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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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
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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
Certain information contained in ICN Pharmaceuticals, Inc.'s definitive
Proxy Statement for the 2001 Annual Meeting of Stockholders, to be filed not
later than 120 days after the end of the fiscal year covered by this report, is
incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
PAGE
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PART I
1. Business.................................................... 1
2. Properties.................................................. 15
3. Legal Proceedings........................................... 15
4. Submission of Matters to a Vote of Security Holders......... 15
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
6. Selected Financial Data..................................... 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 29
8. Financial Statements and Supplementary Data................. 32
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 61
PART III
10. Directors and Executive Officers of the Registrant.......... 61
11. Executive Compensation...................................... 61
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 61
13. Certain Relationships and Related Transactions.............. 61
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 61
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PART I
ITEM 1. BUSINESS
INTRODUCTION
ICN Pharmaceuticals, Inc. (the "Company") is a global, research-based
pharmaceutical company that develops, manufactures, distributes and sells
pharmaceutical, research and diagnostic products. In 2000, the Company had
revenues of $800.3 million and net income of $90.2 million. Based on the closing
price of the Company's common stock on the New York Stock Exchange on March 12,
2001, the Company has an equity market capitalization of approximately $1.9
billion.
The Company distributes and sells a broad range of prescription (or
"ethical") and over-the-counter ("OTC") pharmaceutical and nutritional products
in over 90 countries. These pharmaceutical products treat viral and bacterial
infections, diseases of the skin, neuromuscular disorders, cancer,
cardiovascular disease, diabetes and psychiatric disorders.
The Company pursues a strategy of international expansion which includes:
(i) the acquisition of high margin products that complement existing product
lines and can be introduced into additional markets to meet the specific needs
of those markets; (ii) the creation of a pipeline of new products through
internal research and development, as well as strategic partnerships and
licensing arrangements; and (iii) the consolidation of the Company's leadership
position in Central and Eastern Europe, including Russia. In executing this
strategy, the Company believes that it is uniquely positioned to continue to
exploit its basic competitive advantages: (i) large enough economies of scale in
its global distribution network not enjoyed by smaller pharmaceutical companies
that provide opportunities to develop and register multi-regional products; and
(ii) small enough economies of scale in much of its manufacturing and production
facilities and its local and regional sales and marketing groups that provide
for higher profitability on the Company's smaller, niche products that cannot be
achieved by the larger pharmaceutical companies.
The Company's research and development efforts are primarily focused on the
development of drugs in the antiviral and anticancer areas. The Company's
current research and development program areas include hepatitis C, hepatitis B,
HIV, and cancer, each of which affects a large number of patients. The Company
seeks to capitalize on an extensive nucleoside analog library that has already
lead to the discovery and development of ribavirin.
The Company operates in two principal business areas: the pharmaceutical
business which comprises approximately 93% of the Company's total revenue, and
the biomedical business which makes up the remainder. The Company's
pharmaceutical business operates as five regional businesses: North America,
Latin America, Western Europe (including Poland, Hungary and the Czech
Republic), Eastern Europe (predominantly Russia), and Asia, Africa and Australia
("AAA"). The Company's biomedical business operates in three primary areas:
research chemicals, dosimetry and diagnostic equipment. The regional businesses
are each comprised of a number of local operating subsidiaries most of which are
owned directly or indirectly through the Company's principal operating company
in the United States.
While most of the Company's businesses operate as part of a global
integrated strategy, each region utilizes knowledge of the local markets to
enhance the overall performance of the Company. For example, the Company
operates six pharmaceutical companies throughout Eastern Europe and, as measured
by sales, the Company believes it is one of the largest pharmaceutical companies
in Eastern Europe. Long term, the Company believes that as the standard of
living (disposable income as a percentage of GNP) rises, the rate of spending on
health care will increase. The Company also believes it will benefit from the
future growth of the Russian market over the next decade.
RESTRUCTURING
On June 15, 2000, the Company publicly announced a restructuring plan to
split its business into three separate publicly traded companies: Ribapharm Inc.
(comprised of the Company's royalty stream from ribavirin and the Company's U.S.
research & development operations), ICN International (comprised of the
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Company's operations in Western Europe, Eastern Europe and Asia, Africa and
Australia) and ICN Americas (comprised of the Company's operations in North
America, Latin America and Biomedicals).
Ribapharm
The Company has filed a registration statement with the Securities and
Exchange Commission to sell a minority interest in 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, compliance with all
other legal and regulatory provisions, and the required approval by holders of
the Company's outstanding debt. Subject to market conditions, the Company is
planning to complete the Ribapharm offering in 2001.
ICN International
The Company intends to sell up to a 40% interest in ICN International in an
offering. 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. Subject to market conditions and regulatory approvals
the Company expects to complete the offering of ICN International in the second
quarter of 2001.
ICN Americas
In addition to continuing the Company's operations in North America, Latin
America and Biomedicals, ICN Americas will hold the remaining interests in ICN
International and Ribapharm until these interests are disposed of by ICN
Americas, as discussed above.
When available, copies of the preliminary prospectus relating to the
offering of shares of Ribapharm may be obtained from the offices of UBS Warburg
LLC, 299 Park Avenue, New York, New York 10171, telephone 212-821-3000.
A registration statement relating to the shares of Class A common stock of
Ribapharm has been filed with the U.S. Securities and Exchange Commission but
has not yet become effective. These securities may not be sold nor may offers to
buy be accepted prior to the time that the registration statement becomes
effective. This Annual Report on Form 10-K shall not constitute an offer to sell
or the solicitation of an offer to buy, nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
Any securities of ICN International offered will not be and have not been
registered under the U.S. Securities Act of 1933, as amended, and may not be
offered or sold in the United States, absent registration or an applicable
exemption from registration requirements.
ACQUISITIONS
The Company, as a fundamental aspect of its growth strategy, actively
pursues acquisitions throughout its regions of operations. Currently, the
Company has operations in twelve of the top fifteen pharmaceutical markets, as
measured by sales. Over the past three years, the Company has acquired a variety
of products, some of which are counted as the Company's largest products, and a
number of companies around the world. The following is a summary of the
Company's acquisitions.
In July 2000, the Company acquired the Swiss pharmaceutical company Solco
Basel AG for $30.4 million, of which $25.2 million was paid in cash ($4 million
of cash was received as part of the Solco assets) and the balance in 125,000
shares of the Company's common stock. Under the terms of the Company's agreement
with the sellers, the Company has guaranteed a per share price initially at CHF
64 ($40.00 at 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
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payment in cash. The aggregate guaranteed value of the shares held by the
sellers exceeds the market value by approximately $1.4 million as of December
31, 2000.
Effective September 1, 1999, the Company acquired a chain of 88 retail
outlets in Moscow and St. Petersburg, Russia, for $7.6 million. The purchase
complements the Company's plan to vertically integrate the Russian market and
provides the Company with the ability to effectively implement one element of
its distribution strategy.
