1998, an increase of $71,916,000 (or
39%). Revenues for 1999 reflect a $71,460,000 increase in royalty revenues from
sales of Rebetol(R) (ribavirin) by Schering-Plough Corporation
("Schering-Plough") and the increase in sales of $12,993,000, resulting from the
product acquisition from F. Hoffman-La Roche Ltd. ("Roche") in October 1998. In
addition, product sales of Kinerase(R), which the Company introduced in March
1999, generated sales of $10,062,000. The increase was partially offset by a
decrease of $11,327,000 in sales of the products obtained from Roche in 1997.
During 1999, the Company began using published data, which reflects
pharmaceutical sales data on sales made to distributors, including the buying
trends of the distributors. The Company used this information in determining to
decrease its selling and marketing efforts for these products, thus resulting in
decreased sales. In addition, the decrease reflects a decline in units and
revenues primarily from Virazole(R) and the Company's Bleach product line.
In the Western Europe Pharmaceuticals segment, revenues for 1999 were
$185,417,000 compared to $154,346,000 for 1998. The increase of $31,071,000 (or
20%) is primarily due to the Company's acquisition of the rights to certain
products from Roche in October 1998, which generated additional sales of
$18,625,000. In addition, $8,368,000 of the sales increase resulted from the
inclusion of the full year results of ICN Czech Republic, which was acquired in
June 1998.
In the Latin America Pharmaceuticals segment, revenues were $100,325,000
for 1999 as compared to $85,351,000 for 1998, an increase of $14,974,000 (or
18%). The increase is primarily due to the product acquisitions in 1998 as well
as continued growth in the base business. The acquisitions included products
acquired from Roche in October 1998 and a portfolio of 32 dermatology products
acquired from Laboratorio Pablo Cassara ("Cassara") effective March 1, 1998. The
acquired products generated additional sales of $8,167,000 over the 1998 period.
In the Russia Pharmaceuticals segment, revenues for 1999 were $91,648,000
compared with $163,691,000 for 1998, a decrease of $72,043,000 (or 44%). The
Company's Russian operations continue to be impacted by the Russian economic
situation, which the Company believes has affected the liquidity and purchasing
power of many of its Russian customers. In addition, the 77% decline in the
value of the Russian ruble in relation to the United States dollar since June
1998 has reduced the dollar amount of the Company's Russian revenues. The
Company has partially offset the effect of the exchange rate changes through
price increases and improvement in its product mix.
In the Asia, Africa and Australia Pharmaceuticals segment, revenues for
1999 were $54,131,000 compared to $48,649,000 in 1998, an increase of $5,482,000
(or 11%). The increase is primarily related to sales of products acquired from
Roche and SmithKline Beecham plc. ("SKB") in 1998, which generated additional
sales of $10,125,000 in 1999. This increase was partially offset by order
backlog resulting from
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temporary delays in shipments of certain products from contracted manufacturers
and by lower revenues at Wuxi ICN Pharmaceuticals in China.
In the Company's Biomedicals segment, revenues for 1999 were $61,197,000
compared to $61,509,000 in 1998, a decrease of $312,000. This decrease is
primarily related to lower sales volume in the Company's diagnostic and
radiochemical product lines, partially offset by increased revenues from
radiation monitoring services.
Gross Profit: Gross profit margin on product sales increased to 60% for
1999 compared to 56% for 1998. The improvement in gross profit margin is
primarily due to increased sales of the products acquired from Roche in 1998,
which generally yield higher gross profit margins than were previously achieved
by the Company's base business. The Company's gross profit margin for 1999 was
also improved by the loss of the Company's Yugoslavian operations, which
achieved a 43% gross profit margin for 1998. Gross profit margins in the North
America Pharmaceuticals segment were 85% for 1999 compared to 82% in 1998,
reflecting the effect of the acquired products. In the Western Europe
Pharmaceuticals segment, the gross profit margins were 49% for 1999 compared to
53% for 1998. The decrease in margin over 1998 was the result of the decrease in
gross profit margins in Hungary and Poland. The Company's operations in Hungary
and Poland have reduced export sales to the Russian market, temporarily lowering
operating efficiencies as the Company shifts its efforts toward European Union
markets. The decrease in Western Europe was partially offset by the effect of
the acquired Roche products, which generally yield higher gross profit margins.
The overall gross margins for the Company's Russia Pharmaceuticals segment were
36% for 1999 compared to 42% for 1998. In 1999, gross profit margins in the
Company's Russian operations continue to be affected by the decline in sales
volume resulting from the devaluation of the ruble. While the Company has
historically been able to set its prices for Russian markets without government
approval, the ruble devaluation has reduced the purchasing power of Russian
consumers, effectively restricting price increases to a level that does not
fully offset the impact of the devaluation. In an effort to diminish the impact
of the decline in gross profit margin, the Company has also improved its product
mix for the Russian market to focus on higher-margin products.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $252,207,000 for 1999, compared to $291,776,000 for
1998, a decrease of $39,569,000. The decrease primarily reflects the impact of
the loss of the Company's Yugoslavian operations, which incurred expenses of
$24,844,000 during 1998. In the Company's Russian operations, selling, general
and administrative expenses decreased by $27,519,000 (excluding the effect of
acquisitions), principally due to the 77% decline in the value of the ruble and
the Company's cost-control efforts. The decrease in selling, general and
administrative expenses also reflects an $18,270,000 decline in corporate
expenses related to a reduction of legal expenses and some non-recurring
expenses recorded in 1998. These amounts were partially offset by additional
costs resulting from acquisitions of business and product rights, which totaled
$19,182,000. The Company's selling, general and administrative expenses in 1999
also include approximately $11,981,000 of additional costs associated with the
Hungarian business.
Amortization of Goodwill and Intangibles: Amortization of goodwill and
intangibles expenses were $29,239,000 for 1999, compared to $20,601,000 for
1998, an increase of $8,638,000. The increase principally reflects the increase
in the amortization of intangibles related to the products acquired from Roche
in 1998.
Research and Development: Research and development expenditures for 1999
were $10,963,000, compared to $20,835,000 for the same period in 1998. The
decrease reflects lower spending at the Company's facilities in the United
States and Hungary, and the impact of the loss of the Company's Yugoslavian
operations. In 1998, research and development at ICN Yugoslavia totaled
$3,141,000. Additionally, the Company slowed its spending as it evaluated its
overall research strategy during 1999.
Translation and Exchange Losses, Net: Translation and exchange losses, net,
were $11,823,000 for the year ended December 31, 1999 compared to $80,501,000
for the same period in 1998. In 1999, translation losses principally consisted
of losses of $6,738,000 related to the net monetary asset position of the
Company's Russian subsidiaries and losses of $2,650,000 in Hungary and Poland
resulting from foreign-denominated debt, which was repaid in the second half of
1999. For the year ended December 31, 1998, the Company's
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translation and exchange losses principally reflect the August 1998 devaluation
of the Russian ruble and ICN Yugoslavia's net monetary asset position.
Interest Income and Expense: For 1999, interest expense increased
$17,874,000 compared to the same period in 1998, primarily due to the additional
interest expense resulting from the Company's 8 3/4% Senior Notes due 2008,
issued in August 1998 and July 1999. Interest expense on the Senior Notes was
partially offset by lower interest expense on obligations of the Company's
subsidiaries which were repaid using a portion of the proceeds from the Senior
Notes. The net increase in interest expense also reflects a decrease in the
amount of interest cost capitalized related to certain construction projects.
During 1998, the Company capitalized interest of $3,540,000; no interest cost
was capitalized in 1999. Interest income decreased to $8,894,000 in 1999 from
$13,057,000 in 1998. In 1998, interest income included $4,022,000 of interest
earned at ICN Yugoslavia on its cash balances and accounts receivable.
Income Taxes: The Company's effective income tax rate for 1999 was 21%
compared to 1% for 1998. The provision for income taxes increased as a result of
the effect of higher 1999 taxable income in the United States, and the effect of
the losses in Hungary and China for which no tax benefit was recorded. These
increases in the effective tax rate were partially offset by higher 1999 taxable
income in Puerto Rico and other jurisdictions taxed at rates lower than the U.S.
Federal statutory rate of 35%. The provision for income taxes for 1999 includes
a deferred tax benefit of $25,286,000 resulting from the recognition of deferred
tax assets through the reduction of the related valuation allowance.
ICN Hungary generated tax loss carryforwards in 1999 and in 1998. In 1998,
the Company's Russian subsidiaries also generated deferred income tax assets,
primarily related to bad debt reserves. Management believes that it is more
likely than not that these future tax benefits will not be realized prior to
expiration as a result of the seizure of ICN Yugoslavia and the economic crisis
affecting Eastern Europe. Accordingly, the Company recorded a valuation
allowance against these loss carryforwards and deferred income tax assets,
resulting in no tax benefit being recorded in 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, cash provided by operating activities totaled $181,684,000
compared to $87,123,000 in 1999. Operating cash flows reflect the Company's net
income of $90,180,000 and net non-cash charges (including depreciation, minority
interest, and foreign exchange gains and losses) of $102,289,000, partially
offset by working capital increases (after the effect of business acquisitions
and currency translation adjustments) totaling approximately $10,785,000. The
working capital increases principally consist of a $34,129,000 increase in
inventories primarily due to bridging stocks required during the transfer of
manufacturing to the Company's manufacturing facilities for products acquired in
prior years.
The Company evaluates the carrying value of its inventories at least
quarterly, taking into account such factors as historical and anticipated future
sales compared with quantities on hand, the price the Company expects to obtain
for its products in their respective markets compared with historical cost, and
the remaining shelf life of goods on hand. The Company also evaluates the
collectibility of its receivables at least quarterly. The Company's methodology
for establishing the allowance for bad debts varies with the regions in which it
operates. With the exception of Russia, the allowance for bad debts is based
upon specific identification of customer accounts and the Company's best
estimate of the likelihood of potential loss, taking into account such factors
as the financial condition and payment history of major customers. In Russia,
the allowance for bad debts is based upon a combination of specific
identification of customer account balances and an overall provision based upon
anticipated developments and historical experience. In Russia, factors such as
the economic crisis in August 1998 and the subsequent stabilization in the
middle of 1999 were utilized in the analysis. Based upon this analysis, the
Company recorded bad debt expense related to its Russian operations of
$1,824,000, $8,129,000 and $26,242,000 for the years ended December 31, 2000,
1999 and 1998, respectively. As of December 31, 2000 and 1999 the allowance for
doubtful accounts for the Company's Russian subsidiaries was $10,276,000 and
$9,142,000, respectively. As of December 31, 2000, the Company believes that
adequate provision has been made for inventory obsolescence and for anticipated
losses on uncollectible accounts receivable.
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Cash used in investing activities was $90,795,000 for 2000 compared to
$50,360,000 for 1999. In 2000, the Company made acquisitions of license rights,
product lines and businesses amounting to $40,968,000 (net of acquired cash
$4,613,000) and made capital expenditures of $49,330,000, principally
representing an increase in the investment in research and development in North
America and production equipment in Western Europe (including Poland, Hungary
and the Czech Republic. In 1999, the Company incurred capital expenditures of
$44,083,000, principally representing the continuation of its plant expansion
efforts and investment in information systems. The Company also used cash of
$23,588,000 (net of cash acquired of $288,000) for acquisitions, including
acquiring a chain of 88 pharmacies in Russia, the purchase of a pharmaceutical
distributor in Hungary and acquired product rights in certain Western European
markets. These amounts were partially offset by the decrease in restricted cash
in the amount of $15,144,000 which was required to collateralize the Company's
obligation under certain letters of credit. After the Company settled its
obligation in the fourth quarter of 1999, the restriction was removed.
Cash used in financing activities totaled $112,765,000 during 2000,
including payments on long-term debt of $105,901,000 (including the repurchase
of $84,355,000 of the Company's outstanding 9 1/4% Senior Notes and $12,830,000
of its outstanding 8 3/4% Senior Notes), payments of cash dividends on common
stock of $22,665,000, and payments on notes payable of $7,911,000. These
payments were offset by proceeds from the exercise of stock options of
$14,568,000, proceeds from the issuance of notes payable of $5,724,000 and
proceeds from long-term borrowings of $3,420,000. During 1999, cash provided by
financing activities totaled $36,399,000 principally consisted of proceeds from
long-term borrowings of $145,490,000, including net proceeds of $118,485,000
from a private placement of $125,000,000 principal amount of its 8 3/4% Senior
Notes due 2008. The Company used cash (including a portion of the proceeds of
the 8 3/4% Senior Notes) for principal payments of $87,632,000 on long-term debt
and for payments of $31,695,000 on notes payable. Other sources of cash also
included $42,000,000 from the sale to Schering-Plough of 2,041,498 shares of its
common stock (as provided for under the terms of a Stock Purchase Agreement
entered into with Schering-Plough in 1995) and proceeds from the exercise of
employee stock options of $12,894,000. These amounts were partially offset by
the payment of dividends on common stock of $21,017,000, the repurchase of
614,167 shares of common stock for $15,304,000 under the Stock Repurchase
Program authorized by the Company's Board of Directors in 1998 and the
repurchase of the Company's Series D Preferred Stock in settlement of the
remaining obligation to SKB.
The current economic environment in Russia continues to affect the
Company's operating cash flows in Russia, some of the Company's Russian
customers continue to experience liquidity shortages. The Company may need to
invest additional working capital in Russia to sustain its operations, to
provide increasing levels of working capital necessary to support renewed
growth, and to fund the purchase or upgrading of facilities. The Company also
has several preliminary acquisition prospects that may require significant funds
through the year 2001. However, there can be no assurance that any such
acquisitions will be consummated.
During 1999, the Company entered into certain option transactions which
allowed the Company to establish a price range in which the Company had the
option to repurchase its stock at a later date, without any immediate outlay of
its cash resources. The Company entered into these option positions when the
Company believed its stock to be undervalued, and anticipated that its stock
price would appreciate. Under this program, the Company sold put options, which
entitled the holder to sell the Company's stock to the Company at a specified
price. At the same time, in a cashless transaction, the Company purchased call
options, which entitled the Company to purchase its stock at a specified price
from the same party. The put and call positions essentially established a price
range within which the Company can repurchase its stock. If the stock price
rises above the call option strike price, the repurchase of stock will be at a
favorable price compared to the market price. Conversely, if the stock price
falls below the put option strike price, the repurchase of stock is more costly
than the market price. The put options and the corresponding call options
expired in 2000. The Company, at its option, could make either a physical
settlement, a cash settlement, or a net share settlement of its positions under
the put and call options. The Company received 46,014 shares of its common stock
and paid $20,000 in cash to settle its positions under the put and call options.
