Bausch Health Companies Inc (BHC) 2002 Q4 法說會逐字稿

Good day everyone and welcome to the ICN Pharmaceuticals fourth quarter and year end 2002 conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would now like to turn the conference over to Mr. Greg Keever, Executive Vice President, General Counsel, and Corporate Secretary for ICN. Please go ahead, sir.

Good morning and welcome to today's call. Before we begin the call, I would like to read to you the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

This presentation contains forward-looking statements that involve risks and uncertainties, including but not limited to projections of future sales, royalty income, operating income, returns on invested assets, regulatory approval processes, competition from generic products, market place acceptance of the company's products, success of the company's strategic repositioning initiatives and the ability of management to execute them, success of the company's ongoing inventory reduction program and other cost reduction measures, and other risks detailed from time to time in the company's Securities and Exchange Commission filings.

Joining us on the call today are Robert O'Leary, ICN's Chairman and Chief Executive Officer, Tim Tyson, President and Chief Operating Officer, Barry Bailey, Chief Financial Officer, Winnie Wu, Controller and Phillip Loberg, Treasurer. Now I would like to turn the call over to Robert O'Leary.

Thank you, Greg. Thank you all for joining us here this morning. Our efforts in the fourth quarter continue to be focused on setting the stage and putting in place the building blocks that will drive our future growth. Our focus continues to be on improving our overall cost structure, divesting our noncore businesses and importantly restructuring our specialty pharmaceutical business.

In a few short months, we've executed on a number of fronts. Our overall cost structure has been reduced by 21 million as we promised. We have stopped doing things that did not provide value. We have also initiated activities to drive future efficiencies and deliver on our commitment to rationalize the supply chain, including our manufacturing operations and to leverage our international buying power through a new centralized procurement initiative.

In the fourth quarter we took additional steps in this program by taking action to dispose of all our manufacturing facilities in Hungary and the Czech Republic. We took an impairment charge of $76.6 million in the quarter as result of these and other actions. The impact of strategic decisions announced in November 2002 on ICN has been a significant and positive effect, a comparison of year-end results with and without discontinued operations shows a 10% improvement in the cost of goods sold, a previously mentioned $21 million reduction in the nonmanufacturing cost structure, and an improvement in net income by $32 million.

We have also made tangible progress on our divestiture plans. Today we announced that just six weeks into the first quarter we completed the sale of our U.S. and International Photonic businesses. In addition to being an important step in our repositioning efforts this divestiture helped us to avoid significant future commitments and obligations and an ongoing drain on our cash flows. We also have a nucleus of motivated buyers for our Biomedical business. The rest of our divestures are moving well and according to plan. With our noncore holdings position for divestiture, we are in a better position than ever to drive growth in the fundamental core business.

We are also well on our way towards building a world class management team to deliver on our new strategic vision. Over the last few months, we announced additional management team members in the areas of sales and marketing, manufacturing, supply chain and procurement. Important, among these leadership changes is the addition of Mr. Wes Wheeler, a proven performer, a superb leader who will oversee our North American operations which is our most important market. He will also lead the company's sales and marketing functions. We expect to continue rounding out our management team in the coming months.

I am very pleased with the progress we have made and more importantly, the momentum we have established in setting the stage for future growth. This is an evolutionary process and not one that we can execute in a vacuum. Our focus in 2003 is on rebuilding ICN by driving efficiencies across all areas of the organization. In the long term, we believe our business will grow in ways that are attractive and add value to the organization, and to shareholders.

With that now I would like to turn the call over to our President, Tim Tyson who will provide you with an overview of the building blocks we are putting in place to drive growth in the business. Tim?

Thank you, Rob. Good morning to everyone. I'm very pleased to be here today. I look forward to meeting many of you over the coming year. The strategic plan we outlined last quarter was designed to create a leaner, more focused company with a strong emphasis on building shareholder value.

In 2003, we expect to lay the foundation for substantial improvements in 2004 and beyond. We plan to build shareholder value by focusing on three important areas: Re-engineering our P&L, top line growth, and future innovations. A key objective of our strategic plan is to improve our overall cost structure and to focus on EBITDA performance. We're working on a number of plans designed to reduce inefficient investments and to bring our costs in line with industry averages.

For example, the company currently has 30 plants around the world operating at about 5 to 15% capacity utilization. We're in the process of developing a manufacturing rationalization plan to deal with this issue, and we're going to do what's necessary over the next couple of years to rearrange our manufacturing capabilities to be more efficient. As Rob mentioned earlier, our decision to divest of all of our manufacturing facilities in Hungary and the Czech Republic represents the first step in this process. The upside in terms of operating efficiencies and cost savings will be significant. Our goal is to bring our cost of goods historically at 44% of sales in line with the industry average of 20%.

