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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11397
ICN PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0628076
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3300 HYLAND AVENUE, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 545-0100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
- ------------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.__
The aggregate market value of the Registrant's voting stock
held by non-affiliates on March 13, 1996, was approximately
$711,379,354.
The number of outstanding shares of common stock as of March
13, 1996 was 31,098,551.
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION
PART I
PAGE NO.
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Auditors on
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation and Related Matters
12. Security Ownership of Certain Beneficial
Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(ii)
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PART I
ITEM 1. BUSINESS
INTRODUCTION
On November 1, 1994 the stockholders of ICN Pharmaceuticals, Inc.
("ICN"), SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek"),
and ICN Biomedicals, Inc. ("Biomedicals") (collectively, the
"Predecessor Companies") approved the Merger of the Predecessor
Companies ("the Merger"). On November 10, 1994, SPI, ICN and Viratek
merged into ICN Merger Corp., and Biomedicals merged into ICN
Subsidiary Corp., a wholly-owned subsidiary of ICN Merger Corp. In
conjunction with the Merger, ICN Merger Corp. was renamed ICN
Pharmaceuticals, Inc. ("New ICN" or "the Company"). For accounting
purposes, SPI is the acquiring company and as a result, the newly
merged company reports the historical financial data of SPI in its
financial results. Subsequent to the Merger, the results of the newly
merged company include the combined operations of all Predecessor
Companies.
New ICN is a multinational research based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, nutritional,
research and diagnostic products. The Company pursues a strategy of
international expansion which includes (i) the research and
development of proprietary products with the potential to be
significant contributors to the Company's global operations; (ii) the
penetration of major pharmaceutical markets by means of targeted
acquisitions; and (iii) the expansion in these major markets through
the development or acquisition of pharmaceutical products that meet
the particular needs of each market.
The Company distributes and sells a broad range of prescription and
over the counter ("OTC") pharmaceutical products in over 60 countries
worldwide, primarily in North America, Latin America, Western Europe
and Eastern Europe. These pharmaceutical products treat viral and
bacterial infections, diseases of the skin, myasthenia gravis,
cardiovascular disease, diabetes and psychiatric disorders. The
Company's leading product is the broad spectrum antiviral agent
ribavirin, which is marketed in the United States, Canada and most of
Europe under the Virazole(R) trademark. Virazole(R) is currently
approved for commercial sale in over 40 countries for one or more of a
variety of viral infections, including respiratory syncytial virus
("RSV"), herpes simplex, influenza, chicken pox, hepatitis and HIV.
In the United States, Virazole(R) is approved only for use in
hospitalized infants and young children with severe lower respiratory
infections due to RSV.
The Company believes it has substantial opportunities to realize
growth from its internally developed compounds. These compounds are
the result of significant investments in research and development
activities related to nucleic acids conducted over three decades.
During 1994, ICN submitted a New Drug Application ("NDA") to the
Federal Drug Administration ("FDA") for Virazole(R) capsules as
monotherapy in the treatment of chronic hepatitis C in the United
States. In early 1995, the FDA confirmed that substantial additional
drug development would be required for NDA approval. Similar
conclusions were reached in other major world markets. However, the
Company continues to believe that Virazole(R) has potential in the
treatment of hepatitis C, and is taking all steps necessary to
capitalize on its full potential.
On July 28, 1995, the Company entered into an Exclusive License and
Supply Agreement (the "Agreement") and a Stock Purchase Agreement with
a subsidiary of Schering-Plough Corporation ("Schering") to license
the Company's proprietary anti-viral drug ribavirin as a treatment for
chronic hepatitis C in combination with Schering's alpha interferon.
The Agreement provided the Company an initial non-refundable payment
by Schering of $23,000,000, and future royalty payments to the
Company for marketing of the drug, including certain minimum royalty
rates. Schering will have exclusive marketing rights for ribavirin
for hepatitis C worldwide, except that the Company will retain the
right to co-market in the countries of the European Economic Community.
In addition, Schering will purchase up to $42,000,000 in common stock of
the Company upon the achievement of certain regulatory milestones. Under
the Agreement, Schering will be responsible for all clinical developments
worldwide.
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The Company believes it is positioned to expand its presence in the
pharmaceutical markets in Eastern Europe. In 1991, a 75% interest was
acquired in Galenika Pharmaceuticals, a large drug manufacturer and
distributor in Yugoslavia. Galenika Pharmaceuticals was subsequently
renamed ICN Galenika. This acquisition added new products and
significantly expanded the sales volume of the Company. With the
investment in Galenika Pharmaceuticals, the Company became one of the
first Western pharmaceutical companies to establish a direct
investment in Eastern Europe. ICN Galenika continues to be a
significant part of the Company's operations although its sales and
profitability have, at times, been substantially diminished owing
principally to the imposition of sanctions on Yugoslavia by the United
Nations ("UN"). However, in December 1995, the United Nations
Security Council ("UNSC") adopted a resolution that suspended economic
sanctions imposed on the Federal Republic of Yugoslavia since May of
1992. The suspension of economic sanctions will enable ICN Galenika
to resume exporting certain of its product lines to Russia, other
Eastern European markets, Africa, the Middle East and the Far East.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - ICN Galenika". Additionally, in pursuing its
Eastern Europe expansion strategy, the Company acquired a 75% interest
in Oktyabr, one of the largest pharmaceutical companies in the Russian
Republic.
In addition to its pharmaceutical operations, the Company also
develops, manufactures and sells a broad range of research chemical
products, biomedical instrumentation, diagnostic reagents and
radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and
governmental institutions through catalog and direct mail marketing
programs.
BUSINESS SEGMENTS
The Company operates in two business segments: pharmaceutical and
biomedical. For financial information about business segments, see
Note 10 of Notes to Consolidated Financial Statements.
PRODUCTS
ETHICAL DRUGS
ANTI-INFECTIVES: The Company sells approximately 70 antibacterial
products, and sells its antiviral drug, ribavirin, under the tradename
Virazole(R) in North America and most European countries. Ribavirin
is sold as Vilona(R) and Virazid(R) in Latin America and Virazid(R) in
Spain. References to the sale of Virazole(R) in this Form 10-K
includes sales made under the trademarks Vilona(R) and Virazid(R). At
the present time, the Company believes that there are fewer than ten
antiviral agents marketed in the world. Antivirals are rare and more
difficult to take through the regulatory approval process than
antibacterials because of the nature of bacteria compared to viruses.
Whereas bacteria live outside of cells, viruses live inside cells.
Thus, while antibacterials can focus simply on killing bacteria,
antivirals, ideally, must eliminate viruses without killing the host
cell or adversely affecting the host organism.
ANTIVIRAL: Virazole(R) accounted for approximately 10%, 13% and 7%
of the Company's net sales for the years ended December 31, 1995,
1994 and 1993, respectively. Virazole(R) 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 only been approved for
hospital use in aerosolized form to treat infants and young children who
have severe lower respiratory infections caused by RSV. In the United
States, RSV infection is sufficiently severe to require hospitalization
of an estimated 100,000 children annually. Similar approvals for
Virazole(R) for use in the treatment of RSV have been granted by
governmental authorities in 22 other countries.
In treating RSV, Virazole(R) is administered by a small particle
aerosolized generator ("SPAG"), a system that permits direct delivery
of Virazole(R) to the lungs, the site of infection.
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A variety of small, independent clinical studies comparing the
results of combining Virazole(R) capsules and interferon alpha 2b
therapies versus interferon alone in the treatment of hepatitis C,
demonstrated enhanced efficacy of the combination. Based upon these
clinical findings, the Company has entered into an agreement with
Schering whereby Schering will assume responsibility for worldwide
clinical development and registration of oral ribavirin in combination
with their product, INTRON-A(R), (interferon alpha 2b) for the
treatment of hepatitis C. If these larger Phase III clinical trials
confirm the findings of preliminary studies, the combination regime
could provide the medical community with a valuable new option and
potentially, become the standard therapy for the treatment of
hepatitis C.
ANTIBACTERIALS: Antibacterials accounted for approximately 21%, 22%
and 24% of the Company's net sales for the years ended December 31,
1995, 1994 and 1993, respectively. Most of the antibacterials sold
by the Company (excluding ICN Galenika) are proprietary, whereas many
of the antibacterial products manufactured and sold by ICN Galenika
are licensed from other manufacturers including Roche Holding AG,
Bristol-Meyers Squibb and Eli Lilly, principally under exclusive
licenses for specific geographical areas, primarily Yugoslavia.
OTHER ETHICAL DRUGS
Other ethicals accounted for approximately 40%, 41% and 40% of net
sales for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company manufactures and/or markets a wide variety
of other ethical pharmaceuticals, including analgesics,
anticholinesterases, antirheumatics, cardiovasculars, dermatologicals,
endocrine agents, gastrointestinals, hormonals and psychotropics. The
Company manufactures and markets approximately 60 other dermatological
products, primarily in North America and Eastern Europe. The Company
markets three anticholinesterase product lines in North America under
the trade names Mestinon(R), Prostigmin(R) and Tensilon(R). These
products, manufactured by and licensed from Roche Holding AG, are used
to treat myasthenia gravis, a progressive neuromuscular disorder, and
in reversing the effects of certain muscle relaxants. Bensedin(R) is
a tranquilizer manufactured by ICN Galenika and is used in the
treatment of psychological and emotional disorders. The Company also
sells insulin for the control of diabetes. Albumina(R) is sold in
Spain and Mexico for use in emergency treatment of shock due to burns,
trauma, operations and infections, and conditions where the
restoration of blood volume is urgent.
OTHER OVER THE COUNTER PRODUCTS
Other OTC products accounted for approximately 17%, 18% and 21% of
the Company's net sales for the years ended December 31, 1995, 1994
and 1993, respectively. Other OTC products encompass a broad range of
ancillary products sold through the Company's existing distribution
channels.
RESEARCH CHEMICALS, DIAGNOSTIC AND OTHER BIOMEDICAL PRODUCTS
Research chemicals, diagnostic and other biomedical products
accounted for approximately 12% of the Company's net sales for
the year ended December 31, 1995.
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The Company services life science researchers throughout the world
through a catalog sales operation, direct sales and distributors. The
Company's general catalog lists approximately 55,000 products which
are used by medical, diagnostic and scientific researchers involved in
the fields of molecular biology, cell biology, immunology,
biochemistry, microbiology and other areas. A majority of these
products are purchased from third party manufacturers and distributed
globally by the Company. Over 750 new products were added to the
catalog in 1995.
The ICN diagnostic product line includes 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.
ACQUISITIONS
The Company has pursued a strategy of targeted expansion into regional
markets which are considered to have significant potential for
pharmaceutical and related products. This strategy has been implemented
in large part through the acquisition of compatible businesses and product
lines and the formation of strategic alliances and joint ventures in targeted
markets. The Company intends to continue this strategy and to expand its
manufacturing potential for Virazole(R).
In May 1995, the Company acquired from Becton-Dickinson ("B-D"), the
radioimmunoassay product line along with the inventory and property
located in Orangeburg, New York. These products, used for anemia and
thyroid diagnostic testing by B-D, primarily were distributed in North
America and Western Europe. The Company believes that significant
opportunity exists to extend the distribution of these highly regarded
products into Latin America, Asia, Eastern Europe and the Middle East,
where the Company has already established distribution networks for
diagnostics.
In December 1995, the Company purchased 40% of SeaLite Sciences,
Inc. ("SeaLite") and has the option to purchase the remaining 60%.
SeaLite has a patented diagnostics technology which can be used to
produce extremely sensitive test kits which the Company believes are
superior to existing tests. SeaLite has licensed the Company to
produce these tests, the first of which is a thyroid test, so
sensitive that it can be used as a replacement for a battery of
existing tests. Four products are already cleared by the FDA and will
be marketed beginning in 1996. The Company plans to increase its
ownership in SeaLite to 100% at a future date.
GALENIKA ACQUISITION: The Company believes it is positioned to
expand its presence in the pharmaceutical markets in Eastern Europe.
In 1991, a 75% interest was acquired in Galenika Pharmaceuticals, a
large drug manufacturer and distributor in Yugoslavia. Galenika
Pharmaceuticals was subsequently renamed ICN Galenika. This
acquisition added new products and significantly expanded the sales
volume of the Company. With the investment in Galenika
Pharmaceuticals, the Company became one of the first Western
pharmaceutical companies to establish a direct investment in Eastern
Europe.
Until the imposition of UN sanctions in May 1992, ICN Galenika made
a significant contribution to sales and net income. Approximately 20%
of such sales were exports from Yugoslavia, primarily to Eastern Europe,
the Middle East and certain Balkan nations. The imposition of sanctions,
including the prohibition of exports, has had a negative effect on the
operations and profitability of ICN Galenika. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- - ICN Galenika".
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OKTYABR ACQUISITION: During 1994 and 1993, the Company acquired a
41% interest in Oktyabr, a Russian pharmaceutical company. On July
21, 1995, the Company purchased an additional 34% interest in Oktyabr,
raising the Company's ownership from 41% to 75%.
FOREIGN OPERATIONS
The Company primarily operates in North America, Latin America
(principally Mexico), Western Europe and Eastern Europe. For
financial information about domestic and foreign operations and export
sales, see Note 10 of Notes to Consolidated Financial Statements.
Foreign operations are subject to certain risks inherent in
conducting business abroad, including possible nationalization or
expropriation, price and exchange controls, limitations on foreign
participation in local enterprises, health-care regulation and other
restrictive governmental actions. Changes in the relative values of
currencies take place from time to time and may materially affect the
Company's results of operations. Their effects on the Company's
future operations are not predictable. The current political and
economic circumstances in Yugoslavia create certain risks particular
to that country. Between May 1992 and December 1995, Yugoslavia had
been operating under sanctions imposed by the UN which had severely
limited the ability to import raw materials for manufacturing and had
prohibited all exports. While the sanctions have been suspended,
certain risks such as hyperinflation, currency devaluations, wage and
price controls and potential government action could have a material
adverse effect on the Company's results of operation. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Inflation and Changing Prices".
MARKETING AND CUSTOMERS
The Company has a worldwide marketing and sales staff of
approximately 1,780 persons for its pharmaceutical products, including
sales representatives in North America, Latin America, Western Europe
and Eastern Europe, who call on physicians, pharmacists, distributors
and other health care professionals. As part of its marketing program
for pharmaceuticals, the Company also uses direct mailings, advertises
in trade and medical periodicals, exhibits products at medical
conventions, sponsors medical education symposia, and sells through
distributors in countries where it does not have its own marketing
staff.
In the United States, the Company currently promotes its
pharmaceutical products through its own sales force to physicians.
These products are distributed to drug stores and hospitals through
wholesalers. In Latin America, including Mexico, the Company promotes
to physicians and distributes products either directly or indirectly
to hospitals and pharmacies. The Company's Spanish subsidiary promotes and
sells pharmaceutical products through its own sales force to
physicians, hospitals, retail outlets, pharmacies and wholesalers. In
other Western European markets, sales forces are in the process of
being established and distribution methods are in transition as ICN
affiliates are established. In Canada, the Company has its own sales
force and promotes and sells directly to physicians, hospitals,
wholesalers, and large drug store chains.
ICN Galenika sells a broad range of pharmaceutical and other
products in Yugoslavia through approximately 30 wholesalers, 6 sales
offices and 85 sales representatives. In December 1995, the UNSC
adopted a resolution that suspended economic sanctions imposed on the
Federal Republic of Yugoslavia. The suspension of economic sanctions
will enable ICN Galenika to resume exporting certain of its product
lines to Russia, other Eastern European markets, Africa, the Middle
East and the Far East.
During 1995, approximately 81% of ICN Galenika's sales were to
government sponsored entities of the Federal Republic of Yugoslavia.
Future sales by ICN Galenika could be dependent on the ability of the
Yugoslavian government to continue to subsidize purchases of
pharmaceutical products.
The research chemical and diagnostic product lines are sold
worldwide primarily through the Company's mail order catalogs, with
additional sales being generated through affiliates and a network of
distributors.
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RESEARCH AND DEVELOPMENT
The Company's research and development activities utilize the
expertise accumulated by the Company and its predecessors in over 30
years of nucleic acids research. In addition, the Company develops
innovative products targeted to address the specific needs of the
Company's local markets.
The Company's predecessors include one of the first firms to engage
in broad based nucleic acid research, enabling the Company to compile
a library of over 5,000 nucleotide-based compounds. The Company's
long-term research efforts are focused on development of therapeutics
and diagnostics for diseases related to DNA and RNA, such as viral
infections, cancer and skin diseases.
The Company currently has 330 employees devoted to Research and
Development activities.
LONG-TERM RESEARCH AND DEVELOPMENT
The Company's long-term research and development activities are
targeted to the development of therapeutic and diagnostic agents for
chronic viral diseases, cancer, diseases of the skin and hormonal
therapy, and, as such, compliment the Company's current product lines
and development efforts.
One important area of research is "antisense" technology. This
approach seeks to block genetic material causing diseases such as
cancer, viral infections and psoriasis by constructing longer
sequences of nucleotides (oligonucleotides) that selectively bond to
the disease-causing nucleic acid sequences. In this research, the
Company makes use of its extensive library of nucleotide compounds.
The Company is using similar technologies to develop diagnostic
techniques used to screen for genetic diseases, viral infections and
various forms of cancer.
SHORT AND MEDIUM-TERM RESEARCH AND DEVELOPMENT
The Company's medium-term research and development efforts involve
the preclinical and clinical testing of certain nucleotide compounds
with broader market applications that have shown the most promise of
successful commercialization. These compounds include:
VIRAZOLE(R) (RIBAVIRIN): Virazole(R) is the only significant
compound currently undergoing worldwide clinical development for the
treatment of hepatitis C.
A number of small, independent clinical studies in hepatitis C
comparing the results of combining Virazole(R) capsules and interferon
alpha 2b, versus interferon alone, demonstrated enhanced efficacy of
the combination. Based upon these clinical findings, the Company has
entered into an agreement with Schering whereby Schering will assume
responsibility for worldwide clinical development and registration of
oral ribavirin in combination with their product, INTRON-A(R),
(interferon alpha 2b) for the treatment of hepatitis C and receive
certain geographically exclusive marketing rights. If these large
Phase III clinical trials confirm the findings of preliminary studies,
the combination regime could provide the medical community with a
valuable new option and potentially, become the standard therapy for
the treatment of hepatitis C.
Clinical studies have been conducted with Virazole(R) in various
formulations for treatment of several other viral diseases. Among
diseases for which at least one governmental health regulatory agency
(in countries other than the United States) has approved
commercialization of Virazole(R) are herpes zoster, genital herpes,
hemorrhagic fever with renal syndrome, lassa fever, measles, chicken
pox, influenza and HIV. The Company has no immediate plans to
initiate new clinical studies for any of these indications. The
Company intends, where appropriate, to utilize the existing clinical
data as a basis for future submissions to additional governmental
health authorities to expand the use of Virazole(R).
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TIAZOLE(TM) (TIAZOFURIN): The Company has maintained an active
research program centered on tiazofurin, which the Company is
developing under the tradename Tiazole(TM) (a nucleotide chemically
similar to Virazole(R)). Tiazole(TM) has been demonstrated to be an
inhibitor of IMP-dehydrogenase, an enzyme whose presence in elevated
concentrations is associated with a number of cancers. The Company is
in the process of conducting Phase II/III clinical studies with
Tiazole(TM) as a treatment for blast crisis in chronic myelogenous
leukemia. The Company is also conducting research into the
effectiveness of Tiazole(TM) as an anti-cancer agent when used in
conjunction with other basic anti-cancer compounds, such as taxol, in
end-stage ovarian carcinoma.
ADENAZOLE(TM) (8-CL-C-AMP): This nucleotide, currently in
preclinical research, has been shown to control cell proliferation and
differentiation in certain cancers. Human trials have been conducted
by independent investigators in Scotland and Italy. The Company is
planning to begin preclinical studies for use of the drug in leukemia
treatment and is exploring the drug's potential as a topical treatment
for psoriasis, based on its ability to inhibit rapid cell
proliferation.
ONCOZOLE(TM) (3-DEAZAGUANINE): Research on animals has shown this
compound to be active against a range of solid tumors, including
breast and colon tumors. The Company is engaged in preclinical
research of Oncozole(TM) as a treatment for solid tumors.
SELENAZOLE(TM) (SELENAZOFURIN): Selenazofurin, an anti-tumor
nucleotide licensed from Brigham Young University, is related to
tiazofurin. Preclinical studies suggest that selenazofurin combines
synergistically with other well known agents against both leukemia and
solid tumors.
GROWTH HORMONE RELEASING FACTOR (GRF): In November 1994, the
Company entered into a license agreement for the rights to develop and
commercialize a group of compounds related to and including human GRF
for the United States and other major pharmaceutical markets. Phase
III clinical trials were initiated in 1995 to evaluate the efficacy
and safety of GRF in treating growth retardation.
There can be no assurance with regard to the results of the
Company's research and development efforts or the commercial success
of any of its products under development.
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. 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 is aware of several ongoing research and development
programs which are attempting to develop new prophylactic and
therapeutic products for treatment of RSV. Although the Company will
follow publicly disclosed developments in this field, on the basis of
currently available data, it is unable to evaluate whether the
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technology being developed in these programs poses a threat to its current
market position in the treatment of RSV or its revenue streams.
In the marketing segment relating to the treatment of chronic
hepatitis C, the Company expects if Virazole(R) is approved either in
combination or as a monotherapy, that it will experience competition
from manufacturers who have or may introduce competing products.
Competitors of the Company's biomedical research product group
include companies such as Sigma-Aldrich Corporation, Amersham
International and New England Nuclear.
ORDER BACKLOG
As is customary in the pharmaceutical industry, all the Company's
products are sold on an "open order" basis. Consequently, order
backlog is not considered a significant factor.
RAW MATERIALS
The Company manufactures pharmaceuticals at eight facilities. Those
facilities are located in Bryan, Ohio; Mexico City, Mexico (at two
locations); Montreal, Canada; Zoetermeer, The Netherlands; Barcelona,
Spain; Belgrade, Yugoslavia and St. Petersburg, Russia. The Company
believes it has sufficient manufacturing capacity to meet its needs
for the foreseeable future. All of the manufacturing facilities,
which require good manufacturing practices ("GMP") approval from the
FDA or foreign agencies, have obtained such approval.
In Bryan, Ohio, the Company manufactures topical and oral dosages of
several pharmaceutical products for the United States market. All of
the Company's dermatology products are formulated, packaged and
distributed from the Bryan, Ohio facility. The Bryan, Ohio facility
also packages and distributes Virazole(R) on a worldwide basis.