Management believes that the Company's existing cash and cash equivalents
and funds generated from operations will be sufficient to meet its operating
requirements in the near term and to fund anticipated
7
10
acquisitions, capital expenditures and increase research and development
expenditures. The Company may also seek additional debt financing or issue
additional equity securities to finance future acquisitions.
The Company has filed a registration statement with the Securities and
Exchange Commission to sell no more than 20% of ICN's interest in Ribapharm
Inc., a wholly owned subsidiary of the Company ("Ribapharm"), in an underwritten
public offering. The Company intends to distribute the remaining interest in
Ribapharm to the Company's stockholders on a tax-free basis as soon as possible
after the completion of the Ribapharm public offering. The distribution will be
subject to a ruling from the U.S. Internal Revenue Service (the "IRS"),
compliance with all other legal and regulatory provisions, and the required
approval by holders of the Company's outstanding debt. Upon completion of the
initial public offering of Ribapharm, the Company will within sixty days seek a
ruling from the IRS. One reason that Ribapharm may not undertake an initial
public offering is if the Company has sufficient funds from other sources to
refinance all of the Company's debt. The approximate proceeds to the Company
from a Ribapharm public offering have not yet been determined. The Company
expects to use any proceeds from a Ribapharm public offering to repurchase the
Notes. Subject to market conditions, the Company is planning to complete the
Ribapharm offering in 2001.
The Company intends to sell up to a 40% interest in ICN International AG
("ICN International") in an offering. The approximate proceeds to the Company
from an ICN International offering have not yet been determined. The bulk of the
shares are intended to be offered by ICN International, which will receive the
net proceeds from such shares, however the Company may also offer a portion of
the ICN International shares and in that event would receive a proportionate
amount of the net proceeds. The net proceeds received by ICN International are
intended to be used for acquisitions, sales and marketing, research and
development, manufacturing facility improvements, and general corporate
purposes. The net proceeds, if any, received by the Company are intended to be
used to repay, in part, the Company's existing indebtedness. The Company intends
to apply for listing of the shares of ICN International on the Budapest Stock
Exchange and global depositary receipts on the London Stock Exchange. The
Company filed draft offering circulars with regulatory authorities in both
London and Budapest in March 2001. Subject to market conditions and regulatory
approvals the Company expects to complete the offering of ICN International in
the third quarter of 2001.
The Company had revenue of $800,304,000, net income of $90,180,000 and
operating cash flows of $181,684,000 for the year ended December 31, 2000. Of
these amounts, Ribapharm contributed revenue of $154,818,000, net income
$81,983,000 and operating cash flows of $83,549,000 and ICN International
contributed revenue of $338,757,000, net loss of $952,000 and operating cash
flow of $26,172,000 for the year ended December 31, 2000.
The Company is currently self-insured with respect to product liability
claims. While to date no material adverse claim for personal injury resulting
from allegedly defective products has been successfully maintained against the
Company, a substantial claim, if successful, could have a negative impact on the
Company's liquidity and financial performance.
FOREIGN OPERATIONS
Approximately 63%, 64%, and 76% of the Company's revenues for the years
ended December 31, 2000, 1999 and 1998 were generated from operations outside
the United States. All of the Company's foreign operations are subject to
certain risks inherent in conducting business abroad, including possible
nationalization or expropriation, 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 have and may, in certain instances, materially affect
the Company's results of operations. The effect of these risks remains difficult
to predict. The Company does not currently provide any hedges on its foreign
currency exposure and, in certain countries in which the Company operates, no
effective hedging programs are available.
Russia
While the Russian economy continues to show improvement since the financial
crisis that began in 1998, the economy continues to experience difficulties. In
1998, the ruble fell sharply from a rate of 6.3 rubles to $1 to a rate of 20.7
rubles to $1 at December 31, 1998. Throughout 1999 and 2000, the ruble continued
to fluctuate, there is continued volatility in the debt and equity market,
hyperinflation persists, confidence in the banking sector has yet to be restored
and there continues to be general lack of liquidity in the economy. In addition,
laws and regulations affecting businesses operating within Russia continue to
evolve. Russia's return to economic stability is dependent to a large extent on
the effectiveness of the measures taken by the government, decisions of
international lending organizations, and other actions, including regulatory and
political developments, which are beyond the Company's control.
At December 31, 2000, the ruble exchange rate was 28.2 rubles to $1 as
compared with the rate of 27.5 rubles to $1 and 20.7 rubles to $1 as of December
31, 1999 and 1998, respectively. As a result of the change in the ruble exchange
rate, the Company recorded translation losses of $3,525,000, $6,738,000 and
$53,848,000, related to its Russian operations during 2000, 1999 and 1998,
respectively. As of December 31, 2000, ICN Russia had a net monetary asset
position of approximately $12,423,000, which is subject to foreign exchange loss
as further declines in the value of the ruble in relation to the dollar occur.
Due to the fluctuation in the ruble exchange rate, the ultimate amount of any
future translation and exchange loss the Company may incur cannot presently be
determined and such loss may have a negative impact on the Company's results of
operations. The Company's management continues to work to manage its net
monetary exposure. However, there can be no assurance that such efforts will be
successful.
8
11
The Company's Russian subsidiaries periodically engage in barter
transactions related to the sale of its products in exchange for raw materials,
other finished goods and costs or services incurred in the conduct of its
operations. For each of the periods ended December 31, 2000, 1999 and 1998, the
Company's Russian subsidiaries recorded approximately $3,000,000, $8,000,000 and
$8,000,000, respectively, in revenue related to barter transactions.
The Company's collections on accounts receivable in Russia have been
adversely affected by the Russian economic situation. Prior to the August 1998
devaluation of the ruble, the Company had favorable experience with the
collection of receivables from its customers in the region. Subsequently, the
Company has taken additional steps to ensure the creditworthiness of its
customers and the collectibility of accounts receivable by tightening its credit
policies in the region. These steps include a shortening of credit periods,
suspension of sales to customers with past-due balances and discounts for cash
sales. The adoption of these more restrictive credit policies contributed to the
decline in sales in Russia for 1999 compared to 1998.
The Company believes that the economic and political environment in Russia
has affected the pharmaceutical industry in the region. Many Russian companies,
including many of the Company's customers, continue to experience liquidity
problems as monetary policy has limited the money supply, and Russian companies
often lack access to an effective banking system. As a result, many Russian
companies have limited ability to pay their debts, which has led to a number of
business failures in the region. In addition, the devaluation has reduced the
purchasing power of Russian companies and consumers, thus increasing pressure on
the Company and other producers to limit price increases in hard currency terms.
As a result of the Russian economic situation, the Company recorded a charge in
1998 of $42,289,000 among several of its operating segments, which is included
in Eastern European charges ($39,884,000) and cost of product sales ($2,405,000)
in the consolidated statements of income. The charge consisted of reserves of
$37,873,000 for losses on accounts receivable, the write-off of certain
investments of $2,011,000, and a reduction in the value of certain inventories
of $2,405,000.
Yugoslavia
On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on a unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslavian law, without any notification to or
representation by the Company. Since the change of control, representatives of
the Company and ICN Yugoslavia's management have been denied any significant
access to the premises and representation as to the management of ICN
Yugoslavia.
Prior to the seizure, ICN Yugoslavia's operations were adversely affected
by the April 1998 devaluation of the dinar, which resulted in foreign exchange
losses of $23,865,000 for the year. ICN Yugoslavia's domestic sales were
adversely affected by the Company's previously announced suspension of sales to
the Yugoslavian government. In addition, ICN Yugoslavia's export sales for the
second half of 1998 were adversely affected by the Russian economic crisis. In
the second and third quarters of 1998, the Yugoslavian government defaulted on
its obligations to the Company on $176,204,000 of accounts and notes receivable.
As a result of the government's default and the suspension of sales to the
government, the Company recorded a $173,440,000 charge against earnings at ICN
Yugoslavia in the second quarter of 1998. The charge is included in Eastern
European charges ($165,646,000), cost of product sales ($3,667,000) and interest
income ($4,127,000) in the consolidated statements of income. The charge
consists of $151,204,000 reserve for losses on notes receivable (including
accrued interest), reserves of $7,757,000 for losses on accounts receivable from
government-sponsored entities, and a $14,479,000 write-down of the value of
certain related investments and assets.
9
12
The Company has commenced litigation in the United States District Court of
the District of Columbia against the government of Yugoslavia and related
agencies to recover damages and obtain injunctive relief. In addition, the
government of Yugoslavia, through a related agency, filed an arbitration
proceeding against the Company before the International Chamber of Commerce for
damages related to the Company's acquisition of majority control of ICN
Yugoslavia. The resolution of these matters may affect the status of certain
compounds, which were contributed to ICN Yugoslavia by the Company, pursuant to
the agreement that led to the formation of ICN Yugoslavia.
ACQUIRED PRODUCTS
The majority of products acquired by the Company are mature products with
no effective patents, either because of expirations or the absence of legal
protections provided by the local governments in the respective markets. Under
the Company's ownership, price increases and additional advertising and
promotions were planned for selected products, as the Company believes that they
were not marketed to their greatest potential. The Company believes that some of
these products in specific markets have an adequate growth potential, and
intends to develop a product strategy for each product.
The Company believes that these products will continue to generate
significant sales even without patent protection because the trademarks under
which they are marketed are well-established and enjoy substantial customer
brand-loyalty. Moreover, the relatively small sales volumes and market sizes for
some of these products pose significant barriers to entry of generic
competition.
The Company estimated the remaining life of these products based on
anticipated future profits assuming a constant profit margin for the remaining
product cycle. It should be noted, however, any sales growth or increase in
profitability attained by additional marketing efforts is expected to be
relatively short-lived. After a temporary boost, these products will revert to
their gradually declining trend in accordance with the product cycle model. The
acquired products' historical operating results demonstrated their ability to
earn substantial excess profits. Excess profits are directly related to their
competitive advantage primarily attributable to the product quality and
reputation. The useful life was defined as the number of years for the
forecasted annual product sales to reach 50% of the cumulative historical amount
through the date of acquisition. During the forecasted period, only gradual
declines are expected due to the absence of immediate threats from competition
of generic or/and alternative products. Based upon the Company's analysis, the
useful lives of products acquired were estimated to be 18 years.
INFLATION AND CHANGING PRICES
The effects of inflation are experienced by the Company through increases
in the costs of labor, services and raw materials. The Company is subject to
price control restrictions on its pharmaceutical products in the majority of
countries in which it operates. While the Company attempts to raise selling
prices in anticipation of inflation, the Company operates in some markets which
have price controls that may limit its ability to raise prices in a timely
fashion. Future sales and gross profit will be reduced if the Company is unable
to obtain price increases commensurate with the levels of inflation.
The Russian government has instituted a process for establishing prices for
pharmaceutical products, which may lead to price controls in the Russian market
in the future. Currently, this process requires the Company to register the
prices for certain of its products included on the government's list of
"products important for health." The next procedure for registration includes
the negotiation and approval of such prices between the Company and the relevant
state bodies. The Company is currently working with all relevant state bodies to
approve its prices and the Company is not presently able to determine the
effect, if any, that this process may have on its results of operations.
However, such developments could have a negative impact on the Company's results
of operations and cash flows in Russia.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
introduced the Euro. The conversion rates between the Euro and the participating
nations' existing legacy currencies were fixed
10
13
irrevocably as of January 1, 1999. Prior to full implementation of the new
currency on January 1, 2002, there will be a transition period during which
parties may, at their discretion, use either the legacy currencies or the Euro
for financial transactions.
The Company expects its affected subsidiaries to continue to operate
primarily in their respective legacy currencies for at least one more year. The
majority of the Company's affected subsidiaries currently can accommodate
transactions for customers or suppliers operating in either the legacy currency
or the Euro. Action plans are currently being implemented which are expected to
result in full compliance with all laws and regulations relating to the Euro
conversion. Such plans include the adaptation of information technology and
other systems to accommodate Euro-denominated transactions as well as the
requirements of the transition period. The Company is also addressing the impact
of the Euro on its currency exchange-rate risk, taxation, contracts, competition
and pricing. While it is not possible to accurately predict the impact the Euro
will have on the Company's business or on the economy in general, management
currently does not anticipate that the Euro conversion will have a negative
impact on the Company's market risk with respect to foreign exchange, its
results of operations, or its financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and becomes
effective for the Company for the first quarter of 2001. The Company does not
currently engage in any program of hedging and consequently the Company does not
expect the adoption of SFAS No. 133 to have a material effect on the Company's
consolidated financial position, cash flows, or results of operations.
In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company adopted the provisions of SAB 101 in the fourth
quarter of 2000. Adoption of SAB 101 did not cause a material change in the
Company's financial condition or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's business and financial results are affected by fluctuations
in world financial markets. The Company evaluates its exposure to such risks on
an ongoing basis, and reviews its risk management policy to manage these risks
to an acceptable level, based on management's judgment of the appropriate
trade-off between risk, opportunity and costs. The Company does not hold any
significant amount of market risk sensitive instruments whose value is subject
to market price and currency risk.
In the normal course of business, the Company also faces risks that are
either non-financial or non-quantifiable. Such risks principally include country
risk, credit risk, and legal risk and are not discussed or quantified in the
following analysis.
Interest Rate Risk: The Company currently does not hold financial
instruments for trading or speculative purposes. The financial assets of the
Company are not subject to significant interest rate risk due to their short
duration. At December 31, 2000, the Company had $10,862,000 of foreign
denominated debt that would subject it to both interest and currency risk. The
principal financial liabilities of the Company that are subject to interest rate
risk are its fixed-rate long-term debt (principally its 8 3/4% Senior Notes due
2008 and its 9 1/4% Senior Notes due 2005) totaling approximately $503,000,000.
