Bausch Health Companies Inc (BHC) 2003 Q1 法說會逐字稿

Good morning. My name is Tamara and I will be conference facilitator today. At this time I would like to welcome everyone to the ICN first quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. Please limit yourself to one question at a time to allow all participants an opportunity to ask questions. As a reminder, this call is being recorded.

At this time, for opening remarks and introductions, I would now like to turn the conference over to Mr. Gregg Keever, executive vice president, general counsel, and corporate secretary of ICN. Please go ahead, sir.

Thank you: good morning and welcome to today's call.

Before we begin the call, I would like to read to you the following statement. This presentation contains forward-looking statements that involve risks and uncertainties, including but not limited to projections of future sales, royalty income, operating income, return on invested assets, regulatory approval processes, competition from generic products, marketplace acceptance of the company's products, success of the company's strategic repositioning initiatives, and the ability of management to execute them, cost cutting measures and other risks details 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, Timothy Tyson, president and chief operating office, Bary Bailey, chief financial officer, Wes Wheeler, president of North America, Whinny Wiu (ph) controller and Phil Loberg (ph), treasure.

And now I'd like to turn the call over to Rob O'Leary.

Thank you, Gregg. And thank you, everyone, for joining us this morning.

As we told you last quarter, our first quarter comparisons to the previous year would be difficult. Primarily due to our successful efforts to reduce the level of inventory at wholesalers in North America. We also told you that we expected those efforts to continue through the first half of this year. Today, however, the timing of the outcome of these efforts is no longer in doubt. I am happy to report that as of today's call, we have completed our inventory reduction measures to four months ahead of schedule. And just as important, despite the impact on sales of our inventory reduction program, our North American region delivered good product performance.

We've invited Wes Wheeler, a our new president of North American operations, to talk about what's going on in North American -- North America a little later. Tim and Bary were will provide an overview of our worldwide business after that.

I'm also pleased to report that we continue to deliver on the execution of our strategic redirection in the quarter. We are beginning to see tangible results from these efforts as we lay a foundation for greater accomplishments later this year and in 2004.Our new management team, which is now substantially complete, has been active in implementing a series of substantive initiatives to improve operational efficiency and to drive future growth.

We have begun the first phase of our multiphase procurement initiative to leverage our international buying power. Tim will provide more details why we are confident this program will have a significant impact. Some of which we now believe will impact the current fiscal year. We've also taken the first steps in our manufacturing rationalization process by identifying initial targets and formulating plans for significant changes. Our proposal will be completed by the end of the year. And we will be implementing the plan over the next few years. ICN is quickly moving through its strategic repositioning and transforming itself into an operationally focused company.

Through targeted toss savings, manufacturing and supply chain efficiencies, and procurement initiatives, ICN is improving its business by operating in smarter, more productive ways. We continue to believe that 2003 is a year of focus for the company and one in which we will continue to see benefits from our strategic repositioning efforts,.

With a challenging first quarter behind us and frankly more accomplished than we had expected, particularly in the U.S., our most significant market opportunity, we expect a second and third quarters to show steady improvement and the fourth quarter to reflect a strong and positive effects of our initiatives. We have also made excellent process progress on our divestiture program which I will elaborate on later.

But now, I'd like to turn the call over to Tim Tyson, our president, who will chair share more of the operational improvements we've implemented throughout the organization. Tim.

Thank you, Rob. And good morning, everyone.

As Rob indicated, the first quarter was focussed on taking the additional steps necessary to realign our business and making tangible progress in our repositioning efforts. Last quarter, we discussed cost-cost-cutting measures we are implementing and the long-term objectives we have for reducing SG & A, cost of goods sold, and more. While our immediate focus is to stop spending money where it does not add value and to invest in areas that drive growth in our business, the future success of our business is investing in activities that will drive the top line and in implementing an innovation strategy that will bring new products to market. These efforts are well under way.