At the two facilities in Mexico City, the Company manufactures a
variety of pharmaceuticals in topical, oral and injectable dosage
forms to serve the Latin America market. In Montreal, Canada, the
Company manufactures Virazole(R) and SPAG units for the administration
of Virazole(R) in the treatment of RSV, and other related medical
devices. At that facility, the Company also manufactures a variety of
topical and oral pharmaceuticals including a line of generics to serve
the Canadian and United States markets. The Canadian facility also
manufactures a full line of products using the controlled drug
substance morphine for the management of pain in cancer and post-
surgical states. In Spain, the Company manufactures and markets
pharmaceuticals principally for distribution in Spain. In
Yugoslavia, ICN Galenika manufactures over 450 pharmaceutical, veterinary,
dental and other products in topical, oral and injectable forms. In Russia,
the Company manufactures primarily pharmaceutical products in oral and
injectable forms.
The Company subcontracts all of the manufacture of bulk ribavirin to
third party suppliers. Most of the finishing and packaging of
Virazole(R) is done by the Company and the balance by third party
subcontractors. The capacities of these manufacturers are sufficient
to meet the current demand for Virazole(R).
Manufacturing of the Company's biomedical products are chiefly
carried out in three domestic facilities and one foreign facility:
Irvine, California (radiochemicals), Orangeburg, New York (diagnostics
and immunobiologicals), Huntsville, Alabama (diagnostic, microplate
and liquid handling equipment) and Eschwege, Germany (chromatography
products).
In general, raw materials used by the Company in the manufacture of
all of its products are obtainable from multiple sources in the
quantities desired.
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LICENSES, PATENTS AND TRADEMARKS (Proprietary Rights)
The Company may be dependent on the protection afforded by its
patents relating to Virazole(R) and no assurance can be given as to
the breadth or degree of protection which these patents will afford
the Company. The Company has patent rights in the United States
expiring in 1999 relating to the use of Virazole(R) to treat specified
human viral diseases. If future development of Virazole(R) in
combination with interferon is successful and approval granted in the
United States, an additional award of exclusivity will be granted of
up to three years from date of approval (Waxman-Hatch Act). The
Company has patents in certain foreign countries covering use of
Virazole(R) in the treatment of certain diseases, which expire at
various times between 1996 and 2006. The Company has no, or limited,
patent rights with respect to Virazole(R) and/or its use in certain
foreign countries where Virazole(R) is currently, or in the future may
be, approved for commercial sale, including France, Germany and Great
Britain. However, the Company will be granted a favorable review
classification (Concertation Procedure) for Virazole(R) as a treatment
for chronic hepatitis C in all European Union countries (including
France, Germany and Great Britain). As a result, approval of the
application of Virazole(R) for treatment of chronic hepatitis C (if
such approval is granted) would, in the European Union, provide the
Company up to ten years of marketing exclusivity, from the date of
such approval of the application, against competitors' application to
manufacture, market or sell generic substitutes of Virazole(R) for
treatment of chronic hepatitis C. There can be no assurance that the
loss of the Company's patent rights with respect to Virazole(R) upon
expiration of the Company's patent rights in the United States, Europe
and elsewhere will not result in competition from other drug
manufacturers or will not otherwise have a significant adverse effect
upon the business and operations of the Company. Marketing approvals
in certain foreign countries provide an additional level of protection
for products approved for sale in such countries. As a general
policy, the Company expects to seek patents, where available, on
inventions concerning novel drugs, techniques, processes or other
products which it may develop or acquire in the future. However,
there can be no assurance that any patents applied for will be
granted, or that, if granted, they will have commercial value or as to
the breadth or the degree of protection which these patents, if
issued, will afford the Company. Patents for pharmaceutical compounds
are not available in certain countries in which the Company markets
its products.
ICN Galenika manufactures and sells three of its top-selling
antibacterial products, Pentrexyl(R), Longaceph(R) and Palitrex(R)
under licenses from Bristol-Myers Squibb, Roche Holding AG and Eli
Lilly, respectively. See "Products."
Many of the names of the Company's products are registered
trademarks in the United States, Yugoslavia, Mexico, Canada, Spain,
The Netherlands and other countries. The Company anticipates that the
names of future products will be registered as trademarks in the major
markets in which it will operate. Other organizations may in the
future apply for and be issued patents or own proprietary rights
covering technology which may become useful to the Company's business.
The extent to which the Company, at some future date, may need to
obtain licenses from others is not known.
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by
the FDA, the Nuclear Regulatory Commission, other Federal and state
agencies and comparable foreign governmental agencies.
FDA approval must be obtained in the United States and approval must
be obtained from comparable agencies in other countries prior to
marketing or manufacturing new pharmaceutical products for use by
humans. Obtaining FDA approval for new products and manufacturing
processes can take a number of years and 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 a
particular
<PAGE>
<PAGE> 11
disease condition that the drug is designed to treat; and Phase III:
greatly expanded clinical trials to determine the effectiveness of the
drug at a particular dosage level in the affected patient population.
The data from these tests is combined with data regarding chemistry,
manufacturing, and animal toxicology and is then submitted in the form
of an NDA to the FDA. The preparation of an NDA requires the
expenditure of substantial funds and the commitment of substantial
resources. The review by the FDA could take up to several years. If
the FDA determines that the drug is safe and effective, the NDA is
approved. No assurance can be given that authorization for the
commercial sale by the Company of any new drugs or compounds for any
application will be secured in the United States or any other country,
or that, if such authorization is secured, those drugs or compounds
will be commercially successful. The FDA in the United States and
other regulatory agencies in other countries also periodically inspect
manufacturing facilities.
The Company is subject to price control restrictions on its
pharmaceutical products in the majority of countries in which it
operates. To date, the Company has been affected by pricing
adjustments in Spain and by the lag in allowed price increases in
Yugoslavia and Mexico, which has created lower sales in U.S. dollars
and reductions in gross profit. Future sales and gross profit could
be materially affected if the Company is unable to obtain price
increases commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
LITIGATION: The Predecessor Companies were parties to a number of
lawsuits. As a result of the Merger, the Company has assumed all of
the Predecessor Companies' liabilities with respect to such lawsuits.
See "Item 3. Legal Proceedings."
PRODUCT LIABILITY: The Company could be exposed to possible claims
for personal injury resulting from allegedly defective products. The
Company generally self-insures against potential product liability
exposure with respect to its marketed products, including Virazole(R).
While to date no material claim for personal injury resulting from
allegedly defective products, including Virazole(R), has been
successfully maintained against any of the Predecessor Companies, a
substantial claim, if successful, could have a material adverse effect
on the Company.
ENVIRONMENTAL MATTERS: The Company has not experienced any material
impact on its capital expenditures, earnings or competitive position
as a result of compliance with any laws or regulations regarding the
protection of the environment. The Company believes it is in
compliance in all material respects with applicable laws relating to
the protection of the environment.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 7,880
persons, an increase from 5,840 in 1994. The increase is due to
acquiring the controlling interest of ICN Oktyabr in St. Petersburg,
Russia and the decision to increase sales and marketing resources. At
year-end, the Company employed 1,780 persons in sales and marketing,
an increase from 1,509 in 1994. Additionally, at year-end, the
Company employed 330 in research and development, 4,580 in production,
and 1,190 in general and administrative matters. All of the employees
employed by ICN Galenika, 245 of the employees of the Company's
Mexican subsidiaries and 250 employees of the Company's Spanish
subsidiary are covered by collective bargaining agreements, or similar
such agreements. National labor laws in some foreign countries in
which the Company has substantial operations, including Yugoslavia,
Russia and Spain, govern the amount of wages and benefits paid to
employees and establish severance and related provisions. The Company
currently considers its relations with its employees to be
satisfactory and has not experienced any work stoppage or serious
labor problems.
<PAGE>
<PAGE> 12
ITEM 2. PROPERTIES
The following are the principal facilities of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
Owned or Square
Location Purpose Leased Footage
- -------- ------- ------- -------
<S> <C> <C> <C>
Costa Mesa, California Corporate headquarters and
manufacturing facility Owned 178,000
Covina, California Offices and warehouse Owned 154,000
Aurora, Ohio Manufacturing and
repackaging facility Leased 67,000
Huntsville, Alabama Manufacturing Facility Owned 70,000
Irvine, California Manufacturing Facility Leased 27,000
Eschwege, Germany Manufacturing Facility Leased 21,000
Orangeburg, New York Manufacturing Facility Owned 100,000
Mexico City, Mexico Offices and manufacturing facility Owned 290,000
Montreal, Canada Offices and manufacturing facility Owned 97,000
Barcelona, Spain Offices and manufacturing facility Owned 100,000
Bryan, Ohio Warehouse and manufacturing facility Owned 37,000
Zoetermeer,
The Netherlands Offices and manufacturing facility Owned 25,000
Belgrade, Yugoslavia Offices and manufacturing facility Owned 781,000
St. Petersburg, Russia Offices and manufacturing facility Owned 217,000
High Wycombe,
United Kingdom Administrative offices Leased 32,000
Opera, Italy Sales offices Owned 77,000
Thames, United Kingdom Offices and warehouse Leased 17,000
Sydney, Australia Sales Office Leased 17,000
Bonn, Germany Sales Office Leased 26,000
Brussels, Belgium Sales Office Leased 6,000
Paris, France Sales Office Leased 3,000
</TABLE>
During the third quarter of 1994, ICN Galenika commenced a
construction and modernization program at its pharmaceutical complex
outside Belgrade, Yugoslavia. This program includes the construction
of two new pharmaceutical manufacturing plants (one to produce
cephalosporins, which are broad spectrum penicillin resistant
antibiotics, and the other to produce steroids and hormones) and the
modernization of the existing facility. It is estimated that this
program will have an aggregate cost of $136,000,000. ICN Galenika
intends to fund their construction and modernization through existing
funds and funds from local operations and locally funded debt.
In the opinion of the Company's management, all facilities occupied
by the Company are adequate for present requirements, and the
Company's current equipment is considered to be in good condition and
suitable for the operations involved.
<PAGE>
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
See Note 7 of Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
<PAGE> 15
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
New ICN began trading its common stock on the New York Stock
Exchange beginning November 14, 1994, the first trading day after the
Merger was completed and New ICN common stock was approved for listing
on the New York Stock Exchange (Symbol: ICN). Prior to the Merger,
SPI common stock was first listed on NASDAQ (National Association of
Securities Dealers Automated Quotation System) on October 7, 1983 and
was subsequently listed on the American Stock Exchange on July 22,
1988.
The following table sets forth, from November 14, 1994, the high and
low sales prices of the Company's common stock on the New York Stock
Exchange. Prior to November 14, 1994, the table sets forth the high
and low sales prices for SPI on the American Stock Exchange. During
1995, the Company issued quarterly stock distributions which totaled
5.6%. During 1994, SPI and the Company issued quarterly stock
dividends and distributions which totaled 4.8%. The market prices set
forth below have been retroactively adjusted for these dividends and
distributions.
<TABLE>
<CAPTION>
<S> <C> <C>
1994 HIGH LOW
----- ------ -----
First Quarter 18-1/8 13
Second Quarter 16-1/2 13-1/4
Third Quarter 24-7/8 14-3/8
Fourth Quarter 23 14-3/8
1995
-----
First Quarter 22-7/8 12-1/8
Second Quarter 17-3/8 13-7/8
Third Quarter 24-1/8 15
Fourth Quarter 22-1/8 17-1/4
</TABLE>
As of March 13, 1996, there were 7,947 holders of record of the
Company's common stock.
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 profitability of the Company, the need to retain
earnings for use in the development of the Company's business and
other factors.
Since 1993, and continuing throughout 1994 and 1995, the Company
issued the majority of its annual dividend in the form of stock
dividends. Beginning with the first quarter dividend of 1996, the
Board of Directors elected to discontinue the issuances of stock
dividends while increasing its quarterly cash dividend to 7.7 cents
per quarter from 7 cents per quarter in 1995, an increase of 10%.
<PAGE>
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
On November 1, 1994, the stockholders of ICN, SPI, Viratek and
Biomedicals approved the Merger of the Predecessor Companies ("the
Merger"). On November 10, 1994 (effective November 1, 1994), SPI, ICN
and Viratek merged into ICN Merger Corp., and Biomedicals merged into
ICN Subsidiary Corp., a wholly-owned subsidiary of ICN Merger Corp. In
conjunction with the Merger, ICN Merger Corp. was renamed ICN
Pharmaceuticals, Inc. ("New ICN" or "the Company"). The Merger was
accounted for using the purchase method of accounting. Additionally,
for accounting purposes, SPI was treated as the acquiring company and
as a result, the Company has reported the historic financial data of
SPI in its financial results and included the results of ICN, Viratek
and Biomedicals from the effective date of the Merger, November 1,
1994.
The following table sets forth certain consolidated financial data
for the five years ended December 31, 1995, 1994, 1993, 1992 and
1991. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included elsewhere
in this Form 10-K (amounts in thousands, except per share
information).
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------
1995 1994 1993 1992 1991<F1>
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
- ---------------
Net sales<F2> $507,905 $366,851 $403,957 $476,118 $364,358
Cost of sales 206,049 182,946 211,923 208,745 173,554
--------------------------------------------------
Gross profit 301,856 183,905 192,034 267,373 190,804
Selling, general and
administrative
expenses 191,459 112,919 134,895 172,395 116,699
Royalties to
affiliates, net 0 7,468 6,121 5,511 4,377
Research and development 17,231 7,690 11,516 7,836 4,901
Purchased research
and development<F3> 0 221,000 0 0 0
--------------------------------------------------
Income (loss) from operations 93,166 (165,172) 39,502 81,631 64,827
Interest Income (6,488) (4,728) (8,033) (9,679) (3,678)
Interest Expense 22,889 9,317 23,750 13,065 8,965
Translation and exchange (gains)
losses, net (9,484) 191 (3,282) 25,039 6,697
--------------------------------------------------
Income (loss) before
provision for income
taxes and minority
interest 86,249 (169,952) 27,067 53,206 52,843
Provision for
income taxes 2,997 10,360 5,368 9,095 10,852
Minority interest 15,915 3,269 189 9,608 11,865
--------------------------------------------------
Net income (loss) $ 67,337 $(183,581) $ 21,510 $ 34,503 $ 30,126
==================================================
Per Share Information:<F4>
- ---------------------
Net income (loss) $ 2.20 $(7.93) $ .99 $ 1.61 $ 1.44
==================================================
Cash dividends paid $.28 $ .26 $ .24 $ .74 $ .85
==================================================
Historical dividends
declared<F5> $ 1.26 $ 1.19 $1.12 $ 1.06 $ 1.00
==================================================
Weighted average common
shares outstanding<F4> 30,623 23,138 21,746 21,413 20,907
==================================================
Balance Sheet Data:
- ------------------
Working capital $190,802 $137,802 $127,259 $120,942 $123,367
Total assets 518,298 441,473 302,017 333,218 336,905
Long-term debt 154,193 195,181 16,980 21,016 16,519
Stockholders' equity 162,172 88,908 155,879 135,427 88,134
See accompanying notes to Selected Financial Data.
<PAGE>
<PAGE> 17
<FN>
NOTES TO SELECTED FINANCIAL DATA:
<F1> Financial data for 1991 includes the results of ICN Galenika from
the effective date of acquisition, May 1, 1991.
<F2> ICN Galenika's sales have been adversely affected since the
imposition in May 1992 of United Nations sanctions on Yugoslavia,
suspended in December 1995.
<F3> The Merger resulted in $221,000,000 or $9.55 per share being
ascribed to purchased research and development for which no
alternative use existed and was written-off immediately. This
write-off is a one-time, non-cash charge and is not related to the
Company's ongoing research and development activities for
Virazole(R). Net income, excluding this one-time, non-cash write-
off, was $37,419,000 or $1.62 per share in 1994.
<F4> In March and July 1991, SPI issued 10% and 15% stock
distributions, respectively, which resulted in a 26% stock split.
In January 1993, SPI issued a fourth quarter 1992 stock dividend of
2%. During 1993, SPI issued additional stock dividends which
totaled 6%. During 1994, SPI and the Company issued additional
stock dividends and distributions which totaled 4.8%. During 1995,
the Company issued quarterly stock distributions which totaled
5.6%. All share and per share amounts have been restated to
reflect these stock splits, dividends and distributions, except for
historical dividends issued which are unadjusted for stock splits,
dividends and distributions.
<F5> Dividends for 1995 include cash distributions of $.28 on a
historical basis and stock distributions of $.98. Dividends for
1994 include cash dividends of $.26 on a historical basis and stock
dividends and distributions of $.93. Dividends for 1993 include
cash dividends of $.25 on a historical basis and stock dividends
equivalent to $.87. The dividends in 1992 include cash dividends
of $.86 on a historical basis and stock dividends equivalent to
$.20 per share. The stock dividends and distributions are based
upon the market value of SPI's and the Company's common stock at
the declaration date. For 1991, the dividends were paid in cash.
</FN>
</TABLE>
<PAGE>
<PAGE> 18
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Since 1981 the ICN group of companies included a pharmaceuticals
products company, SPI Pharmaceuticals, Inc. ("SPI"), a research
products company, ICN Biomedicals, Inc. ("Biomedicals"), a research
and development company, Viratek, Inc. ("Viratek"), and the parent
company, ICN Pharmaceuticals, Inc. ("ICN") (collectively, the
"Predecessor Companies"). Until November 1, 1994, the effective date
of the Merger, ICN maintained a controlling interest in the subsidiary
companies.
On November 10, 1994, SPI, ICN and Viratek merged into ICN Merger
Corp., and Biomedicals merged into ICN Subsidiary Corp., a wholly-
owned subsidiary of ICN Merger Corp. In conjunction with the Merger,
ICN Merger Corp. was renamed ICN Pharmaceuticals, Inc. ("New ICN" or
"the Company"). The Merger was accounted for using the purchase
method of accounting. Additionally, for accounting purposes, SPI was
treated as the acquiring company and as a result, the Company has
reported the historical financial data of SPI in its financial results
and the results of ICN, Viratek and Biomedicals have been included
with the results of the Company since the effective date of the
Merger.
As part of the Merger, the Company issued approximately 6,476,770
common shares valued on November 10, 1994 at $20.75 per share, which
was the publicly traded price for SPI's common shares at that date.
Accordingly, the purchase price, including direct acquisition costs of
$3,654,000, has been allocated to the estimated fair value of the net
assets, including amounts ascribed to purchased research and
development costs for which no alternative use existed of $221,000,000
or $9.55 per share, which was written-off to operations immediately
following the consummation of the Merger. Net income, excluding this
one-time, non-cash write-off, was $37,419,000 or $1.62 per share in
1994.
The Merger resulted in the acquisition of a biomedical business with
pre-merger annual sales of approximately $58,000,000, direct access to
Viratek's research and development resources including its scientific
expertise, substantial tax net operating loss carryforwards and the
elimination of royalty payments to Viratek on the sales of
Virazole(R).
RESULTS OF OPERATIONS
For financial reporting purposes, the Company's operations are
divided into two business segments, the Pharmaceutical segment and the
Biomedical segment. Certain financial information for the two
business segments is set forth below.
This discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this
document. For additional financial information by business segment,
see Note 10 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION> 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Sales (in thousands)
Pharmaceutical $ 446,566 $ 357,821 $403,957
Biomedical 61,339 9,030 0
--------- --------- --------
Total Company $ 507,905 $ 366,851 $403,957
========= ========= ========
</TABLE>
NET SALES: The increase in net sales of $88,745,000, or 25%, is
primarily a result of higher sales at ICN Galenika. Net sales at ICN
Galenika were $234,661,000 for the year ended December 31, 1995
compared to $172,124,000 for the same period last year. The increase
in ICN Galenika sales of $62,537,000, or 36%, is primarily due to
improved unit sales and favorable price increases for the year
compared to 1994. ICN Galenika has also benefited from strong growth
of antibiotics, where it holds a 65% market share in Yugoslavia.
<PAGE>
<PAGE> 19
Pharmaceutical net sales in 1995, excluding ICN Galenika, increased
$26,208,000 compared to 1994, primarily due to increased sales in
North America and Western Europe. North American sales rose to
$109,505,000 in 1995 from $92,112,000 in 1994, an increase of 19%.
Unit sales of virtually all pharmaceutical products increased in the
United States in 1995. Sales of the Company's flagship product,
Virazole(R), used in aerosol form to treat infants hospitalized with
severe respiratory infection caused by respiratory syncytial virus
("RSV") and the only antiviral therapeutic for this infection,
increased to $44,768,000 in 1995 from $35,868,000 in 1994, an increase
of 25%. Prescription dermatologicals increased to $22,769,000 in 1995
from $18,437,000 in 1994, an increase of 24%.
Pharmaceutical net sales in Western Europe rose to $37,226,000 in
1995 from $28,949,000 in 1994. This increase in net sales of 29% is
primarily a result of continued strong unit sales of Calcitonina
(calcitonin) for osteoporosis and Huberdoxina(TM), an antibiotic in
Spain. In addition, expanded resources were used to promote
Virazole(R) sales in Western Europe for the 1995-1996 RSV season
contributing to an increase in net sales of $2,151,000.
The Company's largest selling product, Virazole(R), accounts for
approximately 10% of total Company sales and is sold principally in
the United States for the treatment of RSV in young infants. RSV is a
seasonal disease and overall sales of Virazole(R) from year to year
are subject to the incidence and severity of the disease, which cannot
be predicted with certainty. The incidence of RSV in the United
States for the 1995-1996 season is not as prevalent as was experienced
in the 1994-1995 season. The overall impact on 1996 earnings of the
incidence of RSV in the 1995-1996 season is uncertain.
The increases in net pharmaceutical sales noted above were partially
offset by lower sales in Latin America which were negatively impacted
by inflation and the devaluation of the Mexican peso. Sales in Latin
America decreased to $41,984,000 in 1995 from $56,393,000 in 1994, a
decrease of 26%.
The biomedical business, acquired in the Merger, had net sales for
1995 of $61,339,000 or approximately 12% of total 1995 net sales. This
represents an 8% increase over 1994 proforma net sales, assuming the
Merger occurred on January 1, 1994, of $56,727,000, primarily due to
the additional sales of diagnostic products acquired from Becton-
Dickinson in 1995.
Net pharmaceutical sales for 1994 declined to $357,821,000 compared
to $403,957,000 in 1993. This decrease in net sales was primarily a
result of lower sales at ICN Galenika. Net sales at ICN Galenika were
$172,124,000 in 1994 compared to $239,832,000 in 1993, primarily due
to the differences in exchange rates during 1994 compared to 1993 and
the reluctance of the Yugoslavian government to allow sales price
increases during 1994. The decrease in sales at ICN Galenika in 1994
is partially offset by sales increases of $21,572,000, or 13%, in the
Company's operating units excluding ICN Galenika. The sales in these
operations increased to $185,697,000 in 1994 compared to $164,125,000
in 1993. This increase is primarily due to increased Virazole(R)
sales of $16,782,000 compared to 1993. Sales and operating results
for 1994 were not adversely affected by the devaluation of the Mexican
peso during December 1994. As a result of the Merger, the Company
acquired a biomedical research products business that contributed
$9,030,000 of sales to the 1994 operating results since November 1,
1994.
