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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 1-09623
IVAX CORPORATION
INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NUMBER
STATE OF FLORIDA 16-1003559
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
305-575-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of each exchange
Title of each class on which registered
- ---------------------------- -------------------------
COMMON STOCK, PAR VALUE $.10 AMERICAN STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) 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. [ ]
As of March 19, 1999, there were 110,943,474 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 19, 1999, was approximately $1.2 billion.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II
and IV: Portions of registrant's 1998 Annual Report to Shareholders.
Part III: Portions of registrant's Proxy Statement for its 1999
Annual Meeting of Shareholders.
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IVAX CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 15
Item 3. Legal Proceedings....................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders..................................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 21
Item 6. Selected Financial Data................................................................. 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 21
Item 8. Financial Statements and Supplementary Data............................................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 21
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 21
Item 11. Executive Compensation.................................................................. 22
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 22
Item 13. Certain Relationships and Related Transactions.......................................... 22
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K......................... 22
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PART I
ITEM 1. BUSINESS
GENERAL
IVAX Corporation is a holding company with subsidiaries engaged in the
research, development, manufacture and marketing of branded and generic
pharmaceuticals in the United States and international markets. IVAX was
incorporated in Florida in 1993, as successor to a Delaware corporation formed
in 1985. Its principal executive offices are located at 4400 Biscayne
Boulevard, Miami, Florida 33137 and its telephone number is (305) 575-6000. All
references to "IVAX" in this Form 10-K mean IVAX Corporation and/or its
subsidiaries unless the context otherwise requires.
FOCUS AND STRATEGY
In connection with the restructuring programs described below, IVAX
determined to focus its business primarily in two areas: proprietary
pharmaceuticals with an emphasis on oncology and respiratory products, and
generic pharmaceuticals, especially specialty generics. IVAX intends to
leverage its expertise and talent in each of these areas. In the oncology area,
IVAX will continue its efforts to bring its proprietary drug Paxene(R) to
market and to license from others oncology compounds that will complement
Paxene(R). In the respiratory area, IVAX intends to capitalize and expand on
its expertise in inhalation devices and in developing respiratory products with
propellants that do not contain chlorofluorocarbons ("CFCs"). In the generic
drug area, IVAX is seeking to improve its worldwide generic drug business by
supplementing its generic product portfolio through the development and
introduction of specialty generic products that, because of one or more unique
characteristics, are likely to encounter less intensive competition. Such
products include those which are difficult to formulate or manufacture, which
involve regulatory challenges or potential patent challenges, or for which
limited raw material suppliers exist. IVAX believes that by emphasizing the
development of such products, it can mitigate the pricing pressure on other
generic drugs and thereby realize better margins from the sale of generic
drugs.
PHARMACEUTICALS
IVAX's pharmaceutical business historically has grown through the
development and acquisition of brand name, generic and over-the-counter
pharmaceutical products, the license of technology and products from third
parties, and the acquisition of other businesses. IVAX markets several
brand-name pharmaceutical products and a wide variety of generic and
over-the-counter pharmaceutical products primarily in the United States and the
United Kingdom. IVAX also maintains direct operations in Argentina, the Czech
Republic, Hong Kong, Ireland, Germany, Poland, Russia, the Slovak Republic, and
Uruguay, and markets its products through distributors or joint ventures in
other foreign markets.
BRAND-NAME PRODUCTS
In September 1997, IVAX sold the United States and Canadian marketing
rights to its proprietary drug Elmiron(R), an innovative drug used for the
treatment of interstitial cystitis, and the urological medications Bicitra(R),
Polycitra(R), Polycitra-K Crystals(R), Polycitra-LC(TM), Neutra-Phos(R), and
Neutra-Phos-K(TM), to ALZA Corporation ("ALZA"). IVAX retained the rights to
these products
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outside of the United States and Canada. IVAX received $75.0 million in
up-front payments from ALZA and subsequently received milestone payments based
on the achievement of specified sales levels of Elmiron(R) in 1998, as well as
royalties from ALZA on sales of the products in 1998. IVAX may receive
additional milestone payments based on the achievement of specified sales
levels of Elmiron(R) during the next four years, as well as additional
royalties from ALZA based on sales of the products. No assurance can be given
that IVAX will receive additional milestone payments or royalties from ALZA.
IVAX markets a number of brand-name products treating a variety of
conditions, primarily through its Baker Norton division in the United Kingdom
and Ireland. These products are marketed by IVAX's direct sales force to
physicians, pharmacies, hospitals, managed health care organizations and
government agencies, and are sold primarily to wholesalers, retail pharmacies,
distributors, hospitals and physicians. In the aggregate, the Baker Norton
division of IVAX's United Kingdom business had 1998 net revenues of
approximately $91.3 million, or 14.3% of IVAX's 1998 consolidated net revenues.
IVAX has substantial expertise in the development, manufacture and
marketing of respiratory drugs in metered-dose inhaler ("MDI") formulations.
IVAX holds patents on a breath-activated MDI which is designed to overcome the
difficulty many persons experience with conventional MDIs in attempting to
coordinate their inhalation with the emission of the medication. IVAX's device,
called Easi-Breathe(TM), emits the medication automatically in one step upon
inhalation, minimizing coordination problems and better ensuring that the
medication is delivered to the lungs. IVAX markets its Easi-Breathe(TM)
breath-activated inhaler through its Baker Norton division. In December 1996,
IVAX licensed the Easi-Breathe(TM) device to Glaxo Wellcome PLC for use with
Glaxo Wellcome's range of inhaled compounds (including, among others,
beclomethasone and salbutamol) mixed with CFC or hydrofluoroalkane ("HFA")
propellants. The license generally grants Glaxo Wellcome the exclusive right to
use the Easi-Breathe(TM) device for these compounds on a worldwide basis. IVAX
retained all rights to market all other compounds, branded or generic, in its
Easi-Breathe(TM) inhaler. The license term remains effective at least for the
duration of the Easi-Breathe(TM) patents, which expire in the year 2011. IVAX
will receive fixed payments as well as annual volume and revenue-related
royalties under the license agreement. No assurance can be given regarding the
amount of volume and revenue-related royalties that IVAX will receive under the
license agreement.
GENERIC PRODUCTS
Generic drugs are therapeutically equivalent to their brand-name
counterparts, but are generally sold at lower prices as alternatives to the
brand-name products. After giving effect to the restatement described below in
"Disposition of Non-Core Businesses," approximately 65%, 49% and 62% of IVAX's
consolidated net revenues for the years ended December 31, 1998, 1997 and 1996,
respectively, were attributable to worldwide sales of generic prescription and
over-the-counter drugs and vitamin supplements.
In the United States, IVAX manufactures and markets under the "Zenith
Goldline" and "Goldline" trade names approximately 58 generic prescription
drugs in capsule or tablet forms in an aggregate of approximately 121 dosage
strengths. IVAX distributes in the United States (but does not manufacture)
approximately 484 additional generic prescription and over-the-counter drugs
and vitamin supplements, in various dosage forms and dosage strengths,
encompassing approximately 628
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package sizes. IVAX's domestic generic drug distribution network encompasses
most classes of the pharmaceutical market, including wholesalers, retail drug
chains, retail pharmacies, hospital groups, nursing home providers and
government agencies. Approximately 61% of IVAX's 1998 United States generic
pharmaceutical sales were made to the top five customers of that business. None
of these customers individually represents 10% or more of IVAX's consolidated
net revenues. The loss of any of these customers would have an adverse effect
on IVAX's business and results of operations (see "Competition").
In the United Kingdom, IVAX is the largest manufacturer and
distributor of generic pharmaceuticals. IVAX markets under the "Norton" trade
name approximately 127 generic prescription and over-the-counter drugs, about
half of which IVAX manufactures, in various dosage forms and dosage strengths,
constituting an aggregate of approximately 263 products. Such products are
marketed to wholesalers, retail pharmacies, hospitals, physicians and
government agencies. In addition, IVAX manufactures and markets primarily in
the United Kingdom various "blow-fill-seal" pharmaceutical products, such as
contact lens solutions, unit-dose eye drops, solutions for injection or
irrigation, and unit-dose vials for nebulization to treat respiratory
disorders. IVAX also contract manufactures pharmaceutical products in the
United Kingdom and Ireland for other companies.