As Rob mentioned, we are complementing the first face of a multiphase procurement plan which will help us centralize our global purchasing activities and leverage our international buying power. As a matter of fact, we have already taken action which will generate millions of dollars of savings and we expect to deliver benefits by the end of 2003.

Our second significant initiative is our manufacturing rationalization plan. We have begun our manufacturing rationalization efforts and will develop an integrated plan by the third quarter of this year. This plan focuses on improving our current average capacity utilization of 5-15% in our 31 manufacturing sites. By reducing the number of manufacturing facilities, increasing the productivity of our manufacturing operations, and rationalizing our third-party suppliers to reduce the cost of materials, this program will be implemented over a number of years and we expect to see a reduction in the cost of goods sold over time. As the manufacturing plan is completed, we will share it with you.

To drive the top line, we are aggressively pursuing opportunities to expand our product portfolio through internal discoveries and strategic acquisition. As well as identify strategic products and market them globally. During the quarter, our regions turned in strong product performance with some difficulty experienced in Latin America. In Europe, we experienced a 24.1% increase in sales from year ago results. These results were driven by growth in Mestinon, Calsitonin (ph) Virazole, and Guvin (ph) .

Our AAA business, Africa, Australia and Asia grew by 8% driven by Virazole and Reptilase (ph). We have implemented a number of steps to grow our European business, including launching line extensions, enhancing the product life cycles through medical studies, increasing the number of sales representatives, and improving their performance-performance-based incentive. We have removed the distraction created by the former international headquarters and have given management in Europe new leadership direction that has greatly improved their focus and execution.

Sales for Latin America were down from last year's results due to continued economic pressures in the region. Volume of Bedoyecta in Mexico but positive results in the country were masked by negative foreign currency translation.

Overall sales in North America, compared to the prior year were down significantly due to our continuing and successful effort to reduce wholesale inventory levels. These efforts reduced sales in the current quarter. But they have paid off with a completion of our efforts two months ahead of schedule. Our core U.S. products, namely he Efudex, Kinerlase, Glyquin continued to enjoy strong prescription demand.

And now I'd like to turn the call over to Wes Wheeler our new president of North American operation and head of global marketing to discuss some results for the market that is the primary focus of our strategic repositioning efforts and which represents our most significant future opportunity. Wes?

Thank you, Tim.

In the short time that I've been here, I've already seen improvements in North American operations. I'm pleased to be part of the team that successfully completed our wholesale inventory reduction two months ahead schedule. As part of this program we now maintain an active dialog with the three primary pharmaceutical wholesalers and have worked with these wholesalers to deliver on our promise to successfully reduce our inventory levels. We continue to work with them to track the inventory of all of our products at SKU level.

Going forward we expect to see ICN's sales to wholesalers more closely reflect the retail demand. In addition to completing our wholesale -- our inventory reduction program, we have continued to see strong performance from our core products. Our flagship product Efudex, continues to perform well. In the first quarter of 2003, based on INS data we maintained our market leading position with a 51.2% market share at expense of competing products. It is clear the that the impact of realigning and retraining our sales force and updating our marketing messages have paid off. We are working on new marketing and sales tactics to further enhance Efudex performance.

Our second promoted dermatology product Glyquin continues to perform well in a competitive market. Last year ICN lost significant market share to other products. We've been able to stop the market share loss by introducing our own line extension Glyquin XM. Launched only last October Glyquin XM has only achieved 6% market share. This new line extension coupled with a newly incentivised (ph) sales force has allowed ICN maintain its position in this highly competitive marketplace.

Mestinon sales in the quarter declined due to a generic product launch this year. But the decline was less than expected. Statistical modeling as market share patterns for products in a post-generic marketplace would yield an expectation for market shares for Mestinon at 68%.Yet according to IMS data Mestinon's market share was 78% in March providing stronger sales performance for ICN than expected.

Kinerase is our casmasutical (ph) product sold through physicians' offices. In North America, our renewed sales efforts and creative marketing tactics enabled us to achieve significant increase in sales as compared to the last quarter and the first quarter of the prior year. We are planning to launch two important line extensions this summer which we expect will drive further growth in this lucrative market.