GROSS PROFIT: Gross profit as a percentage of sales was 59% for
1995 compared to 50% for 1994. The increase in gross profit is
primarily due to improved unit costs at ICN Galenika where gross
profit margins increased to 50% in 1995 from 29% in 1994. During
1993, the unit cost of inventory had risen due to higher prices
resulting from the economic conditions that existed in Yugoslavia.
This higher priced inventory is reflected in cost of sales for 1994
and has been replaced with inventory having a lower unit cost in 1995,
resulting from an improved economic environment in Yugoslavia and
higher production levels. The gross profit margin in the Company's
operating units, other than ICN Galenika, decreased to 67% in 1995
compared to 69% in 1994 due primarily to a full year impact of
biomedical sales in 1995 compared to two months of biomedical sales in
1994. The biomedical business has gross profit margins of 56%
compared to the pharmaceutical business gross profit margins,
excluding ICN Galenika, of 71%.
<PAGE>
<PAGE> 20
Gross profit as a percentage of sales was 50% for 1994 compared to
48% in 1993. The increase in the gross profit margin is primarily due
to increased sales of Virazole(R) in the United States, partially
offset by decreases in the margins at ICN Galenika. Gross profit
margin at ICN Galenika decreased to 29% in 1994 from 35% in 1993
primarily due to higher unit costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses as a percentage of sales were 38% in 1995
compared to 31% in 1994. This increase was primarily due to higher
operating expenses at ICN Galenika resulting from inflationary
pressures and the impact of a full year of biomedical operations in
1995 compared to two months of biomedical operations in 1994. The
biomedical selling, general and administrative expenses as a
percentage of sales is 46% compared to 29% for the pharmaceutical
business.
Selling, general and administrative expenses as a percentage of
sales were 31% for 1994 compared to 33% for 1993. The decrease was
primarily due to expense reductions at ICN Galenika resulting from a
lower provision for bad debts, lower wages and the impact of
differences in the exchange rates in 1994 compared to 1993.
RESEARCH AND DEVELOPMENT COSTS: The increase in research and
development costs, excluding the write-off of purchased research and
development of $221,000,000, in 1995 compared to 1994 of $9,541,000 is
primarily due to the acquisition of the Viratek research programs and
increased spending at ICN Galenika. The decrease in research and
development costs in 1994 compared to 1993 of $3,826,000 is primarily
due to lower costs at ICN Galenika of $5,210,000 resulting from wage
reductions for research and development personnel and differences in
exchange rates. The 1994 decrease in research and development expense
was partially offset by research and development expenses of
$1,874,000 resulting from the Merger.
TRANSLATION AND EXCHANGE (GAINS) LOSSES, NET: Foreign exchange
(gains), net, in 1995 were $(9,484,000) compared to foreign exchange
losses, net, of $191,000 in 1994. Foreign exchange (gains) at ICN
Galenika were $(12,063,000) in 1995 related to exchange rate
fluctuations of the dinar and a devaluation of the dinar on November
24, 1995 (See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - ICN Galenika") which was
partially offset by exchange losses of $2,688,000 on the Company's
foreign denominated debt. The increase in foreign exchange loss in
1994 compared to 1993 resulted from increased losses at ICN Galenika
related to exchange rate fluctuations that occurred before the
implementation of the stabilization program. The 1994 exchange losses
at ICN Galenika were offset by foreign exchange gains related to
certain of the Company's foreign denominated debt.
INTEREST EXPENSE: The increase in interest expense in 1995 compared
to 1994 of $13,572,000 is primarily due to interest expense on
additional debt assumed in the Merger and the issuance of $115,000,000
Convertible Notes in November 1994, the proceeds of which were used to
pay a portion of the debt assumed in the Merger. Additionally, the
weighted average interest rate on short-term borrowings increased to
58% in 1995 compared to 9% in 1994. This increase reflects a
hyperinflationary 66% average short-term borrowing rate at ICN
Galenika in 1995 compared to a stabilized rate of 9.5% in 1994. The
decrease in interest expense in 1994 compared to 1993 of $14,433,000
was primarily due to a decrease in interest expense of $15,840,000 at
ICN Galenika. The economic stabilization program enacted by the
Yugoslavian government early in 1994 resulted in lower interest rates
in 1994 compared to 1993. This decrease in interest expense at ICN
Galenika during 1994 was partially offset by increased interest
expense in the United States resulting from the assumption of
additional debt in connection with the Merger.
<PAGE>
<PAGE> 21
INCOME TAXES: The Company's effective income tax rate was 3%, 6%
and 20% for 1995, 1994 and 1993, respectively. In 1995, the Company
benefited from a devaluation of ICN Galenika's tax liability balances,
utilization of construction tax credits in Yugoslavia and the
revaluation of the Company's deferred tax assets. The Company's
effective tax rate of 6% in 1994 was significantly different than the
expected United States statutory rate of 35% due to the write-off of
purchased research and development related to the Merger for which
there is no related tax benefit. The Company's effective rate of 20%
in 1993 was significantly less than the United States statutory rate
primarily due to the utilization of foreign and alternative minimum
tax credits and other deferred tax benefits for which a valuation
allowance existed at January 1, 1993.
During 1995, the Company utilized $27,000,000 of acquired domestic
net operating loss carryforwards ("NOLs") having a tax benefit of
$9,400,000 for which a valuation allowance had been established as of
the effective date of the Merger. The corresponding reduction in the
valuation allowance of $9,400,000 resulted in a reduction of goodwill
and intangibles acquired in connection with the Merger.
In addition to the utilization of the NOLs described above, the
Company recognized a $27,000,000 tax benefit of an additional
$76,000,000 of acquired NOLs and other deferred tax assets through a
reduction in the Company's deferred tax asset valuation allowance.
This reduction in the valuation allowance of $27,000,000 resulted in a
$24,000,000 reduction in goodwill and intangibles acquired in
connection with the Merger and a $3,000,000 reduction in deferred
income tax expense. Realization of the deferred tax assets are
dependent upon generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that the
remaining net deferred tax assets will be realized. The amount of the
deferred tax assets considered realizable, however, could be reduced
in the future if estimates of future taxable income during the
carryforward period are reduced.
Certain tax benefits that were acquired in the acquisition of ICN
Galenika will expire in 1996. The expiration of these tax benefits
will increase the effective tax rate for ICN Galenika. However, this
increase may be partially offset by tax credits in connection with
plant construction provided in Yugoslavia.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Cash provided by operating activities continues to be the Company's
primary source of funds for its operating needs, capital expenditures
and dividend payments. In 1995, cash provided by operating activities
increased $36,769,000 to $79,326,000 primarily due to increased
earnings before depreciation and minority interest and an advance
payment from Schering-Plough of $23,000,000 related to the use of
Virazole(R)for the treatment of hepatitis C, partially offset by cash
payments used for the expansion of inventory levels at ICN Galenika of
$23,336,000.
On July 28, 1995, the Company entered into an Exclusive License and
Supply Agreement (the "Agreement") and a Stock Purchase Agreement with
a subsidiary of Schering-Plough Corporation ("Schering") to license
the Company's proprietary anti-viral drug ribavirin as a treatment for
chronic hepatitis C in combination with Schering's alpha interferon.
The Agreement provided the Company an initial non-refundable payment
by Schering of $23,000,000, and future royalty payments to the
Company for marketing of the drug, including certain minimum royalty
rates. Schering will have exclusive marketing rights for ribavirin
for the treatment of hepatitis C worldwide, except that the Company
will retain the right to co-market in the countries of the European
Economic Community. In addition, Schering will purchase up to
$42,000,000 in common stock of the Company upon the achievement of
certain regulatory milestones. Under the Agreement, Schering will be
responsible for all clinical developments worldwide.
<PAGE>
<PAGE> 22
The $23,000,000 non-refundable payment has been recorded by the
Company as prepaid royalty income of $10,000,000, a license fee of
$8,000,000 and a liability to Schering for certain cost sharing
agreements of $5,000,000. The prepaid royalty will be amortized to
income based upon future sales of the product and the license fee will
be amortized to income over the exclusive period of the Agreement,
fifteen years.
Cash used in investing activities increased $35,635,000 to
$47,025,000 due to the continuation of the plant expansion program at
ICN Galenika. During 1994 and 1995, ICN Galenika has expended
$51,000,000 toward an estimated $136,000,000 project that is expected
to be completed in 1998. ICN Galenika intends to fund this program
through existing funds and funds generated from local operations and
locally funded debt.
Cash used in financing activities increased $47,599,000 to
$50,518,000 reflecting principally the early retirement of the 12 7/8%
Sinking Fund Debentures of $34,160,000 and a reduction of notes
payable, collateralized by marketable securities, of $8,103,000. In
1995, the Company sold common stock in the amount of $5,753,000 of
which approximately $3,000,000 of the proceeds were utilized to
purchase the radioimmunoassay product line from Becton-Dickinson and
the remainder utilized for working capital purposes. The increase in
1995 distribution payments compared to 1994 is due primarily to a
greater number of shares outstanding resulting from the Merger.
During 1994, cash used in financing included cash payments to the
parent company of $23,718,000 which did not recur in 1995, as a result
of the Merger.
PRODUCT LIABILITY: In December 1985, Management discontinued
product liability insurance in the United States. While to date no
material adverse claim for personal injury resulting from allegedly
defective products has been successfully maintained against the
Company, a substantial claim, if successful, could have a material
adverse effect on the Company's liquidity and financial performance.
See Note 7 of Notes to Consolidated Financial Statements.
INVESTMENT IN RUSSIA: On July 21, 1995, the Company purchased an
additional 34% interest in the Russian pharmaceutical company,
Oktyabr, raising its ownership from 41% to 75%. In connection with
the acquisition of the additional interest, the Company issued 225,807
shares of its common stock, valued at approximately $3,500,000, based
upon the market price of the stock at the time the shares were issued,
in exchange for the shares in Oktyabr. The acquisition is not
material to the financial position or results of operations of the
Company.
DEMANDS ON WORKING CAPITAL: Management believes that funds
generated from operations will be sufficient to meet its normal
operating requirements during the coming year. If these funds prove
to be insufficient, or if new acquisitions or other opportunities
require the Company to raise capital, the Company may seek additional
financing or issue preferred stock or additional common stock.
The Company is actively engaged in the identification of new
businesses and products that complement the Company's existing product
lines and markets. At December 31, 1995, the Company has several
preliminary acquisition prospects that could require equity or debt
financing during 1996.
In January, 1996, the Company sold approximately 400,000 shares of its
common stock to a foreign bank for net proceeds of $6,000,000. The
proceeds were used by the Company for the acquisition of Gly Derm,
a Michigan based skin care company, and several smaller acquisitions.
INFLATION AND CHANGING PRICES: Foreign operations are subject to
certain risks inherent in conducting business abroad, including price
and currency exchange controls, fluctuations in the relative values of
currencies, political instability and restrictive governmental
actions. Changes in the relative values of currencies occur from time
to time and may, in certain instances, materially affect the Company's
results of operations. The effect of these risks remains difficult to
predict.
<PAGE>
<PAGE> 23
The Company is subject to foreign currency risk on its foreign
denominated debt of $30,352,000, of which $28,956,000 is in Swiss
francs, at December 31, 1995 and to devaluation losses on net monetary
assets positions in Yugoslavia and Russia.
The effects of inflation are experienced by the Company through
increases in the costs of labor, services and raw materials. While
the Company attempts to raise selling prices in anticipation of
inflation, adverse effects have been experienced in Yugoslavia and in
Mexico as a result of price controls.
The Company is subject to price control restrictions on its
pharmaceutical products in the majority of countries in which it
operates. To date, the Company has been affected by the lag in
allowed price increases in Yugoslavia and Mexico, which has created
lower sales in U.S. dollars and reductions in gross profit. Future
sales and gross profit could be materially affected if the Company is
unable to obtain price increases commensurate with the levels of
inflation.
ICN GALENIKA
HYPERINFLATION AND DEVALUATION: ICN Galenika, a 75% owned
subsidiary, operates in a highly inflationary economy and uses the
dollar as the functional currency rather than the Yugoslavian dinar.
Before the enactment of an economic stabilization program in January
1994, the rate of inflation in Yugoslavia was over 1 billion percent
per year. The rate of inflation was dramatically reduced when, on
January 24, 1994, the Yugoslavian government enacted a "Stabilization
Program" designed to strengthen its currency. Throughout 1994, this
program was successful in reducing inflation to approximately 5% per
year, increasing the availability of hard currency, stabilizing the
exchange rate of the dinar and improving the overall economy in
Yugoslavia.
Throughout 1995, the effectiveness of the stabilization program
weakened and ICN Galenika began experiencing a decline in the
availability of hard currency in Yugoslavia and inflation levels
accelerated to an approximate annual rate of 90% by the end of the
year.
Through the third quarter of 1995, the net monetary asset position
of ICN Galenika had increased due to rising accounts receivable
balances resulting from improved sales and the lengthening of the
collection period of receivables resulting from the lack of
availability of dinars in Yugoslavia. From a beginning balance of
$25,442,000 at December 31, 1994, the net monetary asset position of
ICN Galenika had risen to $52,366,000 at September 30, 1995. Upon
devaluation of the dinar, a net monetary asset position will result in
translation losses. Therefore, early in the fourth quarter of 1995,
ICN Galenika took action to reduce its monetary exposure by shortening
the payment terms on its receivables, reducing sales levels,
accelerating the purchase of inventory and accelerating the purchase
of building materials for its plant expansion. On November 24, 1995,
the dinar devalued from a rate of 1.4 dinars per US $1 to a rate of
4.7 dinars per US $1. On this date, ICN Galenika had a net monetary
liability position that resulted in a gain of $8,724,000. As of
December 31, 1995, ICN Galenika had a net monetary asset position of
$7,396,000 which would be subject to foreign exchange loss if a
devaluation of the dinar were to occur.
As required by Generally Accepted Accounting Principles ("GAAP"),
the Company translates ICN Galenika's financial results at the
dividend payment rate established by the National Bank of Yugoslavia.
To the extent that changes in this rate lag behind the level of
inflation, sales and expenses will, at times, tend to be inflated.
Future sales and expenses can substantially increase if the timing of
future devaluations falls significantly behind the level of inflation.
The future of the economic and political environment of Yugoslavia is
uncertain and could deteriorate to the point that a severe impact on
the financial position and results of operations of the Company could
occur.
SANCTIONS: A substantial majority of ICN Galenika's business is
conducted in the Federal Republic of Yugoslavia (Serbia and
Montenegro). In December 1995, the United Nations Security Council
("UNSC") adopted a resolution that suspended economic sanctions that
had been imposed on the Federal Republic of Yugoslavia since May 1992.
<PAGE>
<PAGE> 24
Sanctions contributed to an overall deteriorating business
environment in which ICN Galenika operated and denied ICN Galenika
access to export sales which previously totaled approximately
$30,000,000 per year. Sanctions also created restrictions on ICN
Galenika's overseas investments and imposed administrative burdens in
obtaining raw materials outside of Yugoslavia .
The Company believes the suspension of sanctions will provide a more
favorable business environment in the future; however, the beneficial
effects of the suspension will not take place immediately as the
economy needs to adjust to new opportunities. If the peace process in
the Balkans deteriorates there is a risk that sanctions could be
reinstated.
PRICE CONTROLS: ICN Galenika is subject to price controls in
Yugoslavia. The size and frequency of government approved price
increases is influenced by local inflation, devaluations, cost of
imported raw materials and demand for ICN Galenika products. During
1995 and 1994, ICN Galenika received fewer price increases than in the
past due to lower relative levels of inflation. As inflation
increases, the size and frequency of price increases is expected to
increase. During the third quarter of 1995, ICN Galenika received a
30% price increase on its pharmaceutical products. This was the first
price increase the government had allowed since the start of the
stabilization program. Subsequent to the devaluation on November 24,
1995, ICN Galenika received an 80% price increase on its
pharmaceutical products. Price increases obtained by ICN Galenika are
based on economic events preceding the price increase and not on
expectations of ongoing inflation. This lag in allowed price
increases creates downward pressure on the gross margins that ICN
Galenika receives on its products. When necessary, ICN Galenika will
limit sales of products that have poor margins until an acceptable
price increase is received. The impact of an inability to obtain
adequate price increases in the future could have an adverse impact on
the Company as a result of declining gross profit margins or declining
sales in an effort to maintain existing gross margin levels.
For additional information and expanded discussion regarding the
impact of ICN Galenika, see Note 12 of Notes to Consolidated
Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121 on
accounting for the impairment of long lived assets. SFAS No. 121
requires the Company to review the carrying amounts of its long lived
assets and certain identifiable intangible assets for impairment. If
it is determined the carrying amount of the assets is not recoverable,
the Company is required to recognize an impairment loss. The
accounting standard will be implemented in the first quarter of 1996
and is not expected to result in a material loss.
During October 1995, the FASB issued SFAS No. 123 on accounting for
stock based employee compensation plans which must be implemented for
fiscal years beginning on or after December 15, 1995. The Company
will elect the disclosure only alternative of SFAS No. 123 beginning
with its annual financial statements for the year ended December 31,
1996.
<PAGE>
<PAGE> 25
QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of quarterly financial data for the years
ended December 31, 1995 and 1994 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter<F2><F3>
- ---- ------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Net sales $132,243 $128,773 $137,503 $ 109,386
Gross profit 77,927 72,398 83,972 67,559
Net income 17,034 13,894 16,933 19,476
Net income per share<F1> $ .57 $ .44 $ .52 $ .61
1994
- ----
Net sales $72,167 $78,927 $ 92,796 $ 122,961
Gross profit 39,552 33,759 45,147 65,447
Net income 8,364 5,245 10,057 (207,247)
Net income (loss) per share<F1>$ .38 $ .23 $ .44 $ (7.94)
<FN>
<F1> Net income per share has been restated to reflect quarterly stock
dividends and distributions totaling 4.8% during 1994 and
quarterly stock distributions totaling 5.6% during 1995.
<F2> Includes a write-off in 1994 of purchased research and
development for which no alternative use exists of $221,000,000 or
$8.47 per share as a result of the Merger.
<F3> Includes the results of ICN, Viratek and Biomedicals since the
effective date of the Merger, November 1, 1994.
</FN>
</TABLE>
<PAGE>
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 1995
Report of independent accountants....................................
Financial statements:
Consolidated balance sheets at December 31, 1995 and 1994............
For the years ended December 31, 1995, 1994 and 1993:
Consolidated statements of income....................................
Consolidated statements of stockholders' equity......................
Consolidated statements of cash flows................................
Notes to consolidated financial statements...........................
Schedule supporting the consolidated financial statements for the
years ended December 31, 1995, 1994 and 1993:
II.-- Valuation and qualifying accounts..............................
The other schedules have not been submitted because they are not
Applicable.