In 1994, IVAX acquired a 60% interest in Galena a.s. ("Galena"), one
of the oldest and most established pharmaceutical companies based in the Czech
Republic. Through open market purchases made in 1995 and 1996, IVAX increased
its ownership interest in Galena to 74%. Galena develops, manufactures and
markets a variety of pharmaceutical, dermatological and veterinary products, as
well as active ingredients and herbal extracts used in the manufacture of
pharmaceuticals, including cyclosporin and ergot alkaloids. Galena sells its
pharmaceutical, dermatological and veterinary products primarily in Central and
Eastern European countries, including Russia. It sells active ingredients and
herbal extracts in many countries around the world. As part of the 1994
acquisition, IVAX contributed to Galena rights to manufacture and market
certain products and products under development in certain countries. Galena
had 1998 net revenues, including intercompany sales, of $50.0 million.
In 1996, IVAX acquired Elvetium S.A. (Argentina) and Alet Laboratorios
S.A.E.C.I. y E., both headquartered in Buenos Aires and engaged in the business
of manufacturing and marketing pharmaceuticals in Argentina, and Elvetium S.A.
(Uruguay), headquartered in Montevideo and engaged in the business of
manufacturing and marketing pharmaceuticals in Uruguay. These companies had
combined 1998 net revenues of $34.8 million.
IVAX is a 50% partner in two Chinese joint ventures, one with Beijing
JiAi Pharmaceuticals Technology Development Company of the Pharmaceuticals
Research and Development Centre, China, named Beijing JiAi Pharmaceuticals
Limited Liability Company, which manufactures and markets inhalation products
for respiratory ailments, and the other with Kunming Pharmaceutical Factory,
named Kunming Baker Norton Pharmaceutical Co., Ltd., which manufactures and
markets a variety of pharmaceutical products. These joint ventures had combined
1998 net revenues of $16.8 million.
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OTHER BUSINESSES
VETERINARY PRODUCTS
IVAX formulates, packages and distributes under the "DVM
Pharmaceuticals" trade name various veterinary products in the United States,
primarily neutraceutical and dermatological products for small companion
animals. These products are marketed through IVAX's direct sales force and a
national network of veterinary product distributors primarily to small animal
practitioners. IVAX's veterinary products business had net revenues of $16.1
million, $17.0 million and $15.0 million for the years ended December 31, 1998,
1997 and 1996, respectively.
DIAGNOSTICS
IVAX's diagnostics group develops, manufactures and markets diagnostic
reagents and instrumentation. IVAX manufactures and markets a line of enzyme
immunoassays ("EIAs") which are used to detect the presence of infectious and
autoimmune diseases, and a line of autoimmune antigens, reagents and other
related products. IVAX also manufactures and markets EIA instrumentation that
allows the diagnostic group's EIA products to be run in an automated system
format. The diagnostic group's products are marketed to clinical reference
laboratories, hospital laboratories, research institutions and other commercial
entities in the United States through IVAX's direct sales force. IVAX also
markets these products, as well as diagnostic products manufactured by others,
in Italy through a direct sales force to public hospitals and private medical
laboratories. Sales of IVAX's diagnostic products are also made through
independent distributors in various other foreign markets. IVAX's diagnostics
group had net revenues of $9.6 million, $8.1 million and $14.0 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1998, 1997 and 1996, IVAX spent $48.6
million, $53.4 million and $51.7 million, respectively, for company-sponsored
research and development activities. In 1998, approximately 96% of such amount
was dedicated to pharmaceutical research and development. From time to time,
IVAX may supplement its research and development efforts by entering into
research and development agreements, joint ventures and other collaborative
arrangements with other companies to defray the cost of product development.
IVAX intends to pursue a balanced strategy of developing proprietary
pharmaceutical products with an emphasis on the oncology and respiratory
fields, as well as generic pharmaceutical products with an emphasis on
specialty generics (see "General - Focus and Strategy").
Statements in this Form 10-K concerning the timing of regulatory
filings and approvals are forward-looking statements which are subject to risks
and uncertainties. The length of time necessary to complete clinical trials and
from submission of an application for market approval to a final decision by a
regulatory authority varies significantly. No assurance can be given that IVAX
will successfully complete the development of products under development, that
IVAX will be able to obtain regulatory approval for any such product, or that
any approved product may be produced in commercial quantities, at reasonable
costs, and be successfully marketed. Similarly, there can be no assurance that
IVAX's competitors will not develop and introduce products that will adversely
affect IVAX's business and results of operations.
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PROPRIETARY PHARMACEUTICALS
IVAX is committed to the cost-effective development of proprietary
pharmaceuticals directed primarily towards indications having relatively large
patient populations or for which limited or inadequate treatments are
available. IVAX seeks to accelerate product development and introduction by
in-licensing compounds, especially after clinical testing has begun, and by
developing new dosage forms of existing products or new therapeutic indications
for existing products. IVAX intends to emphasize the development of drug
products in the oncology and respiratory fields, and has a variety of
proprietary pharmaceuticals in varying stages of development.
ELMIRON(R). IVAX received its first United States approval to market a
proprietary drug in September 1996, when the United States Food and Drug
Administration (the "FDA") cleared IVAX's New Drug Application ("NDA") for the
marketing of its patented prescription medication Elmiron(R) (pentosan
polysulfate sodium). Elmiron(R) is approved in the United States and Canada for
the treatment of interstitial cystitis, a chronic, progressive and debilitating
urinary bladder disease primarily afflicting women. In September 1997, IVAX
sold the marketing rights to Elmiron(R) for all indications, as well as rights
to certain other products in the United States and Canada, to ALZA Corporation,
but retained such rights outside the United States and Canada. See
"Pharmaceuticals - Brand-Name Products" for a more complete description of this
transaction. ALZA and IVAX had agreed to share the cost of further Elmiron(R)
research, but this cost-sharing arrangement was terminated in July 1998.
PAXENE(R). Paxene(R), IVAX's form of the injectable drug paclitaxel,
is an unpatented compound which, in clinical trials sponsored by the National
Cancer Institute, exhibited promising results in the treatment of ovarian and
breast cancer and AIDS-related Kaposi's Sarcoma ("KS"). Bristol-Myers Squibb
Company ("Bristol-Myers") currently markets an injectable product containing
paclitaxel under the brand name Taxol(R) for the treatment of ovarian and
breast cancer and KS.
IVAX submitted an NDA for Paxene(R) for the treatment of KS in March
1997, and in December 1997, the FDA determined Paxene(R) to be safe and
effective for the treatment of KS, but indicated that Paxene(R) could not be
finally approved for this indication until August 4, 2004. The delay in final
approval is due to a seven-year market exclusivity period under the Orphan Drug
Act granted to Taxol(R), which was approved for KS earlier in 1997. IVAX is
exploring alternative strategies to market Paxene(R) for KS in advance of the
expiration of Taxol(R)'s exclusivity period. Taxol(R)'s Orphan Drug exclusivity
does not apply to NDAs or Abbreviated New Drug Applications ("ANDAs") for the
use of paclitaxel to treat indications other than KS and does not apply in any
market other than the United States. IVAX filed an ANDA for paclitaxel with the
FDA in December 1997. In August 1998, IVAX purchased Immunex Corporation's ANDA
for paclitaxel, the first filed with the FDA for paclitaxel injection. IVAX
filed an application for regulatory approval of Paxene(R) to treat KS in the
European Union in 1997 and, in January 1999, the European Committee for
Proprietary Medical Products recommended approval of IVAX's application. IVAX
is awaiting formal clearance to market Paxene(R) for KS throughout the European
Union. IVAX's subsidiary, Galena, recently received approval to market
Paxene(R) for KS in the Czech Republic. IVAX has also applied for approval to
market Paxene(R) in other countries. IVAX has also conducted clinical studies
of Paxene(R) for other indications, and intends to file an NDA for the use of
Paxene(R) to treat one or more of such other indications.