With the first quarter behind us we are very optimistic about the opportunities that lie ahead. And with that I'd like to turn the call to Bary Bailey for a discussion of our first quarter financial results. Bary.

Thank you, Wes. And thank you, everyone, for joining us again.

Now let's get started with the financial review. Revenues from continuing operation from the first quarter of 2003 were 158.7 million compared to revenues of 185 million in the same period last year or down 14%.We reported net income for the quarter of 13.7 million or 16 cents per diluted share compared to net income of 8.4 million or 10 cents per diluted share in the same period last year.

Income from continuing operations in the first quarter was 13.2 million or 16 cents per diluted share versus 31.1 million or 37 cents per diluted share last year. Operating income was 32.4 million in the first quarter versus 64.7 million a year ago.

Overall, our gross margin in the first quarter was down almost 9 percentage points from the same period in the prior year. Including North America, where we expected a decline in gross margin as a result of our efforts to reduce wholesaler inventory, gross margin in the rest of the world was at 62.4% compared with 64.5% in 2002.

Income from discontinued operations in the first quarter was 449,000 compared to a loss of $956,000 in 2002. As I mentioned last quarter, we expected the first quarter to be challenging.

Ribapharm royalties revenue declined 14.8% in the first quarter to 48.6 million compared to 57 million in the first quarter last year. As you know Ribapharm royalty revenues are derived from sales by Ribapharm by sharing Plough and Roche to wholesalers which experienced a decline in sales in the first quarter.

As we discussed with you last quarter, we anticipated that the royalty revenues in the 2002 fourth quarter were not sustainable as Schering (ph) increased it's sales and marketing efforts ahead of Roche's entry into the market.

ICN's focus remains on the specialty pharmaceuticals business. Revenues were strong in Europe bolstered by a strong Euro but this growth was offset by a decrease in revenues in North America primarily due to the impact of our successful wholesale inventory reduction program and weakness in Latin America. Latin America was negatively impacted, as mentioned before, by foreign currency translation.

In the first quarter North American revenues declined by 26.6 million or 63.3% under the same period in the previous year. The decline in sales primarily reflects the impact of the company's inventory status and the program to reduce inventory at U.S. wholesalers. To reiterate previous comments, we have achieved our stated objective on the inventory reduction program effective this first part of May, two months ahead of schedule.

In the first quarter, the European revenues increased by 10.8 million or 24.1% above the same period the previous year, approximately 60% of this increase is due to foreign currency translation, with the rest reflecting solid increased sales highlighted by Spain, Italy, and Poland.

Now, for Latin America, in the first quarter of 2003, Latin American revenues decreased to 26.4 million, compared with 29.5 million in 2002.Excluding the negative impact of foreign currency translation of $5.5 million, revenues would have increased 8% from the year ago result.

And now I'd like to share some highlights from our balance sheet. Cash at March 31, 2003, totaled $309.3 million compared with 245.2 million at year end 2002.We believe that our cash on hand is sufficient to fund our ongoing operations for the foreseeable future.

Accounts receivable declined to 168.3 million at March 31, 2003, from 215.8 million at year end 2002 while in-house inventory remained flat. Stockholders equity increased marginally to 704.9 million at March 31, 2003.

Now, with that I'd like to turn the call back over to Rob for closing comments. Rob?

Thanks, Bary.

Before we open the call up for questions and answer, I'd like to touch on a few areas of particular interest.

We continue to make excellent progress on our divestiture efforts, and in the process, we have improved operations. In fact, for the first time in over a year ago year, we have seen substantial improvement in our Russian operations. We have received well over a dozen bids for our Russian businesses, and most recently reduced the number of bidders to a core group.

Our biomedical business is farther along in the sales process than our Russian operation. We remain on track to complete all of our planned divestitures by the end of the year. By now our proxy statement and annual report have been distributed to shareholders. You've had a chance to review it and you will have undoubtedly seen the strides we have made in the area of corporate governance. This is something I am particularly proud of as it sets the tone and an expectation for the company to be more accountable to its shareholders.

