<PAGE>
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-5965
------
ICN PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2565381
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Hyland Avenue
Costa Mesa, California 92626
------------------------------------
(Address of principal executive offices)
(Zip code)
(714) 545-0100
---------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
----- -----
The number of outstanding shares of the registrant's Common Stock, $1.00
par value, as of August 5, 1994, was 20,529,181.
<PAGE>
<PAGE>1
ICN PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Information (unaudited):
Consolidated Condensed Balance Sheets -
June 30, 1994 and December 31, 1993 2
Consolidated Condensed Statements of Operations -
Three and six months ended 3
June 30, 1994 and 1993
Consolidated Condensed Statements of Cash Flows -
Six months ended June 30, 1994 and 1993 4
Management's Statement Regarding Unaudited Consolidated
Condensed Financial Statements 5
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Review by Independent Auditors 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE>
<PAGE>2
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1994 and December 31, 1993
(Unaudited - 000's omitted)
<TABLE>
<CAPTION> June 30, Dec. 31,
ASSETS 1994 1993
----------------------------------------------- --------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,264 $ 14,652
Restricted cash 1,262 1,518
Certificates of deposit - 8,000
Receivables, net 14,134 12,122
Receivables from SPI 5,225 18,313
Inventories, net 15,473 15,601
Prepaid expenses and other current assets 3,846 4,479
--------- ---------
Total current assets 53,204 74,685
Property, plant and equipment, net, at cost 36,439 36,243
Investment in SPI 75,407 71,671
Other assets and deferred charges, net 11,140 12,025
Goodwill related to purchased businesses, net 2,404 2,580
Goodwill related to publicly traded
subsidiaries, net 10,046 10,652
--------- ---------
$188,640 $207,856
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------
Current liabilities:
Notes payable $ 3,456 $ 4,226
Current maturities of long-term debt 17,942 12,093
Accounts payable 5,770 7,342
Accrued liabilities 17,910 21,397
--------- ---------
Total current liabilities 45,078 45,058
Long-term debt, less current maturities:
Convertible into ICN Common Stock 20,238 22,023
Publicly-traded debentures and other debt 111,762 117,024
Other liabilities and deferred income taxes 6,867 7,014
Minority interests 12,720 12,717
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $1.00 par value; 100,000,000
shares authorized; 20,529,181 and 20,519,431
shares issued and outstanding at June 30,
1994 and December 31, 1993, respectively 20,529 20,519
Additional capital 180,911 180,897
Accumulated deficit (205,088) (193,711)
Foreign currency translation adjustments (4,377) (3,685)
--------- ---------
Total stockholders' equity (deficit) (8,025) 4,020
--------- ---------
$188,640 $207,856
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
<PAGE>3
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 1994 and 1993
(Unaudited - 000's omitted except for per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $15,641 $ 15,723 $ 32,843 $ 32,355
Cost of sales 6,660 6,957 13,500 14,333
-------- -------- -------- --------
Gross profit 8,981 8,766 19,343 18,022
Selling, general and
administrative expenses 10,297 9,554 20,554 18,202
Research and development
costs 2,166 1,459 3,930 2,495
Interest expense, net 4,365 4,421 8,734 9,418
Foreign Currency translation
and exchange (gains) losses 1,486 (1,138) 3,380 (1,774)
Equity in earnings of SPI (2,278) (1,010) (6,683) (4,193)
Gain on sales of subsidiaries
common stock owned by ICN - - - (3,732)
Other (income) expense, net 395 (1,137) 1,010 (321)
-------- -------- -------- --------
Loss before income taxes,
minority interests and
extraordinary income (7,450) (3,383) (11,582) (2,073)
Income taxes 6 127 (32) 162
Minority interests (624) 83 (173) 295
-------- -------- -------- --------
Net loss before
extraordinary income (6,832) (3,593) (11,377) (2,530)
Extraordinary income - 627 - 627
-------- -------- -------- --------
Net loss $(6,832) $(2,966) $(11,377) $(1,903)
======== ======== ======== ========
Per share information:
Loss before extraordinary
income $ (.33) $ (.18) $ (.55) $ (.13)
Extraordinary income - .03 - .03
-------- -------- -------- --------
Net loss per share $ (.33) $ (.15) $ (.55) $ (.10)
======== ======== ======== ========
Shares used in per share
computation 20,529 20,416 20,526 19,135
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
<PAGE>4
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1994 and 1993
(Unaudited - 000's omitted)
<TABLE>
<CAPTION>
Six months ended
June 30,
1994 1993
----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,377) $ (1,903)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 3,457 3,539
Equity earnings of SPI (6,683) (4,193)
Gain on sales of ICN owned subsidiaries
Common Stock - (3,732)
Gain on settlements of leasing contracts - (938)
Foreign currency translation and exchange
losses (gains) 3,380 (1,774)
Minority interests (173) 295
Extraordinary income - (627)
Other, net (129) (283)
Change in assets and liabilities (8,492) (5,424)
-------- --------
Net cash used in operating
activities (20,017) (15,040)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,190) (792)
Proceeds from sales of assets held for
disposal - 4,534
Sales of marketable securities 203 139
Payment received from SPI 16,419 2,900
Maturity of certificate of deposit 8,000 -
Sales of ICN owned subsidiaries common stock - 11,726
-------- --------
Net cash provided by investing
activities 23,432 18,507
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock 24 24,642
Payment of debt, net (4,965) (14,696)
Proceeds from issuance of common stock
by subsidiaries - 10,570
Decrease in restricted cash 256 -
Dividend paid by subsidiaries (118) (117)
-------- --------
Net cash provided by (used in) financing
activities (4,803) 20,399
-------- --------
Net increase (decrease) in cash
and cash equivalents (1,388) 23,866
Cash and cash equivalents at beginning of period 14,652 2,595
-------- --------
Cash and cash equivalents at end of period $13,264 $26,461
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
<PAGE>5
ICN PHARMACEUTICALS, INC.