Another area where we believe we can reduce our overall cost structure is SG&A spending, which has historically been greater than 55% of sales. We want to trend toward the industry average of about 35% by reducing SG&A while at the same time investing in effective promotional expenses to drive future growth.

As you heard Rob say earlier, we've already delivered $21 million in savings and we're looking for more opportunities. We're looking at everything because we want to make sure that we're spending our money in ways that actually build value for the organization and for our shareholders. Additionally, as Rob mentioned, we're putting a new centralized international procurement initiative in place that will leverage our buying power, there by reducing our costs and increasing our spend efficiency.

We're also looking at our tax rate, which is currently above 40%. We want to trend toward the industry average of 27% and are putting a tax strategy in place to help us achieve that goal. It's clear that while we expect to make good progress towards this goal in 2003, this is a multi-year effort that is intricately linked to our manufacturing rationalization process.

We are, in essence, re-engineering our P&L. We're examining all of our operations to make sure we stop doing things that don't make sense and start doing things that do. Put another way we're going to invest in areas that drive the business and stop investing in things that don't.

We've also taken a look at our sales operations, as we believe incentive plans are a key driver of earnings. We recently implemented a new incentive model that is heavily weighted towards EBITDA performance. The new model provides greater incentives for better performance. People that deliver our plan will be rewarded significantly for delivering extraordinary performance to shareholders. Our short-term focus is on re-engineering the P&L, but we're also very focused on the future, as the future of our business is driving the top line.

We've taken a very close look at our markets and plan to focus on the major markets that represent approximately 85% of the worldwide pharmaceutical market, namely U.S., Germany, Spain, Italy, Poland, France, UK, Canada, and Mexico. Within these major pharmaceutical markets, we are developing a more global approach to commercializing products. In the United States, over the last three months, we refocused our efforts and increased our investments in marketing, promotional and training programs on three major products. We're already seeing results as all three products are growing.

Let me give you a few examples. One of our strongest products is Efudex®, which continues to be the market leading treatment for actinic keratosis. As is evidence but the total prescription data provide by INS, our market share grew from 49.7% in October 2002, to 51.2% in December 2002. This is a clear indication that our refocused efforts on promotional, marketing and training programs are working, especially when you consider the dynamics of this industry, where a 1/10th of a percentage point increase in market share represents a substantial improvement. Just to give you a perspective, the next most competitive product has 29.7% of the actinic keratosis market.

Another example of a product showing strong growth in the U.S. is Glyquin®, a prescription treatment for hyperpigmentation. Recent INS data indicates it has 14.7% of the U.S. market an increase of 2 percentage points from November of 2002, this 2 point increase is the result of a line extension we introduced in November via the introduction of Glyquin XM®, as well as our renewed focus on training, marketing and promotional programs.

Another growth product in the ICN portfolio is Kinerase®, a cosmeceutical available through dermatologists or other physician specialists for the treatment of sun damaged skin. Again, as a result of strong promotional activities in the fourth quarter 2002, Kinerase® unit sales increased 12.7% from the fourth quarter of 2001 and we're well-positioned to see future growth as we plan on introducing three new line extensions over the coming year. These are three examples of products we're selling in the major market in the United States that are performing well for us. There are many others, of course, but these three represent examples of the early successes of our efforts to focus on products with strong growth potential.

There also continuing growth in Latin America and Western Europe. In Latin America, Bedoyecta® grew 18% while Virazole® grew 23% and in Western Europe our sales grew 11% in 2002. In addition to focusing on specific products and geographies to drive top line growth, we are also looking at expanding our products in therapeutic areas where we currently have strength, potentially through the acquisition of products in the U.S. over the next year. Our focus will be on those products in which we have the in house expertise, background and knowledge, such as dermatologic and infectious disease products.

Our business is about products, however, we believe that having a product to sell in a specific geography is not enough to sustain growth. We have to have an innovation strategy, which means we have to have ways to bring products into the market. We currently have more than 600 products. We're going to closely evaluate the products we have and look at opportunities to bring these products to other markets either through reformulations or line extensions. The new team is actively involved and focused on internal discovery opportunities, and the new team will always been looking for other external opportunities to do partnerships, alliances or bringing in other products in the pipeline.

Currently, our R&D investment in the specialty pharma business is less than 1%. Including Ribapharm® R&D is the 6% range whereas the industry average is between 13 and 15%. This continues to be an important area of our focus. These are the building blocks we're currently working on to drive growth, both bottom line and top line. We'll be providing you with updates on our progress throughout the year, so stay tuned.

We believe the upside opportunities at ICN are enormous and I'm very excited to be a part of the team that is going to make significant improvements. With that, I'd like to turn the call over to our CFO, Bary Bailey who will review fourth quarter and fiscal year-end results. Bary?