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Bristol-Myers has obtained numerous patents relating to paclitaxel,
including patents covering the production of paclitaxel, its administration to
patients and its formulation. Even if IVAX's NDA for Paxene(R) or its ANDA for
paclitaxel is approved, IVAX will not be able to market paclitaxel if
Bristol-Myers successfully enforces such patents against IVAX. In March 1998,
Bristol-Myers initiated patent infringement litigation against IVAX and, under
the Waxman-Hatch Act, IVAX's paclitaxel ANDA may not be approved by the FDA
until the earlier of August 2000 or the date when a court finally determines
that certain of Bristol-Myers' patents are either unenforceable or not infringed
by IVAX's product (see "Governmental Regulation"). In January 1998,
Bristol-Myers initiated patent infringement litigation against Immunex and,
under the Waxman-Hatch Act, the IVAX-owned paclitaxel ANDA filed by Immunex may
not be approved by the FDA until the earlier of June 2000 or the date when a
court finally determines that certain of Bristol-Myers' patents are either
unenforceable or not infringed by IVAX's product.
ORAL PAXENE(R). Presently, paclitaxel is marketed only in injectable
form. IVAX is developing an oral formulation of Paxene(R) that IVAX believes
may provide significant advantages over the injectable dosage form in terms of
patient convenience and reduced side-effects. IVAX is currently conducting
human clinical trials to test the safety and efficacy of oral Paxene(R), and in
a single dose proof-of-concept study, IVAX has determined that it is possible
to achieve therapeutic levels of paclitaxel via oral administration. It is,
however, premature to conclude that the drug is safe and effective when
administered orally.
INHALATION AEROSOL PRODUCTS. IVAX is continuing to develop the
Easi-Breathe(TM) inhaler for use with compounds not subject to the Glaxo
Wellcome license (see "Pharmaceuticals - Brand-Name Products"). IVAX markets
the asthma drug Cromogen(TM) (sodium cromoglycate) under its own name, and the
asthma drugs Ventolin(R) (albuterol) and Becotide(R) (beclomethasone) under
Glaxo Wellcome's name, in the Easi-Breathe(TM) inhaler in the United Kingdom
and Ireland. Ventolin(R) and Becotide(R) are registered trademarks of Glaxo
Wellcome. In light of international agreements calling for the eventual
phase-out of CFCs, IVAX is developing inhalation aerosol products which do not
contain CFCs. In 1997, IVAX received regulatory approval to market non-CFC
beclomethasone in Ireland, in its standard MDI and its Easi-Breathe(TM) inhaler
(Glaxo Wellcome has the exclusive right to market this product in the
Easi-Breathe(TM) inhaler pursuant to the license agreement discussed above),
and in France in its standard MDI, the first such approval for any company
anywhere in the world. In 1998, IVAX also applied for approval to market an
albuterol non-CFC formulation in various European countries. Also, IVAX has
developed a multi-dose dry powder inhaler ("MDPI") which uses no gas propellant
and is believed to have superior dosing accuracy than competing models. In
1998, IVAX completed clinical trials in the United Kingdom for budesonide in
IVAX's MDPI. IVAX intends to seek approval to market budesonide in the European
Union in IVAX's MDPI.
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In developing environmentally friendly, non-CFC containing
formulations for MDIs, IVAX and many of its competitors have obtained or
licensed patents on formulations containing alternative propellants. There are
many existing patents covering the use of hydrofluoroalkane with
pharmaceuticals, and successful product development by IVAX may require that
IVAX incur substantial expense in seeking to develop formulations that do not
infringe competitors' patents, or that IVAX license or invalidate such patents.
IVAX successfully invalidated certain relevant United Kingdom and European
patents in the United Kingdom during 1997, 1998, and early 1999, but there can
be no assurance that it will be successful in defeating the corresponding
patents in the United States or other foreign jurisdictions.
GENERIC PHARMACEUTICALS
IVAX also develops generic pharmaceutical products. During 1998, IVAX
received final FDA approval of 5 ANDAs relating to 5 chemical compounds, and
approval of 9 Abridged Product License Applications ("APLAs"), the United
Kingdom equivalent of an ANDA, from the United Kingdom Medicines Control Agency
(the "MCA") relating to 6 chemical compounds. As of March 19, 1999, IVAX had 19
ANDAs relating to 16 chemical compounds pending at the FDA, 13 APLAs relating
to 5 chemical compounds pending at the MCA, and one Abbreviated New Drug
Submission ("ANDS"), the Canadian equivalent of an ANDA, relating to one
chemical compound pending with the Canadian Minister of Health.
IVAX is seeking to supplement its portfolio of generic products by
emphasizing the development of specialty generics, defined as those products
which, because of one or more unique characteristics, are likely to encounter
less intensive competition. Such drugs include those which are difficult to
formulate or manufacture, which involve regulatory challenges or potential
patent challenges, or for which limited raw material suppliers exist. By
emphasizing the development of specialty generics, IVAX seeks to introduce
generic products that its competitors cannot easily develop and thereby obtain
better margins from sales of its generic products. In addition, in evaluating
which generic pharmaceutical product development projects to undertake, IVAX
considers whether the new product, once developed, will complement other IVAX
products in the same therapeutic family, or will otherwise assist in making
IVAX's product line more complete. Developing specialty generic pharmaceutical
products involves a greater degree of risk than developing common generic
pharmaceutical products and will require substantial time and resources. No
assurance can be given that IVAX will successfully build a consistent,
profitable pipeline of specialty generics or be able to obtain regulatory
approval to market any such products.
GOVERNMENTAL REGULATION
IVAX's pharmaceutical and diagnostic operations are subject to
extensive regulation by governmental authorities in the United States and other
countries with respect to the testing, approval, manufacture, labeling,
marketing and sale of pharmaceutical and diagnostic products. IVAX devotes
significant time, effort and expense to addressing the extensive government
regulations applicable to its business, and in general, the trend is towards
more stringent regulation.
The FDA requires extensive testing of new pharmaceutical products to
demonstrate that such products are both safe and effective in treating the
indications for which approval is sought. Testing in humans may not be
commenced until after an Investigational New Drug exemption is granted by
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the FDA. An NDA must be submitted to the FDA for new drugs that have not been
previously approved by the FDA and for new combinations of, and new indications
and new delivery methods for, previously approved drugs. Three phases of
clinical trials must be successfully completed before an NDA is approved: phase
I clinical trials, which involve the administration of the drug to a small
number of healthy subjects to determine safety, tolerance, absorption and
metabolism characteristics; phase II clinical trials, which involve the
administration of the drug to a limited number of patients for a specific
disease to determine dose response, efficacy and safety; and phase III clinical
trials, which involve the study of the drug to gain confirmatory evidence of
efficacy and safety from a wide base of investigators and patients. In the case
of a drug that has been previously approved by the FDA, an abbreviated approval
process is available. For such drugs an ANDA may be submitted to the FDA for
approval. For an ANDA to be approved, among other requirements, the drug must
be shown to be bioequivalent to the previously approved drug. The NDA and ANDA
approval process generally takes a number of years and involves the expenditure
of substantial resources. There can be no assurance that the time and resources
devoted to seeking regulatory approval for new products will result in product
approvals or earnings.
The owner of an approved drug is required to list with the FDA all
patents which cover the approved drug and its approved uses. A company filing
an ANDA and seeking approval to market a product before expiration of all
listed patents must certify that such patents are invalid or will not be
infringed by the manufacture, use or sale of the applicant's product, and must
notify the patent owner and the owner of the approved drug of its filing. If
the approved drug owner sues the ANDA filer for patent infringement within 45
days after it receives such notice, then the FDA will not grant final approval
of the ANDA until the earlier of 30 months from the date the approved drug
owner receives such notice or the date when a court finally determines that the
applicable patents are either invalid or would not be infringed by the
applicant's product. As a result, generic drug manufacturers, including IVAX,
are often involved in lengthy, expensive patent litigation against brand-name
drug companies that have considerably greater resources and that are typically
inclined to actively pursue patent litigation in an effort to protect their
franchises.
IVAX's diagnostic products are considered medical devices, and as such
require either a 510(k) premarket notification clearance ("510(k)") or an
approved Premarket Approval Application ("PMA") from the FDA prior to
marketing. A product qualifies for a 510(k) if it is substantially equivalent
to another medical device that was on the market prior to May 28, 1976 and does
not now have a PMA or has previously received 510(k) premarket notification
clearance and is lawfully on the market. The 510(k) approval process can take
several months and may involve the submission of data demonstrating its
equivalency to similar products in the market together with other supporting
information. An approved PMA application indicates that the FDA has determined
that a device has been proven to be safe and effective for its intended use.
The PMA process typically can last several years and requires the submission of
significant quantities of preclinical and clinical data as well as
manufacturing and other information.