We are truly putting the past behind us. By implementing an active governance platform that includes such physician extension steps as the selection of a lead director when the roles of chairman and CEO are held by one individual, as they are now, the ability of independent directors to schedule executive sessions without management attendance, as we will do in May, and the periodic rotation of committee members and formal evaluation of the chairman and chief executive officer.

While we have made substantial progress in these first nine months, clearly this is a continuing process and more will be done.

Lastly, while I hate to talk about the absence of a negative, being a positive, as you may have noticed, or at least I hope you have noticed, in today's earnings release, for the first time in a long time, we did not record or report any one-time charges in the quarter.

I want to thank you all for your continued support of the company. Additionally, I want to thank our employees worldwide who continually perform beyond expectation. Before we open for questions, I'd like to return to Gregg Keever for an important reminder. Gregg?

Thank you, Rob.

ICN, as other companies is evaluating with how to comply with the new rules under regulation G and its related regulatory requirements. Ending further clarification of these requirements, the company is not releasing certain information at this time which may have been provided in the past. All appropriate GAAP information will be reported in the company's form 10 Q which will be filed by May 15th.

With that, I'd now like to open the call for questions.

At this time, if you would like to ask a question, please press star, then the number one on your telephone key pad. Again, please limit yourself to one question at a time as we would like to give everyone a chance to ask a question. We'll pause for just a moment to compile the Q and A roster.

Your first question comes from Michael Tong with Wachovia.

I have a quick question. I was wondering, Rob, if you would confirm for us your royalty as well as EPS expectations for '03.

Bary?

Yes. At this time we do not have any other information, Michael, that would cause us to change our assumptions that we provided in the fire prior -- for the year end when we provided guidance.

Thank you.

Your next question comes from Eric Miller (ph) with Heartland Advisors.

Have you disclosed of what you think in ranges of the proceeds that you want to get for Russia in the biomedical?

Eric, we have not. Bary, anything to supplement?

The only thing, Eric, I would point out is that as we looked at our discontinued operations, we are obviously make judgments as to the fair value of those and reflect that in our balance sheet as discontinued operations.

Okay, thanks.

Your next question comes from David Home (ph) with Advent Capital.

Good morning. Can you tell me what cash flow from operations was in the OC or capital expenditures?

David, this is Bary Bailey again. Because of the requirements under RegG we would have to break out the various elements of cash flow and because that's not available, we can't present that at this time, it will be available in the queue.

Right. Was it positive?

Yes.

'Cause I note that -- I think you had -- your core trend cash of 309 million, 95 million of that is at Ribopharm.

David, I'm getting the high sign here if we wanted to limit this to one question, if I could move that to the back of the queue, if you will, for additional questions, just want to be fair to everybody.

Your next question comes from Jeff Molden (ph) with Caleford (ph) Capital.

Hi. I was referring reviewing the profitability of the business back in the late '90s, before you had a meaningful royalty revenue extreme and I calculate something in the mid teens consistently, 16, 17 -

Excuse me, but you're fading out. We're having trouble hearing you talk.

I was looking at the profit margins of the business back in the late '90s basically before you started reporting a revenue stream from the royalty business. And I was curious, based on where your business or the mix of the business is going forward excluding Ribapharm, can you talk about where you would like to see your operating margins once your restructuring is complete?

Tim Tyson.

We expect the operating margins to improve. We are looking at the opportunities to reduce cost in areas that aren't adding value to the business and investing in other areas, and part is in the earnings area. And we expect to more closely reflect that of the industry, of specialty pharma.

I'm not a specialty farm analyst. Can you give me some kind of guideline what that means?

We're -- we're probably approaching the -- in operating income are you saying or which margin position are you talking? Jeff?

Your next question comes from Bart Epker (ph).

I'll catch that up, Jeff, with you, I'm not sure which margin you were talking about.

Jeff, when you get a chance, Jeff, please come back in for another question. Excuse me, who's next?