The Company does not use any derivatives or similar instruments to manage its
interest rate risk. A 90 basis-point increase in interest rates (approximately
10% of the Company's weighted average interest rate on fixed-rate debt)
affecting the Company's financial instruments would have an immaterial effect on
the Company's 2000 pretax earnings. However, such a change would reduce the fair
value of the Company's fixed-rate debt instruments by approximately $22,500,000
as of December 31, 2000.
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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, the
Company's reorganization plans, 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 Eastern Europe,
Latin America, as well as Russia and China in light of the unstable economic,
political and regulatory conditions in such regions; the risk of potential
claims against certain of the Company's research compounds; the Company's
ability to successfully develop and commercialize future products; the limited
protection afforded by the patents relating to ribavirin, and possibly on future
drugs, techniques, processes or products the Company may develop or acquire; the
potential impact of the Euro currency; the Company's ability to continue its
expansion plan and to integrate successfully any acquired companies; the results
of lawsuits or the outcome of investigations pending against the Company; the
Company's potential product liability exposure and lack of any insurance
coverage thereof; government regulation of the pharmaceutical industry
(including review and approval for new pharmaceutical products by the FDA in the
United States and comparable agencies in other countries) and competition.
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QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of quarterly financial data for the years ended
December 31, 2000 and 1999 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
2000(1)
Revenues...................................... $192,340 $191,433 $207,342 $209,189
Gross profit on product sales................. 98,574 87,396 94,112 102,290
Income (loss) before extraordinary loss....... 27,399 31,093 36,609 (1,696)
Extraordinary loss, net of tax................ -- -- -- 3,225
Net income (loss)............................. 27,399 31,093 36,609 (4,921)
Basic earnings (loss) per share before
extraordinary loss.......................... .35 .39 .46 (.02)
Extraordinary loss............................ -- -- -- .04
Basic earnings (loss) per share -- net income
(loss)...................................... .35 .39 .46 (.06)
Diluted earnings (loss) per share before
extraordinary loss.......................... .34 .38 .45 (.02)
Extraordinary loss............................ -- -- -- .04
Diluted earnings (loss) per share -- net
income (loss)............................... $ .34 $ .38 $ .45 $ (.06)
1999(2)
Revenues...................................... $176,074 $177,161 $181,652 $212,525
Gross profit on product sales................. 93,850 85,189 93,992 109,298
Net income.................................... 22,619 25,845 31,810 38,352
Basic earnings per share...................... .29 .33 .41 .49
Diluted earnings per share.................... $ .28 $ .32 $ .39 $ .47
---------------
(1) The net loss before extraordinary loss in the fourth quarter of 2000 is
primarily due to a decrease in royalty revenue caused by a temporary
slowdown in royalty revenue and an adjustment to actual from management's
estimate in the third quarter. In connection with the Grand Jury
investigation and SEC litigation, the Company has recorded a reserve in the
fourth quarter of $9,250,000 to cover the potential combined settlement
liability and all other related costs. Additionally, the Company had
increased research and development costs and a higher effective tax rate in
the fourth quarter of 2000.
For the fourth quarter of 2000, dilutive options did not have an effect on
the computation of diluted loss per share since they were anti-dilutive.
(2) The increased revenue trend is substantially due to the increase in
royalties and the Company's expansion program, partially offset by the
Russian economic situation.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 2000
PAGE
----
Report of independent accountants........................... 15
Financial statements:
Consolidated balance sheets at December 31, 2000 and
1999................................................... 16
For the years ended December 31, 2000, 1999 and 1998:
Consolidated statements of income...................... 17
Consolidated statements of stockholders' equity........ 18
Consolidated statements of cash flows.................. 19
Notes to consolidated financial statements................ 20
The other schedules have not been submitted because they are not
applicable.
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17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of ICN Pharmaceuticals, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of ICN Pharmaceuticals, Inc. (a Delaware corporation) and Subsidiaries
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and 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 of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion.
As discussed in Notes 2 and 14, effective November 26, 1998, the Company
changed the method of accounting for ICN Yugoslavia, a previously consolidated
subsidiary, and reduced the carrying value of the investment to its fair value.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Orange County, California
March 1, 2001, except for Note 12,
as to which the date is March 15, 2001
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18
ICN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
2000 1999
---------- ----------
Current Assets:
Cash and cash equivalents................................. $ 155,205 $ 177,577
Restricted cash........................................... 380 414
Accounts receivable, net.................................. 225,639 231,902
Inventories, net.......................................... 170,263 136,762
Prepaid expenses and other current assets................. 13,929 18,075
---------- ----------
Total current assets.............................. 565,416 564,730
Property, plant and equipment, net.......................... 367,229 332,360
Deferred income taxes, net.................................. 75,037 81,095
Other assets................................................ 32,300 37,625
Goodwill and intangibles, net............................... 437,090 456,451
---------- ----------
$1,477,072 $1,472,261
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables............................................ $ 61,741 $ 65,195
Accrued liabilities....................................... 91,447 66,185
Notes payable............................................. 9 8,762
Current portion of long-term debt......................... 898 312
Income taxes payable...................................... 4,682 168
---------- ----------
Total current liabilities......................... 158,777 140,622
Long-term debt, less current portion........................ 510,781 596,961
Deferred income and other liabilities....................... 40,988 28,628
Minority interest........................................... 9,332 22,478
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value; 200,000 shares authorized;
80,197 (2000) and 78,950 (1999) shares outstanding
(after deducting shares in treasury of 814 and 814,
respectively).......................................... 802 789
Additional capital........................................ 973,157 949,181
Accumulated deficit....................................... (130,087) (197,602)
Accumulated other comprehensive income.................... (86,678) (68,796)
---------- ----------
Total stockholders' equity........................ 757,194 683,572
---------- ----------
$1,477,072 $1,472,261
========== ==========
The accompanying notes are an integral part of these consolidated statements.
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19
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
-------- -------- ----------
Revenues:
Product sales........................................... $645,190 $638,475 $ 800,639
Royalties............................................... 155,114 108,937 37,425
-------- -------- ----------
Total revenues.................................. 800,304 747,412 838,064
-------- -------- ----------
Costs and expenses:
Cost of product sales................................... 262,818 256,146 353,600
Selling, general and administrative..................... 304,314 252,207 291,776
Research and development................................ 18,769 10,963 20,835
Amortization of goodwill and intangibles................ 30,448 29,239 20,601
Eastern European charges................................ -- -- 440,820
-------- -------- ----------
Total expenses.................................. 616,349 548,555 1,127,632
-------- -------- ----------
Income (loss) from operations................... 183,955 198,857 (289,568)
Translation and exchange losses, net...................... 6,587 11,823 80,501
Interest income........................................... (12,542) (8,894) (13,057)
Interest expense.......................................... 60,356 55,943 38,069
-------- -------- ----------
Income (loss) before income taxes, minority interest and
extraordinary loss...................................... 129,554 139,985 (395,081)
Provision for income taxes................................ 37,683 28,996 1,983
Minority interest......................................... (1,534) (7,637) (44,990)
-------- -------- ----------
Income (loss) before extraordinary loss................. 93,405 118,626 (352,074)
Extraordinary loss, net of income taxes................... 3,225 -- --
-------- -------- ----------
Net income................................................ $ 90,180 $118,626 $ (352,074)
======== ======== ==========
Basic earnings per share:
Income (loss) per share before extraordinary loss....... $ 1.18 $ 1.52 $ (4.78)
Extraordinary loss per share............................ 0.04 -- --
-------- -------- ----------
Basic net income (loss) per share....................... $ 1.14 $ 1.52 $ (4.78)
======== ======== ==========
Diluted earnings per share:
Income (loss) per share before extraordinary loss....... $ 1.14 $ 1.45 $ (4.78)
Extraordinary loss per share............................ 0.04 -- --
-------- -------- ----------
Diluted net income (loss) per share..................... $ 1.10 $ 1.45 $ (4.78)
======== ======== ==========
Shares used in per share computation:
Basic................................................... 79,395 77,833 73,637
======== ======== ==========
Diluted................................................. 82,264 82,089 73,637
======== ======== ==========
The accompanying notes are an integral part of these consolidated statements.
17
20
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RETAINED ACCUMULATED
PREFERRED STOCK COMMON STOCK EARNINGS OTHER
--------------- --------------- ADDITIONAL (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) INCOME TOTAL
------ ------ ------ ------ ---------- ------------ ------------- ---------
BALANCE AT DECEMBER 31, 1997.......... 2 $ 1 71,432 $714 $766,868 $ 70,129 $(41,384) $ 796,328
Comprehensive income:
Net loss............................ -- -- -- -- -- (352,074) -- (352,074)
Foreign currency translation
adjustments....................... -- -- -- -- -- -- (6,962) (6,962)
---------
Total comprehensive income.... (359,036)
Exercise of stock options............. -- -- 634 6 6,777 -- -- 6,783
Stock compensation.................... -- -- 319 3 5,304 -- -- 5,307
Issuance of preferred stock........... 1 -- -- -- 23,000 -- -- 23,000
Issuance of common stock:
In connection with acquisitions..... -- -- 2,884 29 93,530 -- -- 93,559
Conversion of debt.................. -- -- 802 8 25,329 -- -- 25,337
Issuance of treasury stock............ -- -- 482 5 12,528 -- -- 12,533
Purchase of treasury stock............ -- -- (200) (2) (4,448) -- -- (4,450)
Conversion of preferred shares........ (2) -- 57 1 (1) -- -- --
Cash dividends........................ -- -- -- -- -- (13,197) -- (13,197)
Stock dividends on preferred stock.... -- -- 1 -- 69 (69) -- --
-- --- ------ ---- -------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1998.......... 1 1 76,411 764 928,956 (295,211) (48,346) 586,164
Comprehensive income:
Net income.......................... -- -- -- -- -- 118,626 -- 118,626
Foreign currency translation
adjustments....................... -- -- -- -- -- -- (20,450) (20,450)
---------
Total comprehensive income.... 98,176
Exercise of stock options............. -- -- 1,148 11 12,883 -- -- 12,894
Tax benefit of stock options
exercised........................... -- -- -- -- 5,173 -- -- 5,173
Stock compensation.................... -- -- (53) -- 2,043 -- -- 2,043
Settlement related to acquisition
contingency......................... (1) (1) -- -- (28,312) -- -- (28,313)
Issuance of common stock:
In connection with license
agreement......................... -- -- 2,041 20 41,980 -- -- 42,000
In connection with acquisitions..... -- -- 17 -- 1,756 -- -- 1,756
Purchase of treasury stock............ -- -- (614) (6) (15,298) -- -- (15,304)
Cash dividends........................ -- -- -- -- -- (21,017) -- (21,017)
-- --- ------ ---- -------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1999.......... -- -- 78,950 789 949,181 (197,602) (68,796) 683,572
Comprehensive income:
Net income.......................... -- -- -- -- -- 90,180 -- 90,180
Foreign currency translation
adjustments....................... -- -- -- -- -- -- (17,882) (17,882)
---------
Total comprehensive income.... 72,298
Exercise of stock options............. -- -- 1,193 12 14,556 -- -- 14,568
Tax benefit of stock options
exercised........................... -- -- -- -- 2,721 -- -- 2,721
Stock compensation.................... -- -- (25) -- 1,720 -- -- 1,720
Redemption of common stock............ -- -- (46) -- (20) -- -- (20)
Issuance of common stock in connection
with acquisitions................... -- -- 125 1 4,999 -- -- 5,000
Cash dividends........................ -- -- -- -- -- (22,665) -- (22,665)
-- --- ------ ---- -------- --------- -------- ---------
BALANCE AT DECEMBER 31, 2000.......... -- $-- 80,197 $802 $973,157 $(130,087) $(86,678) $ 757,194
== === ====== ==== ======== ========= ======== =========
The accompanying notes are an integral part of these consolidated statements.
18
21
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
--------- -------- ---------
Cash flows from operating activities:
Net income (loss)......................................... $ 90,180 $118,626 $(352,074)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 64,540 65,502 51,096
Eastern European charges.................................. -- -- 451,019
Provision for losses on accounts receivable............... 9,303 2,291 7,559
Provision for inventory obsolescence...................... 8,561 5,880 602
Translation and exchange losses, net...................... 6,587 11,823 80,501
Deferred income........................................... -- (4,983) (6,112)
Loss on sale of assets.................................... 1,223 882 100
Deferred income taxes..................................... 8,051 (1,112) (8,223)
Other non-cash losses..................................... 2,333 4,016 3,314
Minority interest......................................... (1,534) (7,637) (44,990)
Extraordinary loss........................................ 3,225 -- --
Change in assets and liabilities, net of effects of
acquisitions:
Accounts and notes receivable........................... 3,755 (66,927) (160,345)
Inventories............................................. (34,129) (13,236) (29,075)
Prepaid expenses and other assets....................... 2,909 (6,497) (22,290)
Trade payables and accrued liabilities.................. 5,856 (24,601) 38,912
Income taxes payable.................................... 6,907 (60) 2,555
Other liabilities....................................... 3,917 3,156 (2,925)
--------- -------- ---------
Net cash provided by operating activities........... 181,684 87,123 9,624
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities............... -- -- 22,958
Proceeds from sale of assets.............................. 2,707 2,167 1,202
Increase (decrease) in restricted cash.................... 34 15,144 (15,009)
Cash acquired in connection with acquisitions............. 4,613 288 1,111
Capital expenditures...................................... (49,330) (44,083) (110,281)
Acquisition of license rights, product lines and
businesses.............................................. (45,581) (23,876) (172,926)
Termination of joint venture.............................. (3,238) -- --
Loss of Yugoslavian cash balance.......................... -- -- (22,101)
--------- -------- ---------
Net cash used in investing activities............... (90,795) (50,360) (295,046)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 3,420 145,490 225,082
Proceeds from issuance of notes payable................... 5,724 19,976 26,720
Proceeds from exercise of stock options................... 14,568 12,894 6,783
Proceeds from issuance of common stock.................... -- 42,000 4,299
Payments on long-term debt................................ (105,901) (87,632) (27,381)
Payments on notes payable................................. (7,911) (31,695) (27,965)
Dividends paid............................................ (22,665) (21,017) (17,069)
Purchase of treasury stock................................ -- (15,304) (4,450)
Repurchase of preferred stock............................. -- (28,313) --
--------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (112,765) 36,399 186,019
--------- -------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (496) (506) (5,572)
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents........ (22,372) 72,656 (104,975)
Cash and cash equivalents at beginning of year.............. 177,577 104,921 209,896
--------- -------- ---------
Cash and cash equivalents at end of year.................... $ 155,205 $177,577 $ 104,921
========= ======== =========
The accompanying notes are an integral part of these consolidated statements.