Thank you, Tim. Good morning, everyone. At this time, I will be focusing on our quarterly results and will address our year-to-date results in the Q&A session. Revenues from continuing operations for the fourth quarter 2002 were $199 million as compared to the revenues of $194.2 million in the same period in the prior year, up 3%.

On a GAAP basis, we reported a net loss including nonrecurring and unusual items for the quarter of $100.7 million or $1.20 per diluted share compared with a net income of $33.5 million or 40 cents per diluted share in the same period in 2001. As we indicated we would last quarter, we recorded several nonrecurring and unusual items in the fourth quarter as a result of our strategic restructuring efforts. We have detailed these on table two.

Nonrecurring and unusual charges in the fourth quarter as reflected on that table in the earnings release totalled $35 million or $22 million after taxes and minority interest or 26 cents per diluted share. Nonrecurring and unusual charges in the fourth quarter primarily included severance costs, additional environment clean up accruals, reimbursement of certain costs associated with our proxy contest and a write down of certain assets.

One part of our strategy outlined last quarter was to divest our noncore businesses. These are businesses that do not fit into the company's new strategic direction. As you may recall, last quarter we segregated our Photonics business and [Cearcy] unit as discontinued operations. In the fourth quarter we added our manufacturing facilities in Central Europe, that is Hungary and the Czech Republic, as we began the process of rationalizing our manufacturing operations. We also added our Biomedicals business and our manufacturing and retail pharmacy operations in Russia to discontinued operations in the fourth quarter.

The loss from these discontinued operations in the fourth quarter was $87.5 million or $1.04 per diluted share which includes an impairment charge of $76.6 million for those discontinued operations noted earlier. While these nonrecurring and unusual items had an impact on our fourth quarter results, they were all driven by our decision to focus on our core businesses. When you remove nonrecurring, unusual and extraordinary items, net income from continuing operations in the fourth quarter was $9.1 million or 11 cents per diluted share.

Operating income before nonrecurring and unusual items was $51.9 million in the fourth quarter, EBITDA before nonrecurring and unusual items was $65.1 million. This is down 31% as compared to EBITDA of $94.6 million in the fourth quarter of 2001.

We continued to see strong performance from Ribapharm® who reported fourth quarter revenues of $83.9 million a 55% increase from the comparable period a year ago. The improvement at Ribapharm® was driven by higher royalties which reflect increased sales of Ribavirin® by Schering-Plough. As Ribapharm® told you in their call last week, we think that part of this increase was due to increased marketing on Schering's part in anticipation of another competitor entering the marketplace. We expect this will impact 2003 and therefore we do not expect the fourth quarter royalty revenue rate to be sustainable in 2003 for that reason.

Our specialty pharmaceuticals business saw mixed performance with top line growth in Western Europe and strong operating performance in Latin America offset by a decrease in revenues in our other regions primarily due to the impact of our wholesale inventory reduction program in North America.

On that, let me say a few words with North America. If you'll look at table 3 of the press release, you will note in the fourth quarter North American revenues declined by $27.7 million or 70% over the same period in the previous year. The decline in sales primarily reflects the impact of the company's continuing program to reduce inventories at U.S. wholesalers. We believe we're about 60% of the way through our reduction plan and anticipate having the inventory issue resolved by the end of the second quarter.

With respect to Western Europe, I do want to note that the operating loss in the 2002 fourth quarter was primarily attributable to asset write downs of $5.7 million. In the past, it has not been the practice of the company to provide a table that shows balance sheet information. We are, with this announcement, for the first time, sharing with you balance sheet highlights. We would like to note, as well, that this is a process that we will expect to further refine in our future quarterly announcements.

I want to now briefly review the balance sheet and other financial information. Cash at December 31, 2002 totalled $247.1 million compared with $319.4 million at year-end 2001. We believe that our cash on hand is sufficient to fund our ongoing operations for the foreseeable future. Accounts receivable were stable at $219.7 million at December 31, 2002 as compared to $219 million at year-end 2001 while inventory declined to $88.9 million from $91.1 million at the year-end 2001.

Long-term debt decreased to $482 million at December 31, 2002 down from $735 million at year-end 2001. The decrease in debt primarily reflects the redemption of the company's 8 3/4% senior notes in connection with the Ribapharm® IPO, as well as repurchases of $59.4 million of the company's convertible subordinated notes in open market transactions. Shareholders' equity decreased to $726 million at December 31, 2002 compared to $811 million at December 31, 2001. During 2002, the company repurchased 1.1 million shares of its common stock for $32 million in open market transactions under its stock repurchase plan.

Now, as promised, we would like to share with you our expectations for top and bottom line results for 2003. The past year has been one of considerable change for ICN, as we worked diligently to repair the business, reduce our wholesale inventory levels and set a new strategic direction for the company. As we look back, the wholesale inventory reduction plan has substantially positioned the company for improvements in 2003 and beyond. We expect that 2003 will continue to be a year of focus on building the business and laying a solid foundation for growth.