Your next question comes from Bart Epker with Par Capital Management.

Hi. Can you refresh me on the dollar amount of the inventory work-down and was that completed by March 31st or as of today?

Bart, this is Bary Bailey. I don't think we ever communicated a dollar amount. We indicated that we had a significant reduction by year end, and we've completed the overall inventory impact which I believe from the last quarter we indicated was over 10 months of supply. We completed that effective the end of April.

Thank you.

In order to ask a question, please press star one. We do have a question from Jeff Molden with Caleford Capital.

Hi again. I was thinking after corporate expenses your operating profit of 12 six in pharmaceuticals this quarter was a little below corporate expenses of 13 eight and I compare that operating loss, if you will, to let's say a 16 1/2% margin in 1997 after corporate expenses. That's a different business, I understand. But I'm wondering if that represents a reasonable target for your future operations let's say a couple of years from now, excluding royalties.

Jeff, this is Bary. Let me -- I suspect you're looking at Table 2 on the -- that was attached to the earnings release. While I -- we haven't really set out, other than some relative percentage on gross margin, we've anticipated as we grow in the future, you'll notice that North America is down significantly compared to last year. I think that's driving a lot of your assessment.

That's true. But I'm just wondering if it's possible to share any kind of target for operations in the future.

I think that, Jeff, our targets are to get back in the ranges that you were looking at there and to be greater than 15%15%.

Thank you very much.

Jeff, obviously, you know, there's been a -- in the last couple of quarterly calls, there's been a lot of speculation that with any profit in the specialty farm that business at all. As I think you can see with this quarter's results, even without much help from North America, where our most attractive market and where we're putting most of our focus, the potential for the specialty farm that business is beginning to become self-evident. I think the -- the only real question is just how good can we make it.

Your next question comes from Matt Triplet (ph) with Quaker Capital Management.

I'm wondering if based on IMS data if you can attempt to size what you think end market sales of your North American products were for this quarter since obviously sales and wholesalers did not reflect that.

Matt, this is Bary. We have, obviously, for a number of products, IMS data but we don't have it in a format that would make us present over there because we can talk about units and this that you all have access to but we can't carve out product by product under Reg-G.

Let me ask the question a different way. Previously you said your expectation or thought was you were losing 15 million -- or you weren't capturing in your reported results probably the equivalent of 10 to 15 million in sales per quarter, I mean, is that still an accurate number here?

As far as 10 to 15 million as a result of what?

The stocking of the wholesalers.

I don't think we've mentioned an inventory -- a number. We talked about months and we talked about relative percentages captured by the end of the year which left the remaining amount, obviously, for the first four months of this year. Again, I'll reiterate, I think it was over a 10-month supply that we were dealing with. We resolved about 60% of that in the year before, in '02 and the balance came in this year.

Let me just complement, Bary, the 10 to 15 million dollar number was given earlier before you joined the company. And, you know, that's probably a good ballpark.

Okay. So presumably we should begin to see those sales showing up next quarter, then?

Yes, sir. Well, remember, we won't have a full quarter because we were still de-stocking in -- in April.

But certainly part of it?

Oh, absolutely. Absolutely.

Thank you.

Your next question comes from Bart Epker with Par Capital Management.

Have you come up with a time frame for coming up with the answer on Ribopharm, if you will?

At the present time, we have not come up with a time frame. There are still a number of significant variables. We -- and we're continuing to analyze and evaluate the circumstances. We, for example, are waiting for the decision on the summary judgment in the generic case. The -- we are going to be very interested to hear the -- what Schering has to say in its concerns earnings call coming up, I believe, on the 13th.And the pretrial conferences for the trial on the merits in the generic is going to be the early first -- I think the 2nd and 4th of June. And that trial is scheduled for the 24th of June. So there are a number of significant events that are coming up. Some or all of which are important to our considerations here and to all of the investors. I can only think now if we had acted precipitously earlier, what people might be thinking of us now, given the development of a number of unforeseen events here over the last five or six months. But there's no decision made at this time. We are actively in the process of evaluating it. And as -- as these things begin to have more texture, we'll be prepared to make a decision and move forward one way or the other. Or in fact to make a decision to do nothing.