Effective October 1, 1998, the Company completed the acquisition of the
worldwide rights (except India) to four products from F. Hoffmann -- La Roche
Ltd ("Roche"). The products include Dalmane(R)/ Dalmadorm(R), a sleep disorder
drug; Fluorouracil, an oncology product; Librax(R), a treatment for
gastrointestinal disorders; and Mogadon(R), a sleep disorder drug also used to
treat epilepsy. The aggregate purchase price for the products was $178.8
million, paid in a combination of $89.4 million cash and 2,883,871 shares of the
Company's common stock, valued at $89.4 million. Under the terms of the
Company's 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. On February 28, 2001, the Company issued 92,975 shares of its common
stock valued at approximately $2.7 million in settlement of the guarantee. See
Note 11 of Notes to Consolidated Financial Statements.
In October 1998, the Company entered into agreements with Senetek plc under
which it obtained rights to market certain products, including rights to market
Kinetin (marketed by the Company as Kinerase(R)), a skin cream to inhibit signs
of aging, through physicians and pharmacies. In 1998, the Company launched the
product and is marketing it through its existing operations.
In July 1998, the Company acquired Vyzkumny Ustav Antibiotic a
Biotransformacii ("VUAB"), a manufacturing and research facility located in a
suburb of Prague, Czech Republic for $17.9 million in cash. VUAB's two main
product lines are finished forms of human drugs, including injectable
antibiotics and pharmaceutical raw materials, including ephedrine, a powdered or
crystalline alkaloid used in the treatment of allergies and asthma, and
nystatin, an antibiotic used in the treatment of fungal infections.
In March 1998, the Company acquired the global rights to a portfolio of 32
dermatology products from Laboratorio Pablo Cassara, an Argentine-based
pharmaceutical manufacturer, for $22.5 million cash. The Company markets these
products through its subsidiary, ICN Argentina.
In February 1998, the Company acquired from SmithKline Beecham plc ("SKB")
the Asian, African and Australian rights to 39 prescription and OTC
pharmaceutical products. The Company received the product rights in exchange for
$45.5 million, of which $22.5 million was paid in cash and the balance in 821
shares of the Company's Series D Convertible Preferred Stock. 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. 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 $28.3 million in cash.
ROYALTY AGREEMENT AND REVENUES
In 1995, the Company entered into an Exclusive License and Supply Agreement
("License Agreement") with Schering-Plough Corporation ("Schering-Plough")
whereby 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"). 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). Schering-Plough currently has exclusive worldwide
marketing rights for oral forms of ribavirin for hepatitis C and is responsible
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for all clinical development and regulatory activities. In 1998, the Company
sold to Schering-Plough its rights to co-market oral ribavirin for the treatment
of hepatitis C in the European Union in exchange for increased royalty rates on
sales of ribavirin worldwide. As part of the original agreement, Schering-Plough
was required to purchase $42 million of the Company's common stock. In 1999,
after certain regulatory milestones were achieved, Schering-Plough purchased
2,041,498 shares of the Company's common stock fulfilling its obligation.
In June 1998, Schering-Plough received approval from the United States Food
and Drug Administration ("FDA") to market Combination Therapy under the brand
name Rebetron(TM) for the treatment of chronic hepatitis C in patients with
compensated liver disease who have relapsed following alpha interferon therapy
and began selling Combination Therapy in the United States. On June 16, 1998,
Schering-Plough filed a supplemental New Drug Application ("NDA") with the FDA
for Combination Therapy for the treatment of chronic hepatitis C in patients
with compensated liver disease previously untreated with alpha interferon
therapy (referred to as treatment-naive patients) and in December 1998, this
supplemental NDA was approved by the FDA.
In May 1999, the European Union's ("EU") Commission for 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 naive HCV patients. The Commission's approval resulted in a
single Marketing Authorization with unified labeling that 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.
In December 2000, Schering-Plough submitted a supplemental NDA with the FDA
to market ribavirin in the U.S. under the brand name Rebetol separately for use
in combination with interferon alfa-2b. FDA approval would allow Schering-Plough
to sell ribavirin separately as well as part of a package with interferon
alfa-2b.
On December 20, 2000, Schering-Plough Corporation received notice that the
European Union's Committee for Proprietary Medicinal Products ("CPMP") of the
European Agency for the Evaluation of Medicinal Products has issued a positive
opinion recommending approval of Peg-Intron(TM) (peginterferon alfa-2b)
Injection and Rebetol(R) (ribavirin) Capsules as combination therapy for the
treatment of both relapsed and naive adult patients with histologically proven
chronic hepatitis C. The CPMP opinion serves as the basis for a European
Commission approval, which is typically issued within three to four months.
Commission approval of the centralized Type II variations to the Marketing
Authorizations for Peg-Intron(TM) and Rebetol(R) would result in unified
labeling that would be immediately valid in all 15 EU-Member States.
On January 19, 2001, the FDA granted marketing approval to Peg-Intron(TM)
as once-weekly monotherapy for the treatment of chronic hepatitis C in patients
not previously treated. On February 6, 2001, Schering-Plough Corporation
submitted a supplemental Biologics License Application (sBLA) to the FDA seeking
marketing approval for Peg-Intron(TM) (peginterferon alfa-2b) Powder for
Injection for use in combination therapy with Rebetol(R) (ribavirin, USP)
Capsules for the treatment of chronic hepatitis C in patients not previously
treated with interferon alpha who have compensated liver disease and are at
least 18 years of age. Schering-Plough has requested priority review status for
the application. Priority review status provides for FDA action (whether
favorable or not) within 180 days from the date of filing.
Royalty revenues under the License Agreement were $155.1 million, $108.9
million and $37.4 million for 2000, 1999 and 1998, respectively. The increase in
royalty revenues is from increasing United States commercial sales of
Rebetron(TM) by Schering-Plough subsequent to receipt of initial FDA approval in
June 1998, the 1999 and 2000 launches into certain European markets and
heightened worldwide demand for the combination therapy. The 1998 amount
includes a one-time payment of $16.5 million received from Schering-Plough for
past royalties and as reimbursement of expenses incurred by the Company in
preparation for the launch of ribavirin capsules in the EU.
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Schering Plough has informed the Company that they believed that royalties
for the fourth quarter should not include royalties on drugs distributed as part
of certain marketing programs. The Company has not been provided with
appropriate information or documentation, and does not agree with such
adjustment. Should Schering Plough apply this adjustment retroactively, it could
have a material adverse effect on the Company's results of operations.
According to the Centers for Disease Control and Prevention, approximately
four million Americans are chronically infected with the hepatitis C virus. Of
these, 20% - 50% are expected to develop liver cirrhosis, of which 20% - 30% are
expected to go on to develop liver cancer or liver failure requiring liver
transplant. An equal or greater degree of disease prevalence is projected in
Western Europe and Japan.
In addition to the use of ribavirin in Combination Therapy, the Company
markets ribavirin under its own trademark Virazole(R) for commercial sale in
over 40 countries for one or more of a variety of viral infections, including
respiratory syncytial virus ("RSV"). In the United States and Europe,
Virazole(R) is approved for use in hospitalized infants and children with severe
lower respiratory infections due to RSV.