MANAGEMENT'S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results of operations presented
herein are not necessarily indicative of the results to be expected for a
full year. Although the Company believes that all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
the interim periods presented are included and that the disclosures are
adequate to make the information presented not misleading, these consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K and 10K/A Amendment No. 1 for the year ended
December 31, 1993.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
1. Summary of significant accounting policies -
Principles of Consolidation
The accompanying consolidated condensed financial statements, as of June 30,
1994, include the accounts of ICN Pharmaceuticals, Inc. ("ICN" or the
"Company"), its 69 percent owned subsidiary, ICN Biomedicals,Inc.
("Biomedicals") and its 63 percent owned subsidiary, Viratek, Inc.
("Viratek"). ICN currently owns 38 percent of SPI Pharmaceuticals, Inc.
(SPI), and accounts for the investment using the equity method of accounting.
Under such method, the Company's share of net income (or losses) is included
as a separate item in the consolidated condensed statement of operations.
All significant intercompany account balances and transactions have been
eliminated.
Per share information
For the three and six months ended June 30, 1994 and 1993, per share
information is based on the weighted average number of common shares
outstanding.
ICN's share of the income of Biomedicals has been reduced to give effect to
the dilution in ownership which would result upon the exercise of dilutive
options and warrants outstanding to purchase Biomedical common shares.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
period presentation.
<PAGE>
<PAGE>6
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
2. Related party Transactions -
Royalty agreements
During the three and six months ended June 30, 1994, SPI sold $3,790,000 and
$17,850,000 of ribavirin resulting in royalties to Viratek of $758,000 and
$3,570,000, respectively. For the same periods in 1993, SPI sold $2,700,000
and $9,920,000 of ribavirin resulting in royalties to Viratek of $540,000 and
$1,984,000, respectively. These royalties are based on a license agreement
whereby 20% of the sales of ribavirin by SPI are payable to Viratek.
Included in royalties for the three and six months ended June 30, 1994 are
royalties earned on foreign sales by SPI totaling $499,000 and $1,110,000,
respectively. For the same periods in 1993, royalties earned on foreign
sales by SPI were $449,000 and $1,122,000, respectively.
Cost allocations
ICN, SPI, Viratek and Biomedicals occupy ICN's facility in Costa Mesa,
California. During the three and six months ended June 30, 1994, ICN charged
facility costs of $70,000 and $140,000 to SPI, $60,000 and $120,000 to
Viratek, and $78,000 and $155,000 to Biomedicals, respectively. For the same
periods in 1993, ICN charged facility costs of $70,000 and $140,000 to SPI,
$8,000 and $15,000 to Viratek, and $78,000 and $155,000 to Biomedicals,
respectively.
The costs of common services such as maintenance, purchasing and personnel
are incurred by SPI and allocated to ICN, Viratek and Biomedicals based on
various formulas. During the three and six months ended June 30, 1994 the
total of such costs were $643,000 and $1,377,000 of which $460,000 and
$955,000 were allocated to ICN, Viratek and Biomedicals, respectively. For
the same periods in 1993, the total of such costs were $594,000 and
$1,299,000 of which $386,000 and $832,000 were allocated to ICN, Viratek, and
Biomedicals, respectively.
3. Other assets and deferred charges, net -
At June 30, 1994, "Other assets and deferred charges, net" includes
$4,110,000 of deferred loan costs related to successfully completed
financings and $1,911,000 of patents, trademarks and clinical trials, net of
amortization.
4. Prepaid expenses and other current assets -
As of June 30, 1994, "Prepaid expenses and other current assets" includes
$1,218,000 of assets held for disposition which are recorded at the lower of
cost or net realizable value.