Your next question comes from Robert Ull (ph) with Wells Fargo Securities.

Thank you and good morning.

Could you just update on the U.S. Pharma business and how it's organized in marketing things such as size of sales force, what they're detailing and which customers they're promoting products to and how that might change going forward?

This is Wes Wheeler, I can answer the question around the sales force size. We are primarily a dermatology sales force in the United States. We are contribute constructed a bit differently in other regions but in North America, primarily a dermatology sales force and through the IMS data sources that we have, we're able to -- to target just about all of the really high prescribers in the dermatology business with only 60 sales representatives and they are distributed around the country. We also have a very robust marketing team here in Costa Mesa supported by all the usual functions.

I would also say Wes has led a rationalization effort here where we've gone through a very intensive reevaluation of our past sales performance, have basically changed out the bottom one -- one-fourth of that 20% of that sales force and recruited in new, higher performers and we have invested significantly in the last six months in sales training as well as providing newly developed sales training aids.

We're also just completing a sales force size and structure initiative, looking at how to improve our targeting and reaching the positions that Wes talked about and we'll be adding a few additional sales reps, five to 10, in the next few months.

While we are certainly doing this around the world, we are obviously much more intensively pursuing this in North America with the decision to focus much more than in the past the company's effort in the best pharmaceutical market in the world here in North America. So while we've had our inventory reduction efforts intensely under way and very much your focus, as it should be, we have been hard at work continuing to bring -- to do the kind of things that are going to cause pull-through and to allow us to hit the ground at full speed as this reduction -- inventory reduction effort is completed.

Your next question comes from Elizabeth Jones (ph) with Bank of America Capital Management.

Yes. Congratulations on a good quarter. And I just wanted to get some -- little bit more detail on Latin America. It came in a little bit below expectations and I just wasn't sure what factors were contributing to that.

Yes, this is Bary. Again, I wanted to point out that we did have a necessary negative impact as a result of foreign currency translation in the markets. And that had the impact to us. The -- that drove a significant part of it. We did have an 8% increase in sales when you exclude that.

Thank you.

Your next question comes from Sina Lunde (ph) with Cafe Financial.

Hi, good morning.

Back to Ribopharm. I guess your comment's a bit different than what you have been saying in the past. In the past I believe you strongly believed in the patents and stood behind it. But today it sounds like you want to wait and see what happens with the patent issues?

Not at all. We still believe strongly in -- in the patents, as evidenced by our guidance. It's just only prudent that we -- that we wait and see the developments of this -- these intermediate events here and the results of what Schering has to say about some of the issues that's been raised about the competitive hepatitis C market. There is no less enthusiasm for the defense of our patents or our belief in our ultimate success. Absolutely none.

And for that matter, I would say nothing but continued enthusiasm for the efforts under way at Ribopharm. We have a top-notch management team, an incredible group of dedicated scientists, and we're very excited about what's -- about what's happening there.

Can we get those dates again for the - the dates for the trial.

All right, first of all, the summary judgment hearing has already been held on March 31st.We are awaiting the judge's decision. We have not -- she's not handed down a decision. The pretrial conferences, I believe, are the 2nd of June and then the trial itself is has now been scheduled for the 24th of June.

Thank you.

Your next question comes from Matt Triplet with Quaker Capital Management.

I guess a question about the SG and A numbers reported today. Obviously market markedly better than Q4 although not necessarily year over year and I wonder I guess as it relates to that, are last year's SG and A numbers representative? And, you know, where do you see the numbers going from here? Can they come down materially from the current levels?

This is Tim Tyson. I think that we have said that we intend to reach an SG and A level that's significantly lower than the historical average and that we are focusing on this area. It's an area where there's an opportunity, we have not established a fixed number, but expect some significant improvements.

as it relates to that, I guess you're speaking more in terms of as a percentage of revenues?