On an ongoing basis, the FDA reviews the safety and efficacy of
marketed pharmaceutical products and products considered medical devices and
monitors labeling, advertising and other matters related to the promotion of
such products. The FDA also regulates the facilities and procedures used to
manufacture pharmaceutical and diagnostic products in the United States or for
sale in the United States. Such facilities must be registered with the FDA and
all products made in such facilities must be manufactured in accordance with
"good manufacturing practices" established by the FDA. Compliance with good
manufacturing practices guidelines requires the dedication of
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substantial resources and requires significant costs. The FDA periodically
inspects IVAX's manufacturing facilities and procedures to assure compliance.
The FDA may cause a recall or withdraw product approvals if regulatory
standards are not maintained. FDA approval to manufacture a drug is
site-specific. In the event an approved manufacturing facility for a particular
drug becomes inoperable, obtaining the required FDA approval to manufacture
such drug at a different manufacturing site could result in production delays,
which could adversely affect IVAX's business and results of operations.
In connection with its activities outside the United States, IVAX is
also subject to regulatory requirements governing the testing, approval,
manufacture, labeling, marketing and sale of pharmaceutical and diagnostic
products, which requirements vary from country to country. Whether or not FDA
approval has been obtained for a product, approval of the product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process may be more or less
rigorous from country to country, and the time required for approval may be
longer or shorter than that required in the United States. No assurance can be
given that clinical studies conducted outside of any country will be accepted
by such country, and the approval of any pharmaceutical or diagnostic product
in one country does not assure that such product will be approved in another
country.
The federal and state governments in the United States, as well as
many foreign governments, including the United Kingdom, from time to time
explore ways to reduce medical care costs through health care reform. These
efforts have resulted in, among other things, government policies that
encourage the use of generic drugs rather than brand-name drugs to reduce drug
reimbursement costs. Virtually every state in the United States has a generic
substitution law which permits the dispensing pharmacist to substitute a
generic drug for the prescribed brand-name product. The debate to reform the
United States' health care system is expected to be protracted and intense. Due
to uncertainties regarding the ultimate features of reform initiatives and
their enactment and implementation, IVAX cannot predict what impact any reform
proposal ultimately adopted may have on the pharmaceutical or diagnostic
industries or on the business or operating results of IVAX.
RAW MATERIALS
Raw materials essential to IVAX's business are generally readily
available from multiple sources. Certain raw materials and components used in
the manufacture of IVAX's products are, however, available from limited
sources, and in some cases, a single source. Any curtailment in the
availability of such raw materials could be accompanied by production or other
delays, and, in the case of products for which only one raw material supplier
exists, could result in a material loss of sales, with consequent adverse
effects on IVAX's business and results of operations. In addition, because raw
material sources for pharmaceutical products must generally be approved by
regulatory authorities, changes in raw material suppliers may result in
production delays, higher raw material costs and loss of sales and customers.
IVAX obtains a significant portion of its raw materials from foreign suppliers,
and its arrangements with such suppliers are subject to, among other things,
FDA, customs and other government clearances, duties and regulation by the
countries of origin.
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COMPETITION
The pharmaceutical industry is highly competitive and includes
numerous established pharmaceutical companies, many of which have considerably
greater financial, technical, clinical, marketing and other resources and
experience than IVAX. The markets in which IVAX competes are undergoing, and
are expected to continue to undergo, rapid and significant technological
change, and IVAX expects competition to intensify as technological advances are
made. IVAX intends to compete in this marketplace by developing or licensing
pharmaceutical products that are either patented or proprietary and which are
primarily for indications having relatively large patient populations or for
which limited or inadequate treatments are available, and, with respect to
generic pharmaceuticals, by developing therapeutic equivalents to previously
patented products which, because of one or more unique characteristics, are
expected to have less intensive competition. There can be no assurance,
however, that developments by others will not render IVAX's pharmaceutical
products or technologies obsolete or uncompetitive.
In addition to product development, other competitive factors in the
pharmaceutical industry include product quality and price, customer service,
and reputation. Price is a key competitive factor in the generic pharmaceutical
business. To compete effectively on the basis of price and remain profitable, a
generic drug manufacturer must manufacture its products in a cost-effective
manner. As a result of its ongoing cost-control and restructuring programs,
IVAX has reduced its manufacturing costs.
Revenues and gross profit derived from generic pharmaceutical products
tend to follow a pattern based on regulatory and competitive factors unique to
the generic pharmaceutical industry. As patents for brand-name products and
related exclusivity periods mandated by regulatory authorities expire, the
first generic manufacturer to receive regulatory approval for generic
equivalents of such products is usually able to achieve relatively high market
share, revenues and gross profit. As other generic manufacturers receive
regulatory approvals, sales volumes, market share and prices typically decline.
Accordingly, the level of revenues and gross profit attributable to generic
products developed and manufactured by IVAX is dependent, in part, on IVAX's
ability to maintain a pipeline of products in development and to develop and
rapidly introduce new products, the timing of regulatory approval of such
products, the number and timing of regulatory approvals of competing products,
and IVAX's ability to manufacture such products efficiently. Because of the
regulatory and competitive factors discussed above, IVAX's revenues and results
of operations historically have fluctuated from period to period. IVAX expects
this fluctuation to continue as long as a significant part of its revenues are
generated from sales of generic pharmaceuticals.
In addition to competition from other generic drug manufacturers, IVAX
faces competition from brand-name companies as they increasingly sell their
products into the generic market directly by establishing, acquiring or forming
licensing or business arrangements with generic pharmaceutical companies. No
regulatory approvals are required for a brand-name manufacturer to sell
directly or through a third party to the generic market, nor do such
manufacturers face any other significant barriers to entry into such market. In
addition, brand-name companies are increasingly pursuing strategies to prevent
or delay the introduction of generic competition. These strategies include,
among other things, seeking to establish regulatory obstacles to the
demonstration of the bioequivalence of generic drugs to their brand-name
counterparts, and instituting legal actions based on process or other patents
that allegedly are infringed by the generic products.
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Certain national drug wholesalers have instituted programs designed to
provide cost savings to independent retail pharmacies on their purchases of
certain generic pharmaceutical products. Pursuant to the programs, retail
pharmacies generally agree to purchase their requirements of generic
pharmaceutical products from one wholesaler and permit the wholesaler to select
the product suppliers. Each wholesaler encourages generic drug suppliers to
participate in its program by offering to purchase the wholesaler's
requirements of particular products from a single supplier. The programs
encourage generic drug suppliers to aggressively bid to be the exclusive
supplier of products under the programs. The existence of such programs also
results in reduced prices to non-wholesaler customers. As a result of the
institution of these programs, the generic drug industry experienced a
significant reduction in the prices charged by suppliers for many generic
pharmaceutical products during 1996. Price declines continued in 1997 and 1998,
but at an increasingly slower rate in each of those years than in the prior
year.
A significant amount of IVAX's United States generic pharmaceutical
sales are made to a relatively small number of drug wholesalers and retail drug
chains, which represent an essential part of the distribution chain of
pharmaceutical products in the United States. Both of these industries have
undergone, and are continuing to undergo, significant consolidation, which has
resulted in IVAX's customers gaining more purchasing leverage and consequently
increasing the pricing pressures facing IVAX's United States generic
pharmaceutical business. Further consolidation among IVAX's customers may
result in even greater pricing pressures and correspondingly reduce the gross
margins of this business, and may also cause such customers to reduce their
purchases of IVAX's products.
Other competitive factors affecting IVAX's business include the
prevalence and influence of managed care organizations and similar institutions
which are able to seek price discounts on pharmaceutical products. As the
influence of these entities continues to grow, IVAX may face increased pricing
pressure on the products it markets.
PATENTS AND TRADEMARKS
IVAX seeks to obtain patent protection on its products and products
under development where appropriate. IVAX currently owns or is licensed under
various United States, United Kingdom and other foreign patents and patent
applications covering certain of its products, products under development,
product uses and manufacturing processes. Protection for individual products,
product uses or manufacturing processes extends for varying periods in
accordance with the date of grant and the legal life of the patents in the
various countries. The protection afforded, which may also vary from country to
country, depends on the type of patent and its scope of coverage. There is no
assurance that patents will be issued on pending applications or as to the
scope or degree of protection patents will afford IVAX, or that IVAX's patents
will be held valid by a court of competent jurisdiction. Although IVAX believes
that its patents and licenses are important to its business, no single patent
or license is currently material in relation to IVAX's business as a whole. Any
litigation regarding IVAX's patents could result in substantial cost to IVAX.