EASTERN EUROPEAN DEVELOPMENTS
During 1999 and 1998, the Company's operations in Eastern Europe were
adversely affected by economic and political developments in the region,
including the Yugoslavian government's seizure of the Company's Yugoslavian
operations.
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. 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 $235.3 million
in the fourth quarter of 1998. This charge reduced the carrying value of the
Company's investment in ICN Yugoslavia to its fair value, estimated to be zero.
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 $23.9 million for the year. ICN Yugoslavia's domestic sales were
adversely affected by the Company's 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 $176.2 million of accounts and notes receivable. As a result
of the government's default, the Company recorded a $173.4 million charge
against earnings at ICN Yugoslavia in the second quarter of 1998. The charge is
included in Eastern European charges ($165.6 million), cost of product sales
($3.7 million) and interest income ($4.1 million) in the consolidated statements
of income. The charge consisted of a $151.2 million reserve for losses on notes
receivable (including accrued interest), reserves of $7.8 million for losses on
accounts receivable from government-sponsored entities, and a $14.4 million
write-down of the value of certain related investments and assets.
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
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compounds, which were contributed to ICN Yugoslavia by the Company in accordance
with the agreement, which led to the formation of ICN Yugoslavia. See Item 1
"Business -- Research and Development."
PRODUCTS
During 2000, the ten pharmaceutical products generating the greatest sales
volume for the Company represented approximately 32% of worldwide pharmaceutical
sales. The following table summarizes the Company's top ten pharmaceutical
products based on sales in 2000:
2000 % OF
THERAPEUTIC PRODUCT PRODUCT
PRODUCT GENERIC NAME CATEGORY/INDICATION SALES SALES
------- ------------ ------------------------ ------------- -------
(IN MILLIONS)
Efudix(R)/Efudex(R) fluorouracil Antineoplastic/Actinic $ 35.3 6%
Keratosis
Mestinon(R) pyridostigmine bromide Anticholinesterase/ 33.9 6
myasthenia gravis
Bedoyecta(R) Vitamin B complex Vitamin supplement 25.6 4
Librax(R) chlordiazepoxide HCl and Antispasmotic 17.0 3
clidinium bromide
Virazole(R) ribavirin Antiviral 14.9 3
Dalmane(R)/ Dalmadorm(R) flurazepam/dihydrochloride Sedative/sleep disorders 14.5 2
Kinerase(TM) N(6) -- furfuryladenine 0.1% Dermatological 12.4 2
Nuclosina(R) omeprazole Gastrointestinal 10.9 2
Ancotil(R)/Ancobon(R) flucytosine Antifungal 10.2 2
Fluorouracil injectable fluorouracil Oncology 10.1 2
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Sub-total 184.8 32
All others 401.9 68
------ ---
Total pharmaceutical product sales, excluding royalty revenue $586.7 100%
====== ===
Antivirals
The Company sells its antiviral drug, ribavirin, under the tradename
Virazole(R) in North America and most European countries. Ribavirin is sold as
Vilona(R) and Virazide(R) in Latin America and Virazide(R) in Spain. Reference
to the sale of Virazole(R) includes sales made under the trademarks Vilona(R)
and Virazide(R). Ribavirin accounted for approximately 3%, 1% and 1% of the
Company's net product sales for the years ended December 31, 2000, 1999 and
1998, respectively. Ribavirin is currently approved for sale in various
pharmaceutical formulations in over 40 countries for the treatment of several
different human viral diseases, including RSV, hepatitis, herpes, influenza,
measles, chicken pox and HIV. In the United States and Canada, Virazole(R) has
been approved for hospital use in aerosolized form to treat infants and young
children who have severe lower respiratory tract infections caused by RSV. In
treating RSV, the drug is administered by a small particle aerosol generator, a
system that permits direct delivery of ribavirin to the site of the infection.
Similar approvals for ribavirin for use in the treatment of RSV have been
granted by governmental authorities in 22 other countries.
Antibacterials
The Company sells antibacterial products which accounted for approximately
8%, 10% and 10% of the Company's net product sales for the years ended December
31, 2000, 1999 and 1998, respectively.
The major products in this group include Ancobon(R)/Ancotil(R), Anapenil(R)
and Yectamicina(R). Ancobon(R)/ Ancotil(R) is a systemic anti-fungal product
that is used in the treatment of serious infections. Anapenil(R) is an
antibiotic product that is used in the treatment of susceptible infections.
Yectamicina(R) is a bactericidal
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aminoglycoside antibiotic that is used in the treatment of respiratory, urinary,
gastrointestinal tract infections, sepsis, meningitis and bone infections due to
Gram-negative and Gram-positive bacteria.
Other Ethicals
The Company manufactures and/or markets a wide variety of other ethical
pharmaceuticals, including analgesics, anticholinesterases, antirheumatics,
cardiovasculars, dermatologicals, endocrine agents, gastrointestinals, hormonals
and psychotropics. Other ethicals accounted for approximately 73%, 68% and 59%
of net product sales for the years ended December 31, 2000, 1999 and 1998,
respectively.
Dermatological products represent the Company's largest selling product
line among its other ethical pharmaceutical products. Dermatological products
include Efudex(R)/Efudix(R), Oxsoralen-Ultra(R), Kinerase(TM), Solaquin(R), and
Eldoquine(R), which are principally used for actinic keratosis, psoriasis,
reducing wrinkles and other signs of aging and pigmentation disorders,
hypopigmentation (the skin losing its color) and hyperpigmentation (the skin
darker than normal). The Company's largest selling ethical product is
Efudex(R)/Efudix(R), a topical anti-skin cancer product.
The Company has also introduced a laser-based product, known as N-Lite(TM),
for the reduction of periocular wrinkles. N-Lite(TM) is currently cleared by FDA
for the specific claim of wrinkle reduction in the periocular region of the
face. The product is currently being tested for other indications, including
acne and wrinkle removal in other anatomical regions. The Company believes
N-Lite(TM) is complementary to its dermatological business.
Other ethical products include Mestinon(R), Librax(R), Bedoyecta(R),
Dalmane(R)/Dalmadorm(R), Fluorouracil injectible, Librium(R) and Limbitrol(R).
OTC Products
OTC products encompass a broad range of ancillary products, which are sold
through the Company's existing distribution channels. OTC products accounted for
approximately 7%, 11% and 22% of the Company's net product sales for the years
ended December 31, 2000, 1999 and 1998, respectively.
Biomedical Products
Research chemicals, diagnostic and other biomedical products accounted for
approximately 9%, 10% and 8% of the Company's net product sales for the years
ended December 31, 2000, 1999 and 1998, respectively.
Research Chemicals: The Company serves life science researchers throughout
the world primarily through a catalog sales operation. The Company's catalog
lists approximately 55,000 products which are used by medical and scientific
researchers involved in molecular biology, cell biology, immunology and
biochemistry, microbiology and other areas. A majority of these products are
purchased from third party manufacturers and distributed by the Company.
Products include biochemicals, immunobiologicals, radiochemicals, tissue culture
products and organic, rare and fine chemicals.