19
22
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND BACKGROUND
ICN Pharmaceuticals, Inc. and Subsidiaries (the "Company") was formed in
November 1994, as a result of the merger of ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc., Viratek, Inc. and ICN Biomedicals, Inc. ("Biomedicals"),
in a transaction accounted for using the purchase method of accounting (the
"Merger"). The Company is a global research based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, research and
diagnostic products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and all of its majority-owned
subsidiaries. Investments in 20% through 50% owned affiliated companies are
included under the equity method where the Company exercises significant
influence over operating and financial affairs. Investments in less than 20%
owned companies are recorded at the lower of cost or fair value. The
accompanying consolidated financial statements reflect the elimination of all
significant intercompany account balances and transactions.
Effective November 26, 1998, the Company's equity ownership of ICN
Yugoslavia was effectively reduced from 75% to 35% based upon a decision by the
Yugoslavian Ministry of Economic and Property Transformation. Additionally,
representatives of the Company and ICN Yugoslavia's management have been denied
any significant access to the premises and representation as to the management
of ICN Yugoslavia. As a result, the Company had and continues to have no
effective control over the operating and financial affairs of ICN Yugoslavia.
Accordingly, the Company deconsolidated the financial statements of ICN
Yugoslavia as of November 26, 1998, and reduced the carrying value of its
investment to fair value, estimated to be zero. The Company accounts for its
ongoing investment in ICN Yugoslavia under the cost method. The Company did not
recognize any revenues or expenses related to its investment in Yugoslavia in
2000 or 1999. See Note 14.
Cash and Cash Equivalents: Cash equivalents include repurchase agreements,
certificates of deposit, money market funds, and municipal debt securities which
have maturities of three months or less. For purposes of the consolidated
statements of cash flows, the Company considers highly-liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
The carrying amount of these assets approximates fair value due to the
short-term maturity of these instruments. At December 31, 2000 and 1999, cash
equivalents totaled $119,861,000 and $159,544,000, respectively.
Marketable Securities: The Company classifies its investments as available
for sale. Changes in market values are reflected as unrealized gains and losses,
calculated on the specific identification method, in stockholders' equity. In
1998, upon the exchange and redemption of the Company's Bio Capital Holdings
5 1/2% Swiss Franc Exchangeable Certificates (the "New Certificates"),
marketable securities previously held in trust for the payment of the New
Certificates became available to the Company and were sold, resulting in a gain
of $1,993,000.
Allowance for Doubtful Accounts: The Company evaluates the collectibility
of its receivables at least quarterly, based upon various factors including the
financial condition and payment history of major customers, an overall review of
collections experience on other accounts and economic factors or events expected
to affect the Company's future collections experience.
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. The Company evaluates the carrying value of
its inventories at least quarterly, taking into account such factors as
historical and anticipated future sales compared with quantities on hand, the
price the Company expects to obtain for its products in their respective markets
compared with historical cost and the remaining shelf life of goods on hand.
20
23
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. 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.
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.
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. Intangible
assets also include acquired product rights. Goodwill and intangibles
amortization periods range from 10 to 20 years depending upon the nature of the
business or product acquired. The Company periodically evaluates the carrying
value of goodwill and intangibles including the related amortization periods. In
evaluating goodwill, the Company determines whether there has been an impairment
and the amount thereof, if any, by comparing the undiscounted future operating
income of the acquired business with the carrying value of the goodwill. In
evaluating acquired product rights and other intangible assets, the Company
determines whether there has been impairment by comparing the anticipated
undiscounted future operating income of the product line with its carrying
value. If the undiscounted operating income is less than the carrying value, the
amount of the impairment, if any, will be determined by comparing the carrying
value of each intangible asset with its fair value. Fair value is generally
based on a discounted cash flows analysis. Based on its review, the Company does
not believe that any impairment of its goodwill and intangibles has occurred.
As of December 31, 2000 and 1999, goodwill and intangibles included the
following:
2000 1999 AMORTIZATION PERIODS
-------- -------- --------------------
(IN THOUSANDS)
Goodwill.................................... $ 80,849 $ 73,943 10 - 20 years
Acquired product rights..................... 440,760 436,380 15 - 18 years
Other intangible assets..................... 12,508 13,952 10 - 18 years
-------- --------
534,117 524,275
Accumulated amortization.................... (97,027) (67,824)
-------- --------
$437,090 $456,451
======== ========
Revenue Recognition: Revenues and related cost of product sales are
recorded at the time of shipment or as services are performed, provided that
collection of the revenue is reasonably assured. The Company earns royalty
revenue as a result of the sale of product rights and technologies to third
parties. Royalty revenue is earned at the time the products subject to the
royalty are sold by the third party.
In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company adopted the provisions of SAB 101 in the fourth
quarter of 2000. Adoption of SAB 101 did not cause a material change in the
Company's financial condition or results of operations.
Barter Transactions: The Company periodically engages in barter
transactions, primarily in Russia, related to the sale of its products in
exchange for raw materials, other finished goods and costs of services incurred
in the conduct of its operations. The Company accounts for these transactions in
accordance with
21
24
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
APB No. 29 "Accounting for Nonmonetary Transactions", whereby the cost of the
assets or service acquired is based upon the fair value of the asset surrendered
or received whichever is more clearly evident. For each of the periods ended
December 31, 2000, 1999 and 1998, the Company's Russian subsidiaries recorded
approximately $3,000,000, $8,000,000 and $8,000,000, respectively, in revenue
related to barter transactions.
Foreign Currency Translation: The assets and liabilities of the Company's
foreign operations, except those in highly inflationary economies, are
translated at 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 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. Recorded losses from foreign exchange transactions
amounted to $3,062,000, $5,085,000 and $2,788,000 for 2000, 1999 and 1998,
respectively. Recorded losses from foreign exchange translation amounted to
$3,525,000, $6,738,000 and $77,713,000 for 2000, 1999 and 1998, respectively.
Income Taxes: Income taxes are calculated in accordance with 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 tax laws or rates.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Comprehensive Income: The Company has adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. Comprehensive income includes such items as
foreign currency translation adjustments and unrealized holding gains and losses
on available-for-sale securities and is presented as a component of
stockholders' equity.
The balance of accumulated other comprehensive income at December 31, 2000
and 1999 consists of accumulated foreign currency translation adjustments. None
of the components of other comprehensive income have been recorded net of any
tax provision or benefit as the Company does not expect to realize any
significant tax benefit or expense from these items.
Per Share Information: Basic earnings per share is computed by dividing
income available to common stockholders by the weighted-average number of shares
outstanding. In computing diluted earnings per share, the weighted-average
number of shares outstanding is adjusted to reflect the effect of potentially
dilutive securities including options, warrants, and convertible debt or
preferred stock, and income available to common stockholders is adjusted to
reflect any changes in income or loss that would result from the issuance of the
dilutive common shares.
The Company's Board of Directors declared a quarterly cash distribution of
$.0725 per share for each fiscal quarter of 2000. During 1999, the Company's
Board of Directors declared a quarterly cash distribution of
22
25
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
$0.07 per share for each fiscal quarter. During 1998, the Company's Board of
Directors declared a quarterly cash dividend or distribution of $0.06 per share
for each fiscal quarter.
Stock-Based Compensation: The Company has adopted the disclosure only
provisions of SFAS No. 123 for stock options issued to employees. Compensation
cost for stock-based compensation issued to employees has been measured using
the intrinsic value method provided by Accounting Principles Board No. 25.
Reclassifications: Certain prior year items have been reclassified to
conform with the current year presentation, with no effect on previously
reported net income or stockholders' equity.
3. ACQUISITIONS
On July 1, 2000, the Company acquired 100% ownership of the Swiss
pharmaceuticals company Solco Basel AG for $30,368,000, of which $25,156,000 was
paid in cash ($4,026,000 of cash was received as part of the Solco assets) and
the balance in 125,000 shares of the Company's common stock. Goodwill of
$2,821,000 was recorded in connection with the acquisition and is being
amortized over a 20 year estimated useful life. Under the terms of the Company's
agreement with the sellers, the Company has guaranteed a per share price
initially at CHF 64 ($40.00 as of December 31, 2000), increasing at a rate of 4%
per annum through June 30, 2002. If the holders of the shares sell any of the
shares prior to June 30, 2002, the Company is entitled to one-half of any
proceeds realized in excess of the guaranteed price. If the market price of the
Company's common stock is below the guaranteed price at the end of the guarantee
period, the Company will be required to satisfy the aggregate guarantee amount
by payment in cash. The aggregate guaranteed value of the shares held by the
sellers exceeds the market value by approximately $1,386,000. This acquisition
was accounted for as a purchase and is not material to the financial position or
results of operations of the Company. The initial purchase of the Solco
acquisition is based upon current estimates. The Company will make final
purchase price allocations based upon final values for certain long-lived
assets. As a result, the final purchase price allocation may differ from the
presented estimates.
During 2000, the Company acquired various other businesses for a total of
$4,075,000 in cash. These acquisitions were accounted for as purchases and are
not material to the financial position or results of operations of the Company.
The Company acquired an additional 6.47% interest in its subsidiary in Poland
for $3,194,000 in cash, which increased the Company's ownership to 97.73% and an
additional 25% interest in a subsidiary in Hungary for $3,186,000 in cash, which
increased the Company's ownership to 91.3%.
Product Acquisitions -- In 2000, the Company acquired the rights to certain
products for the total consideration of $9,383,000. None of the above product
acquisitions are material to the financial results of the Company.
4. RELATED PARTY TRANSACTIONS
In June 1996, the Company made a short-term loan to the Chairman and CEO in
the amount of $3,500,000 for personal legal obligations. During August 1996,
this amount was repaid to the Company. In connection with this transaction, the
Company guaranteed $3,600,000 of demand debt of the Chairman with a third party
bank, which is renewable by the Chairman annually until repaid. In addition to
the guarantee, the Company deposited $3,600,000 with this bank as collateral to
the Chairman's debt, which will remain in place until such time as the Chairman
repays his obligation to the bank. This deposit is recorded as a long-term asset
on the consolidated balance sheet. The Company is not aware of the time frame in
which the Chairman expects to repay this obligation. Interest paid by the
Company on behalf of the Chairman was charged to the Chairman as compensation
expense and amounted to $160,916, $163,166 and $181,901 for the years ended
December 31, 2000, 1999 and 1998. The Company recognized interest income on the
bank deposit of $124,330, $126,097 and $134,151 for the years ended December 31,
2000, 1999 and 1998. The Chairman has
23
26
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
provided collateral to the Company's guarantee in the form of a right to the
proceeds of the exercise of options to acquire 150,000 shares with an exercise
price of $15.17 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. CONCENTRATIONS OF CREDIT RISK
The Company is exposed to concentrations of credit risk related to its 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. The Company's cash and cash
equivalents and restricted cash include $120,000,000 and $160,000,000, at
December 31, 2000 and 1999, respectively, held in time deposits, money market
funds, and municipal debt securities through approximately ten major financial
institutions. The Company is also exposed to credit risk on its accounts
receivable balances in Russia as a result of the current economic situation. The
Russian accounts receivable balances at December 31, 2000 and 1999 are
$15,414,000 and $22,772,000, which is net of the allowances for doubtful
accounts of $10,276,000 and $9,142,000, respectively.
6. INCOME TAXES
Pretax income (loss) from continuing operations before minority interest
and extraordinary loss for each of the years ended December 31, consists of the
following (in thousands):
2000 1999 1998
-------- -------- ---------
Domestic.................................. $ 85,826 $ 96,270 $(252,597)
Foreign................................... 43,728 43,715 (142,484)
-------- -------- ---------
$129,554 $139,985 $(395,081)
======== ======== =========
The income tax (benefit) provision for each of the years ended December 31,
consists of the following (in thousands):
2000 1999 1998
------- ------- --------
Current
Federal.................................. $ 1,159 $ 6,206 $ --
State.................................... 2,563 674 640
Foreign.................................. 16,642 15,469 9,566
------- ------- --------
20,364 22,349 10,206
Deferred
Federal.................................. 16,298 8,779 (11,409)
State.................................... (165) 1,199 --
Foreign.................................. 1,186 (3,331) 3,186
------- ------- --------
17,319 6,647 (8,223)
------- ------- --------
$37,683 $28,996 $ 1,983
======= ======= ========
The current federal tax provision has not been reduced for the tax benefit
associated with the exercise of employee stock options. The 2000 and 1999 tax
benefit of $2,721,000 and $5,173,000, respectively, were credited directly to
additional capital and the 1998 tax benefit amount of $5,845,000 has been
included in the valuation allowance.
24
27
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The primary components of the Company's net deferred tax asset at December
31, 2000 and 1999 are as follows (in thousands):
2000 1999
-------- --------
Deferred tax assets:
NOL carryforwards.................................... $ 54,568 $ 73,719
Capital loss carryforward............................ 25,458 25,458
Inventory and other reserves......................... 3,934 8,809
Tax credit carryforwards............................. 2,581 1,544
Other................................................ 9,925 8,191
Valuation allowance.................................. (21,429) (36,626)
-------- --------
Total deferred tax asset..................... 75,037 81,095
-------- --------
Deferred tax liabilities:
Foreign fixed assets, intangibles, and other......... (13,028) (7,697)
Intangibles.......................................... (2,992) (1,813)
-------- --------
Total deferred tax liability................. (16,020) (9,510)
-------- --------
Net deferred tax asset....................... $ 59,017 $ 71,585
======== ========
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 domestic NOLs that can be used to reduce taxable income
after certain substantial ownership changes of a corporation.
At December 31, 2000, the Company has domestic and foreign NOLs of
approximately $130,626,000 and $41,508,000, respectively, and a capital loss
carryforward of $72,736,000. The Company's NOLs begin to expire in the year 2005
and the majority of capital loss carryforward expires in the year 2008.