With that said, the following statements are based on current expectations. These statements are forward-looking and actual results may differ materially from current expectations. Our expectations for fiscal year 2003 revenues range between $770 million and $780 million. On a diluted basis, fiscal year-end 2003 EPS is expected to be between $1.20 and $1.25.

We expect to resolve the wholesale inventory situation by the end of the second quarter with the majority of the impact being in the first quarter. And I must also note that because of the inventory situation and anticipated improvements in operations from efforts of the new management team, basis, fiscal year-end 2003 EPS is expected to be between $1.20 and $1.25. We expect to resolve the wholesale inventory situation by the end of the second quarter with the majority of the impact being in the first quarter.

And I must also note that because of the inventory situation and anticipated improvements in operation the impact being in the first quarter. And I must also note that because of the inventory situation and anticipated improvements in operations from efforts of the new management team, the earnings trend by quarter will not be linear, but rather weighted toward the second half of the year.

Just let me be blunt. Comparisons to the first quarter of 2002 will be particularly difficult as a result of the inventory initiative. Our expectations assume as well that Ribapharm® revenue will remain consistent with fiscal 2002, again impacted in the first part of 2003 by the increased sales in the fourth quarter of 2002 and that Ribapharm® will prevail with its litigation, additionally, we are expecting a tax rate of 38%. With that, I would now like to turn the call over to Rob for closing comments.

Thank you, Bary. Before we open up the call for questions and answers, I want to say a few words about a question I know is on all of your minds, the status of our investment in Ribapharm®. As you've heard us say before, this is a complex decision that requires careful analysis.

We have not yet made a decision on Ribapharm® for three key reasons: First, you all know about the disruption caused by the change in management and the board of directors at Ribapharm®. Second, ICN and Ribapharm® recently reached agreement with Roche that put to rest and changed a plethora of issues that need to now be factored into our thinking. Third, the impact of the settlement between Schering and Three Rivers must be reviewed and analyzed.

In light of these factors, combined with the complexities taking place in the hepatitis C market and the expected expansion of that market, as evidenced by recent IMS data and Roche's entry into the market, we have decided it is prudent and in the best interest of both the company and its shareholders to keep our options open until we get greater clarity on the outcome of these uncertainties. I want, however, to express my complete and unqualified confidence in the management, the scientists, the products, the science and the patents of Ribapharm®. We are continuing to evaluate all of our options, and we'll share more information with you on a timely basis when we are able.

I want to thank you all for your continued support of this company during a difficult period. Additionally, I would like to take this opportunity to thank, especially, our employees worldwide who, despite the challenges we faced in 2002, continued to perform above and beyond the call of duty, and are now looking forward optimistically to an exciting and successful 2003. And with that, I would like to open up the call to questions. Operator?

Thank you, Mr. O'Leary. Our Q&A session will be conducted electronically. If you would like to ask a question for our speakers, currently press the star key followed by the digit one on your touch-tone telephone. If you are joining us on a speaker phone, please release your mute function so your signal can reach our equipment. Once again, that will be star 1 to ask a question. And we will pause for just a moment to assemble our roster. Our first question comes from Richard Stover with Arnold & S. Bleichroeder.

Yeah, that's difficult to say, it is Arnold & S. Bleichroeder. Good morning.

Good morning, Rich.

If I may ask, could you quantify your best estimate of the dollar impact on North American operations of the wholesaler reductions that occurred during 2002, and what that translates into for the first half of 2003? Secondly, with respect to your guidance and expectations on Ribapharm® revenues, to what extent have you factored into your thinking; one, the probable impact on pricing of Rebitol® as a result of Roche's pricing decision on [Opegus] and secondly the recently disclosed information from Schering-Plough of the unexpected weakness, at least to Roche of the Japanese hepatitis C franchise?

I'm not going to promise you we're going to go through all of those. We'll take up half the time available for other people on the call, but we will get to a number of these now. I'll turn things over to Barry Bailey, but as people ask multiple questions, it will be our policy to answer the first question, and then ask you to go to the end of the cue for your second and third questions. We'll do the best we can with you, Rich, but I just want to establish that discipline if we could, please. Bary?

Yes. Good morning. Excuse me, Rick. The relative to the inventory situation, we've indicated we're about 60% of the way through that, and I believe in prior quarters we've indicated ranges of 10 to 15 million a quarter. But since this is also subject to litigation, I don't want to get into more detail than that. Suffice it to say we are comfortable at those previously indicated amounts. I will mention with respect to the Ribapharm® revenues, that they need -- you really need to ask the folks down at Ribapharm® relative to that.

Okay.

Okay. Next question, please.

That will come from Michael Tong with Wachovia Securities.