IVAX sells certain of its products under trademarks and seeks to
obtain protection for its trademarks by registering them in the United States,
United Kingdom and other countries where the products are marketed. At present,
IVAX does not consider its trademarks, individually or in the aggregate, to be
material in relation to its business as a whole.
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IVAX's success also depends on trade secrets which, in some cases,
cannot be patented or as to which seeking patents may harm IVAX's competitive
position. While IVAX generally requires its employees, advisors and consultants
to execute confidentiality agreements prohibiting such persons from disclosing
IVAX's trade secrets or using them in a manner harmful to IVAX, there can be no
assurance that these agreements will provide adequate protection or that IVAX
can meaningfully protect its proprietary interest in unpatented trade secrets.
LICENSING
IVAX has obtained licenses to technology and compounds for development
into new pharmaceutical products from various inventors, universities and the
United States government, and will continue to seek new licenses from such
parties and others, including pharmaceutical companies. Generally, these
licenses grant IVAX the right to complete development efforts initiated by
others and to market any resulting products. IVAX generally is required to pay
a royalty based on sales of the product. There can be no assurance that any
licenses desired by IVAX will be obtainable on commercially reasonable terms or
that any licensed patents or proprietary rights will be valid and enforceable.
IVAX also grants licenses to other pharmaceutical companies relating to
technologies or compounds under development and, in some cases, finished
products. Generally, these licenses grant the licensees the right to complete
development work of the technology or compound, or obtain regulatory approvals
of a product, and thereafter market the product in specified territories. These
licenses often involve the payment of an up-front fee and fees upon completion
of certain development milestones, and also provide for the payment of
royalties based on sales of the product. IVAX often retains the right to supply
the product to the licensees.
SEASONALITY
While certain of IVAX's individual products may have a degree of
seasonality, there are no significant seasonal aspects to IVAX's business,
except that sales of pharmaceutical products indicated for colds and flu
symptoms are higher during the fourth quarter as customers supplement
inventories in anticipation of the cold and flu season. In addition, revenues
that are contingent upon licensees achieving certain sales targets during the
year tend to be higher in the second half of the year.
ENVIRONMENT
IVAX believes that its operations comply in all material respects with
applicable laws and regulations concerning the environment. While it is
impossible accurately to predict the future costs associated with environmental
compliance and potential remediation activities, compliance with environmental
laws is not expected to require significant capital expenditures and has not
had, and is not presently expected to have, a material adverse effect on IVAX's
earnings or competitive position.
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INCREASES IN EFFICIENCY
Beginning in the third quarter of 1996 and continuing throughout 1998,
IVAX announced and initiated restructuring programs in an effort to enhance
operating efficiencies and reduce costs. These objectives were achieved through
workforce reductions, facility consolidations and other cost-saving measures
throughout the organization. (See "Properties"). During this period, IVAX
reduced its worldwide workforce from approximately 8,100 to approximately 3,700
employees, including reductions resulting from the sale of non-core businesses.
IVAX also implemented strict controls on capital expenditures and working
capital spending.
During 1998, a focus of IVAX's restructuring program was the
pharmaceutical operations of its Norton Healthcare Limited subsidiary located
in the United Kingdom. As in the United States, this program included workforce
reductions, facility consolidations and other cost-saving measures. As part of
this restructuring, in 1998 IVAX reduced its workforce in the United Kingdom
from approximately 1,460 to approximately 1,275, and anticipates that it will
further reduce its U.K. workforce to approximately 1,100 by the end of 1999.
During 1998, IVAX closed two manufacturing plants in southeast London, England
and consolidated its U.K. manufacturing activities at its Waterford, Ireland
facility. Its U.K. packaging operations are also being consolidated into its
Waterford, Ireland facility from Harlow, England in the first quarter of 1999.
All other functions, including research and development, will be consolidated
into its new facility located in the Royal Docks area of London. This
consolidation process is anticipated to be completed by the end of 1999.
DISPOSITION OF NON-CORE BUSINESSES
During 1997 and 1998, IVAX divested its intravenous products,
specialty chemicals and personal care products businesses, all of which had
been classified as discontinued operations since 1997. As a result of its
decision to divest these businesses, in 1997 IVAX restated its financial
statements to reflect these businesses as discontinued operations. Unless
otherwise noted, all of the financial information contained herein reflects
this restatement. IVAX completed the sale of the last of these businesses in
July 1998. See Note 5, Divestitures, and Note 7, Discontinued Operations, to
the Consolidated Financial Statements and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" incorporated by reference
from the Financial Information section of the 1998 Annual Report to
Shareholders for additional information. These businesses accounted for
approximately 6%, 30% and 43% of IVAX's consolidated net revenues before the
restatement described above during the years ended December 31, 1998, 1997 and
1996, respectively.
Effective May 30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its
intravenous products subsidiary. IVAX's intravenous products business
manufactured and marketed a broad line of basic and specialty intravenous
solutions, irrigation solutions, intravenous administration sets, infusion
pumps and other infusion supplies and equipment, primarily to hospitals and
alternate-site health care locations in the United States and, through
independent distributors, in various foreign markets. The intravenous products
business had net revenues, including intercompany sales, of $140.6 million for
the five months ended May 30, 1997 and $343.0 million for the year ended
December 31, 1996.
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IVAX's specialty chemicals group manufactured and marketed, primarily
in the United States and Canada, several hundred chemical products in three
distinct market segments: vacuum pump fluids, textile and denim products, and
cleaning products. IVAX's specialty chemicals group had net revenues, including
intercompany sales, of $.9 million, $41.6 million and $67.9 million for the
years ended December 31, 1998, 1997 and 1996, respectively. During the third
quarter of 1997, IVAX completed the sale of a significant portion of the assets
of its specialty chemicals business in three separate transactions in which IVAX
received an aggregate of approximately $41.1 million in cash. In February 1998,
IVAX completed the divestiture of its specialty chemicals business by selling
its vacuum pump fluids business for approximately $3.9 million (subject to
certain post-closing adjustments). IVAX retained certain real estate assets of
the specialty chemicals business which it is seeking to sell.
IVAX's personal care products group developed, manufactured and
marketed, primarily within the United States, a variety of personal care
products, mainly through distributors, stores and mass merchandisers, in three
principal areas: hair care products designed primarily for African-American
consumers, cosmetic products designed primarily for dark-skinned women, and
corrective cosmetics. IVAX's personal care products group had net revenues,
including intercompany sales, of $42.6 million for the seven months ended July
31, 1998, and $73.9 million and $80.0 million for the years ended December 31,
1997 and 1996, respectively. Effective July 14, 1998, IVAX sold Johnson
Products Co., Inc., its personal care products subsidiary, to Carson Products
Company, a wholly-owned subsidiary of Carson, Inc., for approximately $84.7
million (after certain post-closing adjustments). At closing, IVAX received $35
million in cash and a secured note for $50 million, which IVAX subsequently
sold, without recourse, for $48.5 million in cash. In a separate transaction,
IVAX sold the Flori Roberts(R), Patti LaBelle(TM) and IMAN(R) product lines of
Johnson Products Co., Inc. to Color Me Beautiful, Inc. IVAX no longer maintains
a personal care products business.
EMPLOYEES
As of February 28, 1999, IVAX had approximately 3,580 full time
employees, of whom approximately 2,175 were engaged in research and
development, production and associated support, 720 were engaged in sales,
marketing and distribution, and 685 were engaged in finance and general
administration. The employees were divided approximately as follows: 840 in
domestic pharmaceuticals, 2,550 in international pharmaceuticals, 50 in
diagnostics, 55 in veterinary and 85 in corporate. The foregoing information
includes approximately 930 employees of Galena. IVAX's recent workforce
reductions have negatively impacted employee morale and have created employee
recruitment and retention issues that could have a negative impact on IVAX's
business and operating results.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, the matters
discussed herein are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting IVAX's
operations, markets, products and prices, and other factors discussed elsewhere
in this report and the documents filed by IVAX with the Securities and Exchange
Commission ("SEC"). These factors may cause IVAX's results to differ materially
from the statements made in this report or otherwise made by or on behalf of
IVAX.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Specific financial information with respect to IVAX's foreign and
domestic operations is provided in Note 13, Business Segment Information, in
the Notes to Consolidated Financial Statements incorporated by reference to the
Financial Information section of IVAX's 1998 Annual Report to Shareholders.