In 2000, the valuation allowance primarily relates to foreign net operating
losses, primarily in Hungary, and a $12,548,000 tax benefit from the exercise of
stock options included in the NOL carryforward. In 1999, the valuation allowance
primarily relates to the deduction for the write-off of ICN Yugoslavia and a
$12,548,000 tax benefit from the exercise of stock options included in the NOL
carryforward. Ultimate realization of the deferred tax assets is dependent upon
the Company 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 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.
25
28
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The Company's effective tax rate differs from the applicable U.S. statutory
federal income tax rate due to the following:
2000 1999 1998
---- ---- ----
Statutory rate.............................................. 35% 35% (35)%
Foreign source income taxed at other effective rates:
Yugoslavia................................................ -- -- 15
Russia.................................................... 5 1 3
Hungary................................................... 1 5 --
China..................................................... 1 1 --
Latin America and Puerto Rico............................. (5) (5) --
Other Countries........................................... -- -- (1)
Change in valuation allowance............................... (12) (18) 5
Basis difference in Yugoslavia.............................. -- -- 14
Other, net.................................................. 4 2 --
--- --- ---
Effective rate.............................................. 29% 21% 1%
=== === ===
In Russia, the Company continues to benefit from special tax relief that
benefits pharmaceutical companies. Under this relief approximately 75% of the
income generated in Russia related to the manufacture and sale of prescription
medicines is exempt from taxation. This reduces the statutory rate to
approximately 8%. The continuing tax benefits in Russia are subject to potential
changes in tax law that may be enacted in the future. Should these benefits be
repealed, income generated in Russia would require the Company to provide taxes
at the current statutory rate of 35%.
In Hungary, the Company benefited from a tax holiday, which expired on
December 31, 1998.
In 1998, the Company received the benefit of certain favorable tax laws in
Yugoslavia that resulted in income taxes at a rate lower than the 25%
Yugoslavian statutory rate.
In 2000 and 1999, the provision for income taxes includes deferred tax
benefits of $16,284,000 and $25,286,000, respectively, resulting from the
recognition of certain deferred tax assets through the reduction of the
valuation allowance, primarily related to the capital loss carryforward. The
Company has announced its intention to reorganize into three separately held
public companies which management expects will result in a net capital gain
allowing utilization of the capital loss carryforward. In addition to the
reorganization, management is pursuing other tax planning strategies designed
to facilitate the use of its capital loss carryforwards prior to their
expiration.
The Company is aware of audits being conducted by various tax authorities.
At this time the Company does not feel that they will result in material
adjustments.
During 2000, 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 earnings at December 31, 2000, is
approximately $227,000,000 of accumulated earnings of foreign operations that
would be subject to U.S. income or foreign withholding taxes, if and when
repatriated.
26
29
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
2000 1999 1998
------- -------- ---------
Income:
Net income (loss)................................ $90,180 $118,626 $(352,074)
Dividends and accretion on preferred stock....... -- -- (34)
------- -------- ---------
Numerator for basic earnings per share -- income
available to common stockholders.............. 90,180 118,626 (352,108)
Effect of dilutive securities:
Other dilutive securities..................... 5 (5) --
------- -------- ---------
Numerator for diluted earnings per share --income
available to common stockholders after assumed
conversions................................... $90,185 $118,621 $(352,108)
======= ======== =========
Shares:
Denominator for basic earnings per
share -- weighted-average shares
outstanding................................... 79,395 77,833 73,637
Effect of dilutive securities:
Employee stock options........................ 2,755 2,680 --
Series D Convertible Preferred Stock.......... -- 599 --
Other dilutive securities..................... 114 977 --
------- -------- ---------
Dilutive potential common shares................. 2,869 4,256 --
------- -------- ---------
Denominator for diluted earnings per share --
adjusted weighted-average shares and assumed
conversions................................... 82,264 82,089 73,637
======= ======== =========
Basic earnings per share:
Income (loss) per share before extraordinary
loss.......................................... $ 1.18 $ 1.52 $ (4.78)
Extraordinary loss per share..................... 0.04 -- --
------- -------- ---------
Basic net income (loss) per share................ $ 1.14 $ 1.52 $ (4.78)
======= ======== =========
Diluted earnings per share:
Income (loss) per share before extraordinary
loss.......................................... $ 1.14 $ 1.45 $ (4.78)
Extraordinary loss per share..................... 0.04 -- --
------- -------- ---------
Diluted net income (loss) per share.............. $ 1.10 $ 1.45 $ (4.78)
======= ======== =========
27
30
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
8. DETAIL OF CERTAIN ACCOUNTS
2000 1999
--------- --------
(IN THOUSANDS)
Accounts receivable, net:
Trade accounts receivable........................... $ 190,386 $206,766
Royalties receivable................................ 39,741 34,725
Other receivables................................... 15,372 16,958
--------- --------
245,499 258,449
Allowance for doubtful accounts..................... (19,860) (26,547)
--------- --------
$ 225,639 $231,902
========= ========
Inventories, net:
Raw materials and supplies.......................... $ 61,623 $ 32,683
Work-in-process..................................... 22,701 12,610
Finished goods...................................... 103,932 99,429
--------- --------
188,256 144,722
Allowance for inventory obsolescence................ (17,993) (7,960)
--------- --------
$ 170,263 $136,762
========= ========
Property, plant and equipment, net:
Land................................................ $ 16,154 $ 18,869
Buildings........................................... 163,453 146,402
Machinery and equipment............................. 222,693 184,230
Furniture and fixtures.............................. 23,196 20,588
Leasehold improvements.............................. 6,610 5,964
--------- --------
432,106 376,053
Accumulated depreciation and amortization........... (104,157) (77,122)
Construction in progress............................ 39,280 33,429
--------- --------
$ 367,229 $332,360
========= ========
At December 31, 2000, construction in progress includes costs incurred to
date for the construction of a new research and development facility in North
America and other plant expansion projects. At December 31, 1999 construction in
progress includes costs incurred for the construction of a new pharmaceutical
factory at the Company's Rzeszow, Poland facility and other plant expansion
projects.
Accrued liabilities:
Payroll and related items.............................. $18,425 $13,397
Interest............................................... 10,738 14,287
Legal and professional fees............................ 11,969 5,234
Other.................................................. 50,315 33,267
------- -------
$91,447 $66,185
======= =======
28
31
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
9. DEBT
Long-term debt consists of the following (in thousands):
2000 1999
-------- --------
9 1/4% Senior Notes due 2005........................... $190,645 $275,000
8 3/4% Senior Notes due 2008 (net of unamortized
discount of $5,943).................................. 306,227 318,415
U.S. mortgage with fixed interest rate of 8.9%,
interest and principal payable monthly through
2022................................................. 3,033 3,081
Mortgages in Swiss francs with an interest rate of
LIBOR + 1.5% (4.9% at December 31, 2000); interest
and principal payable semi-annually through 2030..... 10,862 --
Other.................................................. 912 777
-------- --------
511,679 597,273
Less current portion................................... 898 312
-------- --------
Total long-term debt......................... $510,781 $596,961
======== ========
In July 1999 and August 1998, the Company completed private placements of
$125,000,000 and $200,000,000 principal amount, respectively, of its 8 3/4%
Senior Notes due 2008 (the "8 3/4% Senior Notes"). Net proceeds to the Company,
after discounts and costs of issuance, were $118,485,000 and $190,821,000,
respectively. The 8 3/4% Senior Notes are non-callable; however, pursuant to the
bond's Indenture these notes are redeemable at the Company's option prior to
November 15, 2001. The Indenture provides for the Company to redeem up to $70.0
million aggregate principal amount of the notes from the net proceeds of a
public equity offering for a price equal to 108.75% plus accrued and unpaid
interest. In connection with the private placement, the Company granted the
purchasers of the 8 3/4% Senior Notes registration rights relating to the
exchange offer and shelf registration rights. The Company used a portion of the
proceeds from the 1999 issuance for principal payments of long-term debt and
short-term borrowings.
In August 1997, the Company completed an underwritten public offering of
$275,000,000 of its 9 1/4% Senior Notes Due 2005 (the "9 1/4% Senior Notes") for
net proceeds of $265,646,000. The 9 1/4% Senior Notes are redeemable in cash at
the option of the Company, in whole or in part, on or after August 15, 2001, at
specified redemption prices.
The 8 3/4% Senior Notes and the 9 1/4% Senior Notes (together, the "Senior
Notes") each are general unsecured obligations of the Company which rank pari
passu in right of payment with all other unsecured senior indebtedness, and are
senior to all subordinated indebtedness of the Company. Upon a change of control
(as defined in the related indentures), the Company will be required to offer to
repurchase the Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest thereon to the date of repurchase.
Interest on the Senior Notes is payable semi-annually. The indentures governing
the Senior Notes include certain covenants which may restrict the incurrence of
additional indebtedness, the payment of dividends and other restricted payments,
the creation of certain liens, the sale of assets, or the Company's ability to
consolidate or merge with another entity, subject to qualifications and
exceptions.
During 2000, the Company repurchased $84,355,000 of its outstanding 9 1/4%
Senior Notes for $89,880,000 cash and $12,830,000 of its outstanding 8 3/4%
Senior Notes for $12,515,000 cash. The repurchase generated an extraordinary
loss on early extinguishment of debt of $3,225,000 ($.04 per share), net of an
income tax benefit of $1,737,000.
During 1998, SFr. 37,670,000 principal amount of the New Certificates was
exchanged for an aggregate of approximately 802,000 shares of the Company's
common stock and the remainder of the New Certificates
29
32
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
were redeemed for cash. Upon the exchange and redemption of the New
Certificates, Danish bonds held in trust for the payment of the New
Certificates, having a market value of approximately $22,958,000, became
available to the Company and were sold. The exchange increased stockholders'
equity by $25,337,000 and reduced long-term debt and accrued interest by
$4,680,000.
The Company has mortgages totaling $13,895,000 payable in U.S. dollars and
Swiss francs, collateralized by certain real property of the Company having a
net book value of $15,310,000 at December 31, 2000.
Aggregate annual maturities of long-term debt are as follows (in
thousands):
2001...................................................... $ 898
2002...................................................... 554
2003...................................................... 515
2004...................................................... 480
2005...................................................... 191,131
Thereafter................................................ 318,101
--------
Total........................................... $511,679
========
The estimated fair value of the Company's debt, based on quoted market
prices or on current interest rates for similar obligations with like
maturities, was approximately $527,072,000 and $585,108,000 compared to its
carrying value of $511,679,000 and $597,273,000 at December 31, 2000 and 1999,
respectively.
The Company has short and long-term lines of credit aggregating $12,851,000
under which no borrowings were outstanding at December 31, 2000. The lines of
credit provide for short-term borrowings and bear interest at variable rates
based upon LIBOR (approximately 3.4% at December 31, 2000) or other indices.
10. PREFERRED STOCK
In connection with the acquisition of rights to certain products from
SmithKline Beecham plc ("SKB") in 1998, the Company issued 821 shares of its
Series D Convertible Preferred Stock to SKB. Each share of the Series D
Convertible Preferred Stock was initially convertible into 750 shares of the
Company's common stock (together, the "SKB Shares"), subject to certain
antidilution adjustments, and had a liquidation preference of $28,000 per share.
Except under certain circumstances, SKB agreed not to sell the SKB Shares until
November 4, 1999, unless the market price of the Company's common stock exceeded
$50.00 per common share. In connection with the issuance of the SKB shares, the
Company guaranteed SKB a price initially at $37.37 per common share, increasing
at a monthly rate of $0.43 per share for twenty months. The Company agreed to
pay SKB an additional amount in cash (or, under certain circumstances, in shares
of common stock) to the extent proceeds received by SKB from the sale of the SKB
Shares during the guarantee period ending in December 1999 and the then market
value of the unsold SKB Shares did not provide SKB with an average value of
$46.00 per common share (including any dividend paid on the SKB Shares). In
December 1999, the Company satisfied its obligation to SKB by repurchasing the
821 shares of Series D Convertible Preferred Stock for $28,313,000 in cash.
11. COMMON STOCK
During 2000, the Board of Directors and the stockholders each approved the
Company's Amended and Restated 1998 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan, as amended, provides for the granting of options to
purchase a maximum of 11,604,000 shares (including 3,000,000 shares authorized
in 1998) of the Company's common stock to key employees, officers, directors,
consultants and advisors of the Company. Options granted under the Stock Option
Plan must have an option price not less than 85% of the fair market value of the
Company's common stock at the date of the grant, and a term not
30
33
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
exceeding 10 years. Options vest ratably over a four year period from the date
of the grant. Under the Stock Option Plan each nonemployee director is granted
15,000 options on each April 18.
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for options granted under
the Stock Option Plan. Had compensation cost for the Company's Stock Option Plan
been determined based on the fair value at the grant date for awards in 2000,
1999 and 1998 consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been the unaudited pro
forma amounts indicated below (in thousands, except per share data):
2000 1999 1998
------- -------- ---------
Net income (loss).................................. $81,643 $109,876 $(359,757)
Earnings (loss) per share -- basic................. 1.03 1.41 (4.89)
Earnings (loss) per share -- diluted............... 0.99 1.34 (4.89)
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:
2000 1999 1998
------ ------ ------
Weighted-average life (years)............................ 4.8 4.4 5.0
Volatility............................................... 55% 54% 56%
Expected dividend per share.............................. $ 0.36 $ 0.36 $ 0.36
Risk-free interest rate.................................. 5.80% 5.40% 5.15%
Weighted-average fair value of options granted........... $12.91 $12.51 $19.54
The following table sets forth information relating to stock option plans
during the years ended December 31, 2000, 1999 and 1998 (in thousands, except
per share data):
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Shares under option, December 31, 1997.................... 8,920 $12.68
Granted................................................. 2,211 42.75
Exercised............................................... (634) 10.94
Canceled................................................ (144) 14.96
------
Shares under option, December 31, 1998.................... 10,353 18.97
Granted................................................. 1,451 25.66
Exercised............................................... (1,148) 11.10
Canceled................................................ (288) 24.52
------
Shares under option, December 31, 1999.................... 10,368 20.59
Granted................................................. 571 25.05
Exercised............................................... (1,193) 12.21
Canceled................................................ (586) 31.00
------
Shares under option, December 31, 2000.................... 9,160 $21.25
======
Exercisable at December 31, 1998.......................... 6,841 $13.43
======
Exercisable at December 31, 1999.......................... 6,962 $16.10
======
Exercisable at December 31, 2000.......................... 6,903 $18.36
======
Options available for grant at December 31, 1999.......... 270
======
Options available for grant at December 31, 2000.......... 4,034
======
31
34
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The schedule below reflects the number of outstanding and exercisable
options as of December 31, 2000 segregated by price range (in thousands, except
per share data):
OUTSTANDING EXERCISABLE
-------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE REMAINING
RANGE OF EXERCISE PRICES OF SHARES PRICE OF SHARES PRICE LIFE (YEARS)
------------------------ --------- -------- --------- -------- ------------
$ 5.11 to $13.67 3,534 $10.95 3,494 $10.91 3.72
$13.92 to $26.88 3,613 $20.01 2,336 $18.21 5.22
$27.25 to $46.25 2,013 $41.58 1,073 $42.95 7.35
----- -----
9,160 6,903
===== =====
During 1998, the Company extended by one year the term of options to
purchase an aggregate of 304,000 shares of common stock which are held by four
employees, including the Chairman and CEO and a director. The Company recorded
compensation expense of $2,909,000 related to these options.