Diagnostics: Among the diagnostics marketed by the Company are reagents
that are routinely used by physicians and medical laboratories to accurately and
quickly diagnose hundreds of patient samples for a variety of disease
conditions. The Company manufactures both enzyme and radio-immunoassay kits,
which it markets under the ImmuChem(TM) product line. The Company is also a
supplier of immunodiagnostic tests for the screening of newborn infants for
inherited and other disorders.
Dosimetry: The Company is a supplier of analytical monitoring services to
detect personal occupational exposure to radiation. This service is provided to
dentists, veterinarians, chiropractors, podiatrists, hospitals, universities,
government institutions, nuclear power plants, small office practitioners and
others exposed to ionizing radiation. The Company's service includes both film
and thermo luminescent badges in several configurations to accommodate a broad
scope of users. This service includes the manufacture of badges, distribution to
and from clients, analysis of badges and a radiation report including exposure.
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RESEARCH AND DEVELOPMENT
The Company's research and development effort seeks to discover, develop,
and commercialize innovative products for the treatment of significant unmet
medical needs, principally in the antiviral and anticancer areas. The Company's
current program areas include hepatitis C, hepatitis B, HIV, and cancer, each of
which affects a large number of patients. The Company's research and development
activities are based upon the expertise accumulated in over 30 years of nucleic
acids research focusing on the internal generation of novel molecules.
The research and development function works closely with corporate
marketing on a global and regional basis. In connection with this arrangement,
the Company has entered into a number of licensing arrangements with other
larger pharmaceutical companies, as well as strategic partnerships to develop
its proprietary products. In addition, the Company develops innovative products
targeted to address the specific needs of the Company's local markets.
In March 2000, the Company hired Johnson Y.N. Lau, Ph.D., M.D., to lead the
research and development effort. Dr. Lau, an expert in viruses and liver
diseases, was formerly senior director in antiviral research at the
Shering-Plough Research Institute. The Company spent approximately $18 million
in 2000 to update and modernize its research laboratories and equipment. The
Company expects to spend a similar amount to complete the modernization of its
research facilities in 2001. This modernization will enable the Company to
accelerate its drug discovery and development process by utilizing advanced
screening techniques and equipment, biological assays, and sophisticated
computer assisted drug design. The Company plans to expand its research team to
over 120 scientists by the end of 2001, and currently employs approximately 85
employees devoted to research and development activities.
Near and Medium-Term Research and Development
The Company's near-term development pipeline includes the registration of a
number of products in regional markets, including, but not limited to, Latin
America and Central and Eastern Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets.
The Company's medium-term research and development pipeline involves the
pre-clinical and clinical evaluation of certain nucleoside compounds which have
broad market attractiveness and which have shown promise for successful
commercialization. These compounds include:
Virazole(R) (ribavirin): In addition to the use of ribavirin for
chronic hepatitis C, clinical studies have been performed with ribavirin in
various formulations for the treatment of several other viral diseases.
Among diseases for which at least one governmental health regulatory
agency, in countries other than the United States, has approved
commercialization of ribavirin are herpes zoster, genital herpes, chicken
pox, hemorrhagic fever with renal syndrome, measles, influenza and HIV. The
Company is initiating focused clinical studies evaluating the use of
ribavirin for early intervention against RSV infections in persons whose
immune defenses are compromised as a consequence of bone marrow
transplantation.
Levovirin(TM): Levovirin(TM) is a nucleoside analog that is being
developed in oral form for the treatment of hepatitis C. Pre-clinical
studies suggest that Levovirin(TM) may have an ability to stimulate an
immune response to viral infections without a direct antiviral effect and
without the anemia associated with ribavirin. In preliminary toxicology
studies, Levovirin(TM) appeared to have fewer side effects than ribavirin
at the same dosage levels. An Investigational New Drug Application ("IND")
was submitted to the FDA in December 2000 to begin clinical testing of
Levovirin(TM) for the treatment of chronic hepatitis C. The Company has
proceeded with initial clinical studies that consist of a safety and
tolerability study in normal volunteers followed by a second study in
hepatitis-C infected patients. Based on the findings of these studies, the
Company intends to conduct a proof-of-principle and dose-ranging study to
address the safety and efficacy of the combination of Levovirin and
interferon.
Tiazole(TM) (tiazofurin): In January 2001, Tiazole(TM) was granted
orphan drug status by U.S. federal regulators for the indication of chronic
myelogenous leukemia. The orphan-drug designation is granted
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for rare diseases or conditions that affect fewer than 200,000 people in
the United States. Such status will provide seven years of marketing
exclusivity if Tiazole(TM) is the first drug approved for this indication.
Chronic mylogenous leukemia is not currently curable with conventional
chemotherapy or immunotherapy. Tiazole is currently in phase III clinical
trials (study commenced September 2000). If required studies and tests are
successful, the Company intends to file a NDA with the U.S. FDA for the
treatment of chronic myelogenous leukemia with blast crisis.
Tiazole(TM) is also being developed for the treatment of ovarian
cancer and multiple myeloma. It is believed that Tiazole(TM) may cause
inhibition of the biosynthesis of guanosine tiphosphate, which is a
building block essential for tumor cell growth in various cancer cell
lines. The Company believes that the resulting reduction in the
concentration of these building blocks may reduce the capacity of the
cancer cells to proliferate.
Adenazole(TM) (8-CI cAMP, Tocladesine): Adenazole(TM) is a nucleoside
analog being developed for the treatment of colon cancer. Adenazole(TM) may
potentially control cell growth and cause cancer cells to behave more like
normal cells in various cancer cell lines. The Company expects that
Adenazole(TM) will be administered to patients intravenously. Adenazole(TM)
has completed two Phase I trials.
Adenazole(TM) has been evaluated for potential use in the treatment of
colon cancer in two Phase I studies. Of the 19 patients with colon cancer
in the two studies, one patient showed a 70% reduction of retroperitoneal
mass, believed to be related to cancer, while another patient showed stable
disease for four months. In December 1999, the Company submitted various
data to US and Russian regulatory authorities to obtain permission to
proceed with Phase I trials in the treatment of colon cancer in both
countries. In the United States, the FDA accepted the Company's
investigational new drug application. A Phase Ib study was initiated in
September 2000 with the University of California in San Diego and Los
Angeles as the two clinical trial sites.
The rights to the compounds Tiazole(TM) and Adenazole(TM) were among
the assets which the Company contributed to ICN Yugoslavia, upon the
formation of that joint venture in 1991. The resolution of the ongoing
matter with the Yugoslavian government may affect the status of these
compounds.
Viramidine(TM): Viramidine(TM) is a nucleoside analog that we intend
to develop in oral form for the treatment of hepatitis C. The Company
expects to test Virmidine's(TM) effect on the hepatitis C virus both on its
own and in combination with interferon alpha. Viramidine(TM) is currently
in pre-clinical development. The pre-clinical studies have indicated that
this nucleoside analog has the same pattern of immunomodulatory and
antiviral activity as ribavirin but was found to have fewer side-effects
compared to ribavirin in preliminary studies. The Company is conducting a
number of pre-clinical studies, including virologic studies, mechanism of
action studies, drug metabolism studies and ancillary pharmacology studies,
to evaluate the potential of this nucleoside analog. If the efficacy and
toxicity profile are confirmed, the Company intends to file an IND in the
fourth quarter of 2001.
