<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 March 31, 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 May 12, 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 -
March 31, 1994 and December 31, 1993 2
Consolidated Condensed Statements of Operations -
Three months ended March 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 1994 and 1993 4
Management's Statement Regarding Unaudited Financial
Statements 5
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Review by Independent Auditors 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
<PAGE>2
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1994 and December 31, 1993
(Unaudited - 000's omitted)
<TABLE>
<CAPTION> March 31, Dec. 31,
ASSETS 1994 1993
----------------------------------------------- --------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,048 $ 14,652
Restricted cash 1,518 1,518
Certificates of deposit 8,000 8,000
Receivables, net 14,595 12,122
Receivables from SPI 11,902 18,313
Inventories, net 15,180 15,601
Prepaid expenses and other current assets 4,374 4,479
--------- ---------
Total current assets 64,617 74,685
Property, plant and equipment, net, at cost 36,179 36,243
Investment in SPI 74,361 71,671
Other assets and deferred charges 11,753 12,025
Goodwill related to purchased businesses 2,492 2,580
Goodwill related to publicly traded subsidiaries 10,349 10,652
--------- ---------
$199,751 $207,856
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------
Current liabilities:
Notes payable $ 5,642 $ 4,226
Current maturities of long-term debt 13,116 12,093
Accounts payable 7,060 7,342
Accrued liabilities 18,689 21,397
--------- ---------
Total current liabilities 44,507 45,058
Long-term debt, less current maturities:
Convertible into ICN Common Stock 21,202 22,023
Publicly-traded debentures and other debt 115,322 117,024
Other liabilities and deferred income taxes 6,880 7,014
Minority interests 13,397 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 March 31,
1994 and December 31, 1993, respectively 20,529 20,519
Additional capital 180,911 180,897
Accumulated deficit (198,256) (193,711)
Foreign currency translation adjustments (4,741) (3,685)
--------- ---------
Total stockholders' equity (deficit) (1,557) 4,020
--------- ---------
$199,751 $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 months ended March 31, 1994 and 1993
(Unaudited - 000's omitted except for per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
------------------
<S> <C> <C>
Net sales $17,202 $ 16,632
Cost of sales 6,840 7,376
-------- --------
Gross profit 10,362 9,256
Selling, general and
administrative expenses 10,257 8,648
Research and development
costs 1,764 1,036
Interest expense, net 4,369 4,997
Translation and exchange
(gains) losses 1,894 (636)
Equity in earnings of SPI (4,405) (3,183)
Gain on sales of subsidiaries
common stock owned by ICN - (3,732)
Other expense, net 615 816
-------- --------
Income (loss) before income
taxes and minority
interests (4,132) 1,310
Income taxes (38) 35
Minority interests 451 212
-------- --------
Net income (loss) $(4,545) $ 1,063
======== ========
Per share information:
Net income (loss) per share $ (.22) $ .06
======== ========
Shares used in per share
computation 20,523 18,772
======== ========
</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 three months ended March 31, 1994 and 1993
(Unaudited - 000's omitted)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,545) $ 1,063
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,718 1,904
Gain on sales of subsidiaries Common Stock - (3,732)
Translation losses (gains) 1,894 (636)
Minority interest 451 212
Other, net (1) (139)
Change in assets and liabilities (11,847) (2,158)
-------- --------
Net cash used in operating
activities (12,330) (3,486)
-------- --------
Cash flows from investing activities:
Capital expenditures (377) (595)
Sales of marketable securities 203 139
Payment received from SPI 9,422 1,900
Sales of ICN owned subsidiaries common stock - 11,726
-------- --------
Net cash provided by investing
activities 9,248 13,170
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock 24 25,898
Payment of debt, net (2,428) (8,822)
Proceeds from issuance of common stock
by subsidiaries - 10,351
Dividend paid by subsidiaries (118) (117)
-------- --------
Net cash provided by (used in) financing
activities (2,522) 27,310
-------- --------
Net increase (decrease) in cash
and cash equivalents (5,604) 36,994
Cash and cash equivalents at beginning of period 14,652 2,595
-------- --------
Cash and cash equivalents at end of period $ 9,048 $39,589
======== ========
</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 for the year ended December 31, 1993.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
1. Summary of significant accounting policies -
Principles of Consolidation
The accompanying consolidated condensed financial statements, as of March 31,
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 39 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 months ended March 31, 1994, per share information is based on
the weighted average number of common shares outstanding. For the three
months ended March 31, 1993, per share information is based on the weighted
average number of common stock outstanding and dilutive common stock
equivalents.
ICN's share of the income of Biomedicals and Viratek 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 and Viratek
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 months ended March 31, 1994 and 1993, SPI sold $14,060,000
and $7,220,000 of ribavirin, respectively, resulting in royalties to Viratek
of $2,812,000 and $1,444,000. 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 months ended March 31, 1994 and
1993 are royalties earned on foreign sales by SPI totalling $611,000 and
$673,000, respectively.