Stock Repurchase Plan: In 1998, the Company's Board of Directors authorized
two stock repurchase programs. The first repurchase program authorized the
Company to repurchase up to $10,000,000 of its outstanding common stock. The
second authorized the Company to initiate a long-term repurchase program that
allows the Company to repurchase up to 3,000,000 shares of its common stock. In
executing the repurchase programs, the Company is limited by certain covenants
contained in the indentures relating to the Company's Senior Notes. In the
indentures, the Company is permitted to repurchase up to $10,000,000 of its
common stock under the first program; however, repurchases under the second
program will only be permitted as the Company generates cumulative net income,
as provided for in the indentures. In 1998, the Company repurchased an aggregate
of 200,000 shares of its common stock for $4,450,000. In March 1999, the Company
repurchased additional shares of 223,967 of its common stock for $5,550,000,
completing its first stock repurchase program. In December 1999, the Company
repurchased additional shares of 390,200 of its common stock for $9,754,000,
initiating the second stock repurchase program.
During 1999, the Company sold certain put options to an independent third
party; the proceeds were used to purchase call options from the same party in a
private placement transaction not requiring any net cash outlay at the time. The
put options and the corresponding call options expired from August 2000 through
December 2000. The Company, at its option, could make a physical settlement, a
cash settlement, or a net share settlement of its positions under the put
options and the call options. The Company received 46,014 shares of its common
stock and paid $20,000 in cash to settle its positions under the put options and
the call options.
Stockholder Rights Plan: The Company has 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
"Rights"), par value $0.01 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 occurrence of certain events. The Rights are subject to redemption at
the option of the Board of Directors at a price of $0.01 per right until the
occurrence of certain events. The Rights expire on November 1, 2004.
Long-term Incentive Plan: The Company has a long-term incentive plan, which
provides for the issuance of shares of the Company's common stock to senior
executives. Shares issued under the long-term incentive plan are restricted and
vest over a four-year period. In 2000 and 1999, no shares were issued under the
plan. In 1998, approximately 319,000 shares of the Company's common stock having
a value of $10,466,000 were
32
35
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
issued under this plan. Compensation expense for the value of the common shares
issued is being recognized over the vesting period and is credited to additional
capital. During 2000, 1999 and 1998, the Company recorded an other non-cash
charge relating to the compensation expense of $2,333,000, $2,737,000 and
$2,398,000, respectively. As of December 31, 2000, the unamortized compensation
cost related to the restricted shares was $2,528,000. The amount expected to be
recognized in 2001 and 2002, assuming that all current participants in the
long-term incentive plan remain in the plan through the vesting period, is
$2,333,000 and $195,000, respectively.
Contingently Issuable Shares: Effective October 1, 1998, the Company issued
2,883,871 shares of its common stock to Roche as part of the consideration for
the rights to four pharmaceutical products. Under the terms of the agreement
with Roche, the Company guaranteed to Roche a per share price initially at
$31.00, increasing at a rate of 6% per annum through December 31, 2000. Should
Roche sell any of the shares prior to December 31, 2000, the Company is entitled
to one-half of any proceeds realized by Roche in excess of the guaranteed price.
On February 28, 2001, the Company issued 92,975 shares of its common stock
valued at approximately $2,723,000 in settlement of the guarantee.
Other: During 1999, the Company sold 2,041,498 shares of its common stock
to Schering-Plough for $42,000,000. The sale was pursuant to the terms of a
Stock Purchase Agreement made between the Company and Schering-Plough in 1995.
See Note 16.
12. COMMITMENTS AND CONTINGENCIES
On August 11, 1999, the United States Securities and Exchange Commission
filed a complaint in the United States District Court for the Central District
of California captioned Securities and Exchange Commission v. ICN
Pharmaceuticals, Inc., Milan Panic, Nils O. Johannesson, and David C. Watt,
Civil Action No. SACV 99-1016 DOC (ANx) (the "SEC Complaint"). The SEC Complaint
alleges that the Company and the individual named defendants made untrue
statements of material fact or omitted to state material facts necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading and engaged in acts, practices, and courses of
business which operated as a fraud and deceit upon other persons in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The SEC Complaint concerns the status and disposition of the
Company's 1994 New Drug Application for Virazole as a monotherapy treatment for
Hepatitis C (the "NDA"). The SEC Complaint seeks injunctive relief, unspecified
civil penalties, and an order barring Mr. Panic from acting as an officer or
director of any publicly-traded company. A pre-trial schedule has been set which
requires the submission of summary judgment motions in late 2002, the end of
discovery by March 17, 2003, and the commencement of trial on May 6, 2003. The
Company and the SEC are engaged in discussions in an effort to determine whether
the litigation can be resolved by settlement agreement.
Beginning in 1996, the Company received subpoenas from a Grand Jury in the
United States District Court for the Central District of California requesting
the production of documents covering a broad range of matters over various time
periods. The Company understood that the Company, Mr. Panic, two current senior
executive officers, a former senior officer, a current employee, and a former
employee of the Company were targets of the investigation. The Company also
understood that a senior executive officer and a director were subjects of the
investigation. The United States Attorney for the Central District of California
(the "Office") advised counsel for the Company that the areas of its
investigation included disclosures made and not made concerning the 1994
Hepatitis C monotherapy NDA to the public and other third parties; stock sales
for the benefit of Mr. Panic following receipt on November 28, 1994 of a letter
from the FDA informing the Company that the 1994 Hepatitis C monotherapy NDA had
been found not approvable; possible violations of the economic embargo imposed
by the United States upon the Federal Republic of Yugoslavia, based upon alleged
sales by the Company and Mr. Panic of stock belonging to Company employees; and,
with respect to
33
36
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Mr. Panic, personal disposition of assets of entities associated with
Yugoslavia, including possible misstatements and/or omissions in federal tax
filings. The Company has cooperated, and continues to cooperate, in the Grand
Jury investigation. A number of current and former officers and employees of the
Company were interviewed by the government in connection with the investigation.
The Office had issued subpoenas requiring various current and former officers
and employees of the Company to testify before the Grand Jury. Certain current
and former officers and employees testified before the Grand Jury beginning in
July 1998.
On March 15, 2001, the Company was notified by the Office that a decision
had been made to decline prosecution of all of the individual targets and
subjects of the Grand Jury investigation. At the same time, the Company was also
notified that the United States Attorney had authorized the Office to seek an
indictment of the Company based upon alleged false and misleading
misrepresentations concerning the 1994 hepatitis C monotherapy NDA. The Company
and the Office are engaged in discussions in an effort to determine whether the
matter can be settled by plea bargain, which could include a plea by the Company
to one felony count.
In connection with the Grand Jury investigation and SEC litigation, the
Company has recorded a reserve in the fourth quarter of 2000 of $9,250,000 to
cover the potential combined settlement liability and all other related costs.
The Company's estimate of the fourth quarter reserve was based upon the nature
and amounts noted during settlement discussions with the SEC and the Office. The
Company believes that additional loss in settling these matters, based upon
discussions to date, is not reasonably possible. There can, of course, be no
assurance that the Grand Jury investigation will be settled by plea agreement or
that the SEC litigation will be settled by mutual agreement or what the amount
of any settlement may ultimately be. In the event that a settlement of either
matter is not reached, the Company will vigorously defend any litigation.
On or about February 9, 1999, the Company commenced an action in the United
States District Court for the District of Columbia ("District Court") against
the Federal Republic of Yugoslavia ("FRY"), the Republic of Serbia ("ROS"), and
the State Health Fund of Serbia ("State Fund") seeking damages in the amount of
at least $500,000,000 and declaratory relief arising out of the FRY and ROS's
seizure of the Company's majority ownership interest in ICN Yugoslavia and the
failure of the ROS and State Fund to pay ICN Yugoslavia for goods sold and
delivered. On or about March 9, 1999, the State Fund commenced an arbitration
against the Company before the International Chamber of Commerce ("ICC") for
unquantified damages due to alleged breaches of the agreement pursuant to which
the Company acquired its majority ownership interest in ICN Yugoslavia, and for
unspecified injunctive relief. The Company, in turn, counterclaimed against the
State Fund, and commenced an arbitration against the FRY and the ROS in the ICC
arising out of the seizure of ICN Yugoslavia and the failure to pay for goods
sold and delivered, seeking damages and other relief. The District Court stayed
the action (while retaining jurisdiction) so that issues of jurisdiction by and
among the parties could be resolved at the ICC. On February 23, 2001, the
Arbitration panel issued decisions holding that: (i) the State Fund is a proper
party to the ICC arbitration; (ii) the issue of jurisdiction over the ROS in the
ICC arbitration will be joined to the merits of the case and decided in
conjunction therewith; and (iii) there is no jurisdiction over the FRY in the
ICC arbitration. The Company intends to prosecute vigorously its claims against
the FRY, the ROS, and the State Fund, and to defend against the State Fund's
claims against the Company, which the Company believes to be meritless and filed
solely as a response to the action filed earlier by the Company in the District
Court.
The Company is a party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the Grand Jury investigation cannot be predicted with certainty,
and an unfavorable outcome could have a negative impact on the Company, at this
time in the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company's consolidated financial position,
results of operations or liquidity.
Product Liability Insurance: The Company is currently self-insured with
respect to product liability claims and 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
34
37
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
been successfully maintained against the Company, a substantial claim, if
successful, could have a negative impact on the results of operations and cash
flows of 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 2000, 1999
and 1998.
Other: Milan Panic, the Company's Chairman of the Board and Chief Executive
Officer, is employed under a contract expiring December 31, 2002 that provides
for, among other things, certain health and retirement benefits. The contract is
automatically extended at the end of each term 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 and will be entitled, when serving as a consultant, to
participate in the Company's medical and dental plans. 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 eleven 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 or for the chairman five times salary and other benefits.
As of December 31, 2000, the Company's obligation, assuming a change in control
had occurred would be $26,330,000 for all employment contracts.
13. BUSINESS SEGMENTS AND GEOGRAPHIC DATA
The Company is a global, research-based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, research, and
diagnostic products. The Company is organized and operates in the
Pharmaceuticals group and the Biomedicals group. The Pharmaceuticals group
produces and markets a variety of pharmaceutical products worldwide and derives
royalty revenues from sales of certain of its products by a third party under a
license agreement. The Biomedicals group markets research products and related
services, immunodiagnostic reagents and instrumentation, and provides radiation
monitoring services.
In 2000, the principal markets for the Company's pharmaceutical products
were North America, Western Europe (including Poland, Hungary and the Czech
Republic), Russia and Latin America, which represented approximately 34%, 23%,
13% and 16%, respectively, of the Company's revenues for the year. Approximately
63%, 64%, and 76% of the Company's revenues for the years ended December 31,
2000, 1999 and 1998, respectively, were generated from operations outside the
United States. The Company's 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 any hedges on its foreign currency exposure and, in certain
countries in which the Company operates, no effective hedging programs are
available.
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires reporting certain financial
information according to the "management approach." This approach requires
reporting information regarding operating segments on the basis used internally
by management to evaluate segment performance. SFAS 131 also requires
disclosures about products and services, geographic areas and major customers.
35
38
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The Company is organized into business units on the basis of geographic
region. In applying SFAS 131, these business units have been aggregated into
seven reportable segments based on similar long-term economic characteristics.
The accounting policies of the segments are the same as those described in Note
2. The Company evaluates segment performance based on income from operations,
which excludes intersegment sales as well as interest income and expense and
foreign exchange gains and losses. The Company allocates amortization on the
product rights acquired from Roche and SKB among the segments where the related
revenues are reported; the unamortized cost of such acquired product rights is
included in assets of the North America Pharmaceuticals segment.
The tables below present information about reported segments and geographic
data for the years ended December 31, 2000, 1999, and 1998 (in thousands):
REVENUES OPERATING INCOME (LOSS)
------------------------------ -------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- ---------
Pharmaceuticals
North America................... $275,687 $254,694 $182,778 $203,031 $172,391 $ 100,311
Western Europe.................. 187,206 185,417 154,346 16,404 15,633 11,559
Latin America................... 127,485 100,325 85,351 41,951 34,859 26,791
Russia.......................... 106,271 91,648 163,691 (3,856) 9,005 9,340
Yugoslavia...................... -- -- 141,740 -- -- (140,419)
Asia, Africa, Australia......... 45,133 54,131 48,649 (500) 13,682 10,062
-------- -------- -------- -------- -------- ---------
Total Pharmaceuticals............. 741,782 686,215 776,555 257,030 245,570 17,644
Biomedicals....................... 58,522 61,197 61,509 3,379 6,416 5,471
-------- -------- -------- -------- -------- ---------
Consolidated revenues and segment
operating income................ $800,304 $747,412 $838,064 260,409 251,986 23,115
======== ======== ========
Corporate expenses................ 76,454 53,129 312,683
Interest income................... (12,542) (8,894) (13,057)
Interest expense.................. 60,356 55,943 38,069
Translation and exchange losses,
net............................. 6,587 11,823 80,501
-------- -------- ---------
Income (loss) before income taxes,
minority interest and
extraordinary loss.............. $129,554 $139,985 $(395,081)
======== ======== =========
36
39
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Operating income for 2000 and 1999 did not include any revenues or expenses
related to the Company's investment in ICN Yugoslavia. Operating income (loss)
for 1998 includes the Eastern European charges totaling $440,820,000. These
charges are included in Yugoslavia Pharmaceuticals ($173,508,000), Russia
Pharmaceuticals ($11,770,000), Western Europe Pharmaceuticals ($15,659,000),
North America Pharmaceuticals ($3,150,000), and Biomedicals ($647,000). In
addition, Eastern European charges of $236,086,000 (principally the write-off of
the Company's investment in ICN Yugoslavia) are included in Corporate expenses.
DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES(1)
------------------------------ ----------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- --------
Pharmaceuticals
North America.................... $16,657 $16,042 $13,609 $ 5,789 $ 8,088 $ 2,425
Western Europe................... 19,602 15,603 10,993 10,763 10,111 22,082
Latin America.................... 5,230 8,381 5,563 2,968 3,198 2,366
Russia........................... 4,845 4,544 104 7,028 12,636 41,803
Yugoslavia....................... -- -- 3,720 -- -- 22,472
Asia, Africa, Australia.......... 4,699 5,398 5,488 172 103 13
------- ------- ------- ------- ------- --------
Total Pharmaceuticals.............. 51,033 49,968 39,477 26,720 34,136 91,161
Biomedicals........................ 5,530 7,302 4,669 2,366 2,379 3,019
Corporate.......................... 7,977 8,232 6,950 20,244 9,124 16,101
------- ------- ------- ------- ------- --------
$64,540 $65,502 $51,096 $49,330 $45,639 $110,281
======= ======= ======= ======= ======= ========
---------------
(1) Includes noncash capital expenditures of $1,556 for 1999.
ASSETS
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Pharmaceuticals
North America........................................ $ 518,033 $ 516,231 $ 519,920
Western Europe....................................... 271,914 218,577 226,436
Latin America........................................ 127,031 100,118 66,486
Russia............................................... 169,032 174,838 154,424
Asia, Africa, Australia.............................. 82,206 98,402 79,274
---------- ---------- ----------
Total Pharmaceuticals.................................. 1,168,216 1,108,166 1,046,540
Biomedicals............................................ 61,938 67,692 76,671
Corporate.............................................. 246,918 296,403 233,185
---------- ---------- ----------
$1,477,072 $1,472,261 $1,356,396
========== ========== ==========
Geographic Data
REVENUES LONG-LIVED ASSETS
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
United States...................... $292,213 $271,217 $199,234 $497,817 $500,981 $512,261
Canada............................. 20,711 19,799 18,960 4,630 3,289 3,345
Western Europe..................... 200,708 201,825 172,919 159,350 133,565 145,541
Latin America(1)................... 128,586 101,728 86,634 35,598 38,846 34,456
Russia............................. 106,271 91,648 163,691 99,625 99,870 86,969
Yugoslavia......................... -- -- 141,740 -- -- --
Asia, Africa, Australia............ 51,815 61,195 54,886 39,599 49,885 55,143
-------- -------- -------- -------- -------- --------
$800,304 $747,412 $838,064 $836,619 $826,436 $837,715
======== ======== ======== ======== ======== ========
---------------
(1) Latin American region is principally Mexico.
37
40
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Revenues are attributed to the countries based upon the country of domicile
of the Company's subsidiary which made the sale, with the exception of certain
sales exported from the United States into the Asia, Africa, and Australia
region, where the sales are attributed to the region based upon the location of
the customer. Long-lived assets principally consist of property, plant, and
equipment, acquired product rights, and goodwill.
14. ICN YUGOSLAVIA
On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on the unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslavian law, without any notification to or
representation by the Company. As a result, the Company had and continues to
have no effective control over the operating and financial affairs of ICN
Yugoslavia and deconsolidated the financial statements of ICN Yugoslavia as of
November 26, 1998. Accordingly, the Company recorded a charge of $235,290,000 in
the fourth quarter of 1998, which is included in Eastern European Charges in the
accompanying consolidated statements of income. This charge reduced the carrying
value of the Company's investment in ICN Yugoslavia to its fair value, estimated
to be zero.
The following table represents the Consolidated Statements of Income of the
Company, ICN Yugoslavia and the pro-forma results excluding ICN Yugoslavia for
the year 1998.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
1998
----------------------------------------
EXCLUDING
CONSOLIDATED YUGOSLAVIA YUGOSLAVIA
------------ ---------- ----------
Net Revenues..................................... $ 838,064 $ 141,740 $696,324
Cost and expenses:
Cost of product sales.......................... 353,600 80,430 273,170
Selling, general and administrative............ 312,377 25,081 287,296
Research and development....................... 20,835 3,140 17,695
Eastern European charges....................... 440,820 408,798 32,022
---------- --------- --------
Total expenses......................... 1,127,632 517,449 610,183
---------- --------- --------
Income (loss) from operations.................. (289,568) (375,709) 86,141
Translation and exchange losses, net............. 80,501 23,865 56,636
Interest expense (income), net................... 25,012 (630) 25,642
Provision (benefit) for income taxes............. 1,983 1,029 954
Minority interest................................ (44,990) (41,173) (3,817)
---------- --------- --------
Net income (loss).............................. $ (352,074) $(358,800) $ 6,726
========== ========= ========
Basic earnings (loss) per share................ $ (4.78) $ 0.09
========== ========
Diluted earnings (loss) per share.............. $ (4.78) $ 0.09
========== ========
38
41
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Through the first quarter of 1998, the majority of ICN Yugoslavia's
domestic sales were made to the Yugoslavian government or government-funded
entities. During early 1997, the Company established credit terms with the
Yugoslavian government under which future receivables were interest-bearing with
one year terms and payable in dinars, but fixed in dollar amounts. During the
first quarter of 1998, the Company continued to make sales to the Yugoslavian
government and government-sponsored entities under similar fixed dollar terms in
order to reduce the Company's exposure to losses resulting from exchange rate
fluctuations. In the second quarter of 1998, the Yugoslavian government
defaulted on its obligations to the Company on $176,204,000 of accounts and
notes receivable. As a result of the government's default and the suspension of
sales to the government, the Company recorded a $173,440,000 charge against
earnings at ICN Yugoslavia in the second quarter of 1998. The charge is included
in Eastern European Charges ($165,646,000), cost of product sales ($3,667,000),
and interest income ($4,127,000) in the accompanying consolidated statements of
income. The charge consists of a $151,204,000 reserve for losses on notes
receivable (including accrued interest), reserves of $7,757,000 for losses on
accounts receivable from government-sponsored entities, and a $14,479,000
write-down of the value of certain related investments and assets.
In the third quarter of 1998 ICN Yugoslavia recorded a charge for losses on
accounts receivable of $7,862,000 as a result of the Russian economic situation.
See Note 15.
15. ICN RUSSIA
The Company's Russian operations generated 13%, 12%, and 20% of the
Company's total revenues for the years 2000, 1999 and 1998, respectively.
While the Russian economy continues to show improvement since the financial
crisis that began in august 1998, the economy continues to experience
difficulties. In 1998, the ruble fell sharply from a rate of 6.3 rubles to $1 to
a rate of 20.7 rubles to $1 at December 31, 1998. Throughout 1999 and 2000, the
ruble continued to fluctuate, there is continued volatility in the debt and
equity market, hyperinflation persists, confidence in the banking sector has yet
to be restored and there continues to be general lack of liquidity in the
economy. In addition, laws and regulations affecting businesses operating within
Russia continue to evolve. Russia's return to economic stability is dependent to
a large extent on the effectiveness of the measures taken by the government,
decisions of international lending organizations, and other actions, including
regulatory and political developments, which are beyond the Company's control.
At December 31, 2000, the ruble exchange rate was 28.2 rubles to $1 as
compared with the rate of 27.5 rubles to $1 and 20.7 rubles to $1 as of December
31, 1999 and 1998, respectively. As a result of the change in the ruble exchange
rate, the Company recorded translation and exchange losses of $3,525,000,
$6,738,000 and $53,848,000, related to its Russian operations during 2000, 1999
and 1998, respectively. As of December 31, 2000, ICN Russia had a net monetary
asset position of approximately $12,423,000, which is subject to foreign
exchange loss as further declines in the value of the ruble in relation to the
dollar occur. Due to the fluctuation in the ruble exchange rate, the ultimate
amount of any future translation and exchange loss the Company may incur cannot
presently be determined and such loss may have a negative impact on the
Company's results of operations. The Company's management continues to work to
manage its net monetary exposure. However, there can be no assurance that such
efforts will be successful.
The Company's collections on accounts receivable in Russia have been
adversely affected by the Russian economic situation. Prior to the August 1998
devaluation of the ruble, the Company had a favorable experience with the
collection of receivables from its customers in the region. Subsequently, the
Company has taken additional steps to ensure the creditworthiness of its
customers and the collectibility of accounts receivable by tightening its credit
policies in the region. These steps include a shortening of credit periods,
suspension of sales to customers with past-due balances and discounts for cash
sales.
39
42
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
The Company believes that the economic and political environment in Russia
has affected the pharmaceutical industry in the region. Many Russian companies,
including many of the Company's customers, continue to experience liquidity
problems as monetary policy has limited the money supply, and Russian companies
often lack access to an effective banking system. As a result, many Russian
companies have limited ability to pay their debts, which has led to a number of
business failures in the region. In addition, the devaluation has reduced the
purchasing power of Russian companies and consumers, thus increasing pressure on
the Company and other producers to limit price increases in hard currency terms.
These factors have affected, and may continue to affect, sales and gross margins
in the Company's Russian operations. As a result of the Russian economic
situation, the Company recorded a charge in 1998 of $42,289,000, representing
reserves for accounts receivable of $37,873,000, the write-off of certain
investments of $2,011,000, and a reduction in the value of certain inventories
of $2,405,000.
16. AGREEMENT WITH SCHERING-PLOUGH CORPORATION
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "License Agreement") and a Stock Purchase Agreement (the
"Agreement") with Schering-Plough Corporation ("Schering-Plough"). Under the
License Agreement, Schering-Plough licensed all oral forms of ribavirin for the
treatment of chronic hepatitis C (HCV) in combination with Schering-Plough's
alpha interferon. The License Agreement provided the Company an initial
non-refundable payment and future royalty payments to the Company from sales of
ribavirin by Schering-Plough, including certain minimum royalty rates. As part
of the initial License Agreement, the Company retained the right to co-market
ribavirin capsules in the European Union under its trademark Virazole(R). In
addition, Schering-Plough was obligated to purchase up to $42,000,000 in common
stock of the Company upon the achievement of certain regulatory milestones.
Under the Agreement, Schering-Plough is responsible for all clinical
developments worldwide. In 1998, the Company sold to Schering-Plough its right
to co-market oral ribavirin for the treatment of HCV in the European Union, in
exchange for increased royalty rates on sales of ribavirin worldwide. In
addition, the Company received a one-time payment of $16,500,000 from
Schering-Plough in consideration for the sale to Schering-Plough of the
additional marketing rights in the European Union, in settlement of past
royalties, and as reimbursement for expenses incurred by the Company in
preparation for the launch of ribavirin capsules in the European Union.
Schering-Plough has informed the Company that it believes royalties for
the fourth quarter should not include royalties of approximately $1,800,000 on
products distributed as part of an indigent patient marketing program. It also
informed the Company that amounts that had previously been paid under this
program, which they estimate to be approximately $11,900,000, should be
returned to Schering-Plough. In raising the dispute, Schering-Plough has not
clearly articulated a contractual basis for the nonpayment of royalties. Rather
it has based its arguments on primarily moral or humanitarian grounds,
essentially equitable arguments, indicating that they believe they should not
have an obligation to pay royalties on product given to indigent patients. The
Company has not been provided with appropriate information or documentation,
and does not agree with such adjustment as the Agreement articulates those
programs for which royalties would not be due. Should Schering-Plough
successfully apply this adjustment retroactively, it could have an impact on
the Company's results of operations. Further, if Schering-Plough were to apply
the proposed adjustment to future royalty payments, royalties could be reduced
in approximately the same proportion as the proposed historical adjustment.
In November 2000, the Company entered into an agreement to provide
Schering-Plough with certain rights to license various products the Company may
develop. Under the terms of the strategic agreement, Schering-Plough has the
option to exclusively license on a worldwide basis up to three compounds that
the Company may develop for the treatment of hepatitis C on terms specified in
the agreement. The option does not apply to Levovirin or Viramidine. The option
is exercisable as to a particular compound at any time prior to the start of
Phase II clinical studies for that compound. Once it exercises the option with
respect to a compound, Schering-Plough is required to take over all
developmental costs and responsibility for regulatory approval for that
compound.
Under the terms of the agreement, the Company also granted Schering-Plough
the right of first/last refusal to license compounds relating to the treatment
of infectious diseases (other than hepatitis C) or cancer or other oncology
indications as well as the right of first/last refusal with respect to Levovirin
and Viramidine (collectively, the "Refusal Rights"). Under the terms of the
Refusal Rights, if the Company intends to offer a
40
43
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
license or other rights with respect to any of these compounds to a third party,
the Company is required to notify Schering-Plough. At Schering-Plough's request,
the Company is required to negotiate in good faith with Schering-Plough on an
exclusive basis the terms of a mutually acceptable exclusive worldwide license
or other form of agreement on commercial terms to be mutually agreed upon. If
the Company cannot reach an agreement with Schering-Plough, the Company is
permitted to negotiate a license agreement or other arrangement with a third
party. Prior to entering into any final arrangement with the third party, the
Company is required to offer substantially similar terms to Schering-Plough,
which terms Schering-Plough has the right to match.
If Schering-Plough does not exercise its option or Refusal Rights as to a
particular compound, the Company may continue to develop that compound or
license that compound to other third parties. The agreement with Schering-Plough
will terminate the later of 12 years from the date of the agreement or the
termination of the 1995 license agreement with Schering-Plough. The agreement
was entered into as part of the resolution of claims asserted by Schering-Plough
against the Company, including claims regarding the Company's alleged improper
hiring of former Schering-Plough research and development personnel and claims
that the Company was not permitted to conduct hepatitis C research.
In February and December 1999, Schering-Plough purchased 1,141,498 and
900,000 shares of the Company's common stock for $27,000,000 and $15,000,000,
respectively, pursuant to the Stock Purchase Agreement entered into in
connection with the License Agreement.
17. SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1998, the Company sold marketable securities and recognized other
non-cash gains of $1,993,000.
In 1999, the Company recorded an other non-cash charge of $1,000,000
related to the abandonment of unproductive assets.
The following table sets forth the amounts of interest and income taxes
paid during 2000, 1999 and 1998 (in thousands):
2000 1999 1998
------- ------- -------
Interest paid (net of amounts capitalized of $-0-,
$-0-, and $3,540 in 2000, 1999, and 1998,
respectively)....................................... $57,514 $52,165 $34,240
======= ======= =======
Income taxes paid..................................... $20,299 $21,049 $15,207
======= ======= =======
41
44
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 this 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
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation of
Registrant, previously filed as Exhibit 3.1 to Registration
Statement 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.
3.3 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.
42
45
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.4 Form of Rights Agreement, dated as of November 2, 1994, between the
Registrant and American Stock Transfer & 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, dated as of August 14, 1997, by and among ICN and United
States Trust Company of New York, relating to $275,000,000 9 1/4%
Senior Notes due 2005, previously filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, which is incorporated herein by reference.*
10.2 Indenture, dated as of August 20, 1998, by and among ICN and United
States Trust Company of New York, relating to $200,000,000 8 3/4%
Senior Notes due 2008, previously filed as Exhibit 4.2 to the
Company's Registration Statement No. 333-63721 on Form S-4, which is
incorporated herein by reference.*
10.3 Registration Rights Agreement, dated as of August 20, 1998, by and
among ICN and Schroder & Co. Inc., previously filed as Exhibit 4.3 to
the Company's Registration Statement No. 333-63721 on Form S-4, which
is incorporated herein by reference.
10.4 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.
10.5 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.
10.6+ 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.
10.7+ Amendment to Employment Contract between ICN Pharmaceuticals, Inc.,
and Milan Panic, dated September 6, 1995 previously filed as Exhibit
10.29 to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1995, which is incorporated herein by
reference.
10.8+ Amendment to Employment Contract between ICN Pharmaceuticals, Inc.,
and Milan Panic dated January 1, 1999, filed as Exhibit 10.8 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000, which is incorporated herein by reference.
10.9+ 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.
10.10+ 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.
10.11+ 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.
10.12+ Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc.
and Jack Sholl 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 December 31, 1992, which is incorporated
herein by reference.
10.14+ Agreement between ICN Pharmaceuticals, Inc. and Benjamin Lap dated
April 1, 1999, previously filed as Exhibit 10.14 for the Registrant's
Form 10-K for the year ended December 31, 1999, which is incorporated
herein by reference.
43
46
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.15 Agreement among ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and David Watt 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 December 31, 1992, which is incorporated
herein by reference.
10.16 Agreement between ICN Pharmaceuticals, Inc. and Richard A.
Meier dated December 31, 1998, previously filed as Exhibit
10.16 to the Registrant's Form 10-K for the year ended
December 31, 1998, which is incorporated herein by
reference.
10.17 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.
10.18 ICN Pharmaceuticals, Inc. 1992 Non-Qualified Stock Plan,
previously filed as Exhibit 10.57 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1992, which is incorporated herein by
reference.
10.19 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.
10.20 ICN Pharmaceuticals, Inc. 1998 Stock Option Plan, previously
filed as Exhibit 10.20 to the Registrant's Form 10-K for the
year ended December 31, 1998, which is incorporated herein
by reference.
10.21 Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. dated July
28, 1995 previously filed as Exhibit 10 to ICN
Pharmaceuticals, Inc.'s Amendment 3 to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, which
is incorporated herein by reference.
10.22 Collateral Agreement between Milan Panic and the Registrant,
dated August 14, 1996, previously filed as Exhibit 10.32 to
ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1996, which is incorporated
herein by reference.
10.24 Form of Asset Purchase Agreement by and between Hoffman-La
Roche Inc., a New Jersey corporation, and ICN
Pharmaceuticals, Inc., a Delaware corporation, dated as of
October 30, 1997, previously filed as Exhibit 10.1 to ICN
Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, which is incorporated
herein by reference.
10.25 Form of Asset Purchase Agreement by and between Roche
Products Inc., a Panamanian corporation, and ICN
Pharmaceuticals, Inc., a Delaware corporation, dated as of
October 30, 1997, previously filed as Exhibit 10.2 to ICN
Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, which is incorporated
herein by reference.
10.26 Form of Asset Purchase Agreement by and between Syntex
(F.P.) Inc., a Delaware corporation, Syntex (U.S.A.), a
Delaware corporation, and ICN Pharmaceuticals, Inc., a
Delaware corporation, dated as of October 30, 1997,
previously filed as Exhibit 10.3 to ICN Pharmaceuticals,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, which is incorporated herein by
reference.
10.27 Agreement for the Sale and Purchase of a Portfolio of
Pharmaceutical, OTC and Consumer Healthcare Products between
SmithKline Beecham plc and ICN Pharmaceuticals, Inc.,
previously filed as Exhibit 10.22 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, which is incorporated herein by
reference.
10.28 Asset Purchase Agreement dated October 2, 1998 by and
between F. Hoffmann-LaRoche Ltd. and ICN Puerto Rico, Inc.,
previously filed as Exhibit 10.1 to ICN Pharmaceuticals,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, which is incorporated herein by
reference.
44
47
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.31 ICN Pharmaceuticals, Inc. Executive Long Term Incentive Plan,
previously filed as Exhibit 10.1 to ICN Pharmaceuticals, Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998, which is incorporated herein by reference.
10.32 Amendment to Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd., filed as Exhibit 10.32
to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
Portions of this exhibit have been omitted pursuant to an application
for confidential treatment pursuant to Rule 406 under the Securities
Act of 1933, as amended.
10.33 Amendment to Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. Dated July 16, 1998
filed as Exhibit 10.33 to ICN Pharmaceuticals, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2000, which is incorporated
herein by reference. Portions of this exhibit have been omitted
pursuant to an application for confidential treatment pursuant to Rule
406 under the Securities Act of 1933, as amended.
10.34 Agreement among Schering Corporation, ICN Pharmaceuticals, Inc. and
Ribapharm Inc. dated as of November 14, 2000 filed as Exhibit 10.34 to
ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
Portions of this exhibit have been omitted pursuant to an application
for confidential treatment pursuant to Rule 406 under the Securities
Act of 1933, as amended.
10.35+ Amendment to the Employment Agreement between ICN Pharmaceuticals,
Inc. and Richard A. Meier dated April 14, 2000, filed as Exhibit 10.35
to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
10.36+ Agreement between ICN Pharmaceuticals, Inc. and Johnson Yiu-Nam Lau,
dated February 24, 2000, filed as Exhibit 10.36 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
10.37+ Agreement between ICN Pharmaceuticals, Inc. and James McCoy, dated
July 14, 2000, filed as Exhibit 10.37 to ICN Pharmaceuticals, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2000, which
is incorporated herein by reference.
10.38+ Agreement between ICN Pharmaceuticals, Inc. and Harry Roosje, dated
September 15, 2000, filed as Exhibit 10.38 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
10.39+ Agreement between ICN Pharmaceuticals, Inc. and Clifford Saffron,
dated January 18, 2001, filed as Exhibit 10.39 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
21. Subsidiaries of the Registrant filed as Exhibit 21 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000, which is incorporated herein by reference.
23. Consent of PricewaterhouseCoopers LLP, independent accountants.
---------------
* 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.
+ Management Compensation.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended December
31, 2000.
45
48
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: June 29, 2001
By /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board and
Chief Executive Officer
46
49
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation of Registrant,
previously filed as Exhibit 3.1 to Registration Statement 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.
3.3 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 Form of Rights Agreement, dated as of November 2, 1994, between the
Registrant and American Stock Transfer & 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, dated as of August 14, 1997, by and among ICN and United
States Trust Company of New York, relating to $275,000,000 9 1/4%
Senior Notes due 2005, previously filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, which is incorporated herein by reference.*
10.2 Indenture, dated as of August 20, 1998, by and among ICN and United
States Trust Company of New York, relating to $200,000,000 8 3/4%
Senior Notes due 2008, previously filed as Exhibit 4.2 to the
Company's Registration Statement No. 333-63721 on Form S-4, which is
incorporated herein by reference.*
10.3 Registration Rights Agreement, dated as of August 20, 1998, by and
among ICN and Schroder & Co. Inc., previously filed as Exhibit 4.3 to
the Company's Registration Statement No. 333-63721 on Form S-4, which
is incorporated herein by reference.
10.4 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.
10.5 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.
10.6+ 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.
10.7+ Amendment to Employment Contract between ICN Pharmaceuticals, Inc.,
and Milan Panic, dated September 6, 1995 previously filed as Exhibit
10.29 to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1995, which is incorporated herein by
reference.
10.8+ Amendment to Employment Contract between ICN Pharmaceuticals, Inc.,
and Milan Panic dated January 1, 1999, filed as Exhibit 10.8 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000, which is incorporated herein by reference.
10.9+ 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.
10.10+ 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.
50
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11+ 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.
10.12+ Agreement among ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and Jack Sholl 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 December 31, 1992, which is incorporated
herein by reference.
10.14+ Agreement between ICN Pharmaceuticals, Inc. and Benjamin Lap
dated April 1, 1999, previously filed as Exhibit 10.14 for
the Registrant's Form 10-K for the year ended December 31,
1999, which is incorporated herein by reference.
10.15 Agreement among ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and David Watt 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 December 31, 1992, which is incorporated
herein by reference.
10.16 Agreement between ICN Pharmaceuticals, Inc. and Richard A.
Meier dated December 31, 1998, previously filed as Exhibit
10.16 to the Registrant's Form 10-K for the year ended
December 31, 1998, which is incorporated herein by
reference.
10.17 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.
10.18 ICN Pharmaceuticals, Inc. 1992 Non-Qualified Stock Plan,
previously filed as Exhibit 10.57 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1992, which is incorporated herein by
reference.
10.19 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.
10.20 ICN Pharmaceuticals, Inc. 1998 Stock Option Plan, previously
filed as Exhibit 10.20 to the Registrant's Form 10-K for the
year ended December 31, 1998, which is incorporated herein
by reference.
10.21 Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. dated July
28, 1995 previously filed as Exhibit 10 to ICN
Pharmaceuticals, Inc.'s Amendment 3 to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, which
is incorporated herein by reference.
10.22 Collateral Agreement between Milan Panic and the Registrant,
dated August 14, 1996, previously filed as Exhibit 10.32 to
ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1996, which is incorporated
herein by reference.
10.24 Form of Asset Purchase Agreement by and between Hoffman-La
Roche Inc., a New Jersey corporation, and ICN
Pharmaceuticals, Inc., a Delaware corporation, dated as of
October 30, 1997, previously filed as Exhibit 10.1 to ICN
Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, which is incorporated
herein by reference.
10.25 Form of Asset Purchase Agreement by and between Roche
Products Inc., a Panamanian corporation, and ICN
Pharmaceuticals, Inc., a Delaware corporation, dated as of
October 30, 1997, previously filed as Exhibit 10.2 to ICN
Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, which is incorporated
herein by reference.
51
10.26 Form of Asset Purchase Agreement by and between Syntex (F.P.) Inc., a
Delaware corporation, Syntex (U.S.A.), a Delaware corporation, and ICN
Pharmaceuticals, Inc., a Delaware corporation, dated as of October 30,
1997, previously filed as Exhibit 10.3 to ICN Pharmaceuticals, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, which is incorporated herein by reference.
10.27 Agreement for the Sale and Purchase of a Portfolio of Pharmaceutical,
OTC and Consumer Healthcare Products between SmithKline Beecham plc
and ICN Pharmaceuticals, Inc., previously filed as Exhibit 10.22 to
ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997, which is incorporated herein by reference.
10.28 Asset Purchase Agreement dated October 2, 1998 by and between F.
Hoffmann-LaRoche Ltd. and ICN Puerto Rico, Inc., previously filed as
Exhibit 10.1 to ICN Pharmaceuticals, Inc.'s Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, which is incorporated
herein by reference.
10.31 ICN Pharmaceuticals, Inc. Executive Long Term Incentive Plan,
previously filed as Exhibit 10.1 to ICN Pharmaceuticals, Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998, which is incorporated herein by reference.
10.32 Amendment to Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd., filed as Exhibit 10.32
to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
Portions of this exhibit have been omitted pursuant to an application
for confidential treatment pursuant to Rule 406 under the Securities
Act of 1933, as amended.
10.33 Amendment to Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. Dated July 16, 1998
filed as Exhibit 10.33 to ICN Pharmaceuticals, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2000, which is incorporated
herein by reference. Portions of this exhibit have been omitted
pursuant to an application for confidential treatment pursuant to Rule
406 under the Securities Act of 1933, as amended.
10.34 Agreement among Schering Corporation, ICN Pharmaceuticals, Inc. and
Ribapharm Inc. dated as of November 14, 2000 filed as Exhibit 10.34 to
ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
Portions of this exhibit have been omitted pursuant to an application
for confidential treatment pursuant to Rule 406 under the Securities
Act of 1933, as amended.
10.35+ Amendment to the Employment Agreement between ICN Pharmaceuticals,
Inc. and Richard A. Meier dated April 14, 2000, filed as Exhibit 10.35
to ICN Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2000, which is incorporated herein by reference.
10.36+ Agreement between ICN Pharmaceuticals, Inc. and Johnson Yiu-Nam Lau,
dated February 24, 2000, filed as Exhibit 10.36 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
10.37+ Agreement between ICN Pharmaceuticals, Inc. and James McCoy, dated
July 14, 2000, filed as Exhibit 10.37 to ICN Pharmaceuticals, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2000, which
is incorporated herein by reference.
10.38+ Agreement between ICN Pharmaceuticals, Inc. and Harry Roosje, dated
September 15, 2000, filed as Exhibit 10.38 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
10.39+ Agreement between ICN Pharmaceuticals, Inc. and Clifford Saffron,
dated January 18, 2001, filed as Exhibit 10.39 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated herein by reference.
21. Subsidiaries of the Registrant filed as Exhibit 21 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000, which is incorporated herein by reference.
23. Consent of PricewaterhouseCoopers LLP, independent accountants.