Long-Term Research and Development
The Company's long-term research and development activities are focused on
the identification and development of novel therapeutic compounds for the
treatment of viral diseases, cancer and immunologic dysfunction. The Company's
research focus is based on extending the library of nucleoside analogs through
new synthesis and screening efforts. This is a proven approach that led to the
identification of ribavirin by the Company and to other nucleoside therapeutics,
in particular, antiviral and anticancer drugs, by other companies. Given the
success of the use of nucleoside analogs in the areas of antiviral and
anticancer research, the Company is focusing its R&D efforts in these two
therapeutic areas.
There can be no assurance of the results of any of the Company's research
and development efforts or the ultimate commercial success of any of the
products in development.
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MARKETING AND CUSTOMERS
The Company markets its pharmaceutical products in some of the most
developed pharmaceutical markets, as well as many developing markets. The
Company adjusts its marketing strategies according to the individual markets in
which it operates. The Company believes its marketing strategy is distinguished
by flexibility, allowing the Company to successfully market a wide array of
pharmaceutical products within diverse regional markets, as well as certain
drugs on a worldwide basis.
The Company has a marketing and sales staff of approximately 2,500 persons
who promote its pharmaceutical products. As part of its marketing program for
pharmaceuticals, the Company uses direct mailings, advertises in trade and
medical periodicals, exhibits products at medical conventions, sponsors medical
education symposia and sells through distributors in countries where it does not
have its own sales staff.
In the United States, the Company currently promotes its pharmaceutical
products to physicians through its own sales force. These products are
distributed to drug stores and hospitals through wholesalers. In Canada, the
Company has its own sales force and promotes and sells directly to physicians,
hospitals, wholesalers and large drug store chains. In Latin America,
principally Mexico and Argentina, the Company promotes to physicians and
distributes products either directly or indirectly to hospitals and pharmacies.
In Western Europe the Company promotes and sells pharmaceutical products through
its own sales forces to physicians, hospitals, retail outlets, pharmacies and
wholesalers.
In Russia, the Company's sales and marketing organization is in various
stages of development. Most of the domestic product line is sold through a
network of distributors and their agents and accounts for approximately 90% of
in-market sales. Products imported from other subsidiaries such as branded
generics or proprietary drugs are promoted directly to physicians through the
Company's own sales force. In addition, the Company utilizes its own network of
distributors and wholesalers, as well as third party distributors and
wholesalers, to market to pharmacies and hospitals. Additionally, in September
1999, the Company acquired a chain of 88 retail pharmacies in Moscow and St.
Petersburg, Russia from an affiliate of Groupe Multipharma SC. The acquisition
of these retail pharmacies provides the Company with the ability to effectively
implement one element of its distribution strategy.
The research chemical and diagnostic product lines are sold worldwide
primarily through the Company's mail order catalogs. The Company's customer
group for research products is principally composed of biomedical research
institutions, such as universities, the National Institutes of Health,
pharmaceutical companies and, to a lesser extent, hospitals.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Competitive factors vary by product line and
customer and include service, product availability and performance, price and
technical capabilities. The Company does business in an industry characterized
by extensive and ongoing research efforts. Others may succeed in developing
products that are more effective than those presently marketed or proposed for
development by the Company. Progress by other researchers in areas similar to
those explored by the Company may result in further competitive challenges.
The Company may also face increased competition from manufacturers of
generic pharmaceutical products when patents covering certain of its currently
marketed products expire.
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MANUFACTURING
The Company manufactures its pharmaceutical products at 20 facilities. At
the Humacao, Puerto Rico plant, the Company has a toll manufacturing agreement
with Roche to manufacture some of its products for its U.S. and European market.
The Company also uses the Humacao plant to produce and distribute some of the
Company's pharmaceutical products. The Company believes it has sufficient
manufacturing facilities to meet its needs for the foreseeable future. All of
the manufacturing facilities that require certification from the FDA or foreign
agencies have obtained such approval.
In order to meet the demand for some of its markets, the Company
subcontracts the manufacturing of some of its products, including products under
the rights acquired from other pharmaceutical companies. Generally, acquired
products continue to be produced for a specific period of time by the selling
company. During that time, the Company integrates the products into its own
manufacturing facilities or initiates toll manufacturing agreements with third
parties. As a result of the acquisition of products from Roche, the Company is
in the process of transferring technology that will allow the Company to assume
the production of the acquired products. However, there can be no assurance that
the Company will be successful in its efforts to manufacture such products or
that such products will continue to be available from outside suppliers.
Manufacturing of the Company's research chemical products is chiefly
carried out in three domestic facilities and one foreign facility: Irvine,
California (radiochemicals); Orangeburg, New York (diagnostic and
immunobiologicals); Aurora, Ohio (biochemicals and immunobiologicals); and
Eschwege, Germany (chromatography products).
EMPLOYEES
As of December 31, 2000, the Company employed 12,700 persons. These
employees included 7,910 in production, 2,690 persons in sales and marketing,
110 in research and development, and 1,990 in general and administrative
matters. The majority of the Company's employees in Mexico, Spain, Poland and
Hungary are covered by collective bargaining or similar agreements.
Substantially all of the employees in Russia, the Czech Republic and Hungary are
covered by national labor laws which establish the rights of employees,
including the amount of wages and benefits paid and, in certain cases, severance
and similar benefits. The Company currently considers its relations with its
employees to be satisfactory and has not experienced any work stoppages,
slowdowns or other serious labor problems which have materially impeded its
business operations.
LICENSES, PATENTS AND TRADEMARKS (PROPRIETARY RIGHTS)
The Company may be dependent on the protection afforded by its patents
relating to ribavirin and no assurance can be given as to the breadth or degree
of protection which these patents will afford the Company. Also, the Drug Price
Competition and Patent Term Restoration Act of 1984 (the Waxman-Hatch Act)
provides for the award of exclusivity for a period of three years from the date
of approval of NDAs containing significant new clinical studies for products
whose patent protection would otherwise expire. A request for such an award has
been made subsequent to the approval of Combination Therapy for the treatment of
relapsed patients. The FDA Modernization Act of 1997 provides for the award of
six months of additional exclusivity following the submission to the FDA of data
from appropriate studies in pediatric patients. Studies that qualify under this
provision are underway. The Company has patents in certain foreign countries,
including Japan, covering the antiviral use of ribavirin, for which coverage and
expiration varies and which patents expire at various times through June 2005.
The Company has no, or limited, patent rights relating to the antiviral use of
ribavirin in certain foreign countries where ribavirin is currently, or in the
future may be, approved for commercial sale, including countries in the European
Union. However, Combination Therapy was granted a favorable review
classification through the Concertation Procedure for regulatory approval within
the European Union. As a result, the data submitted to obtain such approval
cannot be referenced in support of another's application to register a competing
product for the approved indications for a period of no less than six and not
more than ten years. Any such application must be on the basis of independently
generated data of substantially equal quality, thus providing a significant
barrier to entry for any generic substitutes of
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Combination Therapy in the European Union. In addition, Schering-Plough obtained
a US patent covering the Combination Therapy in January 2001 that may provide
additional protection against competition.