<PAGE>
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To ICN Pharmaceuticals, Inc.:
We have audited the consolidated financial statements and the
financial statement schedule of ICN Pharmaceuticals, Inc. (a Delaware
corporation, formerly SPI Pharmaceuticals, Inc.) and Subsidiaries
listed in the index on page 26 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The Company had certain transactions, through, November 1, 1994,
with previously Affiliated Corporations, as more fully described in
Note 4. Whether the terms of these transactions would have been the
same had they been between wholly unrelated parties cannot be
determined.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ICN
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 19, 1996
<PAGE>
<PAGE> 28
ICN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1995 1994
----- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,094 $ 42,376
Restricted cash 538 1,425
Marketable securities 27,536 0
Receivables, net 68,513 81,951
Inventories, net 138,756 89,448
Prepaid expenses and other current assets 24,179 25,146
--------- ---------
Total current assets 283,616 240,346
Marketable securities 0 29,155
Property, plant and equipment (at cost), net 172,487 128,623
Deferred taxes, net 34,692 0
Other assets 21,828 25,306
Goodwill and intangibles, net 5,675 18,043
--------- ---------
$ 518,298 $441,473
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 33,402 $ 25,079
Accrued liabilities 39,031 43,111
Notes payable 4,426 13,757
Current portion of long-term debt 7,650 6,067
Income taxes payable 8,305 14,530
--------- ---------
Total current liabilities 92,814 102,544
Long-term debt, less current portion:
Convertible into common stock 140,951 142,460
Other long-term debt 13,242 52,721
Deferred license and royalty income 15,139 0
Other liabilities 31,444 9,960
Minority interest 62,536 44,880
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value; 100,000 shares
authorized; 30,420 and 28,028 shares
issued and outstanding at December 31,
1995 and 1994, respectively 304 282
Additional capital 290,106 251,713
Retained deficit (105,844) (142,946)
Foreign currency translation adjustment (22,624) (16,709)
Unrealized gain (loss) on marketable securities 230 (3,432)
--------- ---------
Total stockholders' equity 162,172 88,908
--------- ---------
$ 518,298 $441,473
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
<PAGE> 29
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $507,905 $ 366,851 $403,957
Cost of sales 206,049 182,946 211,923
--------- ---------- ---------
Gross profit 301,856 183,905 192,034
Selling, general and administrative
expenses 191,459 112,919 134,895
Royalties to affiliates, net -- 7,468 6,121
Research and development costs 17,231 7,690 11,516
Write-off of purchased research
and development 0 221,000 0
--------- ---------- ---------
Income (loss) from operations 93,166 (165,172) 39,502
Translation and exchange (gains)
losses, net (9,484) 191 (3,282)
Interest income (6,488) (4,728) (8,033)
Interest expense 22,889 9,317 23,750
--------- ---------- ---------
Income (loss) before provision for
income taxes and minority interest 86,249 (169,952) 27,067
Provision for income taxes 2,997 10,360 5,368
Minority interest 15,915 3,269 189
-------- ---------- ---------
Net income (loss) $ 67,337 $(183,581) $ 21,510
======== ========== =========
Net income (loss) per share $ 2.20 $ (7.93) $ .99
======== ========== =========
Weighted average common shares 30,623 23,138 21,746
======== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
<PAGE> 30
<TABLE>
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Common Retained Currency (Loss) on
Stock Additional Earnings Translation Marketable
Shares Amount Capital (Deficit) Adjustments Securities Total
------ ------ --------- --------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 17,890 $179 $62,403 $74,787 $(1,942) $ 0 $135,427
Exercise of stock options 461 5 2,410 0 0 0 2,415
Translation adjustments 0 0 0 0 (4,803) 0 (4,803)
Tax benefit of stock options
exercised 0 0 727 0 0 0 727
Cash dividends ($.24 per share) 0 0 0 (4,690) 0 0 (4,690)
Effect of 1993 quarterly stock
dividends 1,121 11 16,106 (16,117) 0 0 0
Effect of stock dividend issued in
January 1994 276 3 4,514 (4,517) 0 0 0
Common stock issued for payment of
ICN debt 200 2 3,073 0 0 0 3,075
Common stock issued for acquisition 153 2 2,216 0 0 0 2,218
Net income 0 0 0 21,510 0 0 21,510
------- ------ ------- ------- ------ ----- -------
Balance at December 31, 1993 20,101 202 91,449 70,973 (6,745) 0 155,879
Exercise of stock options 80 1 587 0 0 0 588
Translation adjustments 0 0 0 0 (9,964) 0 (9,964)
Tax benefit of stock options
exercised 0 0 134 0 0 0 134
Stock issued in Merger 6,477 65 134,328 0 0 0 134,393
Net unrealized loss on
marketable securities 0 0 0 0 0 (3,432) (3,432)
Shares issued as employee
compensation 70 1 1,090 0 0 0 1,091
Cash dividend ($.26 per share) 0 0 0 (6,181) 0 0 (6,181)
Effect of 1994 quarterly stock
dividends and distributions 832 8 17,410 (17,437) 0 0 (19)
Effect of stock distribution
declared in March 1995 468 5 6,715 (6,720) 0 0 0
Net loss 0 0 0 (183,581) 0 0 (183,581)
------ ------- ------- --------- ------- ---- --------
Balance at December 31, 1994 28,028 282 251,713 (142,946) (16,709) (3,432) 88,908
Exercise of stock options 503 4 3,698 0 0 0 3,702
Translation adjustments 0 0 0 0 (5,915) 0 (5,915)
Issuance of common stock in
connection with acquisitions 715 7 11,073 0 0 0 11,080
Net unrealized gain on
marketable securities 0 0 0 0 0 3,662 3,662
Tax benefit of stock options
exercised 0 0 1,300 0 0 0 1,300
Cash dividends ($.28 per share) 0 0 0 (7,902) 0 0 (7,902)
Effect of 1995 quarterly stock
distributions 1,174 11 22,322 (22,333) 0 0 0
Net income 0 0 0 67,337 0 0 67,337
------ -------- -------- -------- ------ ---- --------
Balance at December 31, 1995 30,420 $304 $290,106 $(105,844) $(22,624) $230 $162,172
====== ======== ======== ========== ========= ==== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<PAGE> 31
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 67,337 $(183,581) $ 21,510
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,814 9,248 8,513
(Decrease) increase in allowance for
losses on accounts receivable (1,262) 1,410 11,261
Write-off of purchased research and
development 0 221,000 0
Foreign exchange (gains) losses, net (9,484) 191 (3,282)
Loss (gain) on sale of fixed assets 10 (294) (194)
(Decrease) increase in inventory
allowances (2,310) 3,835 4,252
Other non-cash (gains) losses (331) 0 1,312
Minority interest 15,915 3,451 189
Change in assets and liabilities, net of
effects of acquired companies:
Receivables 524 (30,270) 19,968
Inventories (33,950) 25,823 (15,388)
Prepaid expenses and other assets (11,461) (20,137) 3,164
Proceeds from license and royalty fees 23,000 0 0
Other liabilities and deferred income
taxes 19,120 699 (5,562)
Trade payables and accrued liabilities 5,410 6,795 (29,331)
Income taxes payable (7,006) 4,387 1,795
---------- --------- ---------
Net cash provided by operating
activities 79,326 42,557 18,207
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures (49,693) (20,205) (8,431)
Proceeds from sale of fixed assets 64 164 1,131
Sale (purchase) of marketable securities 6,204 0 (33,899)
Decrease in restricted cash 887 0 15,200
Cash acquired in connection with the
acquisition of the predecessor
companies (including $1,425 of
restricted cash) 0 9,921 0
Acquisition of foreign license rights
and product lines (4,495) 0 0
Other, net 8 (1,270) 205
---------- --------- ---------
Net cash used in investing activities (47,025) (11,390) (25,794)
---------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in borrowings
under line of credit arrangements 268 (9,174) (1,487)
Proceeds from issuance of long-term debt 284 117,008 4,207
Payments on long-term debt and notes
payable (52,623) (82,409) (4,644)
Payments to former affiliates 0 (23,718) (13,662)
Issuance of common stock 5,753 0 0
Proceeds from exercise of stock options 3,702 588 2,415
Dividends paid (7,902) (5,214) (2,531)
---------- --------- ---------
Net cash used in financing activities (50,518) (2,919) (15,702)
---------- --------- ---------
Effect of exchange rate changes on cash (65) (649) 12
---------- --------- ---------
Net (decrease) increase in cash and cash
equivalents (18,282) 27,599 (23,277)
Cash and cash equivalents at beginning of
year 42,376 14,777 38,054
---------- --------- ---------
Cash and cash equivalents at end of year $ 24,094 $ 42,376 $ 14,777
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
<PAGE> 32
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1.ORGANIZATION AND BACKGROUND:
On November 1, 1994, the stockholders of ICN Pharmaceuticals,
Inc. ("ICN"), SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc.
("Viratek"), and ICN Biomedicals, Inc. ("Biomedicals") (collectively,
the "Predecessor Companies") approved the Merger of the Predecessor
Companies, ("the Merger"). On November 10, 1994 (effective November
1, 1994), SPI, ICN and Viratek merged into ICN Merger Corp., and
Biomedicals merged into ICN Subsidiary Corp., a wholly-owned subsidiary
of ICN Merger Corp. In conjunction with the Merger, ICN Merger Corp.
was renamed ICN Pharmaceuticals, Inc. ("New ICN" or "the Company").
The Merger was accounted for using the purchase method of
accounting. Additionally, for accounting purposes, SPI was treated as
the acquiring company and as a result, the Company has reported the
historical financial data of SPI in its financial results and includes
the results of ICN, Viratek and Biomedicals since the effective date
of the Merger, November 1, 1994.
SPI was incorporated on November 30, 1981, as a wholly-owned
subsidiary of ICN and was 39%-owned by ICN prior to the Merger.
Viratek and Biomedicals were 63%-owned and 69%-owned by ICN,
respectively, prior to the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated
financial statements for 1995 reflect the first full year results of
the Company. The consolidated financial statements for 1994 include
the full year financial results of SPI and majority owned
subsidiaries, which includes 75% ownership in ICN Galenika (See Note
12), and the financial results of ICN, Viratek and Biomedicals, from
the effective date of the Merger. The consolidated financial
statements for 1993 reflect the financial results of SPI. 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. The accompanying consolidated
financial statements reflect the elimination of all significant
intercompany account balances and transactions.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents at December
31, 1995 and 1994, includes $1,017,000 and $36,124,000, respectively,
of certificates of deposit which have maturities of three months or
less. For purposes of the statements of cash flows, the Company
considers highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. The carrying amount of these
assets approximates fair value due to the short-term maturity of these
instruments.
MARKETABLE SECURITIES: The Company has classified its investment in
corporate bond securities, with maturities ranging from 1999 to 2003,
as available-for-sale. The contractual maturity value of these
corporate bond securities is approximately $26,700,000. The fair
value of these corporate bond securities are determined based on
quoted market prices. Changes in market values are reflected as
unrealized gains and losses, calculated on the specific identification
method, directly in stockholders' equity.
During 1995, the Company sold $5,924,000 of corporate bond
securities for a total of $6,380,000 including accrued interest
resulting in a realized gain of $311,000. In January 1996, the
Company sold $26,663,000 of corporate bond securities, plus accrued
interest of $860,000, for a total of $27,812,000 resulting in a
realized gain of $289,000.
At December 31, 1994, marketable securities had an aggregate fair
value of $29,155,000.
<PAGE>
<PAGE> 33
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
INVENTORIES: Inventories, which include material, direct labor and
factory overhead, are stated at the lower of cost or market. Cost is
determined on a first-in, first-out ("FIFO") basis.
PROPERTY, PLANT AND EQUIPMENT: The Company primarily uses the
straight-line method for depreciating property, plant and equipment
over their estimated useful lives. Buildings and related improvements
are depreciated from 7-50 years, machinery and equipment from 3 - 20
years, furniture and fixtures from 4-10 years and leasehold
improvements are amortized over their useful lives, limited to the
life of the 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. Goodwill and intangibles amortization
periods are five years for single product line businesses acquired
through November 30, 1986, and 10 to 23 years for certain businesses
acquired in 1987, which have other intangibles (patents and
trademarks), and whose values and lives can be reasonably estimated.
The Company periodically evaluates the carrying value of goodwill and
intangibles including the related amortization periods. The Company
determines whether there has been impairment by comparing the
anticipated undiscounted future operating income of the acquired
entity or product line with the carrying value of the goodwill.
As a result of the Merger, the Company acquired certain intangible
assets (primarily related to patents and customer lists) and goodwill,
which were being amortized over 5 to 10 years, using the straight-line
method. During 1995, the Company utilized acquired net operating loss
carryforwards and reassessed the carrying value of its tax net
operating loss carryforwards and other deferred tax assets acquired in
the Merger which resulted in the elimination of intangibles and
goodwill acquired in the Merger (See Note 5).
NOTES PAYABLE: The Company classifies various borrowings with
initial terms of one year or less as notes payable. The weighted
average interest rate on short-term borrowings outstanding at December
31, 1995 and 1994 was 58% and 9%, respectively. This increase
reflects a hyperinflationary 66% average short-term borrowing rate at
ICN Galenika in 1995 compared to a stabilized rate of 9.5% in 1994.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of the
Company's foreign operations, except those in highly inflationary
economies, are translated at the end of period exchange rates.
Revenues and expenses are translated at the average exchange rates
prevailing during the period. The effects of unrealized exchange rate
fluctuations on translating foreign currency assets and liabilities
into U.S. dollars are accumulated in stockholders' equity. The
monetary assets and liabilities of foreign subsidiaries in highly
inflationary economies are remeasured into U.S. dollars at the year
end exchange rates and non-monetary assets and liabilities at
historical rates. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation",
the Company has included in earnings all foreign exchange gains and
losses arising from foreign currency transactions and the effects of
foreign exchange rate fluctuations on subsidiaries operating in highly
inflationary economies. The recorded (gains) losses from foreign
exchange translation and transactions for 1995, 1994 and 1993, were
$(9,484,000), $191,000 and $(3,282,000), respectively.
<PAGE>
<PAGE> 34
INCOME TAXES: In January 1993, the Company adopted 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. In estimating future tax consequences, SFAS No. 109
generally considers all expected future events other than an enactment
of changes in the tax law or rates. The adoption of SFAS No. 109 in
1993 did not result in a cumulative effect adjustment in the
consolidated statements of income.
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
PER SHARE INFORMATION: Per share information is based on the
weighted average number of common shares outstanding and the dilutive
effect of common share equivalents. Common share equivalents
represent shares issuable for outstanding options, on the assumption
that the proceeds would be used to repurchase shares in the open
market, and also the shares issuable related to certain of the
Company's convertible debentures. Such convertible debentures are
considered common stock equivalents if they meet certain criteria at
the time of issuance and have a dilutive effect, if converted.
During 1995, the Company issued quarterly stock distributions which
totaled 5.6%. In 1994, SPI and the Company issued quarterly stock
dividends and distributions which totaled 4.8%. In January 1993, SPI
issued a 1992 fourth quarter stock dividend of 2%. During 1993, SPI
issued additional stock dividends which totaled 6%. All share and per
share amounts used in computing earnings per share have been restated
to reflect these stock dividends and distributions.
RECLASSIFICATIONS: Certain prior year items have been reclassified
to conform with the current year presentation.
3. ACQUISITION OF THE PREDECESSOR COMPANIES:
On November 10, 1994, SPI, ICN and Viratek merged into New ICN, and
Biomedicals merged into ICN Subsidiary Corp., a wholly-owned
subsidiary of New ICN. The Merger was accounted for using the
purchase method of accounting. Additionally, for accounting purposes,
SPI was treated as the acquiring company and as a result, the Company
has reported the historical financial data of SPI in its financial
results and the results of ICN, Viratek and Biomedicals have been
included with the results of the Company since the effective date of
the Merger, November 1, 1994.
As part of the Merger, the Company issued approximately 6,476,770
common shares valued on November 10, 1994 at $20.75 per share, which
was the publicly traded price of SPI's common shares at that date.
Accordingly, the purchase price, including direct acquisition costs of
$3,654,000, has been allocated to the estimated fair value of the net
assets, including amounts ascribed to purchased research and
development costs which was charged to operations immediately
following the consummation of the Merger.
<PAGE>
<PAGE> 35
The purchase price allocation, as of the effective date of the
Merger, is summarized as follows (in thousands):
<TABLE>
<S> <C>
Current assets (including cash of $9,921
of which $1,425 was restricted) $ 37,711
Property, plant and equipment 44,335
Acquired intangibles and goodwill 35,000
Other non-current assets 8,724
Current liabilities (52,931)
Long-term liabilities (155,792)
Purchased research and development 221,000
---------
Total purchase price $ 138,047
=========
</TABLE>
The Company obtained independent third party appraisals for the
acquired in-process research and development costs and certain other
intangible costs, primarily patents and trademarks. The $221,000,000
which represents the valuation of acquired in-process research and
development for which no alternative use exists, has been charged to
operations immediately upon consummation of the Merger in accordance
with generally accepted accounting principles. In the fourth quarter
of 1995, the purchase price allocation was finalized by recording a
liability for a pre-acquisition contingency, as previously disclosed,
in an amount that the Company considers adequate.
4. RELATED PARTY TRANSACTIONS:
GENERAL: Prior to the Merger, ICN controlled Biomedicals and
Viratek through stock ownership and board representation and was
affiliated with SPI. Certain officers of ICN occupied similar
positions with SPI, Biomedicals, and Viratek and were affiliated with
SPI. Prior to the Merger, ICN, SPI, Biomedicals, and Viratek engaged
in certain transactions with each other.
ROYALTY AGREEMENTS: Effective December 1, 1990, SPI entered into a
royalty agreement with Viratek whereby a royalty of 20% of all sales
of Virazole(R) was paid to Viratek. Sales of Virazole(R), for purposes
of determining royalties to Viratek, for 1994 and 1993 were
$35,855,000 and $29,515,000, respectively, which generated royalties
to Viratek for 1994 and 1993 of $7,171,000 and $5,903,000,
respectively. As a result of the Merger, the Company is no longer
required to pay future royalties on Virazole(R).
The Company, under an agreement, amended in 1993, between the
Company and the employer of a director, is required to pay $20.00 for
each new aerosol drug delivery device manufactured and a 2% royalty on
all sales of Virazole(R) in aerosolized form. Such royalties for
1995, 1994 and 1993 were $905,000, $741,000 and $422,000,
respectively.
COST ALLOCATIONS: Prior to the Merger, the affiliated corporations
occupied ICN's facility in Costa Mesa, California. The accompanying
consolidated statements of income include charges for rent from ICN of
$230,000 for 1994 and $279,000 for 1993. In addition, the costs of
common services such as maintenance, purchasing and personnel were
incurred by SPI and allocated to ICN, Viratek and Biomedicals based on
services utilized. The total of such costs were $2,207,000 for 1994
and $2,584,000 for 1993 of which $1,579,000 and $1,733,000 were
allocated to affiliated corporations, respectively. It is
management's belief that the methods used and amounts allocated for
facility costs and common services were reasonable based upon the
usage by the respective companies.
<PAGE>
<PAGE> 36
OTHER: Following is a summary of transactions incurred prior to the
Merger, as described above, between the Company and the former
affiliated corporations for 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash payments to former affiliates, net $ 23,718 $ 13,662
Royalties to affiliates, net (7,469) (6,121)
Allocation of common service costs to ICN and
its subsidiaries 1,579 1,733
Rent charged by ICN (230) (279)
Interest expense with affiliates, net (359) (800)
Dividends payable to ICN (967) (1,857)
Common stock issued (200,000 shares) for payment
of ICN debt 0 3,075
Other, net 2,041 2,707
-------- --------
$ 18,313 $ 12,120
======== ========
</TABLE>
The average balances due to ICN were $6,326,000 and $26,439,000 for
1994 and 1993, respectively.
In July 1995, the Company loaned the Chief Operating Officer of the
Company $93,000 for the exercise of stock options, which was repaid in
March 1996.
5. INCOME TAXES:
Pretax income (loss) from continuing operations before minority
interest for the years ended December 31, consists of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $ 7,145 $(194,756) $17,322
Foreign 79,104 24,804 9,745
-------- ---------- -------
$ 86,249 $(169,952) $27,067
======== ========== =======
</TABLE>
The income tax provisions for the years ended December 31, consist of
the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 0 $ 5,829 $ 4,197
State 425 100 100
Foreign 4,392 4,931 1,929
------- ------- -------
4,817 10,860 6,226
------- ------- -------
Deferred
Federal (1,820) 0 0
Foreign 0 (500) (858)
-------- -------- --------
(1,820) (500) (858)
-------- -------- --------
Total $ 2,997 $10,360 $ 5,368
======== ======== ========
</TABLE>
<PAGE>
<PAGE> 37
The current federal tax provision has not been reduced for the tax
benefit associated with the exercise of employee stock options of
$1,300,000, $134,000, and $727,000 in 1995, 1994 and 1993,
respectively, which were credited directly to additional capital.
In connection with the Merger, the Company acquired approximately
$226,000,000 of net operating loss carryforwards ("NOLs"). Included
in the total acquired NOLs are $191,000,000 of domestic NOLs and
$35,000,000 of foreign NOLs. Internal Revenue Service Code Section
382 imposes an annual limitation on the availability of NOLs that can
be used to reduce taxable income after certain substantial ownership
changes of a corporation. Consequently, the Company's annual
limitation on utilization of the acquired domestic NOLs is
approximately $33,000,000 per year.
Included in the total acquired NOLs is approximately $9,800,000 of
domestic NOLs acquired by a subsidiary in a previous business
combination. Under the terms of the acquisition agreement, 50% of the
tax benefit from the utilization of these acquired NOLs in excess of
$500,000 is payable to the former shareholders of which none were
utilized in 1995. Under the terms of the acquisition agreement,
utilization is determined on a with and without basis.
In accordance with SFAS No. 109, any realization of acquired tax
benefits must be used to first, reduce goodwill, secondly, reduce
acquired noncurrent intangible assets and lastly, reduce income tax
expense. During 1995, the Company utilized $27,000,000 of acquired
domestic NOLs having a tax benefit of $9,400,000 for which a valuation
allowance had been established as of the effective date of the Merger.
The corresponding reduction in the valuation allowance of $9,400,000
resulted in a reduction of goodwill and intangibles acquired in
connection with the Merger.
In addition to the utilization of the NOLs described above, the
Company recognized a $27,000,000 tax benefit of an additional
$76,000,000 of acquired NOLs and other deferred tax assets through a
reduction in the Company's deferred tax asset valuation allowance.
This reduction in the valuation allowance of $27,000,000 resulted in a
$24,000,000 reduction in goodwill and intangibles acquired in
connection with the Merger and a $3,000,000 reduction in deferred
income tax expense. Realization of the deferred tax assets is
dependent upon generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that the
remaining net deferred tax assets will be realized. The amount of the
deferred tax assets considered realizable, however, could be reduced
in the future if estimates of future taxable income during the
carryforward period are reduced.
At December 31, 1995, the Company's domestic NOLs were approximately
$159,000,000. These domestic NOLs expire in varying amounts from 1996
to 2008.
<PAGE>
<PAGE> 38
The primary components of the Company's net deferred tax asset at
December 31, 1995 and net deferred tax liability at December 31, 1994,
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
NOL carryforward $ 69,260 $ 80,524
Inventory and other reserves 13,229 7,459
Tax credit carryover 554 0
Deferred Income - Schering 7,776 0
Long-term debt 3,921 3,186
Valuation allowance (54,181) (86,492)
----------- -----------
Total deferred tax asset 40,559 4,677
Deferred tax liabilities:
Property, plant and equipment (3,886) (3,885)
Inventory (1,249) (1,218)
Other (732) (544)
----------- -----------
Total deferred tax liability (5,867) (5,647)
----------- -----------
Net deferred tax asset (liability) $34,692 $ (970)
=========== ===========
</TABLE>
The Company's effective tax rate differs from the applicable U.S.
statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate (benefit) 35% (35%) 35%
Write-off of purchased research and
development 0 46 0
Foreign source income taxed at
lower effective rates (24) (3) (5)
Utilization of foreign NOL (1) 0 (1)
Recognition of fully reserved deferred tax
debits (4) (1) (2)
Utilization of foreign tax/AMT credits 0 (1) (4)
Favorable audit settlement (2) (1) (3)
State Income taxes, net of federal income
taxes benefit (1) 0 0
Other, net 0 1 0
--- --- ---
Effective rate 3% 6% 20%
=== === ===
</TABLE>
During 1995, 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, 1995, is
approximately $118,000,000 of accumulated earnings of foreign
operations that would be subject to U.S. income or foreign withholding
taxes, if and when repatriated.
<PAGE>
<PAGE> 39
The Company is under examination by the Internal Revenue Service for
the tax years ended November 30, 1991 and 1990. Currently, the
proposed adjustments, if upheld, would not result in a significant
additional tax liability; however, they would result in a significant
reduction in NOL's available to the Company in the future. During
1995, the Company settled audits for tax years 1989 and 1988 which
resulted in a reduction in net operating loss carryforwards of
$5,000,000 (pretax) and a corresponding decrease in the pretax
valuation allowance.
6. DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
1995 1994
---- ----
Convertible debt:
<S> <C> <C>
8.5% Convertible Subordinated Notes due 1999 $115,000 $115,000
Swiss Franc Subordinated Bonds due 1988-2001 with effective
interest rate of 8.5% (net of unamortized discount of $890
and $1,288 in 1995 and 1994, respectively) 14,965 14,590
Zero Coupon Guaranteed Swiss Franc Bonds with an effective
interest rate of 8.5%, maturing in 2002 (net of
unamortized discount of $495 and $611 in 1995 and 1994,
respectively) 9,751 9,453
3-1/4% Subordinated Double Convertible Swiss Franc
Bonds due 1997 (net of unamortized discount of
$53 and $146 in 1995 and 1994, respectively) 4,240 4,545
Zero Coupon ECU Subordinated Bonds due 1987-1996 with
an effective interest rate of 8.5% 1,396 2,548
-------- --------
145,352 146,136
Other Debt:
12-7/8% Sinking Fund Debentures due July 15, 1998 (net of
unamortized premium of $463 in 1994) 0 34,160
U.S. mortgage with a variable interest rate
currently at 6.2%, interest and principal payable
monthly through 1998 11,318 12,435
Other long-term debt, due in U.S. dollars and various
foreign currencies with interest rates ranging from
7.9% to 16% 5,173 8,517
-------- --------
161,843 201,248
Less current portion 7,650 6,067
-------- --------
Total long-term debt $154,193 $195,181
======== ========
</TABLE>
On November 17, 1994, the Company completed an underwritten public
offering in the principal amount of $115,000,000 of 8.5% Subordinated
Convertible Notes (the "Convertible Notes"), due in November 1999.