Yes, of course.

I guess my question there is, you know, how significant -- is that really a numerator or denominator effect, how much do you have to grow the revenue denominator or is that as even relates to current sales levels?

It's really both. We're focusing on efficiencies and product test productivities to reduce the actual expenses as well as looking at it over time to reduce them significantly as a percent of sales.

Okay. So there are dollars being spent there now that you don't anticipate spending in the subsequent quarters?

Yes.

Okay.

Your next question comes from Bart Epker with Par Capital Management.

Hi. If I could just go back to Ribopharm for one more minute. It seems to me that there's always going to be kind of court cases and material events just around the corner, and that if -- if we wait for those to decide what we're going to do we all may be old and gray. What -- what's different about the ones that are around the corner this quarter than the ones that are going to be around the corner next quarter and the quarter after that?

Well, let me just say, Bart, that I promise you we're going to act before -- before you're old and gray. It may be too late for me, but we're not going to let that happen to you. I can tell you that -- I agree with you, there will always be questions and risks in the marketplace and in litigation. But these are specifically known events that will -- that will give us -- they're milestones that will give us some -- some insight into what the -- what the future may hold and I think they're in the relative near term so it's important that we should wait. And we, again, had we acted in imprudently several months earlier, we'd probably be very much scrutinized and criticized for having valued things too highly or too lowly or whatever. And you'll never have perfect and complete information. I think that's wise advice, Bart. But it's prudent to wait and make sure you have the information that can significantly help you to make an intelligent decision.

Thank you.

Your next question comes from Matt Triplet with Quaker Capital Management.

Just a question regarding Latin America. Is there a pronounced seasonality to their business, at least relative to Q4?

Tim Tyson. Seasonality. I think the answer is that there's some flux fluctuations in demand. Some of the issues that you see there have to do with the normal pricing issues so we had some -- a price increase at the end of the year and you get some buy-in at the end of the year that works its way through the system over time. And this is a viral market as well as a market where we're selling some significant vitamin -- nutritional complement supplement, the indictable beta ecta (ph) and so there are some seasonalities (ph).

Thank you.

Your next question comings from Michael Tong from Wachovia.

Hi. I was wondering if you can quantify the operation -- operating income impact based on foreign currency in Europe and in Latin America.

Michael, the impact in Latin America is about -- let's see, hold on. A little under half of impact due to foreign currency translations with the balance representing sales. That's a little over a million dollars decrease in operating income. In Europe, it represents about a million increase, or positive impact of foreign currency translation a little north of that. The rest is obviously due to sales.

Okay. Great. Thanks.

At this time there are no further questions. I will now turn the call back to Mr. O'Leary for closing remarks.

Thank you very much.

And thank you all for your questions and your times this morning. I -- while I have a few prepared closing remarks, I just want to tell you that this is a watershed event, we believe, for the new management team. This gets us -- this quarter gets us over the hump. And off and running in terms of particularly our focus here in North America on getting the past behind us and getting on with seeing the fruits of our labor in North America.

We also continue to be quite -- quite bullish on what's happening in Europe with our efforts there. We have a few more -- a few more slots to fill in our management team, but this group is largely in place and really behaving quite impressively. So our very warm thanks to all of you who have patiently waited for more optimistic words from us. Now it's up to us to deliver the performance.

I want to close the call by repeating how pleased we are with this progress. One of the greatest accomplishments this quarter has been the building of this management team that has the ability, we believe, to deliver tangible results quarter after quarter. We believe the important thing for you and for us is predictability and consistency. We have more to do on the question of transparency. We take that seriously and we'll be working on it.

The team we now have in place brings modern pharmaceutical and healthcare experience along with strong backgrounds in sales and marketing, global manufacturing, supply chain management, and procurement. We believe they will complement our executive team's efforts to guide ICN through its strategic restructuring and the plans for the future. I thank you all for your support and your patience. Good morning.

This concludes today's ICN first quarter 2003 conference call. Thank you for your participation. At this time you may now disconnect from the conference