<PAGE>
<PAGE>7
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
5. Inventories, net -
Inventories, net consist of the following components (000's omitted):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> ---------- ----------
<C> <C>
Raw materials and supplies $ 3,461 $ 3,422
Work-in-progress 488 610
Finished goods, net 11,777 11,569
---------- ----------
$15,726 $15,601
========== ===========
</TABLE>
6. Supplemental Cash Flows Disclosures -
The following table sets forth the amount of cash paid for interest and
income taxes. (000's omitted):
<TABLE>
<CAPTION>
Six months ended
June 30,
1994 1993
-------------------
<S> <C> <C>
Interest $ 8,797 $ 9,737
Income taxes $ 329 $ 316
</TABLE>
7. Other expense, net -
The following table summarizes other (income) expense, net. (000's omitted):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
----------------- -----------------
<S> <C> <C> <C> <C>
Realized (gains) losses on $ - $ - $ 24 $ (139)
marketable securities
Amortization of goodwill 518 509 1,037 1,024
Gain on lease terminations - (938) - (938)
Reversal of legal settlement
accrual - (1,000) - (1,000)
Other, net (123) 292 (51) 732
-------- -------- -------- --------
Other (income) expense, net $ 395 $(1,137) $ 1,010 $ (321)
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>8
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
8. Sales of Subsidiaries Common Stock Owned by ICN -
For the six months ended June 30, 1993, ICN sold 918,200 shares of SPI Common
Stock for $11,726,000 in cash, net of commission expenses. The company did
not sell subsidiaries common stock owned by ICN during 1994.
9. Commitments and contingencies -
Class Actions - In Re Viratek, In Re Paine Webber. The Company is a
defendant in certain consolidated class actions pending in the United States
District Court for the Southern District of New York entitled In re Paine
Webber Securities Litigation (Case No. 86 Civ. 6776 (VLB); In re ICN/Viratek
Securities Litigation (Case No. 87 Civ. 4296 (VLB)). In the Third Amended
Consolidated Class Action Complaint plaintiffs allege that the ICN Defendants
made, or aided and abetted Paine Webber in making, misrepresentations of
material fact and omitted to state material facts concerning the business,
financial condition and future prospects of ICN, Viratek and SPI in certain
public announcements, Paine Webber, Inc. research reports and filings with
the Commission. The alleged misstatements and omissions primarily concern
developments regarding Virazole (R) including the efficacy and safety of the
drug and the market for the drug. The plaintiffs allege that such
misrepresentations and omissions violate Section 10(b) of the Exchange Act of
1934 and Rule 10b-5 promulgated thereunder and constitute common law fraud
and misrepresentation. The ICN Defendants filed their Answer, containing
affirmative defenses, on February 15, 1993. Plaintiffs seek the
certification of classes of persons who purchased ICN, Viratek, or SPI common
stock during the period January 7, 1986 through April 15, 1987. In their
memorandum of law, dated February 4, 1994, the ICN Defendants argue that
class certification may only be granted for purchasers of ICN common stock
for the period August 12, 1986 through February 20, 1987 and for purchasers
of Viratek common stock for the period December 9, 1986 through February 20,
1987. The ICN Defendants assert that no class should be certified for
purchasers of the common stock of SPI for any period. Oral argument on
plaintiffs' motion for class certification was held on June 2, 1994. To
date, no decision has been rendered. On October 20, 1993, plaintiffs
informed the Court that they had reached an agreement to settle with co-
defendant Paine Webber. On May 6, 1994 plaintiffs submitted their
Stipulation of Settlement to the Court. The Court hearing on the Stipulation
of Settlement was held on July 27, 1994. The Court approved the proposed
settlement (in the amount of $6.5 million) and requested additional
information in connection with plaintiffs' counsel's application for attorney
fees and costs. Fact discovery is complete and expert discovery is virtually
complete. Plaintiff's damages expert, utilizing assumptions and
methodologies that the ICN Defendants' damages experts find to be
inappropriate under the circumstances, has testified that assuming that
classes were certified for purchasers of ICN, Viratek, and SPI common stock
for the entire class periods alleged by plaintiffs, January 7, 1986 through
April 15, 1987 and further assuming that all of the plaintiffs' allegations
were proven, potential damages against ICN, Viratek, and SPI would, in the
aggregate, amount to $315,000,000. The ICN Defendants' four damages' experts
have testified that damages are zero. On May 4, 1994, plaintiffs' counsel
agreed to stipulate to the dismissal of the aiding and abetting claim
asserted against the ICN Defendants and a formal stipulation will be
submitted to the Court in the near future. Management believes that, having
extensively reviewed the issues in the above referenced matters, there are
strong defenses and the Company intends to defend the litigation vigorously.