Marketing approvals in certain foreign countries provide an additional
level of protection for products approved for sale in such countries. As a
general policy, the Company expects to seek patents, where available, on
inventions concerning novel drugs, techniques, processes or other products that
it may develop or acquire in the future. However, there can be no assurance that
any patents applied for will be granted, or that, if granted, they will have
commercial value; nor can there be any assurance as to their breadth or the
degree of protection which these patents, if issued, will afford the Company.
The Company intends to rely substantially on its unpatented proprietary
know-how, but there can be no assurance that others will not develop
substantially equivalent proprietary information or otherwise obtain access to
the Company's know-how. Patents for pharmaceutical compounds are not available
in certain countries in which the Company markets its products.
Many of the names of the Company's products are registered trademarks
worldwide. The Company anticipates that the names of future products will be
registered as trademarks in the major markets in which it will operate. Other
organizations may in the future apply for and be issued patents or own
proprietary rights covering technology that may become useful to the Company's
business. The extent to which the Company at some future date may need to obtain
licenses from others is not known.
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 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.
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by the
FDA, the Nuclear Regulatory Commission, other Federal and state agencies, and
comparable foreign governmental agencies.
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by
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humans. Obtaining FDA approval for new products and manufacturing processes can
take a number of years and involve the expenditure of substantial resources. To
obtain FDA approval for the commercial sale of a therapeutic agent, the
potential product must undergo testing programs on animals, the data from which
is used to file an Investigational New Drug Application with the FDA. In
addition, there are three phases of human testing. Phase I: safety tests for
human clinical experiments, generally in normal, healthy people; Phase II:
expanded safety tests conducted in people who are sick with the particular
disease condition that the drug is designed to treat; and Phase III: greatly
expanded clinical trials to determine the effectiveness of the drug at a
particular dosage level in the affected patient population. The data from these
tests is combined with data regarding chemistry, manufacturing and animal
toxicology and is then submitted in the form of a NDA to the FDA. The
preparation of an NDA requires the expenditure of substantial funds and the
commitment of substantial resources. The review by the FDA could take up to
several years. If the FDA determines that the drug is safe and effective, the
NDA is approved. No assurance can be given that authorization for commercial
sale by the Company of any new drugs or compounds for any application will be
secured in the United States or any other country, or that, if such
authorization is secured, those drugs or compounds will be commercially
successful. The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities.
The Company is subject to price control restrictions on its pharmaceutical
products in a majority of countries in which it operates. The Company has been
affected in the past by pricing adjustments in Spain and by the lag in allowed
price increases in Russia and Mexico, which has created lower sales in United
States dollars and reductions in gross profit. Future sales and gross profit
could be materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
Litigation: See Note 12 of Notes to Consolidated Financial Statements for a
description of the Company's Litigation.
Product Liability Insurance: The Company is currently self-insured with
respect to product liability claims. The Company could be exposed to possible
claims for personal injury resulting from allegedly defective products. While to
date, no material adverse claim for personal injury resulting from allegedly
defective products has been successfully maintained against the Company, a
substantial claim, if successful, could have a negative impact on the results of
operations and cash flows.
FOREIGN OPERATIONS
The Company operates directly and through distributors in North America,
Latin America (principally Mexico), Western Europe (including Poland, Hungary
and the Czech Republic and Eastern Europe and through distributors elsewhere in
the world. For financial information about domestic and foreign operations, see
Note 13 of Notes to Consolidated Financial Statements.
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 U.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 action. Changes in the
relative values of currencies take place from time to time and may materially
affect the Company's results of operations. Their effects on the Company's
future operations are not predictable. The Company does not currently provide a
hedge on its foreign currency exposure and, in certain countries in which the
Company operates, no effective hedging program is available.
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.
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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 $3.5 million, $6.7
million and $53.8 million, 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 $12.4 million, 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 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 policies have 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 lead 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 adversely
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
$42.3 million among several of its operating segments, which is included in
Eastern European charges ($39.9 million) and cost of product sales ($2.4
million) in the consolidated statements of income. The charge consists of
reserves of $37.9 million for losses on accounts receivable, the write-off of
certain investments of $2.0 million, and a reduction in the value of certain
inventories of $2.4 million.
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ITEM 2. PROPERTIES
The following are the principal facilities of the Company and its
subsidiaries:
OWNED OR SQUARE
LOCATION PURPOSE LEASED FOOTAGE
-------- ------- -------- -------
North America
Costa Mesa, California Corporate headquarters and Owned 178,000
administrative offices
Orangeburg, New York Manufacturing facility Owned 100,000
Aurora, Ohio Offices and manufacturing facility Leased 75,850
Humacao, Puerto Rico Offices and manufacturing facility Owned 397,000
Montreal, Canada Offices and manufacturing facility Owned 93,519
Latin America
Mexico City, Mexico Offices and manufacturing facility Owned 189,581
Western Europe
Barcelona, Spain Offices and manufacturing facility Owned 93,991
Birsfelden, Switzerland Offices and manufacturing facility Owned 216,226
Prague, Czech Republic Offices and manufacturing facility Owned 262,032
Tiszavasvari, Hungary Offices and manufacturing facility Owned 559,465
Rzeszow, Poland Offices and manufacturing facility Owned 472,133
Warsaw, Poland Offices and manufacturing facility Owned 90,244
Eastern Europe
Chelyabinsk, Russia Offices and manufacturing facility Owned 329,405
Moscow, Russia Eastern European headquarters Owned 102,400
St. Petersburg, Russia Offices and manufacturing facility Owned 350,033
Tomsk, Russia Offices and manufacturing facility Owned 301,680
Yoshkar-Ola, Russia Offices and manufacturing facility Owned 737,802
In the opinion of the Company's management, all facilities occupied by the
Company are adequate for present requirements, and the Company's current
equipment is considered to be in good condition and suitable for the operations
involved.
ITEM 3. LEGAL PROCEEDINGS
See Note 12 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on December 18, 2000
in New York, New York.
WITHHELD/
FOR AGAINST ABSTENTIONS
---------- ---------- -----------
Election of Directors:
Roger Guillemin, M.D. ............................... 48,061,831 6,895,206
Jean-Francois Kurz................................... 37,857,256 17,099,781
Milan Panic.......................................... 47,478,559 7,478,478
Amendment to the ICN Pharmaceuticals, Inc. amended and
restated 1998 stock option plan...................... 39,709,563 11,566,173 3,681,301
Adoption of a stockholder proposal to amend company
policy regarding the independence of the members of
the Board of Directors of the Company................ 18,561,924 12,602,260 3,930,351
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
(Symbol: ICN). As of March 12, 2001, there were 6,967 holders of record of the
Company's common stock.
The following table sets forth the high and low sales prices of the
Company's common stock on the New York Stock Exchange -- Composite Transactions
reporting system.