These notes are convertible at the option of the holder either in
whole or in part, at any time prior to maturity, into the Company's
stock at a current conversion price of $22.117 per share, subject to
adjustment in certain events. The Convertible Notes are also
redeemable, in whole or in part, at the option of the Company at any
time on or after November 15, 1997 at the specified redemption prices,
plus accrued interest. The fair value of the Convertible Notes was
approximately $127,650,000 at December 31, 1995.
<PAGE>
<PAGE> 40
In October 1986, Xr Capital Holding ("Xr Capital"), a trust
established by ICN, completed an underwritten public offering in
Switzerland of Swiss francs 100,000,000 principal amount of 5-5/8%
Swiss Franc Exchangeable Certificates (the "Xr Certificates") of which
SFr. 66,510,000 remain outstanding at December 31, 1995. Currently
and as a result of the Merger, the face value of the outstanding Xr
Capital are convertible into 1,501,172 shares of the Company's common
stock at the exchange price of $26.69 per share using a fixed exchange
rate of SFr. 1.66 to U.S. $1.00. The net proceeds of the offering
were used by Xr Capital to purchase from ICN 14 series of Swiss Franc
Subordinated Bonds due 1988-2001 (the "ICN-Swiss Franc Xr Bonds") for
approximately $27,944,000 and SFr. 45,700,000 principal amount of
cumulative coupon 5.4% Italian Electrical Agency Bonds due 2001 for
approximately $27,202,000. The Company has no obligation with respect
to the payment of the face amount of the Xr Certificates since these
are to be paid upon maturity by the Italian Bonds (except for payment
of certain additional amounts, in the event of the imposition of U.S.
withholding taxes on either the Xr Certificates or ICN Swiss Franc Xr
Bonds, for redemption of the Xr Certificates in the event the Company
exercises its optional right to redeem). The fair value of the ICN-
Swiss Franc Xr Bonds was approximately $14,816,000 at December 31,
1995.
In 1987, Bio Capital Holding ("Bio Capital"), a trust established by
ICN and Biomedicals, completed a public offering in Switzerland of
SFr. 70,000,000 principal amount of 5-1/2% Swiss Franc Exchangeable
Certificates ("Old Certificates"). The Bio Capital debt is senior,
uncollateralized indebtedness of the Company. At the option of the
certificate holder, the Old Certificates are exchangeable into shares
of the Company's common stock. Net proceeds were used by Bio Capital
to purchase SFr. 70,000,000 face amount of zero coupon Swiss Franc
Debt Notes due 2002 of the Kingdom of Denmark (the "Danish Bonds") for
SFr. 33,772,000 and 15 series of zero coupon Swiss Franc Guaranteed
Bonds of the Company (the "Zero Coupon Guaranteed Bonds") for SFr.
32,440,000 which are guaranteed by the Company. Each series of the
Zero Coupon Guaranteed Bonds are in an aggregate principal amount of
SFr. 3,850,000 maturing February of each year through 2002. The
Company has no obligation with respect to the payment of the principal
amount of the Old Certificates since they will be paid upon maturity
by the Danish bonds. During 1990, Biomedicals offered to exchange, to
all certificate holders, the Old Certificates for newly issued
certificates ("New Certificates"), the terms of which remain the same
except that 71 shares per SFr. 5,000 principal certificate can be
exchanged at $47.15 using a fixed exchange rate of SFr. 1.49 to U.S.
$1.00. Substantially all of the outstanding Old Certificates were
exchanged for New Certificates (together referred to as
"Certificates"). Currently, the face value of the outstanding Bio
Capital (SFr. 39,615,000) are convertible into 552,992 shares of the
Company's common stock at the exchange prices of $47.15 and $81.26
using fixed exchange rates of SFr. 1.49 and SFr. 1.54 to U.S. $1.00
for New and Old Certificates, respectively. The fair value of the
Zero Coupon Guaranteed Bonds was approximately $9,751,000 at December
31, 1995.
On March 25, 1987, ICN completed an underwritten public offering in
Switzerland of SFr. 60,000,000 principal amount of 3-1/4% Subordinated
Double Convertible Bonds due 1997 ("Double Convertible Bonds").
Currently, the outstanding Double Convertible Bonds totaling SFr.
4,952,000 are convertible into 68,369 shares of the Company's common
stock at the exchange price of $47.34 per share using a fixed exchange
rate of SFr. 1.53 to U.S. $1.00. The bondholders can convert the
Bonds equally into both Ciba Geigy stock and common stock of the
Company. In connection with this offering, the Company placed in
escrow 15,000 shares of Ciba Geigy Ltd. common stock. As of December
31, 1995, 6,190 shares of Ciba Geigy stock were outstanding and are
reflected in the consolidated balance sheet as other non current
assets. The fair value of these bonds was approximately $5,215,000 at
December 31, 1995. On March 8, 1996, the Company elected to redeem
all outstanding 3-1/4% Subordinated Double Convertible Bonds at par
plus accrued interest to the redemption date, April 9, 1996.
<PAGE>
<PAGE> 41
The Company has the option to redeem the Zero Coupon-ECU Bonds, ICN-
Swiss Franc Xr Bonds and Bio Certificates in the event that the market
price of the Company's common stock meets certain conditions.
The Company has mortgage notes payable totaling $15,175,000, payable
in U.S. dollars, Deutsche marks and Dutch guilders, collateralized by
certain real property of the Company.
Annual aggregate maturities of long-term debt subsequent to December
31, 1995 are as follows (in thousands):
1996 $ 7,650
1997 9,854
1998 13,522
1999 119,670
2000 4,895
Thereafter 6,252
----------
Total $ 161,843
==========
The fair value of the Company's debt is estimated based on quoted
market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The
carrying amount of all short-term and variable interest rate
borrowings approximates fair value.
Subsidiaries of the Company have short and long-term lines of credit
aggregating $12,708,000 of which $2,215,000 was outstanding at
December 31, 1995.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Predecessor Companies were defendants in a number of lawsuits.
As a result of the Merger, the Company has assumed all of the
Predecessor Companies' liabilities with respect to such lawsuits.
Through May 1995, nineteen lawsuits were filed which named the
Company, its Board of Directors, the Chairman and several other
officers of the Company as defendants (the "Defendants"), all related
to the Company's NDA for the use of Virazole(R) for the treatment of
chronic hepatitis C (the "Hepatitis C NDA"). Eighteen of those
lawsuits were consolidated into either the Consolidated Amended Class
Action Complaint for Violations of Federal Securities Laws (the
"Securities Complaint") or the Second Amended Consolidated Verified
Derivative Complaint (the "Derivative Complaint"). One derivative
lawsuit is still pending in Delaware (collectively, the "1995
Actions").
In general, it is alleged in the Securities Complaint that
Defendants made various deceptive and untrue statements of material
fact and omitted material facts regarding the Hepatitis C NDA in
connection with: (i) the merger of the Company, SPI, Viratek and
Biomedicals in November 1994 and the issuance of convertible
debentures in connection therewith; and (ii) information provided to
the public. Plaintiffs also allege that the Chairman of the Company
traded on inside information relating to the Hepatitis C NDA. The
Securities Complaint asserts claims for alleged violations of Sections
11 and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. Plaintiffs seek unspecified compensatory damages, pre-
judgment and post-judgment interest and attorneys' fees and costs.
Plaintiffs seek the certification of: (i) a class of persons who
purchased ICN securities from November 10, 1994 through February 17,
1995; and (ii) a subclass consisting of persons who owned SPI and/or
Biomedicals common stock prior to the Merger. Defendants filed their
answer to the Securities Complaint on January 8, 1996 and are actively
engaged in the pre-trial discovery process.
<PAGE>
<PAGE> 42
With respect to the Derivative Complaint, plaintiffs assert claims
against ICN's board (as it was composed in early 1995) and one officer
for intentional breach of fiduciary duty, negligent breach of
fiduciary duty, waste of corporate assets, constructive fraud, gross
mismanagement, abuse of control, unjust enrichment and violation of
California Corporations Code Section 25502.5, all in connection with
the Hepatitis C NDA. Plaintiffs seek disgorgement, unspecified
compensatory and punitive damages, attorneys' fees and costs and
injunctive and equitable relief. Defendants have filed a motion to
dismiss the Derivative Complaint and oral argument on that motion is
scheduled for April 15, 1996. Defendants intend to vigorously defend
these actions.
Four lawsuits have been filed with respect to the Merger in the
Court of Chancery in the State of Delaware (the "1994 Actions").
Three of these lawsuits were filed by stockholders of SPI and, in one
lawsuit, of Viratek, against ICN, SPI, Viratek (in the one lawsuit)
and certain directors and officers of ICN, SPI and/or Viratek
(including the Chairman) and purport to be class actions on behalf of
all persons who held shares of SPI common stock and, in the one
lawsuit, Viratek common stock. The fourth lawsuit was filed by a
stockholder of Viratek against ICN, Viratek and certain directors and
officers of ICN, SPI and Viratek (including the Chairman) and purports
to be a class action on behalf of all persons who held shares of
Viratek common stock. These suits allege that the consideration
provided to the public stockholders of SPI and/or Viratek (as
applicable) in the Merger was unfair and inadequate, and that the
defendants breached their fiduciary duties in approving the Merger and
otherwise. The 1994 Actions have been dormant for the past year. The
Company believes that these suits are without merit and intends to
defend them vigorously.
ICN, SPI and Viratek and certain of their officers and directors
(collectively, the "ICN Defendants") were named defendants 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 (BMW)); In re ICN/Viratek
Securities Litigation (Case No. 87 Civ. 4296 (BMW)) (collectively the
"1987 Actions"). In the Third Amended Complaint, plaintiffs allege
that the ICN Defendants made, or aided and abetted Paine Webber, Inc.
("Paine Webber") in making, misrepresentations of material fact and
omitted material facts concerning the business, financial condition
and future prospects of ICN, Viratek and SPI in certain public
announcements, Paine Webber research reports and filings with the
Securities and Exchange Commission ("SEC"). The alleged misstatements
and omissions primarily concern developments regarding Virazole(R),
including the efficacy, safety and market for the drug. The
plaintiffs allege that such misrepresentations and omissions violate
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and constitute common law fraud and
misrepresentation. On December 15, 1995, the ICN Defendants filed a
motion to dismiss in part or for partial summary judgment, and in
opposition to plaintiffs' motion to amend the Third Complaint. The
Court has not yet ruled on the motion.
Fact discovery is complete and expert discovery is virtually
complete. On January 3, 1996, the Court affirmed a report and
recommendation certifying classes of purchasers of ICN, Viratek and
SPI common stock for the period January 7, 1986 through April 15,
1987. Plaintiffs' 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 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. A trial date has been set for May 28, 1996.
<PAGE>
<PAGE> 43
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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 the 1987 Actions cannot be predicted with
certainty, and an unfavorable outcome could have a material adverse
effect on the Company, at this time management does not expect these
matters will have a material adverse effect on the financial position
and results of operations of the Company.
In January 1995, an action was commenced by a former employee
against ICN, SPI, Viratek and the Chairman. The complaint asserts
causes of action for sex discrimination and harassment, and for
violations of the California Department of Fair Employment and Housing
statute and a provision of the California Government Code. The
complaint seeks injunctive relief and unspecified compensatory and
punitive damages. A trial date has been set for September 9, 1996. The
defendants intend to vigorously defend the suit.
In February 1992, an action was filed in California Superior Court
for the County of Orange by Gencon Pharmaceuticals, Inc. ("Gencon")
against ICN Canada Limited ("ICN Canada"), SPI, and ICN, alleging
breach of contract and related claims arising out of a manufacturing
contract between Gencon and ICN Canada. ICN and SPI were dismissed
from the action in March 1993 based on SPI's agreement to guarantee
any judgment against ICN Canada. Following trial in 1993, the judge
granted judgment in favor of Gencon for breach of contract in the
amount of approximately $2,100,000 plus interest, costs and attorneys'
fees (which total approximately $650,000). ICN Canada filed its
Notice of Appeal and Gencon filed a Notice of Cross-Appeal, seeking
approximately $145,000 in additional claimed costs. Both the appeal
and cross-appeal have been fully briefed and oral argument is
scheduled for April 1996. The defendants intend to vigorously
prosecute their appeal.
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 alleged, among other things, 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. ICN and Viratek are seeking compensatory and punitive
damages in the amount of $25,000,000. Khan has filed counterclaims,
asserting causes of action for slander, interference with economic
relations, a shareholders' derivative action for breach of fiduciary
duties, violations of the federal securities laws and tortious
interference with economic relations, and is seeking compensatory
damages, interest and exemplary damages of $29,000,000. On November
4, 1994, ICN and Viratek moved to have a default judgment entered
against Khan and to dismiss his counterclaims. The Company intends to
vigorously defend the counterclaims.
<PAGE>
<PAGE> 44
The Company is a party to a number of other pending or threatened
lawsuits arising out of, or incident to, its ordinary course of
business. In the opinion of management, amounts accrued for awards,
assessments or potential losses in connection with these matters and
the matters referred to above, are adequate and the ultimate
resolution will not have a material effect on the Company's
consolidated financial position or results of operations.
INVESTIGATIONS: Pursuant to an Order Directing Private
Investigation and Designating Officers to Take Testimony, entitled In
the Matter of ICN Pharmaceuticals, Inc., (P-177) (the "Order"), a
private investigation is being conducted by the SEC with respect to
certain matters pertaining to the status and disposition of the
Hepatitis C NDA. As set forth in the Order, the investigation
concerns whether, during the period June 1994 through February 1995,
the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of ICN
common stock, engaged in possible violations of Section 17(a) of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder, by having possibly: (i) made
false or misleading statements or omitted material facts with respect
to the status and disposition of the Hepatitis C NDA; or (ii)
purchased or sold ICN common stock while in possession of material,
non-public information concerning the status and disposition of the
Hepatitis C NDA; or (iii) conveyed material, non-public information
concerning the status and disposition of the Hepatitis C NDA, to other
persons who may have purchased or sold ICN stock. The Company is
cooperating with the SEC in its investigation. To date, the Company
has produced documents to the SEC pursuant to its request and the SEC
has begun taking depositions of certain officers, directors, and
employees of the Company.
PRODUCT LIABILITY INSURANCE: The Company could be exposed to
possible claims for personal injury resulting from allegedly defective
products. While to date no material adverse claim for personal injury
resulting from allegedly defective products has been successfully
maintained against the Company, a substantial claim, if successful,
could have a material adverse effect on the Company.
LICENSE COMMITMENT: In November 1994, the Company entered into a
license agreement for the rights to develop and commercialize a group
of compounds related to and including human growth hormone releasing
factor ("GRF"), for the United States and other major pharmaceutical
markets. In connection with this agreement, the Company is obligated
to pay, upon meeting certain milestones, an aggregate amount of
$2,600,000. In addition, after such milestones are met, the Company
is obligated to pay a royalty of 9%, subject to certain adjustments,
based upon the net sales of GRF in certain territories.
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 1995, 1994 and 1993.
In connection with the Merger, the Company assumed deferred
compensation agreements with certain officers and certain key
employees of the Predecessor Companies, with benefits commencing at
death or retirement. As of December 31,1995, the present value of the
deferred compensation benefits to be paid has been accrued in the
amount of $2,924,000. Interest accrues on the outstanding balance at
rates ranging from 9.5% to 12.6%. No new contributions are being
made; however, interest continues to accrue on the present value of
the benefits expected to be paid.
<PAGE>
<PAGE> 45
OTHER: Milan Panic, the Company's Chairman of the Board, President
and Chief Executive Officer, is employed under a contract expiring
December 31, 1998 that provides for, among other things, certain
health and retirement benefits. Mr. Panic, at his option, may provide
consulting services upon his retirement for $120,000 per year for
life, subject to annual cost-of-living adjustments from the base year
of 1967. Including such cost-of-living adjustments, the annual cost
of such consulting services is currently estimated to be in excess of
$535,000. The consulting fee shall not at any time exceed the annual
compensation as adjusted, paid to Mr. Panic. Upon Mr. Panic's
retirement, the consulting fee shall not be subject to further cost of
living adjustments.
The Company has Employment Agreements, assumed in connection with
the Merger, with five key executives which contain "change in control"
benefits. Upon a "change in control" of the Company as defined in the
contract, the employee shall receive severance benefits equal to three
times salary and other benefits.
8. COMMON STOCK:
Prior to Merger, each of the Predecessor Companies had their own
stock option plans. Upon consummation of the Merger, New ICN assumed
all options outstanding under the existing stock option plans. The
existing stock option plans were exchanged for shares of New ICN.
Each option of SPI common stock, ICN common stock, Viratek common
stock and Biomedicals common stock was exchanged for 1.0, 0.512, 0.499
and 0.197 options of New ICN common stock, respectively.
New ICN assumed three, two and three Nonqualified Stock Option Plans
from Biomedicals, ICN and Viratek, respectively, and two employee
Incentive Stock Option Plans from each of Biomedicals, ICN and
Viratek, respectively. Prior to the Merger, SPI had three Non
Qualified Stock Option Plans, one of these Plans was reserved for
certain officers of SPI, and two employee Incentive Stock Option
Plans. At December 31, 1995, the number of options granted under
plans that existed prior to the Merger were 5,159,000. Subsequent to
the Merger, no new grants are being issued under these plans.
At the time of the Merger, the 1994 Stock Option Plan was adopted
and is currently subject to stockholder approval. This plan provides
for the granting of a maximum of 3,236,000 stock options. Under the
plan each nonemployee director is granted 16,182 options on the day
following the annual meeting of stockholders. Shares granted under
this plan as of December 31, 1995 were 1,087,000, all of which are
outstanding.
Under the terms of all stock option plans, the option price may not
be less than the fair market value at the date of the grant and may
not have a term exceeding 10 years. Option grants vest ratably over a
four year period from the date of the grant. The options granted are
reserved for issuance to officers, directors, key employees,
scientific advisors and consultants.
<PAGE>
<PAGE> 46
The following table sets forth information relating to stock option
plans during the years ended December 31, 1995, 1994 and 1993 (in
thousands, except per share data):
<TABLE>
<CAPTION>
AVERAGE
OPTION
TOTAL PRICE
--------- --------
<S> <C> <C>
Shares under option, December 31, 1992 3,024 $15.32
Granted 804
Exercised (488) $ 4.96
Canceled (128)
--------
Shares under option, December 31, 1993 3,212 $15.67
Granted 1,277
Exercised (84) $ 6.95
Canceled (159)
Effect of Merger 2,086
--------
Shares under option, December 31, 1994 6,332 $17.66
Granted 621
Exercised (515) $ 8.02
Canceled (192)
--------
Shares under option, December 31, 1995 6,246 $16.86
========
Exercisable at December 31, 1995 3,481
========
Options available to grant at December 31, 1994 2,768
========
Options available to grant at December 31, 1995 2,149
========
</TABLE>
In 1995, the Company issued quarterly stock distributions which
totaled 5.6%. In 1994, the Company issued quarterly stock dividends
and distributions which totaled 4.8%. In January 1993, SPI issued a
1992 fourth quarter stock dividend of 2%. During 1993, SPI issued
additional quarterly stock dividends which totaled 6%. Accordingly,
all relevant stock option data and per share data has been restated to
reflect these dividends and distributions.
In January 1996, the Company sold approximately 400,000 shares of its
common stock to a foreign bank for net proceeds of $6,000,000. The
proceeds were used by the Company for the acquisition of Gly Derm, a
Michigan based skin care company, and several smaller acquisitions.
In 1994, the Company issued common stock for certain bonuses accrued
in 1993. The number of shares issued was based upon the fair value of
the shares at the date of issuance and a fixed amount related to the
bonuses paid.
<PAGE>
<PAGE> 47
<TABLE>
<CAPTION>
9. DETAIL OF CERTAIN ACCOUNTS (IN THOUSANDS):
1995 1994
---- ----
<S> <C> <C>
Receivables, net:
Trade accounts receivable $ 71,539 $ 84,789
Other receivables 5,044 7,198
---------- ----------
76,583 91,987
Allowance for doubtful accounts (8,070) (10,036)
---------- ----------
$ 68,513 $ 81,951
========== ==========
Inventories, net:
Raw materials and supplies $ 56,227 $ 37,198
Work-in-process 14,865 13,167
Finished goods 80,373 54,473
---------- ----------
151,465 104,838
Allowance for inventory obsolescence (12,709) (15,390)
---------- ----------
$138,756 $ 89,448
========== ==========
Prepaid expenses and other current assets:
Advances to inventory suppliers $ 14,088 $ 19,175
Prepaid expenses and other current assets 10,091 5,971
---------- ----------
$ 24,179 $ 25,146
========== ==========
Property, plant and equipment:
Land $ 18,173 $ 18,502
Buildings 62,967 59,904
Machinery and equipment 62,965 59,005
Furniture and fixtures 12,418 10,718
Leasehold improvements 2,603 3,150
---------- ----------
159,126 151,279
Accumulated depreciation and amortization (37,358) (33,965)
Construction in progress 50,719 11,309
---------- ----------
$172,487 $ 128,623
========== ==========
</TABLE>
During the third quarter of 1994, ICN Galenika commenced a
construction and modernization program at its pharmaceutical
complex outside Belgrade, Yugoslavia. At December 31, 1995 and
1994, construction in progress primarily relates to costs incurred
to date for these facilities and includes capitalized interest of
$1,978,000 in 1995 and no amounts in 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accrued liabilities:
Payroll and related items $ 11,579 $ 12,396
Interest 3,739 5,513
Other 23,713 25,202
--------- ----------
$ 39,031 $ 43,111
========== ==========
/TABLE
<PAGE>
<PAGE> 48
10. BUSINESS SEGMENTS AND GEOGRAPHIC DATA:
ICN Pharmaceuticals, Inc. is a multinational pharmaceutical company
that develops, manufactures, distributes and sells pharmaceutical,
nutritional, research chemical and diagnostic products. The principal
markets for its products are Yugoslavia and the United States.
Approximately 46% of the Company's sales are from Yugoslavia while
sales in the United States represent 25% of total Company sales.
Operations in Yugoslavia are subject to business risks described in
Note 12 .
The Company's largest selling product, Virazole(R), accounts for
approximately 10% of total Company sales and is sold principally in
the United States for the treatment of respiratory syncytial virus
("RSV") in young infants. RSV is a seasonal disease and overall sales
of Virazole(R) from year to year are subject to the incidence and
severity of the disease, which cannot be predicted with certainty.
The Company is actively involved in seeking approval of Virazole(R)
for the treatment of other diseases. In July 1995 the Company entered
into a licensing agreement with a subsidiary of Schering-Plough
Corporation to license Virazole(R) as a treatment for chronic
hepatitis C in combination with alpha interferon. Under the
agreement, Schering-Plough will be responsible for all clinical
developments worldwide.
The Company operates in two business segments: pharmaceutical (the
"Pharmaceutical group") and, since the effective date of the Merger,
biomedical (the "Biomedical group"). The Pharmaceutical group
produces and markets pharmaceutical products in the United States,
Mexico, Canada and Europe. The Biomedical group markets research
chemical and cell biology products and related services, biomedical
instrumentation and immunodiagnostic reagents and instrumentation.