While the ultimate outcome of these lawsuits cannot be predicted with
certainty, and an unfavorable outcome could have an adverse effect on the
Company, at this time management does not expect that these matters will have
a material adverse effect on the financial position, result of operations or <PAGE>
<PAGE>9
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
liquidity of the Company. The attorney's fees and other costs of the
litigation are allocated equally between ICN and Viratek.
Rafi M. Khan v. ICN Pharmaceuticals, Inc. On April 5, 1993, ICN and Viratek
filed suit against Rafi Khan ("Khan") in the United States District Court for
the Southern District of New York. The complaint alleges, inter alia, that
Khan violated numerous provisions of the securities laws and breached his
fiduciary duty to ICN and Viratek by attempting to effectuate a change in
control of ICN while acting as an agent and fiduciary of ICN and Viratek. As
relief, ICN and Viratek, among other things, sought an injunction enjoining
Khan from effectuating a change in control of ICN and compensatory and
punitive damages in the amount of $25,000,000. Khan filed a counterclaim on
April 12, 1993, naming the then ICN directors and ICN, as a nominal defendant
sued only in a derivative capacity. The counterclaim contains causes of
action for slander, interference with economic relations, and a shareholders'
derivative action for breach of fiduciary duties. Khan seeks compensatory
damages for interest in an unspecified amount, and exemplary damages of
$29,000,000. On December 22, 1993, Khan filed a notice of appeal from a
prior injunction granted by the court, to the Court of Appeals for the Second
Circuit. On March 13, 1994, that appeal was dismissed on the grounds that
Khan had defaulted for failure to comply with the Court's scheduling order.
The Company has been advised by Mr. Khan that he intends to represent himself
pro se in this matter. With the consent of the parties, the Court ordered
all discovery stayed until September 6, 1994. Management believes that
Khan's counterclaim is without merit and the company intends to vigorously
defend these counterclaims.
10. Equity investment -
The following tables set forth the condensed financial position of SPI as of
June 30, 1994 and December 31, 1993 and the condensed results of its
operations for the quarter ended June 30, 1994 and 1993.
<TABLE>
<CAPTION>
SPI FINANCIAL POSITION
(In 000's)
June 30, Dec. 31,
1994 1993
-------- --------
<S> <C> <C>
Current assets $178,865 $208,762
Non-current assets 126,266 93,255
Current liabilities 74,714 81,503
Non-current liabilities 23,155 23,206
Minority interest 41,862 41,429
Stockholders' equity 165,400 155,879
</TABLE>
<PAGE>
<PAGE>10
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
SPI RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED June 30, 1994
(In 000's)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 78,927 $ 66,422 $151,094 $186,058
Gross profit 33,759 31,159 73,311 90,105
Net income 5,245 1,091 13,609 6,827
Equity in earnings of SPI $ 1,993 $ 1,010 $ 6,398 $ 4,193
</TABLE>
The condensed results of operations of ICN Galenika, a consolidated 75% owned
Yugoslavian subsidiary of SPI, for the three and six months ended June 30,
1994 and 1993 are presented below: (000's omitted)
<TABLE>
<CAPTION>
ICN GALENIKA
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 37,671 $ 28,656 $ 63,826 $108,964
Gross profit 7,222 7,237 14,360 41,170
Net income (loss) $ 777 $ (2,788) $ 1,298 $ (467)
</TABLE>
ICN Galenika operates in a highly inflationary economy and uses the dollar as
the functional currency rather than the Yugoslavian dinar. At December 31,
1993, the rate used to remeasure ICN Galenika's results was over one trillion
dinars per $1 U.S. On January 1, 1994, the Yugoslavian government changed
the denomination of its currency by dropping nine zeros. The effect of this
redenomination on the Yugoslavian dinar resulted in an exchange rate of 1,053
dinars to $1 U.S. Subsequent to the redenomination and prior to the
enactment of the stabilization program described below, the dinar had
devalued to 12,563,000 dinars per $1 U.S.
On January 24, 1994, the Yugoslavian government enacted a "Stabilization
Program" designed to strengthen its currency. Under this program the
official exchange rate of the dinar is fixed at a ratio of one dinar to one
Deutsche mark. The Yugoslavia government guarantees the conversion of dinars
to Deutsche marks by exercising restraint in the amount of dinars that it
prints, thereby restricting cash in circulation to correspond to hard
currency reserves in Yugoslavia. Since the inception of this program the
exchange rate of dinars to Deutsche marks has remained stable. The trading
of dinars at other than official rates has been virtually eliminated and
<PAGE>
<PAGE>11
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
inflation and interest rates have declined from over 1 billion percent a year
to a current rate of approximately 14% since January 24, 1994, based on
information currently available to the Company. The Company believes that
the period of time that the stabilization program has been operating
successfully is significant given that past attempts at monetary control by
the Yugoslavian government have generally been temporary. In the near term,
the positive effects of the stabilization program could reverse and a return
to prior levels of hyperinflation could occur. The success of this
stabilization program is dependent upon improvement in the Yugoslavian
economy, which is in part dependent upon the lifting of United Nations
sanctions.