2000 1999
---------------- ----------------
FISCAL QUARTERS HIGH LOW HIGH LOW
--------------- ---- ---- ---- ----
First......................................... $29 11/16 $18 5/16 $27 5/8 $20 1/8
Second........................................ $35 5/8 $22 7/16 $36 3/8 $24 1/4
Third......................................... $34 3/8 $22 3/4 $33 5/16 $16 9/16
Fourth........................................ $41 3/4 $25 11/16 $27 $16 5/8
In March 1999, the Company increased its quarterly per share cash dividend
to 7 cents per share. In April 2000, the Board of Directors increased the
quarterly per share dividend to 7.25 cents from 7 cents per share.
The Board of Directors will continue to review the Company's dividend
policy. The amount and timing of any future dividends will depend upon the
financial condition and profitability of the Company, the need to retain
earnings for use in the development of the Company's business, contractual
restrictions and other factors.
During 1999, the Company repurchased $15,304,000 through open-market
purchases an aggregate of 614,167 shares of its common stock under the Company's
Stock Repurchase Program.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data for the
five years ended December 31, 2000. The Company's selected historical financial
data for each of the years in the five-year period ended December 31, 2000 were
derived from the audited consolidated financial statements of the Company. The
trends in the Company's revenues and net income (loss) are affected by several
business combinations completed in fiscal years 1996 through 2000. The Company's
results of operations for the years from 1996 to 1998 include the results of the
Company's former subsidiary, ICN Yugoslavia, prior to its seizure by the
Yugoslavian government effective November 26, 1998. For 1998, ICN Yugoslavia
generated revenues of $141,740,000 and a loss from operations of ($140,419,000).
The Company did not recognize any revenues or expenses related to its investment
in ICN Yugoslavia in 2000 or 1999. This information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements included
elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS:
Product sales.............................. $645,190 $638,475 $ 800,639 $752,202 $614,080
Royalties.................................. 155,114 108,937 37,425 -- --
-------- -------- --------- -------- --------
Total revenues............................. 800,304 747,412 838,064 752,202 614,080
Cost of product sales...................... 262,818 256,146 353,600 351,978 291,807
Selling, general and administrative........ 304,314 252,207 291,776 249,206 190,929
Research and development................... 18,769 10,963 20,835 18,692 15,719
Amortization of goodwill and intangibles... 30,448 29,239 20,601 7,028 1,512
Eastern European charges(1)................ -- -- 440,820 -- --
-------- -------- --------- -------- --------
Income (loss) from operations(1)........... 183,955 198,857 (289,568) 125,298 114,113
Translation and exchange losses, net....... 6,587 11,823 80,501 12,790 2,282
Interest income............................ (12,542) (8,894) (13,057) (15,912) (3,001)
Interest expense........................... 60,356 55,943 38,069 22,849 15,780
-------- -------- --------- -------- --------
Income (loss) before income taxes, minority
interest and extraordinary loss.......... 129,554 139,985 (395,081) 105,571 99,052
Provision (benefit) for income taxes....... 37,683 28,996 1,983 (27,736) (6,815)
Minority interest.......................... (1,534) (7,637) (44,990) 19,383 18,939
-------- -------- --------- -------- --------
Income (loss) before extraordinary
loss(1).................................. 93,405 118,626 (352,074) 113,924 86,928
Extraordinary loss, net of income
taxes(2)................................. 3,225 -- -- -- --
-------- -------- --------- -------- --------
Net income(1).............................. $ 90,180 $118,626 $(352,074) $113,924 $ 86,928
======== ======== ========= ======== ========
Per share information:
Income (loss) before extraordinary loss
-- basic.............................. $ 1.18 $ 1.52 $ (4.78) $ 1.93 $ 1.75
Extraordinary loss....................... .04 -- -- -- --
-------- -------- --------- -------- --------
Net income (loss) -- basic............... $ 1.14 $ 1.52 $ (4.78) $ 1.93 $ 1.75
======== ======== ========= ======== ========
Income (loss) before extraordinary loss--
diluted............................... $ 1.14 $ 1.45 $ (4.78) $ 1.69 $ 1.51
Extraordinary loss....................... .04 -- -- --
-------- -------- --------- -------- --------
Net income (loss) -- diluted............. $ 1.10 $ 1.45 $ (4.78) $ 1.69 $ 1.51
======== ======== ========= ======== ========
Cash dividends paid(3)..................... $ .29 $ .28 $ .24 $ .21 $ .20
======== ======== ========= ======== ========
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- --------
BALANCE SHEET DATA:
Working capital(1).................... $ 406,639 $ 424,108 $ 236,994 $ 585,606 $306,764
Total assets(1)....................... 1,477,072 1,472,261 1,356,396 1,491,745 778,651
Total debt(2)......................... 511,688 606,035 556,489 348,206 195,681
Stockholders' equity(1)............... 757,194 683,572 586,164 796,328 315,350
See accompanying Notes to Selected Financial Data.
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NOTES TO SELECTED FINANCIAL DATA:
(1) As a result of political and economic events in Eastern Europe, including
the Yugoslavian government's seizure of the Company's Yugoslavian operations
effective November 26, 1998, the Company has recorded write-offs and
provisions for losses related to Eastern Europe totaling $451,019,000 in the
year ended December 31, 1998. Of this total amount, $440,820,000 is included
in operating expenses, representing the write-off of the Company's
investment in Yugoslavia and related assets ($235,290,000), provisions for
losses on accounts and notes receivable (including accounts and notes
receivable from the Yugoslavian government) ($203,519,000), and the
write-off of certain investments ($2,011,000). The losses related to Eastern
Europe also include reductions in the value of certain inventories
($6,072,000) included in cost of product sales and a charge against interest
income ($4,127,000). As a result of the seizure of the Company's Yugoslavian
operations, the Company deconsolidated the financial statements of ICN
Yugoslavia and is currently accounting for its ongoing investments using the
cost method. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Foreign Operations."
(2) During 2000, the Company repurchased $84,355,000 of its outstanding 9 1/4%
Senior Notes and $12,830,000 of its outstanding 8 3/4% Senior Notes. The
repurchase generated an extraordinary loss on early extinguishment of debt
of $3,225,000, net of an income tax benefit of $1,737,000.
(3) Dividends paid for 2000, 1999, 1998 and 1996 include the fourth quarter
distributions declared and paid in the first quarter of the following year.
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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 that royalties
for the fourth quarter should not include royalties on drugs distributed as part
of certain marketing programs. The Company has not been
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provided with appropriate information or documentation, and does not agree with
such adjustment. Should Schering Plough apply this adjustment retroactively, it
could have an impact on the Company's results of operations.
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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23
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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24
forgiveness of a $5,000,000 obligation to Shering-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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26
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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27
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
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28
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 a minority interest in 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, compliance with all
other legal and regulatory provisions, and the required approval by holders of
the Company's outstanding debt. Subject to market conditions, the Company is
planning to complete the Ribapharm offering in 2001.