The following tables set forth the amount of net sales, income
(loss) before interest, provision for taxes and minority interest and
identifiable assets of the Company by business segment and
geographical areas for 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
1995 1994 1993
---- ---- ----
SALES
<S> <C> <C> <C>
Pharmaceutical $ 446,566 $ 357,821 $ 403,957
Biomedical 61,339 9,030 0
---------- ---------- ----------
Total $ 507,905 $ 366,851 $ 403,957
========== ========== ==========
OPERATING INCOME (LOSS):
Pharmaceutical $ 129,753 $(152,092)<F1> $ 51,120
Biomedical 5,707 410 0
Corporate (42,294) (13,490) (11,618)
---------- ---------- ----------
Total $ 93,166 $(165,172) $ 39,502
========== ========== ==========
</TABLE>
(1) Includes a write-off of purchased research and development for which no
alternative use exists of $221,000,000 as a result of the Merger.
<TABLE>
<CAPTION>
Identifiable assets:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pharmaceutical $ 373,027 $ 314,517 $ 292,132
Biomedical 51,407 49,769 0
Corporate 93,864 77,187 9,885
--------- ---------- ---------
Total $ 518,298 $ 441,473 $ 302,017
========= ========== =========
</TABLE>
<PAGE>
<PAGE> 49
<TABLE>
<CAPTION>
Depreciation and amortization:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pharmaceutical $ 9,549 $ 8,303 $ 8,276
Biomedical 2,221 524 0
Corporate 2,044 421 237
--------- --------- ---------
Total $ 13,814 $ 9,248 $ 8,513
========= ========= =========
</TABLE>
<TABLE>
CAPITAL EXPENDITURES:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pharmaceutical $ 56,363 $ 19,745 $ 8,260
Biomedical 2,680 299 0
Corporate 450 161 171
--------- --------- ---------
Total $ 59,493 $ 20,205 $ 8,431
========= ========= =========
</TABLE>
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
SALES:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States $ 124,865 $ 81,563 $ 55,842
Canada 18,765 15,973 13,734
--------- -------- ---------
North America 143,630 97,536 69,576
Latin America (principally Mexico) 43,684 56,737 57,782
Western Europe 58,170 31,789 30,601
Eastern Europe 254,961 172,124 239,832
Asia, Africa, and Australia 7,460 8,665 6,166
--------- --------- ---------
Total $ 507,905 $ 366,851 $ 403,957
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Operating Income (loss):
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States $ 64,810 $(183,681)<F1> $ 24,455
Canada 4,501 3,771 1,448
--------- --------- ---------
North America 69,311 (179,910) 25,903
Latin America (principally Mexico) 8,757 9,318 10,576
Western Europe 4,712 1,496 1,342
Eastern Europe 52,475 15,505 12,000
Asia, Africa, and Australia 205 1,909 1,299
Corporate (42,294) (13,490) (11,618)
----------- ---------- ----------
Total $ 93,166 $ (165,172) $ 39,502
=========== ========== ==========
</TABLE>
(1) Includes a write-off of purchased research and development for
which no alternative use exists of $221,000,000 as a result of the
Merger.
<TABLE>
<CAPTION>
Identifiable assets:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States $ 57,070 $ 66,942 $ 37,972
Canada 8,865 8,858 6,143
--------- --------- ---------
North America 65,935 75,800 44,115
Latin America (principally Mexico) 23,823 26,787 33,874
Western Europe 57,950 52,469 33,284
Eastern Europe 274,940 203,357 180,055
Asia, Africa, and Australia 1,786 3,773 804
Corporate 93,864 79,287 9,885
-------- --------- ---------
Total $ 518,298 $ 441,473 $ 302,017
========= ========= =========
/TABLE
<PAGE>
<PAGE> 50
During the years ended December 31, 1995, 1994 and 1993,
approximately 81%, 75% and 80%, respectively, of ICN Galenika's sales
were to government sponsored entities of the Federal Republic of
Yugoslavia. At December 31, 1995 and 1994, receivables from these
entities were $24,111,000 and $35,954,000, respectively. Future sales
of ICN Galenika could be dependent on the ability of the Yugoslavian
government to generate cash to purchase pharmaceuticals, the
continuation of its current policy to buy products from ICN Galenika
and the continued imposition of price controls. No other customer
accounts for more than 10% of the Company's net sales.
11 . SUPPLEMENTAL CASH FLOWS DISCLOSURES:
NON-CASH TRANSACTIONS: In November 1995, ICN Galenika exchanged, in
a non-recourse transaction, accounts receivable for $10,900,000 of
inventories and $9,800,000 for construction materials for its plant
expansion.
During 1995, 1994, and 1993, the Company issued common stock
dividends and distributions of $29,187,000, $24,157,000 and
$20,634,000, respectively.
Cash and non-cash financing activities consisted of the following (in
thousands):
MERGER OF PREDECESSOR COMPANIES:
<TABLE>
<CAPTION
1994
----
<S> <C>
Fair value of assets acquired (other than cash) $ 336,849
Fair value of liabilities assumed (208,723)
---------
128,126
Stock issued in connection with Merger (134,393)
Direct acquisition costs (3,654)
---------
Cash received $ (9,921)
==========
</TABLE>
In the fourth quarter of 1995 the purchase price allocation was
finalized by recording a liability for a pre-acquisition contingency,
as previously disclosed, in an amount that the Company considers
adequate.
The following table sets forth the amounts of interest and income
taxes paid during 1995, 1994 and 1993 (in thousands):
<TABLE>
>CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest paid (including amounts
capitalized in 1995 of $1,978) $ 23,308 $ 5,237 $ 11,203
========== ======== ========
Income taxes paid $ 6,915 $ 2,062 $ 3,156
========== ======== ========
<PAGE>
<PAGE> 51
12. ICN GALENIKA:
The summary balance sheets of ICN Galenika as of December 31, 1995
and 1994, and the summary statements of income before provision for
income taxes and minority interest for the years ended December 31,
1995, 1994 and 1993, are presented below.
ICN GALENIKA SUMMARY BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
</TABLE>
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash $ 2,696 $ 4,193
Marketable securities 29,486 29,155
Receivables, net 21,721 42,320
Inventories, net 103,511 59,475
Other current assets 14,267 34,939
Other long-term assets 102,000 46,783
--------- ----------
$ 273,681 $ 216,865
========== ==========
Current liabilities $ 22,424 $ 27,982
Minority interest and liabilities 59,680 46,156
Stockholders' equity 191,577 142,727
--------- ----------
$ 273,681 $ 216,865
========= ==========
</TABLE>
ICN GALENIKA SUMMARY STATEMENTS OF INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $ 234,661 $ 172,124 $ 239,832
Cost of sales 116,748 121,701 156,189
--------- -------- --------
Gross profit 117,913 50,423 83,643
Operating expenses 71,617 34,918 71,641
--------- -------- --------
Income from operations 46,296 15,505 12,002
Interest income (4,087) (2,049) (5,254)
Interest expense 3,610 933 16,773
Translation and exchange losses, net (12,063) 1,417 173
--------- --------- ---------
Income before provision for income
taxes and minority interest $ 58,836 $ 15,204 $ 310
========== ========= =========
HYPERINFLATION AND DEVALUATION: ICN Galenika, a 75% owned
subsidiary, operates in a highly inflationary economy and uses the
dollar as the functional currency rather than the Yugoslavian dinar.
Before the enactment of an economic stabilization program in January
1994, the rate of inflation in Yugoslavia was over 1 billion percent
per year. The rate of inflation was dramatically reduced when, on
January 24, 1994, the Yugoslavian government enacted a "Stabilization
Program" designed to strengthen its currency. Throughout 1994, this
program was successful in reducing inflation to approximately 5% per
year, increasing the availability of hard currency, stabilizing the
exchange rate of the dinar, and improving the overall economy in
Yugoslavia.
Throughout 1995, the effectiveness of the stabilization program
weakened and ICN Galenika began experiencing a decline in the
availability of hard currency in Yugoslavia and inflation levels
accelerated to an approximate annual rate of 90% by the end of the
year.
<PAGE>
<PAGE> 52
Through the third quarter of 1995, the net monetary asset position
of ICN Galenika had increased due to rising accounts receivable
balances resulting from improved sales and the lengthening of the
collection period of receivables resulting from the lack of
availability of dinars in Yugoslavia. From a beginning balance of
$25,442,000 at December 31, 1994, the net monetary asset position of
ICN Galenika had risen to $52,366,000 at September 30, 1995. Upon
devaluation of the dinar, a net monetary asset position will result in
translation losses. Therefore, early in the fourth quarter of 1995,
ICN Galenika took action to reduce its monetary exposure by shortening
the payment terms on its receivables, reducing sales levels,
accelerating the purchase of inventory and accelerating the purchase
of building materials for its plant expansion. On November 24, 1995,
the dinar devalued from a rate of 1.4 dinars per U.S. $1 to a rate of
4.7 dinars per U.S. $1. On this date, ICN Galenika had a net monetary
liability position that resulted in a gain of $8,724,000. As of
December 31, 1995, ICN Galenika had a net monetary asset position of
$7,396,000 which would be subject to foreign exchange loss if a
devaluation of the dinar were to occur.
As required by Generally Accepted Accounting Principles ("GAAP"),
the Company translates ICN Galenika financial results at the dividend
payment rate established by the National Bank of Yugoslavia. To the
extent that changes in this rate lag behind the level of inflation,
sales and expenses will, at times, tend to be inflated. Future sales
and expenses can substantially increase if the timing of future
devaluations falls significantly behind the level of inflation. The
future of the economic and political environment of Yugoslavia is
uncertain and could deteriorate to the point that a severe impact on
the financial position and results of operations of the Company could
occur.
SANCTIONS: A substantial majority of ICN Galenika's business is
conducted in the Federal Republic of Yugoslavia (Serbia and
Montenegro). In December 1995, the United Nations Security Council
("UNSC") adopted a resolution that suspended economic sanctions that
had been imposed on the Federal Republic of Yugoslavia since May 1992.
Sanctions contributed to an overall deteriorating business
environment in which ICN Galenika operated and denied ICN Galenika
access to export sales which previously totaled approximately
$30,000,000 per year. Sanctions also created restrictions on ICN
Galenika's overseas investments and imposed administrative burdens in
obtaining raw materials outside of Yugoslavia.
The Company believes the suspension of sanctions will provide a more
favorable business environment in the future; however, the beneficial
effects of the suspension will not take place immediately as the
economy needs to adjust to new opportunities. If the peace process in
the Balkans deteriorates there is a risk that sanctions could be
reinstated.
PRICE CONTROLS: ICN Galenika is subject to price controls in
Yugoslavia. The size and frequency of government approved price
increases is influenced by local inflation, devaluations, cost of
imported raw materials and demand for ICN Galenika products. During
1995 and 1994, ICN Galenika received fewer price increases than in the
past due to lower relative levels of inflation. As inflation
increases, the size and frequency of price increases is expected to
increase. During the third quarter of 1995, ICN Galenika received a
30% price increase on its pharmaceutical products. This was the first
price increase the government had allowed since the start of the
Stabilization Program. Subsequent to the devaluation on November 24,
1995, ICN Galenika received an 80% price increase on its
pharmaceutical products. Price increases obtained by ICN Galenika are
based on economic events preceding the price increase and not on
expectation of ongoing inflation. This lag in allowed price increases
creates downward pressure on the gross margins that ICN Galenika
receives on its products. When necessary, ICN Galenika will limit
sales of products that have poor margins until an acceptable price
increase is received. The impact of an inability to obtain adequate
price increases in the future could have an adverse impact on the
Company as a result of declining gross profit margins or declining
sales in an effort to maintain existing gross margin levels.
<PAGE>
<PAGE> 53
DIVIDENDS: In 1992, ICN Galenika paid a $10,000,000 dividend of
which the Company received 75% or $7,500,000. Yugoslavian law allows
free distribution of earnings whether to domestic (Yugoslavian) or
international investors. Under this law a dividend must be declared
and paid immediately after year end. Earnings that are not
immediately paid as a dividend cannot be used for future dividends.
Additionally, ICN Galenika is allowed to pay dividends out of earnings
calculated under local statutory tax basis rules, not earnings
calculated under GAAP. ICN Galenika dividends are payable in dinars
which must be exchanged for dollars before the dividend is
repatriated. During high levels of inflation the dinar denominated
dividend could devalue substantially by the time the dividend is
exchanged for dollars. Under GAAP, ICN Galenika had accumulated
earnings, which are not available for distributions, of approximately
$117,011,000 at December 31, 1995. However, additional repatriation
of cash could be declared from contributed capital for Yugoslavian
purposes of $360,000,000 at December 31, 1995, as provided for in the
original purchase agreement. In 1992, the Company made the decision
to no longer repatriate the earnings of ICN Galenika and instead will
use these earnings for local operations, plant expansion, reduction of
debt and additional investment in Eastern Europe.
In 1996 certain tax benefits that were acquired in the acquisition
of ICN Galenika will expire. The expiration of these tax benefits will
raise the overall effective tax rate for ICN Galenika. However, this
increase may be partially offset by tax credits for plant construction
provided by Yugoslavia.
13. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist
primarily of cash deposits and marketable securities. The Company
places its cash and cash equivalents with respected financial
institutions and limits the amount of credit exposure to any one
financial institution; however, in connection with the acquisition of
ICN Galenika, the cash contributed to ICN Galenika was required, under
the terms of the agreement, to be placed on deposit in a single high
credit quality financial institution outside of Yugoslavia. At
December 31, 1995, ICN Galenika had corporate bond securities of
$26,663,000, plus accrued interest of $711,000, on deposit with this
financial institution which were sold subsequent to year end at a gain
of $289,000.
14. ACQUISITIONS:
On May 5, 1995, the Company acquired the radioimmunoassay product
line along with the inventory and property, plant and equipment from
Becton-Dickinson ("B-D"), located in Orangeburg, New York , for a
purchase price of approximately $3,000,000. To fund this acquisition
and to provide funds for working capital for the B-D product line, the
Company sold 400,000 shares of its common stock to a foreign bank for
$5,753,000, net of transaction fees and commissions. The financial
results of B-D included in the consolidated financial statements,
since the date of acquisition, were not significant.
During 1994 and 1993, the Company acquired a 41% interest in
Oktyabr, a Russian pharmaceutical company. On July 21, 1995, the
Company purchased an additional 34% interest in Oktyabr, raising the
Company's ownership from 41% to 75%. In connection with the
acquisition of the additional interest, the Company issued 225,807
shares of its common stock, valued at approximately $3,500,000, based
upon the market price of the stock at the time the shares were issued,
in exchange for the shares in Oktyabr. The acquisition is not
material to the financial position or results of operations of the
Company.
On December 20, 1995, the Company acquired a 40% interest in SeaLite
Sciences, Inc. ("SeaLite"), located in Atlanta, Georgia, for 89,264
shares of the Company's common stock valued at the closing market
price of the Company's common stock on that date, approximately
$1,850,000. SeaLite develops high technology diagnostic tests and
research products. The agreement provides an option for the Company
to purchase the remaining 60% of SeaLite at a future date. The
acquisition is not material to the financial position or operations of
the Company.
<PAGE>
<PAGE> 54
15. AGREEMENT WITH SCHERING-PLOUGH CORPORATION:
On July 28, 1995, the Company entered into an Exclusive License and
Supply Agreement (the "Agreement") and a Stock Purchase Agreement with
a subsidiary of Schering-Plough Corporation ("Schering") to license
the Company's proprietary anti-viral drug ribavirin as a treatment for
chronic hepatitis C in combination with Schering's alpha interferon.
The Agreement provided the Company an initial non-refundable payment
by Schering of $23,000,000, and future royalty payments to the
Company for marketing of the drug, including certain minimum royalty
rates. Schering will have exclusive marketing rights for ribavirin
for hepatitis C worldwide, except that the Company will retain the
right to co-market in the countries of the European Economic
Community. In addition, Schering will purchase up to $42,000,000 in
common stock of the Company upon the achievement of certain regulatory
milestones. Under the Agreement, Schering will be responsible for all
clinical developments worldwide.
The $23,000,000 non-refundable payment has been recorded by the
Company as prepaid royalty income of $10,000,000, a license fee of
$8,000,000 and a liability to Schering for certain cost sharing
agreements of $5,000,000. The prepaid royalty will be amortized to
income based upon future sales of the product and the license fee will
be amortized to income over the exclusive period of the Agreement,
fifteen years.
<PAGE>
<PAGE> 55
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
</TABLE>
<TABLE>
<CAPTION>
Additions Charged
Balance at (credited) to Deductions Balance
Beginning Costs and to other from at endof
of Period expenses accounts reserves period
--------- ------------------ -------- ---------
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables $10,036 $ (1,262) $( 197) $ (507) $ 8,070
======== ========= ======== ======== =======
Reserve for inventory obsolescence $15,390 $ (2,310) $ 550 $ (921) $12,709
======== ========= ======== ======== =======
Deferred tax asset valuation allowance $86,492 $ 0 $(29,123)<F3> $(3,188) $54,181
======== ========= ======== ======== =======
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful receivables $ 7,633 $ 1,410 $ 1,507 $ (514) $10,036
======== ========= ======== ========= =======
Reserve for inventory obsolescence $ 1,317 $ 3,835 $ 11,431<F2> $ (1,193) $15,390
======== ========= ======== ========= =======
Deferred tax asset valuation allowance $ 2,307 $ 0 $ 84,643<F2> $ (458) $86,492
======== ========= ======== ========= =======
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful receivables $10,188 $11,261 $(13,664)<F1> $ (152) $7,633
======= ======== ========= ======== =======
Reserve for inventory obsolescence $ 3,671 $ 1,281 $ (532) $(3,103) $1,317
======= ======== ========= ======== =======
Deferred tax asset valuation allowance $ 4,682 $ 0 $ 0 $(2,375) $2,307
======= ======== ========= ======== =======
</TABLE>
[FN]
<F1> The credit to other accounts is primarily due to the impact of
devaluations on the outstanding allowance for doubtful accounts.
In highly inflationary countries such as Yugoslavia, a devaluation
will result in a reduction of accounts receivable and a
proportionate reduction in the accounts receivable allowance. The
reduction of accounts receivable is recorded as a foreign currency
translation loss and the reduction of the allowance is recorded as
a translation gain. Shortly after a devaluation the level of
accounts receivable will rise as a result of subsequent price
increases. In conjunction with the rise in receivables, additions
to the allowance for receivables will be made for existing doubtful
accounts. This process will repeat itself for each devaluation
that occurs during the year. The effect of this process results in
a high level of bad debt expense that does not necessarily reflect
credit risk or difficulties in collecting receivables.
<F2> These amounts relate to acquired net operating losses and
reserves for inventory obsolescence as a result of the Merger (see
Note 1 and 5 of the Notes to the Financial Statements).
<F3> The credit to other accounts represents the reduction of goodwill
and intangibles assets for the utilization and reevaluation of the
ultimate realization of acquired net operating losses and other
deferred tax assets, as a result of the Merger, and the settlement
of an IRS examination for 1989 and 1988 (see Note 5 of Notes to the
Financial Statements).
<PAGE>
<PAGE> 56
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
<PAGE> 57
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed in
connection with the Company's 1995 annual meeting of stockholders.
Reference is made to that portion of the Proxy Statement entitled
"Information Concerning Nominees and Directors." Information
regarding the Company's executive officers is included in Part I of
this Form 10-K under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed in
connection with the Company's 1995 annual meeting of stockholders.
Reference is made to that portion of the Proxy Statement entitled
"Executive Compensation and Related Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
That information required under this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed in
connection with the Company's 1995 annual meeting of stockholders.
Reference is made to that portion of the Proxy Statement entitled
"Ownership of the Company's Securities."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That information required under this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed in
connection with the Company's 1995 annual meeting of stockholders.
Reference is made to that portion of the Proxy Statement entitled
"Executive Compensation and Related Matters" and "Certain
Transactions."
<PAGE>
<PAGE> 58
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
Consolidate Financial Statements and filed under Item 8,
"Financial Statements and Supplementary Data", included elsewhere
in the Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of the Registrant is listed in the
index to Consolidated Financial Statements and filed under Item
8, "Financial Statements and Supplementary Data," included
elsewhere in this Form 10-K.
3. EXHIBITS
3.1. Certificate of Incorporation of Registrant,
previously filed as Exhibit 3.1 to Registration
Statement No. 2-84984 on Form S-1, which is
incorporated herein by reference.
3.2. Certificate of Amendment of Certificate of
Incorporation, dated May 10, 1985, previously
filed as Exhibit 3.2 to Registration Statement No.
2-99069, which is incorporated herein by
reference.
3.3. Certificate of Amendment of Certificate of
Incorporation, dated December 24, 1986, previously
filed as Exhibit 3.3 to annual report on Form 10-K
for the year ended November 30, 1986, which is
incorporated herein by reference.
3.4. Bylaws of ICN, previously filed as Exhibit 3.2 to
Registration Statement No. 2-84984 on Form S-1,
which is incorporated herein by reference.
Amendment of bylaws approved by stockholders on
November 21, 1986, previously filed as Exhibit 3.4
to annual report on Form 10-K for the year ended
November 30, 1986, which is incorporated herein by
reference.
10.1. 1982 Employee Incentive Stock Option Plan,
previously filed as Exhibit 10.9 to Registration
Statement No. 2-84984 on Form S-1, which is
incorporated herein by reference.
10.2. 1982 Non-Qualified Stock Option Plan,
previously filed as Exhibit 10.10 to Registration
Statement No. 2-84984 on Form S-1, which is
incorporated herein by reference.
<PAGE>
<PAGE> 59
10.3. Xr Capital Holding Trust Instrument between
ICN Pharmaceuticals, Inc. and Ansbacher (C.I.)
Limited dated as of September 17, 1986;
Subscription Agreement between Ansbacher (C.I.)
Limited, ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc., and Banque Gutzwiller,
Kurz, Bungener S.A. and the other financial
institutions named therein dated as of September
17, 1986; Bond Issue Agreement between ICN
Pharmaceuticals, Inc. and Ansbacher (C.I.) Limited
dated as of September 17, 1986; and Exchange
Agency Agreement between ICN Pharmaceuticals,
Inc., SPI Pharmaceuticals, Inc. Banque Gutzwiller,
Kurz, Bungener S.A., and the other financial
institutions named therein dated as of September
17, 1986, previously filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year
ended November 30, 1986, which is incorporated
herein by reference.
10.4. Pro forma deed of sale of shares representing
100 percent of Capital Stock of Laboratorios
Hubber, S.A. between ICN Pharmaceuticals, Holland
B.V., Patrimonio Del Estado, an agency of the
Spanish government, and Rumasa, S.A., previously
filed as Exhibit 2.1 to Registrant's Current
Report on Form 8-K dated February 18, 1987,
previously filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992, which is incorporated herein by
reference.