SPI has recently entered into an agreement with the City of St. Petersburg to
acquire 15% of the outstanding shares of SPI's recently privatized joint
venture partner, Oktyabr, for approximately $600,000. Under the terms of the
agreement, SPI has the option to pay for the shares by using privatization
vouchers or cash. As a result of this investment, and as part of the
privatization of Oktyabr, SPI submitted an "investment plan" which, if
approved, will allow SPI to purchase additional outstanding shares of
Oktyabr. These shares along with the shares purchased from the City of St.
Petersburg would increase SPI's ownership to 43%. The "investment plan" does
not contemplate any significant additional cash investment by SPI but gives
effect to SPI's past assistance provided to Oktyabr. SPI has also recently
completed a transaction whereby SPI purchased 26% of the outstanding shares
from the employees of Oktyabr in exchange for rights to acquire SPI common
stock. Should SPI complete the transaction to acquire 43% of the outstanding
shares of Oktyabr together with the 26% acquired from the employees, SPI
would own 61% of the outstanding shares of Oktyabr, in which case SPI may be
required to consolidate the financial statements of Oktyabr with those of
SPI.
11. Subsequent events -
On August 1, 1994, the Company and its three affiliated corporations (SPI
Pharmaceuticals, Inc., Viratek, Inc. and ICN Biomedicals, Inc.) entered into
a merger agreement to combine the four companies into a newly formed
corporation (which will be renamed ICN Pharmaceuticals, Inc.) (the "Merger").
Under the terms of the merger agreement, all outstanding shares of common
stock of the four companies (other than shares held by ICN) will be exchanged
for shares of common stock of the new Company pursuant to the following
exchange ratios: ICN: 1 to .512; SPI: 1 to 1; Viratek: 1 to .499; and
Biomedicals: 1 to .197. The proposed Merger is subject to various
conditions, including approval by the stockholders of each of the four
companies, issuance of $150 million of convertible debentures to refinance a
substantial portion of the long-term indebtedness of the four companies (a
waivable condition), appropriate regulatory approvals and certain other
conditions. Assuming these conditions are satisfied, the transaction is
expected to close during the fall of 1994.
Three lawsuits have been filed by stockholders of SPI and, in one of these
lawsuits, Viratek, with respect to the Merger in the Court of Chancery of the
State of Delaware against ICN, SPI, Viratek (with respect to one of such
lawsuits) and certain directors and officers of ICN, SPI and/or Viratek
(including Milan Panic). The lawsuits, entitled Helmut Kling v. Milan Panic,
et al., Jallath v. Milan Panic, et al., and Amy Hoffman v. Milan Panic, et
al. purport to be class actions on behalf of all persons who hold shares of
SPI Common Stock and, in one lawsuit, Viratek Common Stock. These suits
allege that the consideration to be provided to the public stockholders of
SPI and Viratek (with respect to one of such lawsuits) in the Merger is
unfair and inadequate, and that the defendants have breached their fiduciary <PAGE>
<PAGE>12
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
duties in approving the proposed Merger and otherwise. The Company believes
that these suits are without merit. <PAGE>
<PAGE>13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Working capital, liquidity and capital resources
------------------------------------------------
Cash and marketable securities
------------------------------
At June 30, 1994 and December 31, 1993, the Company had cash and cash
equivalents and restricted cash of $14,526,000 and $24,170,000, respectively,
included in current assets. Included in cash at June 30, 1994 is $11,564,000
which is to be used exclusively by Viratek for research and development and
general working capital requirements.
The decrease in total available cash and cash equivalents from December 31,
1993, is primarily a result of Viratek's spending in research and development
activities and the payment of long-term debt partially offset by the cash
received from SPI.
Other
-----
The Company and certain of its subsidiaries do not maintain product liability
insurance. While the Company has never experienced a material adverse claim
for personal injury resulting from allegedly defective products, a
substantial claim, if successful, could have a material adverse effect on the
Company's liquidity and financial performance.
The Company believes that cash provided by reductions in working capital
requirements and certain dispositions of assets will provide a portion of the
Company's cash to meet its debt service and working capital requirements
during the remainder of 1994. The Company will sell additional shares of its
subsidiaries Common Stock, or the Company's common stock, and may refinance
its current obligations into long-term financing, or re-negotiate certain
terms of existing indebtedness, depending on market conditions, if necessary,
to meet cash requirements.