Hi, good morning. Just one clarification question before we get into more details. I remember hearing you write about SG&A targeting to about 35% of product sales, and if that's correct, and based on backing out the Ribapharm® revenue implication of flat year-over-year, I would be looking at about $170 to $180 million in SG&A in '03 at about a $83 million quarterly run rate, how are you going to get there in '03?

Tim Tyson?

Yes. Thanks, Michael. As you know, any type of restructuring takes time, so we're not promising any of these directional results from where we are to the averages that we indicated in this year. So, we don't have, and didn't release specific targets on the year on those, but that is our focus on trending from where we are towards those averages. So, we're not going to get to that 35% this year.

Thank you.

Moving on we'll hear from Alan Seymour with Colombia Management Group.

Hi. Kind of a similar question, although related to your R&D. What I'm really interested in is how you think about priorities for R&D, investment, and because obviously there is productivity issues related to that. Just throwing money at R&D usually doesn't work. So, could you kind of give me some sense as who how you evaluate R&D, and how you're likely to strategically invest in R&D?

Well, let me -- let me answer that in two ways, Alan. This is Robert O'Leary. I'll let Tim get to the heart of your question, but of course as you look at our consolidated statement, a lot of our R&D dollars are focused at Ribapharm®. And, you know, that's an independent management team and board of directors, and they're going to establish their own priorities how they allocate that money, and how they focus it.

I will tell you from our level, looking at the same data you're looking at, and from what we know from that public information, we're very, very pleased with the way that's happening, and particularly pleased with the continuing ramp up of focus of R&D dollars there. I am confident, I will tell you, that as we move forward, that the new management team and board are focused more than ever to make sure that the split between their available revenues between R&D spending and G&A is going to continue to be more heavily weighted to R&D.

So, I think we'll continue to see a strong investment there. ICN for its part, couldn't be more enthusiastic about supporting that direction. Now, as it relates to the specialty pharma business, let me call on my colleague, Tim Tyson.

Thanks, Rob. Alan, I think there's two pieces one is tactical and the second is strategic. The tactical R&D focus will be on taking products that we have and trying to gain more value through reformulation and line extension. So, we're going to do investments on products that we believe have opportunities for growth by looking at reformulation and line extensions.

On a strategic basis, we know, as others and all of you know, that the industry is based on innovation, and we're going to be focusing on innovation from a long-term standpoint, externally through alliances, partnerships and other opportunities and internally through our own discovery efforts.

Let me just add, Alan, from my longer tenure here than Tim, but still brief, one of the things -- you might say, well that's what I expect a company to do. But the truth of the matter is that ICN's strategy historically has been almost solely dependent upon buying in. There has been virtually no, and that's being optimistic, life cycle management here of products. We have, in the short 90 days under Tim's leadership, already begun several aggressive initiatives.

That says two things. One we're going to have a capability we never had before, and second, we have a group of products here which we have not effectively yet mined or have not been mined over the last several years for these kinds of formulations and line extensions. We think there's some real attractive opportunity in it and we're going to be zeroing in on that like a laser.

Thank you.

John Rasillory with State Street Research has our next question.

Thank you. You gave the three reasons for the complex decision of Ribapharm®. Can you give us any more flavor on issues we may be missing in terms of the Roche deal? And it seems to me that the big issue is obviously the patent in the U.S., if you wait for information on that, it would seem to me you wouldn't have much to say until we progress in the court case, which doesn't start until June.

Well, I think you've done a great deal to answer your own question, John, and you folks are as smart as we are relative to the information that's available on the Roche strategy. I would say on your last point, however, there is a motion for summary judgment coming up at the end of March, and that is an important touchstone as well.

Beyond that comment, I am not prepared to comment on any time line relative to the decision. As you think back over our efforts in this regard, had we acted prematurely back in December or January, not withstanding the disruptions on the management and board activities, I do believe that we would be subject to some intense criticism from our shareholders today. We really believe we're going to need to wait and see, keep our options open and be very, very active in our analysis of these options.

Obviously the generic case is a critical issue, but do not lose sight of the fact that the Roche settlement has been with ICN and Ribapharm® has settled many important issues. Thank you, John.

Thank you.

Once again, if you would like to ask a question, please press star one. We will now hear from Jerry Trepple with Wheaton Healthcare.

Thank you. You had mentioned that from a manufacturing point of view you have 30 plants worldwide running at 5 to 15% capacity, I think you said. When you -- I'm unclear whether you're going to shut down or just sell the facilities in Hungary and the Czech Republic. What does that do to your utilization?

Those are incredible numbers. Let me turn to Tim Tyson on that.

Jerry, thanks for the question. Firstly, I would like to say the industry is not extremely great at capacity utilization and manufacturing, it is about 28 to30% from an industry standpoint, so we're not good, but the industry is not great. Our focus is on doing what's necessary to reduce the costs. The costs are in facilities, in the staffing, and in the cost of doing business at those operations. So yes, we will reduce the physical assets that we employ to increase our productivity and efficiency, and to reduce our cost of goods.