Cost allocations
ICN, SPI, Viratek and Biomedicals occupy ICN's facility in Costa Mesa,
California. During the three months ended March 31, 1994 and 1993, ICN
charged facility costs of $70,000 and $70,000 to SPI, $60,000 and $8,000 to
Viratek, and $78,000 and $78,000 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 months ended March 31, 1994 and 1993, the
total of such costs were $734,000 and $705,000 of which $495,000 and $446,000
were allocated to ICN, Viratek and Biomedicals, respectively.
3. Other assets and deferred charges -
At March 31, 1994, "Other assets and deferred charges" includes $4,371,000 of
deferred loan costs related to successfully completed financings and
$2,006,000 of patents, trademarks and clinical trials, net of amortization.
4. Prepaid expenses and other current assets -
As of March 31, 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.
5. Inventories, net -
Inventories, net consist of the following components (000's omitted):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ----------
<S> <C> <C>
Raw materials and supplies $ 3,390 $ 3,422
Work-in-progress 640 610
Finished Goods, net 11,150 11,569
---------- ----------
$15,180 $15,601
========== ===========
</TABLE>
<PAGE>
<PAGE>7
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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>
Three months ended
March 31,
1994 1993
-------------------
<S> <C> <C>
Interest $ 6,897 $ 7,409
Income taxes $ 225 $ 192
</TABLE>
7. Other expense, net -
The following table summarizes other expense, net. (000's omitted):
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
-----------------
<S> <C> <C>
Realized (gains) losses on $ 24 $(139)
marketable securities
Amortization of goodwill 519 515
Other, net 72 440
-------- --------
Other expense, net $ 615 $ 816
======== ========
</TABLE>
8. Sales of Subsidiaries Common Stock Owned by ICN -
For the three months ended March 31, 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 the first
quarter of 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 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
<PAGE>
<PAGE>8
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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, 1994. 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 will be held on June 2, 1994. 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 will be held on July 27, 1994. 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.
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
<PAGE>
<PAGE>9
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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 these
counterclaims.
10. Equity investment -
The following tables set forth the condensed financial position of SPI as of
March 31, 1994 and December 31, 1993 and the condensed results of its
operations for the quarter ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
SPI FINANCIAL POSITION
(In 000's)
March 31, Dec. 31,
1994 1993
-------- --------
<S> <C> <C>
Current assets $179,786 $208,762
Non-current assets 123,979 93,255
Current liabilities 77,423 81,503
Non-current liabilities 23,734 23,206
Minority interest 41,603 41,429
Stockholders' equity 161,045 155,879
</TABLE>
<TABLE>
<CAPTION>
SPI RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1994 AND 1993
(In 000's)
1994 1993
------ ------
<S> <C> <C>
Net sales $72,167 $119,636
Gross profit 39,552 58,946
Net income 8,364 5,736
Equity in earnings of SPI $4,405 $3,183
</TABLE>
The condensed results of operations of ICN Galenika, a consolidated 75% owned
Yugoslavian subsidiary of SPI, for the three months ended March 31, 1994 and
1993 are presented below: (000's omitted)
<TABLE>
<CAPTION>
ICN GALENIKA
1994 1993
------ ------
<S> <C> <C>
Sales $26,155 $80,308
Gross profit 7,138 33,933
Net income 521 2,321
</TABLE>
<PAGE>
<PAGE>10
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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
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 short lived. 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.
On October 21, 1992, SPI announced that it had concluded an agreement with
the Leningrad Industrial Chemical and Pharmaceutical Association ("Oktyabr")
to form a pharmaceutical joint venture in Russia, ICN Oktyabr, in which SPI
has a 75% equity interest.
SPI has also recently entered into an agreement with the City of St.
Petersburg which is expected to close by the end of September 1994, to
purchase 15% of the outstanding equity shares of SPI's joint venture partner,
Oktyabr, in exchange for 35,250 shares of SPI's Common Stock. As a result of
this investment, and as part of the privatization of Oktyabr, SPI has
submitted an "investment plan" which, if approved, will raise SPI's equity
interest in Oktyabr to 43%. The "investment plan" does not contemplate any
significant additional cash investment by SPI but gives effect to its past
assistance provided to Oktyabr. SPI has also recently extended an offer to
the employees of Oktyabr to purchase the shares which they own in exchange
for SPI's Common Stock or cash. The Oktyabr employees own an estimated 33%
of the outstanding shares of Oktyabr although SPI has been informed that some
of Oktyabr's employees have previously sold their shares to banks and other
parties. Should SPI complete the transaction to acquire 43% of the
outstanding shares of Oktyabr and a sufficient number of employees were to
exchange their shares, SPI would own more than 50% of the outstanding shares
of Oktyabr, in which case SPI may be required to consolidate the financial
statements of Oktyabr with those of SPI.