Biomedicals Group:
------------------
Net sales. Net sales were $15,171,000 and $30,658,000 for the three and six
months ended June 30, 1994, respectively, compared to $15,415,000 and
$31,224,000 for the same periods in 1993, respectively. Sales declined 2%
for the three and six months ended June 30, 1994, respectively, compared to
the same periods in 1993. Biomedicals continues to actively work on the
introduction of new products primarily related to its Diagnostic product
line, and on the expansion of the Dosimetry product line into foreign
markets. These two actions, combined with the launch of Biomedicals' 1994
catalog which began distribution during the first quarter of 1994 should help
to contribute to increased sales in the remaining quarters of the year.
Cost of Sales. Product cost as a percentage of sales decreased to 44% from
45% and to 44% from 46% for the three and six months ended June 30, 1994 and
1993, respectively. Biomedicals continues to focus on the elimination of
high cost products and on improving purchasing and manufacturing processes.
Gross Profit. Gross profit as a percentage of sales was 56% and 56% for the
three and six months ended June 30, 1994, respectively, compared to 55% and
54% for the same periods in 1993. The impact of the actions taken in regards
to sales, specifically the discontinuance of low gross profit margin products
and the introduction of new products with high margins, have been reflected
by an improvement in gross profit margins.
<PAGE>
<PAGE>14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Pharmaceuticals Group:
----------------------
Net royalties from the sale of Virazole by SPI were $758,000 and $3,570,000
for the three and six months ended June 30, 1994, respectively, compared to
$540,000 and $1,984,000, respectively, for the same periods in 1993. The
increase for the three and six months ended June 30, 1994 compared to the
same periods in the prior year was primarily due to increased sales in the
United States, resulting from a combination of price increases and increased
unit sales of Virazole(R).
The Company
-----------
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the Biomedical group were $6,848,000 or 45% of
sales and $13,750,000 or 45% of sales for the three and six months ended June
30, 1994, respectively, compared to $6,745,000 or 44% of sales and
$13,277,000 or 43% of sales for the same periods in 1993. The increase in
expenses in 1994 reflects primarily the impact of catalog amortization costs
partially offset by certain reserve reevaluations. Management is continuing
its efforts to reduce selling, general administrative expenses both in dollar
value and as a percentage of sales through consolidation of operations and
cost controls. Selling, general and administrative expenses for the
pharmaceutical group and corporate for the three and six months ended June
30, 1994 increased $640,000 and $1,879,000 over the same periods in 1993,
respectively. The increases are primarily due to an increase in legal fees
associated with the defense of the class action lawsuits, proxy fight
expenses and the higher central services expenses.
Research and Development Costs. Research and development costs increased for
the three and six months ended June 30, 1994 over the same periods in 1993 by
$707,000 and $1,435,000, respectively. The increase relates to the higher
costs incurred by Viratek for the hepatitis C clinical trials and submission
of the NDA in 1994 and the additional research and development activities
which involve a new pharmaceutical discovery program aimed at developing
therapeutic drugs to inhibit disease-causing genes.
Interest expense, net was $4,365,000 and $8,734,000 for the three and six
months ended June 30, 1994 compared to $4,421,000 and $9,418,000,
respectively, for the same periods in 1993. The decrease resulted primarily
from the reduction in long-term debt of the Company.
Translation losses (gains) were $1,486,000 and $3,380,000 for the three and
six months ended June 30, 1994, respectively, compared to $(1,138,000) and
$(1,774,000) for the same periods in 1993. The decrease results primarily
from the conversion of the Company's Swiss franc and Dutch Guilder debt. The
fluctuations in the Swiss franc and Dutch Guilder to the US dollar were
favorable to the Company in 1993 but have a negative impact in 1994.
<PAGE>
<PAGE>15
REVIEW BY INDEPENDENT AUDITORS
The unaudited financial information at June 30, 1994 and for the three and
six months period ended June 30, 1994 and 1993, have been reviewed by Coopers
& Lybrand L.L.P., independent auditors, in accordance with standards
established by the American Institute of Certified Public Accountants.
Coopers & Lybrand L.L.P. has proposed no material adjustments or additional
disclosures that are not reflected in the Consolidated Condensed Financial
Statements and related notes.