In Czech Republic and Hungary we have a facility in each of those two countries that we will be focusing on all of our operations that we look at rationalizing, we will be looking at taking care of our employees and trying to find other opportunities for them for employment through sales.

So you're just going to shut the plant down is what you're saying?

No. This is Bary Bailey. We're going to be selling those plants.

Okay. Thank you.

You're welcome.

We will now hear from Matt Caplas with Quaker Capital Management.

Yes. I guess a question in terms of your guidance and how it relates to your view that Ribapharm® will be flat in '03 versus '02, is that at the net income line as well as revenue, because if it's at the net income line, and I guess I take 80% of that adjusted for the minority interest that would imply the rest of ICN, I guess basically broke even, am I doing the math right?

No. With respect to Ribapharm®, what we are indicating, by the way this is Bary Bailey. We are indicating on a royalty basis, they are, we are anticipating about the same as last year. We didn't get into any further detail relative to their spending pattern.

Okay. So to the extent their profitability, I guess decreases that would imply some profit at ICN then?

Yes. We expect the specialty pharmaceutical business to be growing in its profitability and to be profitable. Absolutely.

Okay. Good to hear.

And more importantly, building a hell of a platform for the year beyond.

Thank you.

We will now hear from Ethan Mc Intyre with Q Investments.

Yeah, it's Ethan. I had a question on the asset sales --

Ethan, could you speak up just a bit.

On the asset sale, how much cash did you guys get? I know you didn't disclose the terms, but it would be helpful if you could.

Ethan, it's absolutely insignificant on the Photonic sales. This was mostly the divesting of a problem.

Okay what was the EBITDA burn, how about that then? On the business.

Ethan, we'll get back to you on that in just a minute.

Okay. Thank you.

Why don't we take the next question and we'll come back to Ethan when we have that.

Michael Stanski with Tudor Investments.

Yes. Could you just briefly go over the operating income areas? When we adjust Western Europe for the write-off and we look at pre-corporate expense we see some pretty high operating margins. Can you talk about how you sustain them and how you allocate corporate expense so we can get a sense of what the new business will look like over the next couple of years?

We missed the first part of your question. Can you restate that?

Sure. When we look at the operating income disclosure that you gave us in Q4, we see, even adjusting for the Western Europe write-off of 5.7, we see some pretty healthy margins, I should say, by division.

How should we look at that going forward, especially relative to the high corporate expense in Q4, how that is over the next several quarters so we can get a sense of what the ongoing operating income margin and dollar level should be for core ICN operations?

Well, Ethan, this is Bary Bailey. With respect to the strength in the regions, you should continue to expect that. Obviously caveated by the impact in the U.S. market on the continued inventory initiative, particularly in the first half of the year. With respect to the corporate run rate, we were impacted in the fourth quarter by additional legal expenses. We would expect that over the course of '03 we would continue to see that temper itself.

Can you put a dollar amount of what corporate expense line item is going forward?

Michael, if I'm just, if I can just say something. You can take through and bite through the pieces there, but I think what you need to take is that we're going to have a laser like focus on driving earnings in the business by focusing on the things that generate value.

We've given you a trend that we're going from each one of the line items and that's what we're going to focus on and you should get a fairly good sense of how we're going to drop G&A to focus on the things that drive value.

And with respect to outlining the individual components of '03, essentially Tim was saying that, we weren't going to break those components out.

At this point I'd like to get back to Ethan with respect to the EBITDA burn at the Photonics business for '02, that was about $15 million.

Okay. Next question, please.

That will come from Sina Lunde with Cafe Financial.

Hi. Good morning. Thanks for taking the question. On the cash flow, can you give us a guidance by the end of '03 with how does your cash flow look like, and in the guidance you gave for sales, does it include any acquisition of any specialty product or anything else like that?

We'll take the last part of that question first.

The answer is it does not include any acquisition. It's based on internal products that we currently have.

Cash flow?

Yes, this is Phil Loberg. Good morning. Thank you for the question. We are not giving any guidance on our cash flow. Our cash balance as of the end of February is approximately $330 million which is up from our year-end balance of approximately $250 million.

Thank you.

Mike Hawthorne with Melon Bank is next.

I just wanted to find out if you guys still consider Ribapharm® as your most important asset?

I think that's a -- that's a safe -- a safe assumption. It is a very valuable and critical asset to the company, but we have growing confidence and excitement about our specialty familiar business. Thank you, Mike.

Anything further Mr. Hawthorne?

No, that's it.

Thank you. Once again, if you would like to ask a question, please press star one. We will now hear a follow-up question from Michael Tong.

Thank you, my follow-up has been answered.

Thank you, Michael. If there are no further questions?

We do have a few more questions.