<PAGE>
<PAGE>11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Working capital, liquidity and capital resources
------------------------------------------------
Cash and marketable securities
------------------------------
At March 31, 1994 and December 31, 1993, the Company had cash and cash
equivalents, restricted cash and certificates of deposit of $18,566,000 and
$24,170,000, respectively, included in current assets. Included in cash and
certificates of deposit at March 31, 1994 is $15,352,000 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.
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 to meet cash
requirements.
Biomedicals Group:
------------------
Net sales. Net sales were $15,487,000 and $15,809,000 for the three months
ended March 31, 1994 and 1993, respectively. Sales were 2% lower in 1994
than 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 January and February 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% in
1994 from 47% in 1993. 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 53% for the
three months ended March 31, 1994 and 1993, respectively. 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, and product costs, have been reflected by an improvement in gross
profit margins.
<PAGE>
<PAGE>12
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 $2,812,000 for the three
months ended March 31, 1994 compared to $1,444,000 for the same periods in
1993. The increase for the three months ended March 31, 1994 compared to the
same period in the prior year is 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 $6,902,000 or 45% of
sales in 1994 and $6,532,000 or 41% of sales in 1993. The increase in
expenses in 1994 reflects primarily the impact of catalog amortization costs.
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 months ended March 31, 1994 increased by $1,239,000 over the same
period in 1993. The increase is primarily due to an increase in legal fees
associated with the defense of the class action lawsuits and proxy fight
expenses.
Research and Development Costs. Research and development costs increased for
the three months ended March 31, 1994 over the same period in 1993 by
$728,000. The increase relates to the higher costs incurred by Viratek for
the hepatitis C clinical trials 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 $4,369,000 for the three months ended March 31,
1994 compared to $4,997,000 for the same period in 1993, respectively. The
decrease resulted primarily from the reduction in long-term debt of the
Company.
Translation losses (gains) were $1,894,000 and $(636,000) for the three
months ended March 31, 1994 and 1993, respectively. 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>13
REVIEW BY INDEPENDENT AUDITORS
The unaudited financial information at March 31, 1994 and for the three month
period ended March 31, 1994 and 1993, have been reviewed by Coopers &
Lybrand, independent auditors, in accordance with standards established by
the American Institute of Certified Public Accountants. Coopers & Lybrand
has proposed no material adjustments or additional disclosures that are not
reflected in the Consolidated Condensed Financial Statements and related
notes.
<PAGE>
<PAGE>14
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 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 will be held on June 2, 1994. 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 will be held on July 27, 1994. 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
attempting to effectuate a change in control of ICN while acting as an agent
<PAGE>
<PAGE>15
PART II. OTHER INFORMATION - (Continued)
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.
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.
b. Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the quarter ended
March 31, 1994.
<PAGE>
<PAGE>16
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: May 12, 1994 /s/Milan Panic
-------------------------
Milan Panic
Chairman and Chief Executive Officer
Date: May 12, 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 months ended March 31,
1994 and 1993 is as follows (000's omitted except per share amounts):
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
--------------------
<S> <C> <C>
Primary
-------
Net income (loss) $(4,545) $ 1,063
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 (11) (7)
-------- --------
$(4,556) $ 1,056
======== ========
Average common shares
outstanding 20,523 17,839
Dilutive common equivalent
issuable upon the exercise
of options and warrants
currently outstanding to
purchase common shares of
ICN Pharmaceuticals, Inc. - 933
-------- --------
20,523 18,772
======== ========
Net loss per share $ (.22) $ .06
======== ========
</TABLE>
(continued)
<PAGE>
<PAGE>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (continued)
The computation of net income per share for the three months ended March 31,
1994 and 1993 is as follows (000's omitted except per share amounts):
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
--------------------
<S> <C> <C>
Fully Diluted
Net income (loss) $(4,545) $ 1,063
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 (11) (7)
Interest expense on
convertible debt 544 827
-------- --------
$(4,012) $ 1,883
======== ========
Average common shares 20,523 17,839
outstanding
Dilutive common equivalent
shares issuable upon the
exercise of options and
warrants currently
outstanding to purchase
common shares of ICN
Pharmaceuticals, Inc. 371 1,010
Conversion of debentures 2,858 3,441
-------- --------
23,752 22,290
======== ========
Net income (loss) per share $ (.17) $ .08
======== ========
</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 as of March 31, 1994, and the related
consolidated condensed statements of operations for the three-month period
ended March 31, 1994 and 1993, and the consolidated condensed statements of
cash flows for the three-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 30, 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
Los Angeles, California
May 11, 1994
<PAGE>