10.5. Foundation Agreement between SPI
Pharmaceuticals, Inc. and ICN Galenika dated
November 22, 1990 previously filed as Exhibit
10.35 to the Company's Annual Report on Form 10-K
for the year ended November 30, 1990, which is
incorporated herein by reference.
10.6. Closing Date Agreement between SPI
Pharmaceuticals, Inc. and ICN Galenika dated
April 26, 1991, previously filed as Exhibit 10.36
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, which is
incorporated herein by reference.
10.7. Amendment to Foundation Agreement between SPI
Pharmaceuticals, Inc. and ICN Galenika dated
December 31, 1991, previously filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991, which is
incorporated herein by reference.
10.8. Additional Amendment to Foundation Agreement
between SPI Pharmaceuticals, Inc. and ICN Galenika
dated February 27, 1992, previously filed as
Exhibit 10.40 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991,
which is incorporated herein by reference.
10.9. Letter of Credit issued by SPI
Pharmaceuticals, Inc. in favor of ICN Galenika
previously filed as Exhibit 10.41 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1991, which is incorporated herein by
reference.
<PAGE>
<PAGE> 60
10.10 1992 Employee Incentive Stock Option Plan and
Employee Incentive Stock Option Agreement
Thereunder previously filed as Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, which is
incorporated herein by reference.
10.11 1992 Non-Qualified Stock Option Plan and Non-
Qualified Stock Option Agreement Thereunder
previously filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1992, which is incorporated herein by
reference.
10.12 Leave of Absence and Reemployment Agreement
between SPI Pharmaceuticals, Inc. and Milan Panic
dated July 25, 1992, previously filed as Exhibit
10.44 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992, which is
incorporated herein by reference.
10.13 Application for Registration, Foundation
Agreement, Joint Venture - ICN Oktyabr previously
filed as Exhibit 10.46 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1992, which is incorporated herein by
reference.
10.14 Charter of the Joint Stock Company - ICN
Oktyabr, previously filed as Exhibit 10.47 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1992, which is incorporated
herein by reference.
10.15 Supplemental Agreement to Subscription
Agreement, dated October 14, 1994 between ICN
Subsidiary Corp., ICN Merger Corp., DG Bank
(Schweiz) AG and Bank Leu AG, previously filed as
Exhibit 10.23 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.16 Supplemental Agreement to Conversion Agency
Agreement dated October 14, 1994 between ICN
Merger Corp. and E. Gutzwiller & Cie, previously
filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1994, which is incorporated herein by
reference.
10.17 First Supplement To Indenture dated October
19, 1994 between ICN Pharmaceuticals, Inc., ICN
Merger Corp. and Bank of America National Trust
and Savings Association, previously filed as
Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.18 Supplemental Agreement to Subscription
Agreement dated October 14, 1994 between ICN
Merger Corp. and Banque Parisbas S.A., previously
filed as Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1994, which is incorporated herein by
reference.
10.19 First Supplement To Indenture dated October
14, 1994 between ICN Pharmaceuticals, Inc., ICN
Merger Corp. and Citibank, N.A., previously filed
as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
<PAGE>
<PAGE> 61
10.20 Supplemental Agreement to Subscription
Agreement dated October 14, 1994 between ICN
Merger Corp. and Bank Leu AG, previously filed as
Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.21 Second Supplement To Indenture dated October
14, 1994 between ICN Pharmaceuticals, Inc., ICN
Merger Corp., and IBJ Schroder Bank and Trust
Company, previously filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, which is incorporated
herein by reference.
10.22 Supplemental Agreement to Bond Issue
Agreement dated October 31, 1994 between ICN
Pharmaceuticals, Inc, ICN Subsidiary Corp., ICN
Merger Corp. and Ansbacher (Guernsey) Limited,
previously filed as Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994, which is incorporated herein by
reference.
10.23 Supplemental Agreement to the Bonds dated
October 14, 1994 between ICN Merger Crop. and DG
Bank, previously filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, which is incorporated
herein by reference.
10.24 Supplemental Agreement to the Bond Issue
Agreement dated October 31, 1994 between ICN
Biomedicals, Inc, ICN Pharmaceuticals, Inc., ICN
Subsidiary Corp., ICN Merger Crop. and Ansbacher
(Guernsey) Limited, previously filed as Exhibit
10.32 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, which is
incorporated herein by reference.
10.25 Supplemental Agreement to the Bonds dated
October 31, 1994 between ICN Merger Crop. and DG
Bank, previously filed as Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, which is incorporated
herein by reference.
10.26 Supplemental Agreement to the Bonds Issue
Agreement dated October 31, 1994 between ICN
Pharmaceuticals, Inc., ICN Merger Corp. and
Ansbacher (Guernsey) Limited, previously filed as
Exhibit 10.34 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.27 Supplemental Agreement to the Bonds Issue
Agreement dated October 31, 1994 between ICN
Pharmaceuticals, Inc., ICN Merger Corp. and
Ansbacher (Guernsey) Limited, previously filed as
Exhibit 10.35 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.28 Supplemental Agreement to the Bonds Issue
Agreement dated October 31, 1994 between ICN
Pharmaceuticals, Inc., ICN Merger Corp. and
Ansbacher (Guernsey) Limited, previously filed as
Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
which is incorporated herein by reference.
10.29 Employment Contract between ICN Pharmaceuticals,
Inc. and Milan Panic dated September 6, 1995.
<PAGE>
<PAGE> 62
10.30 1994 Stock Option Plan
11. Computation of Earnings per Share.
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P. Independent Auditors.
27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K IN FOURTH QUARTER
None.
<PAGE>
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ICN PHARMACEUTICALS, INC.
Date: March 30, 1996
By: /s/ Milan Panic
----------------------------------
Milan Panic,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/ Milan Panic Date:March 28, 1996
- -------------------------------------------------
Milan Panic
Chairman of the Board and Chief Executive Officer
/s/ John E. Giordani Date:March 28, 1996
- -------------------------------------------------
John E. Giordani
Executive Vice President, Chief Financial Officer
and Corporate Controller
/s/ Norman Barker, Jr. Date:March 28, 1996
- -------------------------------------------------
Norman Barker, Jr., Director
/s/ Birch Bayh Date:March 28, 1996
- -------------------------------------------------
Senator Birch Bayh, Director
/s/ Alan F. Charles Date:March 28, 1996
- -------------------------------------------------
Alan F. Charles, Director
/s/ Roger Guillemin Date:March 28, 1996
- -------------------------------------------------
Roger Guillemin, M.D., Ph.D., Director
/s/ Adam Jerney Date:March 28, 1996
- -------------------------------------------------
Adam Jerney, Executive Vice President, Director
<PAGE>
<PAGE> 64
SIGNATURES - CONTINUED
/s/ Dale M. Hanson Date:March 28, 1996
- -------------------------------------------------
Dale M. Hanson, Director
/s/ Weldon B. Jolley Date:March 28, 1996
- -------------------------------------------------
Weldon B. Jolley, Ph. D., Director
/s/ Jean-Francois Kurz Date:March 28, 1996
- -------------------------------------------------
Jean-Francois Kurz, Director
/s/ Thomas Lenagh Date:March 28, 1996
- -------------------------------------------------
Thomas Lenagh, Director
/s/ Charles T. Manatt Date:March 28, 1996
- -------------------------------------------------
Charles T. Manatt, Director
/s/ Stephen Moses Date:March 28, 1996
- -------------------------------------------------
Stephen Moses, Director
/s/ Michael Smith Date:March 28, 1996
- -------------------------------------------------
Michael Smith, Ph.D., Director
/s/ Roberts A. Smith Date:March 28, 1996
- -------------------------------------------------
Roberts A. Smith, Ph.D., Director
/s/ Richard W. Starr Date:March 28, 1996
- -------------------------------------------------
Richard W. Starr, Director
<PAGE>
<PAGE> 65
EXHIBIT INDEX
Sequential
Numbering
Exhibit Page No.
- -------- -----------
10.29 Employment Contract between ICN Pharmaceuticals, Inc.
and Milan Panic dated September 6, 1995.
10.30 1994 Stock Option Plan
11. Computation of Earnings Per Share
21. Subsidiaries of the Registrant
23. Consent of Coopers & Lybrand L.L.P. Independent
Auditors
27. Financial Data Schedule
AMENDMENT
TO
EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT dated as of September 6, 1995
("Amendment"), between ICN PHARMACEUTICALS, INC., a Delaware
corporation (which, together with its subsidiaries and predecessors is
referred to herein as "ICN" or the "Company"), and Milan Panic
("PANIC").
RECITALS
WHEREAS, PANIC founded ICN in 1960, has served as the President
and Chief Executive Officer of ICN since that time, and has directed
the growth of ICN;
WHEREAS, ICN and PANIC heretofore entered into an Employment
Contract dated March 15, 1967, a subsequent Employment Agreement dated
as of June 1, 1970, an amendment thereto approved by the Board of
Directors of ICN on March 27, 1974 and a further amendment thereto
approved by the Board of Directors of ICN on February 9, 1976, and an
Employment Agreement dated as of November 30, 1982, which was due to
terminate on November 30, 1986 but which was extended by action of the
Board of Directors until June 30, 1989 or such earlier time as a
replacement agreement was entered into (collectively, the "Prior
Agreements");
WHEREAS, ICN and PANIC have heretofore entered into an Employment
Agreement dated as of October 1, 1988, as amended by a Leave of
Absence and Reemployment Agreement dated as of July 25, 1992
(collectively, the "Current Agreement");
WHEREAS, the Current Agreement was due to terminate November 30,
1994, pursuant to the terms thereof, but has been extended by action
of the Board of Directors until September 30, 1995 or such earlier
time as this Amendment is entered into; and
WHEREAS, ICN and PANIC have agreed that it is to their mutual
benefit to enter into this Amendment;
NOW, THEREFORE, for consideration, the value, sufficiency and
receipt of which are hereby acknowledged, ICN and PANIC agree as
follows:
1.EXTENSION AND AMENDMENT OF TERM OF CURRENT AGREEMENT.
Paragraph 1 of the Current Agreement, entitled "TERM OF
EMPLOYMENT," is amended in its entirety to read as follows:
"1. TERM OF EMPLOYMENT.
ICN shall employ PANIC for a term expiring December 31,
1998. Thereafter, this Agreement and the terms of employment
described therein shall automatically renew for successive one
(1) year periods unless and until terminated (a) by written
notice of one party to the other given not later than six (6)
months prior to the scheduled automatic renewal date of the
Agreement, or (b) as otherwise permitted by this Agreement."
2. BENEFITS DURING CONSULTANCY.
Paragraph 4 of the Current Agreement, entitled "RETIREMENT,"
is amended hereby to further provide that in the event PANIC shall
retire and serve as a consultant pursuant to the provisions of such
Paragraph 4 and the Current Agreement, PANIC shall continue to be
included in the Company's medical and dental plans.<PAGE>
3. CONTINUATION OF CURRENT AGREEMENT.
Except as otherwise expressly modified and amended hereby, the
Current Agreement shall remain and continue in full force and effect
without modification express or implied.
IN WITNESS WHEREOF, ICN and PANIC have executed this Amendment as
of the date first above written.
ICN PHARMACEUTICALS, INC.
By: /S/ JOHN E. GIORDANI
-----------------------------------
JOHN E. GIORDANI
By: /S/ DAVID C. WATT
-----------------------------------
DAVID C. WATT
By: /S/ MILAN PANIC
-----------------------------------
MILAN PANIC
ICN PHARMACEUTICALS, INC.
1994 STOCK OPTION PLAN
1. Purpose.
The purpose of the Plan is to grant to certain key employees,
officers, directors, scientific advisors and consultants of ICN
Pharmaceuticals, Inc., a Delaware corporation (hereinafter called the
"Company"), or any Parent or Subsidiary of the Company, an opportunity
to acquire the Shares in order to increase their proprietary interest
in the Company and as an added incentive to remain in and advance in
its employment. It is also the purpose of the Plan to advance the
interests of the Company and its stockholders by strengthening the
Company's ability to attract and retain those persons with training,
experience and ability by encouraging such persons to become owners of
its stock.
2. Definitions.
For purposes of the Plan, unless otherwise specified, capitalized
terms shall have the following meanings:
2.1 "Adjusted Fair Market Value" means, in the event of a Change
in Control, the greater of (i) the highest price per Share paid to
holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest
Fair Market Value of a Share during the ninety (90) day period ending
on the date of a Change in Control.
2.2 "Agreement" means the written agreement between the Company
and an Optionee evidencing the grant of an Option and setting forth
the terms and conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means the commission of an act of fraud or
intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets of the Company, Parent or any
Subsidiary.
2.5 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, a
change in value) in the Shares, or exchange of Shares for a different
number or kind of shares or other securities of the Company, by reason
of a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.6 A "Change in Control" shall mean the occurrence during the
term of the Plan of:
(i) The "acquisition" by any
"Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of any securities of
the Company which generally entitles the holder
thereof the vote for the election of directors
of the Company (the "Voting Securities") which,
when added to the Voting Securities then
"Beneficially Owned" by such person, would
result in such Person "Beneficially Owning"
forty percent (40%) or more of the combined
voting power of the Company's then outstanding
Voting Securities; provided, however, that for
purposes of this paragraph (i), a Person shall
not be deemed to have made an acquisition of
Voting Securities if such Person: (a) acquires
Voting Securities as a result of a stock split,
stock dividend or other corporate restructuring
in which all stockholders of the class of such
Voting Securities are treated on a pro rata
basis; (b) acquires the Voting Securities
directly from the Company; (c) becomes the
Beneficial Owner of more than the permitted
percentage of Voting Securities solely as a
result of the acquisition of Voting Securities
by the Company which, by reducing the number of
Voting Securities outstanding, increases the
proportional number of shares Beneficially
Owned by such Person; (d) is the Company or any
corporation or other Person of which a majority
of its voting power or its equity securities or
equity interest is owned directly or indirectly
by the Company (a "Controlled Entity") or
(e) acquires Voting Securities in connection
with a "Non-Control Transaction" (as defined in
paragraph (iii) below); or
(ii) The individuals who, as of
November 10, 1994, are members of the Board of
Directors of the Company (the "Incumbent
Board"), cease for any reason to constitute at
least two-thirds of the Board of Directors of
the Company; provided, however, that if either
the election of any new director or the
nomination for election of any new director by
the Company's stockholders was approved by a
vote of at least two-thirds of the Incumbent
Board, such new director shall be considered as
a member of the Incumbent Board; provided
further, however, that no individual shall be
considered a member of the Incumbent Board if
such individual initially assumed office as a
result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board of Directors (a "Proxy Contest")
including by reason of any agreement intended
to avoid or settle any Election Contest or
Proxy Contest; or
(iii) Shareholder approval of:
(a) A merger, consolidation or
reorganization involving the Company (a
"Business Combination"), unless
(1) the stockholders of the
Company, immediately before the Business
Combination, own, directly or indirectly
immediately following the Business Combination,
at least fifty-one percent (51%) of the
combined voting power of the outstanding voting
securities of the corporation resulting from
the Business Combination (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before the Business
Combination, and
(2) the individuals who were
members of the Incumbent Board immediately
prior to the execution of the agreement
providing for the Business Combination
constitute at least a majority of the members
of the Board of Directors of the Surviving
Corporation, and
(3) no Person (other than the
Company or any Controlled Entity, a trustee or
other fiduciary holding securities under one or
more employee benefit plans or arrangements (or
any trust forming a part thereof) maintained by
the Company, the Surviving Corporation or any
Controlled Entity, or any Person who,
immediately prior to the Business Combination,
had Beneficial Ownership of forty percent (40%)
or more of the then outstanding Voting
Securities) has Beneficial Ownership of forty
percent (40%) or more of the combined voting
power of the Surviving Corporation's then
outstanding voting securities (a transaction
described in this subparagraph (a) shall be
referred to as a "Non-Control Transaction");
(b) A complete liquidation or
dissolution of the Company; or
(c) The sale or other disposition of
all or substantially all of the assets of the
Company to any Person (other than a transfer to
a Controlled Entity).
Notwithstanding the foregoing, (x) a Change in
Control shall not be deemed to occur solely
because forty percent (40%) or more of the then
outstanding Voting Securities is Beneficially
Owned by (A) a trustee or other fiduciary
holding securities under one or more employee
benefit plans or arrangements (or any trust
forming a part thereof) maintained by the
Company or any Controlled Entity or (B) any
corporation which, immediately prior to its
acquisition of such interest, is owned directly
or indirectly by the stockholders of the
Company in the same proportion as their
ownership of stock in the Company immediately
prior to such acquisition; and (y) if an
Eligible Employee's employment is terminated
and the Eligible Employee reasonably
demonstrates that such termination (A) was at
the request of a third party who has indicated
an intention or taken steps reasonably
calculated to effect a Change in Control and
who effectuates a Change in Control or
(B) otherwise occurred in connection with, or
in anticipation of, a Change in Control which
actually occurs, then for all purposes hereof,
the date of a Change in Control with respect to
the Eligible Employee shall mean the date
immediately prior to the date of such
termination of employment.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Committee" means a committee consisting of solely at
least two (2) directors each of whom are Disinterested Directors and
Outside Directors who are appointed by the Board to administer the Plan
and to perform the functions set forth herein.
2.9 "Company" means ICN Pharmaceuticals, Inc. or any
successor thereto.
2.10 "Director Option" means an Option granted pursuant to
Section 5.
2.11 "Disability" means a physical or mental infirmity which
impairs the Optionee's ability to perform substantially his or her
duties for a period of one hundred eighty (180) days during any three
hundred and sixty (360) day period.
2.12 "Disinterested Director" means a director of the Company
who is "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act.
2.13 "Division" means any of the operating units or divisions
of the Company designated as a division by the Committee.
2.14 "Eligible Employee" means any officer or other key
employee or consultant or scientific advisor of the Company or a Parent
or Subsidiary designated by the Committee as eligible to receive
Options subject to the conditions set forth herein.
2.15 "Employee Option" means an Option granted pursuant to
Section 6.
2.16 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
2.17 "Fair Market Value" on any date means (i) the
closing price per share of the Company's stock on the principal
exchange on which the stock is listed, on such date (or if no such
price is reported on such date, such price as reported on the nearest
preceding date on which such price is reported), (ii) if the stock is
not listed on an exchange, the bid price per share of stock at the
close of trading on such date or, (iii) if the stock is not listed on
an exchange or otherwise publicly traded on such date, the fair market
value of the Company's stock as of such date as determined in good
faith by the Board.
2.18 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee
as an Incentive Stock Option.
2.19 "Nonemployee Director" means a director of the Company
who is not an employee of the Company or any Subsidiary.
2.20 "Nonqualified Stock Option" means an Option which is not
an Incentive Stock Option.
2.21 "Option" means a Employee Option, a Director Option, or
either or both of them.
2.22 "Optionee" means a person to whom an Option has been
granted under the Plan.
2.23 "Outside Director" means a director of the Company who is
an "outside director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder.
2.24 "Parent" means any corporation which is a parent
corporation (within the meaning of Section 424(e) of the Code) with
respect to the Company.
2.25 "Plan" means the ICN Pharmaceuticals, Inc. 1994 Stock
Option Plan, as it may be amended from time to time.
2.26 "Pooling Period" means, with respect to a Pooling
Transaction, the period ending on the day after the first date on which
the combined entity resulting from the Pooling Transaction publishes
thirty days of combined operating results or, if the Board makes a
determination, such other period following the Pooling Transaction
which the Board reasonably determines is appropriate in connection with
the Pooling Transaction as a means of qualifying for and preserving
"pooling of interests" accounting treatment.
2.27 "Pooling Transaction" means an acquisition of or by
the Company in a transaction which is intended to be treated as a
"pooling of interests" under generally accepted accounting principles.
2.28 "Shares" means the common stock, par value $.01 per
share, of the Company.
2.29 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with
respect to the Company.
2.30 "Successor Corporation" means a corporation, or a parent
or subsidiary thereof within the meaning of Section 424(a) of the Code,
which issues or assumes a stock option in a transaction to which
Section 424(a) of the Code applies.
2.31 "Ten-Percent Stockholder" means an Eligible Employee,
who, at the time an Incentive Stock Option is to be granted to him or
her, owns (within the meaning of Section 422(b)(6) of the Code) stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or of a Parent or a
Subsidiary.
3. Administration.
3.1 The Plan shall be administered by the Committee which shall
hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not less than two members of the
Committee and a majority of a quorum may authorize any action. Any
decision or determination reduced to writing and signed by a majority
of all of the members of the Committee shall be as fully effective as
if made by a majority vote at a meeting duly called and held. Each
member of the Committee shall be a Disinterested Director and an
Outside Director. No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good
faith with respect to this Plan or any transaction hereunder, except
for liability arising from his or her own willful misfeasance, gross
negligence or reckless disregard of his or her duties. The Company
hereby agrees to indemnify each member of the Committee for all costs
and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiation for the settlement of or otherwise dealing with any claim,
cause of action or dispute of any kind arising in connection with any
actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those individuals to whom Employee Options
shall be granted under the Plan and the number of Incentive Stock
Options and/or Nonqualified Stock Options to be granted to each
Eligible Employee and to prescribe the terms and conditions (which need
not be identical) of each Employee Option, including the purchase price
per Share subject to each Employee Option, and make any amendment or
modification to any Agreement consistent with the terms of the Plan;
(b) to construe and interpret the Plan and the Options
granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not
limited to, correcting any defect or supplying any omission, or
reconciling any inconsistency in the Plan or in any Agreement, in the
manner and to the extent it shall deem necessary or advisable to make
the Plan fully effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final, binding and
conclusive upon the Company, the Parent, its Subsidiaries, the
Optionees and all other persons having any interest therein;
(c) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis
without constituting a termination of employment or service for
purposes of the Plan;
(d) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(e) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests
of the Company with respect to the Plan.
4. Stock Subject to the Plan.
4.1 The maximum number of Shares that may be made the subject of
Options granted under the Plan is 3,000,000; provided, however, that
the maximum number of Shares that any Eligible Employee may receive
pursuant to the Plan in respect of Options may not exceed 1,000,000
Shares. Upon a Change in Capitalization, the maximum number of Shares
shall be adjusted in number and kind pursuant to Section 9. The
Company shall reserve for the purposes of the Plan, out of its
authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be
determined by the Board.
4.2 Whenever any outstanding Option or portion thereof expires, is
canceled or is otherwise terminated for any reason, the Shares
allocable to the canceled or otherwise terminated portion of the Option
may again be the subject of Options granted hereunder.
5. Option Grants for Nonemployee Directors.
5.1 Grant. Subject to the availability of an adequate number of
Shares designated under the Plan, each Nonemployee Director shall be
granted Director Options under the Plan automatically on a non-
discretionary basis according to the following provisions of this
Section 5 and in accordance with the other provisions of the Plan.