The Company intends to sell up to 40% interest in ICN International in an
offering. 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. Subject to market conditions and regulatory approvals
the Company expects to complete the offering of ICN International in the second
quarter of 2001.
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.
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29
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.
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30
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
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31
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........................... 33
Financial statements:
Consolidated balance sheets at December 31, 2000 and
1999................................................... 34
For the years ended December 31, 2000, 1999 and 1998:
Consolidated statements of income...................... 35
Consolidated statements of stockholders' equity........ 36
Consolidated statements of cash flows.................. 37
Notes to consolidated financial statements................ 38
Financial statement schedule for the years ended December
31, 2000, 1999 and 1998:
II. Valuation and qualifying accounts.................. 60
The other schedules have not been submitted because they are not
applicable.
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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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36
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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37
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.
35
38
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.
36
39
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.
37
40
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.
38
41
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
39
42
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
40
43
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
41
44
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.
42
45
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.
43
46
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.
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.
44
47
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)
======= ======== =========
45
48
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
======= =======
46
49
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
47
50
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
48
51
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
======
49
52
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
50
53
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
51
54
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.
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.
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 settlements 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
52
55
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.
53
56
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)
======== ======== =========
54
57
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.
55
58
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
========== ========
56
59
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.
57
60
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 that royalties
for the fourth quarter should not include royalties on drugs distributed as part
of certain marketing programs. The Company has not been provided with
appropriate information or documentation, and does not agree with such
adjustment. Should Schering Plough apply this adjustment retroactively, it could
have an impact on the Company's results of operations.
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
58
61
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
======= ======= =======
59
62
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts... $26,547 $ 9,303 $ 1,000 $ (16,990) $19,860
======= ======== ======== ========= =======
Allowance for inventory
obsolescence................... $ 7,960 $ 8,561 $ 4,372 $ (2,900) $17,993
======= ======== ======== ========= =======
Deferred tax asset valuation
allowance...................... $36,626 $(15,197) $ -- $ -- $21,429
======= ======== ======== ========= =======
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts... $48,748 $ 2,291 $ 4,155(1) $ (28,647) $26,547
======= ======== ======== ========= =======
Allowance for inventory
obsolescence................... $11,588 $ 5,880 $ 1,020(1) $ (10,528) $ 7,960
======= ======== ======== ========= =======
Deferred tax asset valuation
allowance...................... $55,938 $(19,312) $ -- $ -- $36,626
======= ======== ======== ========= =======
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts... $11,999 $ 53,189 $ 9,849(1) $ (26,289) $48,748
======= ======== ======== ========= =======
Allowance for losses on notes
receivable..................... $ -- $151,204 $ -- $(151,204) $ --
======= ======== ======== ========= =======
Allowance for inventory
obsolescence................... $11,476 $ 6,674 $ 369(1) $ (6,931) $11,588
======= ======== ======== ========= =======
Deferred tax asset valuation
allowance...................... $23,077 $ 32,861 $ -- $ -- $55,938
======= ======== ======== ========= =======
- ---------------
(1) These amounts represent acquisition-date balances of allowances for doubtful
receivables and reserves for inventory obsolescence of acquired companies.
60
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item is set forth under the captions
"Information Concerning Nominees and Directors" and "Executive Officers" in the
Company's definitive Proxy Statement to be filed in connection with the
Company's 2000 annual meeting of stockholders (the "Proxy Statement") and is
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is set forth under the caption
"Executive Compensation and Related Matters" in the Proxy Statement and is
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is set forth under the caption
"Ownership of the Company's Securities" in the Proxy Statement and is
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is set forth under the captions
"Executive Compensation and Related Matters" and "Certain Transactions" in the
Proxy Statement and is incorporated by reference.
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.
61
64
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 herewith.
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.
62
65
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.
63
66
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., to be
filed by amendment. 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 herewith. 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
herewith. 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 herewith.
10.36+ Agreement between ICN Pharmaceuticals, Inc. and Johnson
Yiu-Nam Lau, dated February 24, 2000, filed herewith.
10.37+ Agreement between ICN Pharmaceuticals, Inc. and James McCoy,
dated July 14, 2000, filed herewith.
10.38+ Agreement between ICN Pharmaceuticals, Inc. and Harry
Roosje, dated September 15, 2000, filed herewith.
10.39+ Agreement between ICN Pharmaceuticals, Inc. and Clifford
Saffron, dated January 18, 2001, filed herewith.
21. Subsidiaries of the Registrant.
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.
64
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ICN PHARMACEUTICALS, INC.
Date: April 2, 2001
By /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ MILAN PANIC Chairman of the Board Date: April 2, 2001
- ----------------------------------------------------- and Chief Executive
Milan Panic Officer
/s/ RICHARD A. MEIER Executive Vice President Date: April 2, 2001
- ----------------------------------------------------- and Chief Financial
Richard A. Meier Officer
/s/ NORMAN BARKER, JR. Director Date: April 2, 2001
- -----------------------------------------------------
Norman Barker, Jr.
/s/ BIRCH E. BAYH, JR. Director Date: April 2, 2001
- -----------------------------------------------------
Senator Birch E. Bayh, Jr.
/s/ KIM CAMPBELL Director Date: April 2, 2001
- -----------------------------------------------------
Kim Campbell, PC, QC
/s/ ALAN F. CHARLES Director Date: April 2, 2001
- -----------------------------------------------------
Alan F. Charles
/s/ ROGER GUILLEMIN Director Date: April 2, 2001
- -----------------------------------------------------
Roger Guillemin, M.D., Ph.D.
/s/ ADAM JERNEY President, Chief Date: April 2, 2001
- ----------------------------------------------------- Operating Officer,
Adam Jerney Director
/s/ ANDREI V. KOZYREV Director Date: April 2, 2001
- -----------------------------------------------------
Andrei V. Kozyrev, Ph.D.
65
68
/s/ JEAN-FRANCOIS KURZ Director Date: April 2, 2001
- -----------------------------------------------------
Jean-Francois Kurz
/s/ THOMAS LENAGH Director Date: April 2, 2001
- -----------------------------------------------------
Thomas Lenagh
/s/ STEPHEN D. MOSES Director Date: April 2, 2001
- -----------------------------------------------------
Stephen D. Moses
/s/ ROBERTS A. SMITH Director Date: April 2, 2001
- -----------------------------------------------------
Roberts A. Smith, Ph.D.
66
69
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 herewith.
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.
70
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.
71
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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., to be
filed by amendment. 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 herewith. 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
herewith. 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 herewith.
10.36+ Agreement between ICN Pharmaceuticals, Inc. and Johnson
Yiu-Nam Lau, dated February 24, 2000, filed herewith.
10.37+ Agreement between ICN Pharmaceuticals, Inc. and James McCoy,
dated July 14, 2000, filed herewith.
10.38+ Agreement between ICN Pharmaceuticals, Inc. and Harry
Roosje, dated September 15, 2000, filed herewith.
10.39+ Agreement between ICN Pharmaceuticals, Inc. and Clifford
Saffron, dated January 18, 2001, filed herewith.
21. Subsidiaries of the Registrant.
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.