ITEM 2. PROPERTIES
IVAX owns or leases an aggregate of approximately 3.1 million square
feet of space in Argentina, Germany, Hong Kong, Ireland, Italy, Peru, Poland,
Russia, the Czech Republic, the Slovak Republic, the United Kingdom, the United
States and Uruguay, which is used by the pharmaceutical business (90%) and the
diagnostics business (2%). The remaining portion (8%) was used by the specialty
chemicals business. In connection with the sale of the specialty chemicals
business, IVAX retained ownership of its manufacturing facilities in Rock Hill,
South Carolina and Marion, Ohio, and is pursuing the sale of these facilities.
IVAX operates 13 pharmaceutical manufacturing facilities, two of which
are located in each of Waterford, Ireland; Miami, Florida; Cidra, Puerto Rico;
and one of which is located in each of Buenos Aires, Argentina; Northvale, New
Jersey; St. Croix, US Virgin Islands; Falkenhagen, Germany; Runcorn, England;
Opava-Komarov, Czech Republic; and Montevideo, Uruguay. IVAX's diagnostics
manufacturing facilities are located in Miami, Florida and Springdale,
Arkansas. IVAX owns its Miami, Buenos Aires, Cidra, Montevideo, Opava-Komarov
and Falkenhagen manufacturing facilities, and leases its remaining
manufacturing facilities. IVAX believes its facilities are in satisfactory
condition, are suitable for their intended use and, in the aggregate, have
capacities in excess of those necessary to meet IVAX's present needs.
In connection with restructuring programs instituted by IVAX in 1996,
1997 and 1998 to, among other things, reduce costs and improve efficiencies in
its pharmaceutical operations, IVAX has consolidated certain of its facilities.
IVAX consolidated its United States pharmaceutical distribution facilities into
a single leased distribution center in Kenton County, Kentucky in 1997; sold
its Fort Lauderdale, Florida office, packaging and warehouse facility and its
Syosset, New York and Kirkland, Quebec, Canada pharmaceutical manufacturing
facilities in 1998; sold its Shreveport, Louisiana pharmaceutical manufacturing
facility (which was closed in 1996) in 1998; closed two of its manufacturing
facilities in southeast London, England and consolidated its U.K. manufacturing
activities at its Waterford, Ireland facility in 1998; consolidated its U.K.
packaging operations at its
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Waterford, Ireland facility in the first quarter of 1999; and expects to cease
manufacturing at its Northvale, New Jersey pharmaceutical manufacturing
facility in 1999. Production from those facilities has been or will be
transferred to other IVAX facilities.
IVAX maintains sales offices and distribution centers in Argentina,
Canada, China, certain CIS countries, the Czech Republic, Italy, Peru, Poland,
Russia, Uruguay and various parts of the United States and the United Kingdom,
most of which are held pursuant to leases. None of such leases are material to
IVAX.
A portion of IVAX's pharmaceutical manufacturing capacity and its
research and development activities, as well as its corporate headquarters and
other critical business functions are located in areas subject to hurricane
casualty risk. Although IVAX has certain limited protection afforded by
insurance, IVAX's business, earnings and competitive position could be
materially adversely affected in the event of a major windstorm.
ITEM 3. LEGAL PROCEEDINGS
In late April 1995, Zenith Laboratories, Inc., a wholly-owned
subsidiary of IVAX ("Zenith"), received approvals from the FDA to manufacture
and market the antibiotic cefaclor in capsule and oral suspension formulations.
Cefaclor is the generic equivalent of Ceclor(R), a product of Eli Lilly and
Company ("Lilly"). On April 27, 1995, Lilly filed a lawsuit against Zenith and
others styled ELI LILLY AND COMPANY V. AMERICAN CYANAMID COMPANY, BIOCRAFT
LABORATORIES, INC., ZENITH LABORATORIES, INC. AND BIOCHIMICA OPOS S.P.A. in the
United States District Court for the Southern District of Indiana, Indianapolis
Division. In general, the lawsuit alleges that Biochimica Opos S.p.A. ("Opos"),
Zenith's cefaclor raw material supplier, manufactured cefaclor raw material in
a manner which infringed two process patents owned by Lilly, and that Zenith
and the other defendants knowingly and willfully infringed and induced Opos to
infringe the patents by importing the raw material into the United States. The
lawsuit seeks to enjoin Zenith and the other defendants from infringing or
inducing the infringement of the patents and from making, using or selling any
product incorporating the raw material provided by Opos, and seeks an
unspecified amount of monetary damages and the destruction of all cefaclor raw
material manufactured by Opos and imported into the United States. In August
1995, the Court denied Lilly's motion for preliminary injunction which sought
to prevent Zenith from selling cefaclor until the merits of Lilly's allegations
could be determined at trial. On May 10, 1996, the United States Court of
Appeals for the Federal Circuit affirmed the district court's denial of Lilly's
motion for preliminary injunction. On February 28, 1997, Lilly filed an amended
complaint alleging the infringement of an additional patent, and also filed a
motion to add to the lawsuit additional defendants who are not affiliated with
IVAX or Zenith. Lilly subsequently filed a second amended complaint but did not
revise its allegations regarding Zenith. Zenith has filed a motion for partial
summary judgment, which remains pending. Zenith ceased selling cefaclor in
January 1997, when it announced a recall in the United States of cefaclor as a
result of the recall by Opos of the raw material used to manufacture the
product.
On April 18, 1997, Lilly filed a complaint in the United States
District Court for the District of New Jersey styled ELI LILLY AND COMPANY V.
ROUSSEL CORP., ET AL against various defendants, including Zenith. With respect
to Zenith, the complaint asserts claims for violation of the Lanham Act, unfair
competition under New Jersey state law, common law unfair competition and
unjust enrichment. Also named as defendants are Roussel Corporation, Roussel
UCLAF Holdings Corporation, Roussel UCLAF S.A., Hoechst Marion Roussel North
America, and Biochimica Opos
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S.p.A. (collectively, the "Roussel Defendants"), The Rugby Group, Inc., and
Rugby Laboratories, Inc. (collectively, "Rugby"), and American Home Products
Corporation and American Cyanamid Company (collectively, the "American Home
Defendants"). The claims asserted against the American Home Defendants and
Rugby are essentially the same as those asserted against Zenith. Additional
claims are asserted against the Roussel Defendants, including fraud, negligent
misrepresentation, common law conspiracy, tortious interference with business
relations, and violations of both the federal and state Racketeer Influenced
and Corrupt Organizations Acts. All of the asserted claims arise out of what
Lilly contends were fraudulent misrepresentations to Lilly and the FDA by Opos
regarding the methods utilized by Opos to manufacture bulk cefaclor and the
location of the manufacturing facility of such cefaclor. According to Lilly,
through these alleged misrepresentations, Opos fraudulently obtained approval
from the FDA to market bulk cefaclor in the United States. The claims asserted
against Zenith are predicated on Zenith's sale in the United States of retail
dosage units of cefaclor manufactured using Opos' bulk cefaclor. Lilly alleges
that Zenith, in marketing and selling retail dosage units of cefaclor
manufactured from Opos' bulk cefaclor, used false and misleading descriptions
and representations regarding Zenith's cefaclor product. The relief sought by
Lilly against Zenith, jointly and severally with the American Home Defendants
and Rugby, is an accounting to Lilly for any and all profits derived by Zenith
from the sale of cefaclor and an award of damages to Lilly, in an unspecified
amount, allegedly sustained by Lilly as a result of Zenith's alleged acts of
misrepresentation and unfair competition. Lilly further seeks an award of
treble damages and litigation costs, including attorneys' fees and interest.
Under its unjust enrichment claim, Lilly seeks restitution in an unspecified
amount against Zenith, jointly and severally with the other defendants. In June
1997, Zenith filed a motion to dismiss the action, which was granted in June
1998. Plaintiffs filed an amended complaint and, on November 6, 1998, Zenith
filed another motion to dismiss, which remains pending.