Nonemployee Directors shall not be granted options under the Plan
except pursuant to this Section 5. Director Options shall be granted
automatically to Nonemployee Directors as follows: (i) each person who
is a Nonemployee Director on the date of adoption of the Plan shall be
granted an option to purchase 15,000 shares; (ii) each person who is a
Nonemployee Director on the first business day following the 1995
annual meeting of stockholders of the Company shall be granted on such
date an option to purchase 15,000 Shares; and (iii) thereafter, each
person who is a Nonemployee Director on the first business day
following the day of a subsequent annual meeting of stockholders shall
be granted on such first business day an option to purchase 15,000
Shares.
5.2 Purchase Price. The purchase price for Shares under each
Director Option granted on the adoption date of the Plan shall be the
Fair Market Value of such Shares on November 11, 1994, and under each
Director Option granted thereafter, 100% of the Fair Market Value of
such Shares on the date of grant.
5.3 Vesting. Subject to Sections 5.4 and 7.4, each Director
Option shall become exercisable with respect to 25% of the Shares
subject thereto on each of the first four anniversaries of the grant
date; provided, that the Optionee is a director as of the relevant
anniversary. If an Optionee ceases to serve as a director for any
reason, the Optionee shall have no rights with respect to that portion
of a Director Option which has not then vested pursuant to the
preceding sentence and the Optionee shall automatically forfeit that
portion of the Director Option which remains unvested.
5.4 Duration. Each Director Option shall terminate on the date
which is the tenth anniversary of the grant date, unless terminated
earlier as follows:
(a) If an Optionee's service as a director terminates for any
reason other than Disability, death or Cause, the Optionee may for a
period of three (3) months after such termination exercise his or her
Option to the extent, and only to the extent, that such Option or
portion thereof was vested and exercisable as of the date the
Optionee's service as a director terminated, after which time the
Option shall automatically terminate in full.
(b) If an Optionee's service as a director terminates by
reason of Disability, the Optionee may, for a period of one (1) year
after such termination, exercise his or her Option to the extent, and
only to the extent, that such Option or portion thereof was vested and
exercisable as of the date the Optionee's service as director
terminated, after which one year period the Option shall automatically
terminate in full.
(c) If an Optionee's service as a director terminates for
Cause, the Option granted to the Optionee hereunder shall immediately
terminate in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a director or within three (3)
months after termination of service as a director as described in
clause (a) or (b) of this Section 5.4, the Option granted to the
Optionee may be exercised at any time within twelve (12) months after
the Optionee's death by the person or persons to whom such rights under
the Option shall pass by will, or by the laws of descent or
distribution, after which time the Option shall terminate in full;
provided, however, that an Option may be exercised to the extent, and
only to the extent, that the Option or portion thereof was exercisable
on the date of termination of the Optionee's services as a director.
6. Option Grants for Eligible Employees.
6.1 Authority of Committee. Subject to the provisions of the Plan
and to Section 4.1 above, the Committee shall have full and final
authority to select those Eligible Employees who will receive Options
(each, an "Employee Option"), which may be Incentive Stock Options or
Nonqualified Stock Options, the terms and conditions of which shall be
set forth in an Agreement; provided, however, that no person shall
receive any Incentive Stock Option unless he or she is an employee of
the Company, a Parent or a Subsidiary at the time the Incentive Stock
Option is granted.
6.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Employee
Option shall be determined by the Committee and set forth in the
Agreement, provided that the purchase price per Share under each
Employee Option shall not be less than 100% of the Fair Market Value of
a Share on the date the Employee Option is granted (110% in the case of
an Incentive Stock Option granted to a Ten-Percent Stockholder).
6.3 Maximum Duration. Employee Options granted hereunder shall be
for such term as the Committee shall determine, provided that an
Incentive Stock Option shall not be exercisable after the expiration of
ten (10) years from the date it is granted (five (5) years in the case
of an Incentive Stock Option granted to a Ten-Percent Stockholder) and
a Nonqualified Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted. The
Committee may, subsequent to the granting of any Employee Option,
extend the term thereof but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
6.4 Vesting. Subject to Section 7.4 hereof, each Employee Option
shall become exercisable in such installments (which need not be equal)
and at such times as may be designated by the Committee and set forth
in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after
becoming exercisable, but not later than the date the Employee Option
expires. The Committee may accelerate the exercisability of any
Employee Option or portion thereof at any time.
6.5 Modification or Substitution. The Committee may, in its
discretion, modify outstanding Employee Options or accept the surrender
of outstanding Employee Options (to the extent not exercised) and grant
new Options in substitution for them. Notwithstanding the foregoing,
no modification of an Employee Option shall adversely alter or impair
any rights or obligations under the Employee Option without the
Optionee's consent.
7. Terms and Conditions Applicable to All Options.
7.1 Non-transferability. No Option granted hereunder shall be
transferable by the Optionee to whom granted otherwise than by will or
the laws of descent and distribution, or as otherwise permitted
pursuant to Rule 16b-3, and an Option may be exercised during the
lifetime of such Optionee only by the Optionee or his or her guardian
or legal representative. The terms of such Option shall be final,
binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office,
specifying the number of Shares to be purchased and accompanied by
payment therefor and Withholding Taxes and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The purchase
price for any Shares purchased pursuant to the exercise of an Option
shall be paid in full upon such exercise by any one or a combination of
the following: (i) cash or (ii) pursuant to such rules as may be
determined by the Committee, transferring Shares to the Company, or
(iii) any combination of the foregoing as may be determined by the
Committee. Until such person has been issued the Shares subject to
such exercise, he or she shall possess no rights as a stockholder with
respect to such Shares. Notwithstanding the foregoing, the Committee
shall have discretion to determine at the time of grant of each
Employee Option or at any later date (up to and including the date of
exercise) the form of payment acceptable in respect of the exercise of
such Employee Option and may establish cashless exercise procedures
which provide for the exercise of the Option and sale of the underlying
Share by a designated broker or dealer. In that connection, the
written notice pursuant to this Section 7.2 may also provide
instructions from the Optionee to the Company that upon receipt of
appropriate instructions from the Optionee's broker or dealer,
designated as such on the written notice, the Company shall issue such
Shares directly to the designated broker or dealer. Any Shares
transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding
the date of exercise of such Option. If requested by the Committee,
the Optionee shall deliver the Agreement evidencing the Option to the
Secretary of the Company who shall endorse thereon a notation of such
exercise and return such Agreement to the Optionee. No fractional
Shares (or cash in lieu thereof) shall be issued upon exercise of an
Option and the number of Shares that may be purchased upon exercise
shall be rounded to the nearest number of whole Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (i) the Option shall have been exercised pursuant to the terms
thereof, (ii) the Company shall have issued and delivered the Shares to
the Optionee and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the
Optionee shall have full voting, dividend and other ownership rights
with respect to such Shares.
7.4 Effect of Change in Control. Notwithstanding
anything contained in the Plan or an Agreement to the contrary (other
than the last sentence of this Section 7.4), in the event of a Change
in Control, (i) all Options outstanding on the date of such Change in
Control shall become immediately and fully exercisable, (ii) upon
termination of an Optionee's employment following a Change in Control,
Options held by the Optionee shall remain exercisable until the later
of (x) one year after termination and (y) sixty (60) days following the
expiration of the Pooling Period (in the event the Change in Control
constitutes a Pooling Transaction), but in no event beyond the stated
term of the Option, and (iii) an Optionee will be permitted to
surrender for cancellation within sixty (60) days after such Change in
Control any Option or portion of an Option to the extent not yet
exercised and the Optionee will be entitled to receive a cash payment
in an amount equal to the excess, if any, of (x) (A) in the case of a
Nonqualified Stock Option, the greater of (1) the Fair Market Value, on
the date preceding the date of surrender, of the Shares subject to the
Option or portion thereof surrendered or (2) the Adjusted Fair Market
Value of the Shares subject to the Option or portion thereof
surrendered or (B) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the
Shares subject to the Option or portion thereof surrendered, over
(y) the aggregate purchase price for such Shares under the Option or
portion thereof surrendered; provided, however, that in the case of an
Option granted within six (6) months prior to the Change in Control to
any Optionee who may be subject to liability under Section 16(b) of the
Exchange Act, such Optionee shall be entitled to surrender for
cancellation his or her Option only during the sixty (60) day period
commencing upon the expiration of six (6) months from the date of grant
of any such Option. In the case of a Change in Control which also
constitutes a Pooling Transaction and notwithstanding anything
contained in the Plan or an Agreement to the contrary, the Committee
may, and with respect to Director Options shall, take such actions
which are specifically recommended by an independent accounting firm
retained by the Company, to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including,
but not limited to, providing that (i) all Options or, in the
alternative, such Options held by Optionees specifically identified by
the Committee, shall not become immediately and fully exercisable on
the date of the Change in Control but rather shall become immediately
and fully exercisable on the date following the day on which the
Pooling Period expires (whether or not the Optionee is then an employee
or director of the Company) and (ii) the holders of such Options shall
only have the right to surrender for cancellation Options or portions
thereof for the cash payment specified in clause (iii) of the first
sentence of this Section 7.4 after the day following the expiration of
the Pooling Period and for a period of sixty (60) days thereafter (in
which case, whether or not the Optionee holding any such Options
remains an employee or director of the Company, any such Option shall
not terminate and shall remain exercisable for the greater of sixty
(60) days after the expiration of the Pooling Period and the date such
Option would otherwise terminate in accordance with the Plan and the
relevant Agreement), and/or (iii) the payment specified in this
Section 7.4 shall be paid in the form of cash, Shares or securities of
a successor or acquirer of the Company, or a combination of the
foregoing, as designated by the Committee.
8. Effect of a Termination of Employment.
The Agreement evidencing the grant of each Employee Option shall
set forth the terms and conditions applicable to such Employee Option
upon a termination or change in the status of the employment of the
Optionee by the Company, Parent, a Subsidiary or a Division (including
a termination or change by reason of the sale of a Subsidiary or a
Division), as the Committee may, in its discretion, determine at the
time the Employee Option is granted or thereafter.
9. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the Committee
shall conclusively determine the appropriate adjustments, if any, to
(i) the maximum number and class of Shares or other stock or securities
with respect to which Options may be granted under the Plan, (ii) the
maximum number of Shares with respect to which Options may be granted
to any Eligible Employee during the term of the Plan, (iii) the number
and class of Shares or other stock or securities which are subject to
Director Options issuable under Section 5, and (iv) the number and
class of Shares or other stock or securities which are subject to
outstanding Options granted under the Plan, and the purchase price
therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not
to constitute a modification as defined by Section 424(h)(3) of the
Code and only to the extent otherwise permitted by Sections 422 and 424
of the Code.
(c) Any such adjustment in the Shares or other stock or securities
subject to outstanding Director Options (including any adjustments in
the purchase price) shall be made only to the extent necessary to
maintain the proportionate interest of the Optionee and preserve,
without exceeding, the value of such Director Options.
(d) If, by reason of a Change in Capitalization, an Optionee shall
be entitled to exercise an Option with respect to new, additional or
different shares of stock or securities, such new, additional or
different shares shall thereupon be subject to all of the conditions
and restrictions which were applicable to the Shares subject to the
Option prior to such Change in Capitalization.
10. Effect of Certain Transactions.
Subject to Section 7.4, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the
Company (a "Transaction"), the Plan and the Options issued hereunder
shall continue in effect in accordance with their respective terms and
each Optionee shall be entitled to receive in respect of each Share
subject to any outstanding Options, upon exercise of such Options, the
same number and kind of stock, securities, cash, property, or other
consideration that each holder of a Share was entitled to receive in
the Transaction in respect of a Share.
11. Termination and Amendment of the Plan.
The Plan shall terminate on the day preceding the tenth
anniversary of the date of its adoption by the Board and no Options may
be granted thereafter. The Board may sooner terminate the Plan and the
Board may at any time and from time to time amend, modify or suspend
the Plan; provided, however, that:
(a) No such amendment, modification, suspension or termination
shall impair or adversely alter any Options theretofore granted under
the Plan, except with the consent of the Optionee, nor shall any
amendment, modification, suspension or termination deprive any Optionee
of any Shares which he or she may have acquired through or as a result
of the Plan;
(b) To the extent necessary under Section 16(b) of the Exchange
Act and the rules and regulations promulgated thereunder or other
applicable law, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and
regulations; and
(c) The provisions of Section 5 shall not be amended more often
than once every six (6) months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder.
12. Non-Exclusivity of the Plan.
The adoption of the Plan by the Committee and the Board shall not be
construed as amending, modifying or rescinding any previously approved
incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
13. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(i) give any person any right to be granted an Option other than
at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate
the employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular
rate of compensation or for any particular period of time.
14. Regulations and Other Approvals; Governing Law.
14.1 Except as to matters of federal law, this Plan and the
rights of all persons claiming hereunder shall be construed and
determined in accordance with the laws of the State of Delaware without
giving effect to conflicts of law principles.
14.2 The obligation of the Company to sell or deliver Shares
with respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
14.3 The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret
and administer the provisions of the Plan or any Agreement in a manner
consistent therewith. Any provisions inconsistent with such Rule shall
be inoperative and shall not affect the validity of the Plan.
14.4 The Committee may make such changes as may be necessary
or appropriate to comply with the rules and regulations of any
government authority, or to obtain for Eligible Employees granted
Incentive Stock Options the tax benefits under the applicable
provisions of the Code and regulations promulgated thereunder.
14.5 Each Option is subject to the requirement that, if at any
time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the
grant of an Option or the issuance of Shares, no Options shall be
granted or payment made or Shares issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions as acceptable to the
Committee.
14.6 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as amended,
and is not otherwise exempt from such registration, such Shares shall
be restricted against transfer to the extent required by the Securities
Act of 1933, as amended, and Rule 144 or other regulations thereunder.
The Committee may require any individual receiving Shares pursuant to
an Option granted under the Plan, as a condition precedent to receipt
of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to
any distribution thereof and will not be sold or transferred other than
pursuant to an effective registration thereof under said Act or
pursuant to an exemption applicable under the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder. The
certificates evidencing any of such Shares shall be appropriately
legended to reflect their status as restricted securities as aforesaid.
15. Miscellaneous.
15.1 Multiple Agreements. The terms of each Option may differ
from other Options granted under the Plan at the same time, or at some
other time. The Committee may also grant more than one Option to a
given Eligible Employee during the term of the Plan, either in addition
to, or in substitution for, one or more Options previously granted to
that Eligible Employee.
15.2 Withholding of Taxes. (a) The Company shall have the
right to deduct from any distribution or payment of cash to any
Optionee an amount equal to the federal, state and local income taxes
and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any Option. If an Optionee
realizes a taxable event in connection with the receipt of Shares
pursuant to an Option exercise (a "Taxable Event"), the Optionee shall
pay the Withholding Taxes to the Company prior to the issuance of such
Shares. In satisfaction of the obligation to pay Withholding Taxes to
the Company, the Optionee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares then issuable to
him or her having an aggregate Fair Market Value, on the date preceding
the date of such issuance, equal to the Withholding Taxes, provided
that in respect of an Optionee who may be subject to liability under
Section 16(b) of the Exchange Act either: (i) (A) the Tax Election is
made at least six (6) months prior to the date of the Taxable Event and
(B) the Tax Election is irrevocable with respect to all Taxable Events
of a similar nature occurring prior to the expiration of six (6) months
following a revocation of the Tax Election; or (ii) (A) the Optionee
makes the Tax Election at least six (6) months after the date the
Option was granted, (B) the Option is exercised during the ten (10) day
period beginning on the third business day and ending on the twelfth
business day following the release for publication of the Company's
quarterly or annual statement of sales and earnings (a "Window Period")
and (C) the Tax Election is made during the Window Period in which the
related Option is exercised or prior to such Window Period and
subsequent to the immediately preceding Window Period. Notwithstanding
the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 15.2 (other than
as regards Director Options) or impose such other restrictions or
limitations on Tax Elections as may be necessary to ensure that the Tax
Elections will be exempt transactions under Section 16(b) of the
Exchange Act, and (ii) permit Tax Elections to be made at such other
times and subject to such other conditions as the Committee determines
will constitute exempt transactions under Section 16(b) of the Exchange
Act.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to such Optionee pursuant to the exercise of
an Incentive Stock Option within the two-year period commencing on the
day after the date of the grant or within the one-year period
commencing on the day after the date of transfer of such Share or
Shares to the Optionee pursuant to such exercise, the Optionee shall,
within ten (10) days of such disposition, notify the Company thereof,
by delivery of written notice to the Company at its principal executive
office.
(c) The Committee shall have the authority, at the time of
grant of an Employee Option under the Plan or at any time thereafter,
to award tax bonuses to designated Optionees, to be paid upon their
exercise of Employee Options granted hereunder. The amount of any such
payments shall be determined by the Committee. The Committee shall
have full authority in its absolute discretion to determine the amount
of any such tax bonus and the terms and conditions affecting the
vesting and payment thereof.
15.3. Interpretation. Unless otherwise expressly stated in the
relevant Agreement, any grant of Options is intended to be performance-
based compensation within the meaning of Section 162(m)(4)(C) of the
Code. The Committee shall not be entitled to exercise any discretion
otherwise authorized hereunder with respect to such Options if the
ability to exercise such discretion or the exercise of such discretion
itself would cause the compensation attributable to such Options to
fail to qualify as performance-based compensation.
16. Effective Date/Shareholder Approval. The effective date of
the Plan shall be the date of its adoption by the Board, subject only
to the approval by the affirmative vote of the holders of a majority of
the securities of the Company present, or represented, and entitled to
vote at the first meeting of stockholders duly held in accordance with
the applicable laws of the State of Delaware after such date of
adoption.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Computations of net income per share for the years ended
December 31, 1995, 1994, and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Net income (loss) $ 67,337 $(183,581) $ 21,510
======== ========== =========
Average common shares outstanding 29,708 23,138 21,309
Dilutive common equivalent shares
issuable upon the exercise of
options currently outstanding
to purchase common shares 915 0 437
--------- --------- ---------
30,623 23,138 21,746
========= ========= =========
Net income (loss) per share $ 2.20 $ (7.93) $ .99
========= ========== =========
FULLY DILUTED
Net income (loss) $ 67,337 $(183,581) $ 21,510
Add: Interest expense
related to convertible Debentures 15,736 1,241 0
--------- --------- ---------
Adjusted net income $ 83,073 $ (182,340) $ 21,510
========= ========== =========
Average common shares outstanding 29,708 23,138 21,309
Dilutive common equivalent shares
issuable upon the exercise of
options currently outstanding
to purchase common shares 1,073 680 437
Conversion of Debentures 7,200 2,869 0
--------- ---------- --------
37,981 26,687 21,746
========= ========== ========
Net income (loss) per share $ 2.19 $ (6.83) $ .99
========= ========== ========
</TABLE>
SUBSIDIARIES OF THE REGISTRANT
ICN Pharmaceuticals, Inc. is incorporated in the State of Delaware,
and ICN Pharmaceuticals, Inc. may be deemed a parent of the
Registrant.
The following table, in which an indentation indicates a
parent-subsidiary relationship, shows the Company's significant
subsidiaries as of December 31, 1995, the percentage of their voting
securities (including directors' qualifying shares) then owned by the
Company or the subsidiary's immediate parent, and the jurisdiction
under which each subsidiary is incorporated. These subsidiaries are
included in the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Percentage
of Voting
Jurisdiction Securities Owned
of by Company
Incorporation or Subsidiary
------------- --------------
<S> <C> <C>
ICN Canada Holdings, Limited Canada 100
ICN Canada, Limited Canada 100
Alpha Pharmaceutical, Inc. Panama 100
Laboratorios Panol, S.A. de C.V. Mexico 100
ICN Farmaceutica, S.A. Mexico 100
Laboratorios Grossman, S.A. Mexico 100
ICN Pharmaceuticals Holland, B.V. Netherlands 100
Iberica, S.A. -- 0
Laboratorios Hubber, S.A. Spain 100
COVOCO Holding, B.V. Netherlands 100
ICN Galenika Yugoslavia 75
ICN Biomedicals GmbH--Eschwege Germany 100
ICN Biomedicals Canada, Ltd. Canada 100
Flow Laboratories, Inc. Maryland, U.S.A. 100
ICN Biomedicals Australasia Pty Ltd. Australia 100
ICN Biomedicals Japan Co. Ltd. Japan 100
Amstelstad A.G. Switzerland 100
ICN Biomedicals B.V. Netherlands 100
ICN Biomedicals California, Inc. California, U.S.A. 100
ICN Biomedicals, S.L. Spain 95
(Laboratorios Hubber, S.A., owns 5%)
Labsystems Benelux B.V. Netherlands 100
Labsystems Benelux N.V. Belgium 100
ICN Biomedicals, Ltd. Scotland 100
ICN Biomedicals, GmbH Germany 100
Labsystems GmbH Germany 100
ICN France SARL France 100
Flow Laboratories B.V. Netherlands 100
Flow Laboratories (International) S.A. Switzerland 100
Flow Trading A.G. Switzerland 100
ICN Biomedicals S.R.L. Italy 95
(Flow Laboratories, B.V. owns 5%)
ICN Biomedicals N.V./S.A. Belgium 100
ICN Oktyabr Russia 75
SeaLite Sciences Georgia, U.S.A. 40
</TABLE>
In accordance with the instructions of Item 601 of Regulation S-K,
certain subsidiaries are omitted from the foregoing table.
To ICN Pharmaceuticals, Inc.:
We consent to the incorporation by reference in the registration
statement of ICN Pharmaceuticals, Inc. on Form S-8 (File No. 33-56971)
of our report dated February 19, 1996, on our audits of the consolidated
financial statements and consolidated financial statement schedule of
ICN Pharmaceuticals, Inc. as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, which report
as it relates to 1994 and 1993 includes an emphasis of a matter
paragraph related to certain transactions between affiliates, included
in this annual report on Form 10K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> OCT-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<CASH> $ 24,632 $ 24,632
<SECURITIES> 27,536 27,536
<RECEIVABLES> 68,513 68,513
<ALLOWANCES> 0 0
<INVENTORY> 138,756 138,756
<CURRENT-ASSETS> 283,616 283,616
<PP&E> 172,487 172,487
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 518,298 518,298
<CURRENT-LIABILITIES> 92,814 92,814
<BONDS> 0 0
0 0
0 0
<COMMON> 304 304
<OTHER-SE> 161,868 161,868
<TOTAL-LIABILITY-AND-EQUITY> 518,298 518,298
<SALES> 109,386 507,905
<TOTAL-REVENUES> 109,386 507,905
<CGS> 41,827 206,049
<TOTAL-COSTS> 41,827 206,049
<OTHER-EXPENSES> 8,194 34,575
<LOSS-PROVISION> (4,233) (5,815)
<INTEREST-EXPENSE> 5,613 22,889
<INCOME-PRETAX> 20,480 86,249
<INCOME-TAX> (3,538) 2,997
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,476 67,337
<EPS-PRIMARY> $ .61 $ 2.20
<EPS-DILUTED> $ .59 $ 2.19
</TABLE>