<PAGE>
<PAGE>16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Class Actions - In Re Viratek, In Re Paine Webber. The Company is a
defendant in certain consolidated class actions pending in the United States
District Court for the Southern District of New York entitled In re Paine
Webber Securities Litigation (Case No. 86 Civ. 6776 (VLB); In re ICN/Viratek
Securities Litigation (Case No. 87 Civ. 4296 (VLB)). In the Third Amended
Consolidated Class Action Complaint plaintiffs allege that the ICN Defendants
made, or aided and abetted Paine Webber in making, misrepresentations of
material fact and omitted to state material facts concerning the business,
financial condition and future prospects of ICN, Viratek and SPI in certain
public announcements, Paine Webber, Inc. research reports and filings with
the Commission. The alleged misstatements and omissions primarily concern
developments regarding Virazole (R) including the efficacy and safety of the
drug and the market for the drug. The plaintiffs allege that such
misrepresentations and omissions violate Section 10(b) of the Exchange Act of
1934 and Rule 10b-5 promulgated thereunder and constitute common law fraud
and misrepresentation. The ICN Defendants filed their Answer, containing
affirmative defenses, on February 15, 1993. Plaintiffs seek the
certification of classes of persons who purchased ICN, Viratek, or SPI common
stock during the period January 7, 1986 through April 15, 1987. In their
memorandum of law, dated February 4, 1994, the ICN Defendants argue that
class certification may only be granted for purchasers of ICN common stock
for the period August 12, 1986 through February 20, 1987 and for purchasers
of Viratek common stock for the period December 9, 1986 through February 20,
1987. The ICN Defendants assert that no class should be certified for
purchasers of the common stock of SPI for any period. Oral argument on
plaintiffs' motion for class certification was held on June 2, 1994. To
date, no decision has been rendered. On October 20, 1993, plaintiffs
informed the Court that they had reached an agreement to settle with co-
defendant Paine Webber. On May 6, 1994 plaintiffs submitted their
Stipulation of Settlement to the Court. The Court hearing on the Stipulation
of Settlement was held on July 27, 1994. The Court approved the proposed
settlement (in the amount of $6.5 million) and requested additional
information in connection with plaintiffs' counsel's application for
attorney's fees and costs. Fact discovery is complete and expert discovery
is virtually complete. Plaintiff's damages expert, utilizing assumptions and
methodologies that the ICN Defendants' damages experts find to be
inappropriate under the circumstances, has testified that assuming that
classes were certified for purchasers of ICN, Viratek, and SPI common stock
for the entire class periods alleged by plaintiffs, January 7, 1986 through
April 15, 1987 and further assuming that all of the plaintiffs' allegations
were proven, potential damages against ICN, Viratek, and SPI would, in the
aggregate, amount to $315,000,000. The ICN Defendants' four damages' experts
have testified that damages are zero. On May 4, 1994, plaintiffs' counsel
agreed to stipulate to the dismissal of the aiding and abetting claim
asserted against the ICN Defendants and a formal stipulation will be
submitted to the Court in the near future. Management believes that, having
extensively reviewed the issues in the above referenced matters, there are
strong defenses and the Company intends to defend the litigation vigorously.
While the ultimate outcome of these lawsuits cannot be predicted with
certainty, and an unfavorable outcome could have an adverse effect on the
Company, at this time management does not expect that these matters will have
a material adverse effect on the financial position, result of operations or
liquidity of the Company. The attorney's fees and other costs of the
litigation are allocated equally between ICN and Viratek.
On April 5, 1993, ICN and Viratek filed suit against Rafi Khan ("Khan") in
the United States District Court for the Southern District of New York. The
complaint alleges, inter alia, that Khan violated numerous provisions of the
securities laws and breached his fiduciary duty to ICN and Viratek by
<PAGE>
<PAGE>17
PART II. OTHER INFORMATION - (Continued)
attempting to effectuate a change in control of ICN while acting as an agent
and fiduciary of ICN and Viratek. As relief, ICN and Viratek, among other
things, sought an injunction enjoining Khan from effectuating a change in
control of ICN and compensatory and punitive damages in the amount of
$25,000,000. Khan filed a counterclaim on April 12, 1993, naming the then ICN
directors and ICN, as a nominal defendant sued only in a derivative capacity.
The counterclaim contains causes of action for slander, interference with
economic relations, and a shareholders' derivative action for breach of
fiduciary duties. Khan seeks compensatory damages for interest in an
unspecified amount, and exemplary damages of $29,000,000. On December 22,
1993, Khan filed a notice of appeal from a prior injunction granted by the
court, to the Court of Appeals for the Second Circuit. On March 13, 1994,
that appeal was dismissed on the grounds that Khan had defaulted for failure
to comply with the Court's scheduling order. The Company has been advised by
Mr. Khan that he intends to represent himself pro se in this matter.
Management believes that Khan's counterclaim is without merit and the Company
intends to vigorously defend those counterclaims.
Three lawsuits have been filed by stockholders of SPI and, in one of these
lawsuits, Viratek, with respect to the Merger in the Court of Chancery of the
State of Delaware against ICN, SPI, Viratek (with respect to one of such
lawsuits) and certain directors and officers of ICN, SPI and/or Viratek
(including Milan Panic). The lawsuits, entitled Helmut Kling v. Milan Panic,
et al., Jallath v. Milan Panic, et al., and Amy Hoffman v. Milan Panic, et
al. purport to be class actions on behalf of all persons who hold shares of
SPI Common Stock and, in one lawsuit, Viratek Common Stock. These suits
allege that the consideration to be provided to the public stockholders of
SPI and Viratek (with respect to one of such lawsuits) in the Merger is
unfair and inadequate, and that the defendants have breached their fiduciary
duties in approving the proposed Merger and otherwise. The Company believes
that these suits are without merit.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
(11) Statement re: Computation of Per Share Earnings.