In November 1996, individuals purporting to be shareholders of IVAX
filed a class action complaint styled MALIN, ET AL. VS. IVAX CORPORATION AND
PHILLIP FROST, ET AL. against IVAX and certain of its current and former
officers or directors in the United States District Court for the Southern
District of Florida which consolidates, amends and supplements a number of
similar complaints filed earlier in 1996. The plaintiffs seek to act as
representatives of a class consisting of all purchasers of IVAX common stock
between July 31, 1995 and June 27, 1996. The consolidated amended complaint
alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended (the "1934 Act") and Rule 10b-5 promulgated by the Securities
and Exchange Commission, and also asserts a claim for negligent
misrepresentation. The complaint generally alleges that IVAX made untrue
statements of material fact and omitted to state material facts necessary to
make statements made not misleading in its public disclosure documents and in
communications to the public regarding its operations and financial results and
that its financial statements were not prepared in accordance with generally
accepted accounting principles. These allegations are centered around
allegations that IVAX failed to disclose that product sales were subject to
shelf stock adjustments and failed to establish reserves for such adjustments.
In January 1997, the IVAX defendants filed a motion to dismiss the action and,
on August 18, 1998, the United States District Court dismissed the action
without prejudice. On September 30, 1998, the plaintiffs filed an amended
complaint and, on November 9, 1998, IVAX filed a motion to dismiss the action,
which motion remains pending. In general, the amended complaint seeks an
unspecified amount of compensatory damages, pre-judgment interest, litigation
costs and attorney's fees.
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In 1997, two class action complaints were filed by individuals
purporting to be shareholders of IVAX Corporation against IVAX, its chairman
and its former chief financial officer in federal court. One of these actions
was subsequently dismissed without prejudice, and the complaint in the other
action, which was amended to incorporate the allegations in both actions, is
now pending as ALAN M. HARRIS, YITZCHOK WOLPIN AND FAUSTO POMBAR V. IVAX
CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS. The plaintiffs in that action
seek to act as representatives of a class consisting of all persons who
purchased IVAX common stock and/or call options during the period from August
2, 1996 through November 11, 1996, inclusive. The complaint alleges claims for
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 and for negligent misrepresentation. The complaint alleges, among other
things, that during the class period defendants made untrue statements of
material fact and omitted to state material facts necessary to make statements
made not misleading in its statements to the public, including in a September
30, 1996 press release regarding IVAX's forecasted earnings for the third
quarter of 1996. The complaint seeks unspecified compensatory damages,
interest, attorneys' fees, costs of suit and unspecified other and further
relief from the court. On March 30, 1998, the court dismissed the complaint
with prejudice. An appeal was filed on May 19, 1998 and remains pending.
On February 19, 1993, Smith & Nephew, Inc., a Delaware corporation
("S&N"), filed an action against IVAX and Solopak, Inc., a Delaware corporation
and wholly-owned subsidiary of IVAX (the "Subsidiary"), in the Cook County,
Illinois Circuit Court styled SMITH & NEPHEW, INC. VS. IVAX CORPORATION AND
SOLOPAK, INC. S&N alleged that IVAX breached an Asset Purchase Agreement (the
"Agreement"), dated February 28, 1992, among IVAX, the Subsidiary and S&N,
pursuant to which, among other things, S&N agreed to sell to the Subsidiary
substantially all of the assets of Smith & Nephew Solopak, a division of S&N
(the "Division"), for $19.0 million in cash, by failing to close when all
conditions precedent to the closing were satisfied. S&N further alleged that in
November 1992, it sold the Division to another party for $13.5 million. S&N
sought damages of $5.5 million, the difference between the $19.0 million
purchase price specified in the Agreement and the eventual sale price, plus
attorneys' fees and costs. S&N claimed additional unspecified damages resulting
from IVAX's alleged interference with S&N's employees during the due diligence
process. IVAX counterclaimed against S&N for breach of the Agreement and is
seeking as damages the expenses incurred in connection with the failed
acquisition plus attorneys' fees and costs. On July 17, 1998, the District
Court granted IVAX's motion for summary judgment. S&N is expected to pursue an
appeal of this decision.
On December 21, 1998, an action purporting to be a class action,
styled LOUISIANA WHOLESALE DRUG CO. VS. ABBOTT LABORATORIES, GENEVA
PHARMACEUTICALS, INC. AND ZENITH GOLDLINE PHARMACEUTICALS, INC., was filed
against Zenith and others in the United States District Court for the Southern
District of Florida, alleging a violation of Section 1 of the Sherman Antitrust
Act. Plaintiffs purport to represent a class consisting of customers who
purchased a certain proprietary drug directly from Abbott Laboratories during
the period beginning on October 29, 1998. Plaintiffs allege that, by settling
patent-related litigation against Abbott in exchange for quarterly payments,
the defendants engaged in an unlawful restraint of trade. The complaint seeks
unspecified treble damages and injunctive relief.
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IVAX intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to IVAX, could have a material adverse effect on IVAX's
financial position and results of operations. IVAX's ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
With respect to the case styled BAXTER INTERNATIONAL INC. AND BAXTER
HEALTHCARE CORP. V. MCGAW, INC., previously reported in IVAX's Annual Report on
Form 10-K for the year ended December 31, 1997, the trial court's verdict in
favor of McGaw was affirmed by the United States Court of Appeals for the
Federal Circuit on July 1, 1998 and the plaintiffs have chosen not to appeal
further.
With respect to the case styled ABS MB INVESTMENT LIMITED PARTNERSHIP
AND ABS MB LTD. VS. IVAX CORPORATION, previously reported in IVAX's Annual
Report on Form 10-K for the year ended December 31, 1997, the trial of this
case was concluded on December 11, 1998. IVAX obtained a jury verdict in its
favor on substantially all of the claims asserted against it, with a directed
verdict being entered in favor of one plaintiff on a relatively insignificant
claim. On January 22, 1999, the parties entered into a Settlement Agreement
pursuant to which the lawsuit was dismissed with prejudice on February 16,
1999.
IVAX is involved in various other legal proceedings arising in the
ordinary course of business, some of which involve substantial amounts. While
it is not feasible to predict or determine the outcome of these proceedings, in
the opinion of management, based on a review with legal counsel, any losses
resulting from such legal proceedings will not have a material adverse impact
on IVAX's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the names, ages, positions held and
business experience during the past five years of the persons serving as
executive officers of IVAX as of March 19, 1999. Officers serve at the
discretion of the Board of Directors. There is no family relationship between
any of the executive officers, and there is no arrangement or understanding
between any executive officer and any other person pursuant to which the
executive officer was selected.
THOMAS E. BEIER. Mr. Beier, age 53, has served as Senior Vice
President - Finance and Chief Financial Officer of IVAX since October 1997.
From December 1996 to October 1997, he served as Vice President - Finance for
IVAX. Prior to joining IVAX, he served as Executive Vice President and Chief
Financial Officer of Intercontinental Bank from 1989 until August 1996.
NEIL FLANZRAICH. Mr. Flanzraich, age 55, has served as Vice Chairman
and President of IVAX since May 1998 and as a director of IVAX since 1997. He
was a shareholder and served as Chairman of the Life Sciences Legal Practices
Group of Heller Ehrman White & McAuliffe from 1995 to May 1998. From 1981 to
1994, he served in various capacities at Syntex Corporation
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(pharmaceuticals), most recently as its Senior Vice President, General Counsel
and a member of the Corporate Executive Committee. From 1994 to 1995, after
Syntex Corporation was acquired by Roche Holding Ltd., he served as Senior Vice
President and General Counsel of Syntex (U.S.A.) Inc., a Roche subsidiary. He
is Chairman of the Board of Directors of North American Vaccine, Inc. (vaccine
research and development), and is a director of Whitman Education Group, Inc.
(proprietary education), LXR Biotechnology, Inc. (biopharmaceuticals) and
Continucare Corporation (integrated health care).
PHILLIP FROST, M.D. Dr. Frost, age 62, has served as Chairman of the
Board of Directors and Chief Executive Officer of IVAX since 1987. He served as
IVAX's President from July 1991 until January 1995. He was the Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of the
Board of Directors of Whitman Education Group, Inc. (proprietary education),
Vice Chairman of the Board of Directors of North American Vaccine, Inc.
(vaccine research and development), Vice Chairman of the Board of Directors of
Continucare Corporation (integrated health care), and a director of Northrop
Grumman Corp. (aerospace). He is Vice Chairman of the Board of Trustees of the
University of Miami and a member of the Board of Governors of the American
Stock Exchange.