Okay.

Next follow up question is from Richard Stover with Arnold S. Bleishroeder.

Thank you. Earlier in the year you had mentioned anticipation of generic competition from Estanon® and reduction of those inventories. What is the status of that competitive environment now for that product and what should we be looking for going forward?

Rick, Tim Tyson. Rick, the generic did come into the market place at the first of the year, and from a market share standpoint we're seeing a typical erosion, but there was a surprising activity, at the same time, there's been a spike in the volume of prescriptions, and so from our standpoint we have a level number of prescriptions, and you can see that in the IMS data.

So, something happened to expand the market place there, and we're not sure what it is, but it seems to be coincidental with the approval of a NDA for an indication for a 30 milligram dose for treatment for nerve gas exposure for the U.S. military.

Is that all Mr. Stover?

That's all. Thank you.

Moving on we'll hear from Tom Shinkle with Imperial Capital.

Yes. Can you give us an indication of how much dividend capacity Ribapharm has to provide toward ICN the parent?

This is Bary Bailey. With respect to dividend capacity, I don't think there, at least I haven't heard of any plans on Ribapharm® providing any dividends.

Is that by their direction or can you ask for dividends?

You'd have -- you'd have to ask them.

So you own 80% of it and they control the dividends?

Yes.

Okay. Thank you.

We do have a follow-up question from Jerry Trepple.

Um -- yeah, actually two. I just want to clarify what you said about Russia. I think you said you're going to basically discontinue the retail operations, you know, where does that leave the fairly significant manufacturing sector that you have there? And does your rationalization include adjustments to your U.S. sales force be that up or down?

On the Russian question, Jerry, our announcement on November 7th indicated that we are selling all of our Russian operations, not only the resale pharmacy business, but all of the pharmaceutical business as well and our real estate. We do not intend to have an operation resident in Russia.

Thank you.

And on the second part of your question, Tim Tyson's response.

Yes, thanks, Rob.

On U.S. sales force, we have been focusing on and improving the sales force. We just replaced 20 of our representatives in the United States with more higher quality reps and we look at continued opportunities for expansion of that sales force based on size and structure analysis.

Okay, but there's no definitive plans one way or the other at this point?

No definitive plans?

Yes.

We have plans, we have added some 20 reps and we'll continue to add some additional reps in the states.

Okay. Thank you.

We will now hear from Matt Caplas for a follow-up question.

Two sort of mini cash related questions. Do you have for '03 a depreciation amortization expectation and a cap ex expectation? And somewhat related, the net assets of the discontinued presumably have been written down to what you expect to realize, what's your time frame on that?

Let me -- this is Bary Bailey. I'm going to answer the last part first. We anticipate divesting of all of the items we've moved to discontinue operations by the end of '03. And with respect to the balances, yes, we've adjusted those down down to what we believe to be the fair market value of those items. With the other I'm going to ask Mr. Loberg to follow-up.

You can he can expect the same run rate as last year approximately 50 million each for the duration of 2003.

50 million cap ex even with all the excess facilities and all the stuff you're looking to get rid of?

No. The would be on a run rate base basis, it would be modified by any strategic activities that we may engage in for any major changes.

I'm not sure I understand that.

Well, from time to time we're looking at strategic activities which could increase our decrease, for example, our cap ex strategy.

Okay. I guess --

Acquisitions, so on and so forth.

Okay. I guess my only question is as relates to cap ex, if you're 5 to 15% utilization on 30 plants and looking to cut overhead, it seems odd that cap ex wouldn't go down.

This is Bary Bailey. With respect to that amount, what we're referencing is on continuing OPS, looking -- if you are going to look at it you would assume an ongoing run rate. Relative to guidance, we aren't really communicating that with respect to additions or subtractions over the course of '03, that is additional product acquisitions, additional other investments that are strategic.

Okay. But that would be product acquisition as opposed to investing in property plant equipment or I.T. systems?

Correct.

Okay. Thank you.

Ethan Mc Intyre has a follow-up question as well.

I just want to confirm. What was the cash number at the end of February?

$330 million, approximately.

How did that go up so much?

Well, we get our royalty -- Ribapharm® receives its royalty within 60 days following the end of the quarter.

Would there have been any working capital just at ICN I am profits as well or was that all RNA?

It wasn't all RNA, but a significant portion of it was the royalty receipt.

Just on the cash restructuring charges, are we done with those now?

This is Bary Bailey. Um -- it is our expectation with respect to the restructuring charges we are done. Although, I would like to point out that as we look at continuing to rationalize our manufacturing facilities, we would expect that over the next year and into '04, that we could have additional charges with respect to that rationalization. They will be largely noncash and we view those as extremely positive.

Fair enough. Thank you.

Moving on, we'll hear a follow-up question from Sina Lunde.