(15) Review Report from Independent Auditors regarding
unaudited financial information.
(15.1) Awareness letter from Independent Auditors.
b. Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter ended
June 30, 1994.
<PAGE>
<PAGE>18
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICN PHARMACEUTICALS, INC.
(Registrant)
Date: August 5, 1994 /s/Milan Panic
-------------------------
Milan Panic
Chairman and Chief Executive Officer
Date: August 5, 1994 /s/John E. Giordani
-------------------------
John E. Giordani
Executive Vice President - Finance and
Chief Financial Officer
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
The computation of net income per share for the three and six months ended
June 30, 1994 and 1993 is as follows (000's omitted except per share
amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
-------------------- -------------------
<S> <C> <C> <C> <C>
Primary
-------
Net loss $(6,832) $(2,966) $(11,377) $(1,903)
Reduced earnings due to
dilution in ownership
which would result upon
the exercise of options
and warrants currently
outstanding to purchase
common shares of
subsidiaries (2) (8) (11) (4)
-------- -------- --------- --------
$(6,834) $(2,974) $(11,388) $(1,907)
======== ======== ========= ========
Average common shares
outstanding 20,529 20,416 20,526 19,135
Dilutive common equivalent
issuable upon the exercise
of options and warrants
currently outstanding to
purchase common shares of
ICN Pharmaceuticals, Inc. - - - -
-------- -------- --------- --------
20,529 20,416 20,526 19,135
======== ======== ========= ========
Net loss per share $ (.33) $ (.15) $ (.55) $ (.10)
======== ======== ========= ========
</TABLE>
(continued)
<PAGE>
<PAGE>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (continued)
The computation of net income per share for the three and six months ended
June 30, 1994 and 1993 is as follows (000's omitted except per share
amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
-------------------- -------------------
<S> <C> <C> <C> <C>
Fully Diluted
-------------
Net loss $(6,832) $(2,966) $(11,377) $(1,903)
Reduced earnings due to
dilution in ownership
which would result upon
the exercise of options
and warrants currently
outstanding to purchase
common shares of
subsidiaries (2) (8) (11) (4)
Interest expense on
convertible debt 555 798 1,099 1,625
-------- -------- -------- --------
$(6,279) $(2,176) $(10,289) $ (282)
======== ======== ========= ========
Average common shares 20,529 20,416 20,526 19,135
outstanding
Dilutive common equivalent
shares issuable upon the
exercise of options and
warrants currently
outstanding to purchase
common shares of ICN
Pharmaceuticals, Inc. 294 556 314 754
Conversion of debentures 2,827 3,441 2,827 3,441
-------- -------- -------- --------
23,650 24,413 23,667 23,330
======== ======== ======== ========
Net loss per share $ (.27) $ (.09) $ (.43) $ (.01)
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
Exhibit 15
REVIEW REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
ICN Pharmaceuticals, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of ICN
Pharmaceuticals, Inc. and subsidiaries (the Company) as of June 30, 1994, and
the related consolidated condensed statements of operations for the three and
six month periods ended June 30, 1994 and 1993, and the consolidated
condensed statements of cash flows for the six-month periods then ended.
These consolidated condensed financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated condensed financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 31, 1994, which included an emphasis of a matter paragraph relating to
certain transactions between the Company and its majority owned subsidiaries
as more fully described in the notes to the consolidated financial
statements, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
consolidated condensed balance sheet as of December 31, 1993, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/COOPERS & LYBRAND L.L.P.
Los Angeles, California
August 4, 1994
<PAGE>
<PAGE>
Exhibit 15.1
August 4, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ICN Pharmaceuticals, Inc.
Registration Statements
on Form S-8 and S-3
We are aware that our report dated August 4, 1994 on our review of interim
financial information of ICN Pharmaceuticals, Inc. and subsidiaries for the
three and six month periods ended June 30, 1994 and 1993 and included in the
Company's quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference into the Company's previously filed Registration
Statements on Form S-8 (File No.'s 2-96903, 33-60866 and 33-60864) and Form
S-3 (File No.'s 2-90696, 33-10706, 33-10891, 33-11725, 33-11726, 33-11727,
33-63164 and 33-26253). Pursuant to Rule 436(c) under the Securities Act of
1993, this report should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
Very truly yours,
/s/COOPERS & LYBRAND L.L.P.
<PAGE>