Getting back to the cash question, I guess, I just want to get a better understanding. If you want to lay us down a plan, how do you want to spend this cash? I mean it looks like you're cash positive at this moment. Do you have a priority list of that?

This is Bary Bailey. With respect to '03 and that front, we're not providing specific guidance.

Thank you.

David Hoadley with Advent has the next question.

Hi. Could you tell me what the capital expenditure was in the quarter and also what cash flow from operations was in the quarter?

Yes. Capital expenditure -- I'm sorry what was the second part of the question?

Cash flow from operations.

The capital expenditure for the quarter for continuing operations was $7 million. For the year it was $20 million. Discontinued operations it was $4 million for the quarter and $10 million for the year. And with respect to cash flow for the quarter --

Yeah, we don't have the breakdown for operating cash flow for the quarter. I can give you a sense of the inflows and outflows for the quarter. Our cash balance increased from 250 to 255 during the quarter. The inflows were substantially the royalties of about 70-plus million and that was offset by various expenditures, taxes, cap ex, change of control payments, that's about 40 million in additional legal dividends and some acquisition spending of another 20 to 25 million.

Can you tell me if there's been any change in the intercompany balance between Ribapharm® and ICN since the end of the quarter?

This is Bary. The answer is no.

And finally, I just want to check. The guidance of $1.20 to $1.25 that's after the minority interest of Ribapharm®?

That is correct.

Okay. Thank you very much.

Thank you.

We will now hear a follow-up question from Michael Stanski.

Two questions. Bary, net asset of discontinued ops are $154 million on the balance sheet. You've mentioned plans to monetize those assets, could we expect a similar item to be received over the next couple years as you sell those?

Michael, first of all, good morning. Like I've indicated earlier we've adjusted our discontinued ops to what we believe to be the fair market value.

And your plains to monetize those should we assume you can get some money out of that?

As we sell it, that would -- being the cash person that I am, that is what I would expect.

Can you comment on what you think the Russian operations are worth?

No, I wouldn't want to specifically comment on any particular divestiture item.

Second question. Your NOL balance, please?

The tax NOL?

Yes.

I can't comment on that right now. But it was a good try with those questions.

Thank you.

Matt Caplas also has another question.

One last question. On the accrued restructuring expenses and any other sort of unusual items, what's the cash balance remaining there at year-end? Or what do you expect to spend this year?

Hi this is Phil Loberg. That amount is substantially complete vis-a-vis the totals during the year. We have just about 30 to 50 million still outstanding that will go out over the next 12 to 18 months.

And that's from continuing operations?

No. That's substantially from nonrecurring.

Okay. But, I guess my question is, is it captured in that net assets of business to be divested, or is it sort of a separate item?

This is Bary. That -- it is -- it would be part of a separate accrual.

Okay. Thank you.

We'll take one last question, please.

That will be a follow-up question from Michael Tong.

Thanks for taking the question. I just want to make sure I heard correctly that cap ex for '02 was 20 million and your expectation of '03 is 50 million?

We haven't specifically commented on at least a detail level for '03. We indicated that '03 has not reflected any assumption around product acquisitions or major asset acquisitions so you need to make your own assumptions from there.

The 20 is correct?

The 20 is correct.

Okay Michael?

I thought in answer to one of the prior questions you said depreciation amortization and cap ex are roughly equal at '03 at about 50 I just wanted to make sure that was right.

We indicated the depreciation typically runs about 50 and that's not significantly impacted by what's sitting in discontinued. On cap ex, all things being equal without special activities or special investments that's what the run rate has been and that's a fair rate to look at, but we're giving no guidance with regards to the impact of other strategic activities or changes in strategy.

Okay, thank you.

Thank you, Michael. And at this time, I am going to bring the Q&A session to a close. I want to thank everyone for their time today. I also want to take this opportunity to acknowledge our new President and our new Chief Financial Officer and the impact they have had on the organization in the last 90 days.

In these last 90 days, much of which has been taken up with the management and board distractions at Ribapharm®, this new management team has begun to fill the holes in the organization by attracting some incredible talent to ICN, accelerated our divestiture program, and, in fact, completed our first sale just six weeks into the new year, begun the process of closing excessive manufacturing capacity, and began the process of fundamentally changing the environment within the company to a performance oriented culture with the focus where it needs to be, on key products in major markets, and most importantly, has brought a new level of sophistication, energy and intensity to our financial and operational activities.

I want to close the call by repeating how pleased we are with the progress we have made. We have delivered on commitments made last November. We are excited about the new additions, and we are confident in our ability to deliver on our guidance for 2003 and before I close, it would be wrong of me not to acknowledge the patience that many of you out there have had with us and with this company, we promise that we will reward you for that patience and support. Thank you again, and we look forward to speaking with you in the near future.

Thank you. That does conclude today's teleconference. Thank you for your participation, at this time you may disconnect from the conference.