RAFICK G. HENEIN, PH.D. Dr. Henein, age 58, has served as a Senior
Vice President of IVAX and as the President and Chief Executive Officer of
Zenith Goldline Pharmaceuticals, Inc., IVAX's principal United States-based
generic pharmaceutical subsidiary, since July 1997. He held various positions
in the Novopharm Limited organization (pharmaceuticals) since 1988, rising to
the position of President and Chief Executive Officer of Novopharm
International in 1996.
JANE HSIAO, PH.D. Dr. Hsiao, age 51, has served as a director of IVAX
and as IVAX's Vice Chairman-Technical Affairs since February 1995, as IVAX's
Chief Technical Officer since July 1996, and as Chairman, Chief Executive
Officer and President of DVM Pharmaceuticals, Inc., IVAX's veterinary products
subsidiary, since March 1998. From 1992 until February 1995, she served as
IVAX's Chief Regulatory Officer and Assistant to the Chairman, and as Vice
President-Quality Assurance and Compliance of Baker Norton Pharmaceuticals,
Inc., IVAX's principal proprietary pharmaceutical subsidiary. From 1987 to
1992, Dr. Hsiao was Vice President-Quality Assurance, Quality Control and
Regulatory Affairs of Baker Norton Pharmaceuticals, Inc.
ISAAC KAYE. Mr. Kaye, age 69, has served as Deputy Chief Executive
Officer and a director of IVAX since 1990, and as Chief Executive Officer of
Norton Healthcare Limited, IVAX's principal United Kingdom pharmaceutical
subsidiary, since 1990.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IVAX's common stock is listed on the American Stock Exchange and is
traded under the symbol IVX. As of the close of business on March 19, 1999,
there were approximately 5,022 holders of record of IVAX common stock.
Additional information required by item 5 is provided in Note 15, Quarterly
Financial Information, in the Notes to Consolidated Financial Statements
incorporated by reference to the Financial Information section of the 1998
Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by item 6 is incorporated by reference to
page 1 of the Financial Information section of the 1998 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by item 7 is incorporated by reference to
pages 2-17 of the Financial Information section of the 1998 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by item 7A is incorporated by reference to
page 17 of the Financial Information section of the 1998 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by item 8 is incorporated by reference to
pages 19-47 of the Financial Information section of the 1998 Annual Report to
Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by item 10 is
incorporated by reference to IVAX's Proxy Statement for its 1999 Annual Meeting
of Shareholders. The information concerning executive officers required by item
10 is contained in the discussion entitled "Executive Officers of the
Registrant" in Part I hereof.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by item 11 is incorporated by reference to
IVAX's Proxy Statement for its 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by item 12 is incorporated by reference to
IVAX's Proxy Statement for its 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by item 13 is incorporated by reference to
IVAX's Proxy Statement for its 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements, related notes and
independent auditors' report, from the Financial Information section of the
1998 Annual Report to Shareholders, are incorporated by reference into item 8
of Part II of this report:
PAGE IN THE
FINANCIAL
INFORMATION
SECTION OF
1998 ANNUAL
REPORT TO
SHAREHOLDERS
------------
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets 19
Consolidated Statements of Operations 20
Consolidated Statements of Shareholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 25
(a)(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of IVAX is filed as a part
of this report:
Schedule II Valuation and Qualifying Accounts for the three years
ended December 31, 1998
22
25
All other schedules have been omitted because the required information
is not applicable or the information is included in the consolidated financial
statements or the notes thereto.
The independent auditors' report with respect to Schedule II is also
filed as part of this report.
(a)(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
-------- ----------- ----------------
3.1 Articles of Incorporation. Incorporated by reference to
IVAX's Form 8-B dated July 28, 1993.
3.2 Amended and Restated Bylaws. Incorporated by reference to IVAX's
Form 10-Q for the quarter ended
September 30, 1997.
4.1 Indenture dated November 26, 1991, between Incorporated by reference to IVAX's
IVAX Corporation and First Trust National Form 10-K for the year ended
Association, as Trustee with respect to IVAX December 31, 1991.
Corporation's 6-1/2% Convertible Subordinated
Notes due November 15, 2001.
4.2 Form of 6 1/2% Convertible Subordinated Notes due Incorporated by reference to IVAX's
November 15, 2001 in Global Form. Form 10-K for the year ended
December 31, 1991.
4.3 Rights Agreement, dated December 29, 1997, between Incorporated by reference to IVAX's
IVAX Corporation and ChaseMellon Shareholder Form 8-K dated December 19, 1997.
Services, L.L.C., with respect to the IVAX
Corporation Shareholder Rights Plan.
10.1 IVAX Corporation 1985 Stock Option Plan, as amended.* Incorporated by reference to IVAX's
Form 10-K for the year ended
December 31, 1997.
10.2 IVAX Corporation 1994 Stock Option Plan, as amended.* Incorporated by reference to IVAX's
Form 10-K for the year ended
December 31, 1997.
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10.3 Form of Indemnification Agreement for Directors. Incorporated by reference to IVAX's
Form 8-B dated July 28, 1993.
10.4 Form of Indemnification Agreement for Officers. Incorporated by reference to IVAX's
Form 8-B dated July 28, 1993.
10.5 Agreement Containing Consent Order, dated Incorporated by reference to IVAX's
December 6, 1994, between IVAX Corporation and Form 10-K for the year ended
the United States Federal Trade Commission. December 31, 1994.
10.6 Employment Agreement, dated November 28, 1997, Incorporated by reference to IVAX's
between IVAX Corporation and Phillip Frost, M.D.* Form 10-K for the year ended
December 31, 1997.
10.7 Employment Agreement, dated November 28, 1997, Incorporated by reference to IVAX's
between IVAX Corporation and Isaac Kaye.* Form 10-K for the year ended
December 31, 1997.
10.8 Employment Agreement, dated January 19, 1998, Incorporated by reference to IVAX's
between IVAX Corporation and Jane Hsiao, Ph.D.* Form 10-K for the year ended
December 31, 1997.
10.9 Employment Agreement, dated July 28, 1997, Incorporated by reference to IVAX's
between IVAX Corporation and Rafick G. Henein, Ph.D.* Form 10-Q for the quarter ended June
30, 1997.
10.10 Employment Agreement, dated as of May 26, 1998 between Incorporated by reference to IVAX's
IVAX Corporation and Neil Flanzraich.* Form 10-Q for the quarter ended
September 30, 1998.
10.11 Form of Employment Agreement (Change in Control) between Filed herewith.
IVAX Corporation and certain of its executive officers.*
10.12 Stock Purchase Agreement, dated May 30, 1997, between Incorporated by reference to IVAX's
IVAX Corporation and B. Braun of America Inc.** Form 8-K dated June 24, 1997.
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10.13 Purchase Agreement, dated June 16, 1998, by and between Incorporated by reference to IVAX's
IVAX Corporation and Carson, Inc.** Form 10-Q for the quarter ended June
30, 1998.
10.14 Credit Agreement, dated as of July 14, 1998, among IVAX Incorporated by reference to IVAX's
Corporation, Carson, Inc. and Carson Products Company.** Form 10-Q for the quarter ended June
30, 1998.
13 The Financial Information section of the 1998 Annual Filed herewith.
Report to Shareholders. With the exception of
those portions of said Annual Report which are
specifically incorporated by reference in this report
on Form 10-K and filed as an exhibit to this report,
said Annual Report is not to be deemed "filed"
with the Commission.
21 Subsidiaries of IVAX Corporation. Filed herewith.
23 Consent of Arthur Andersen LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
- ----------------------
* Compensation Plan or Agreement.
** Certain exhibits and schedules to this document have not been filed. The
Registrant agrees to furnish a copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by IVAX during the quarter ended December 31,
1998.
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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.
IVAX CORPORATION
Dated: March 31, 1999 By: /S/ PHILLIP FROST, M.D.
------------------------------------
Phillip Frost, M.D.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME CAPACITY DATE
- ---- -------- ----
/s/ PHILLIP FROST, M.D. Chairman of the Board and March 31, 1999
- ---------------------------------------- Chief Executive Officer
Phillip Frost, M.D. (Principal Executive Officer)
/s/ THOMAS E. BEIER Chief Financial Officer March 31, 1999
- ---------------------------------------- (Principal Financial Officer)
Thomas E. Beier
/s/ THOMAS E. MCCLARY Vice President - Accounting March 31, 1999
- ---------------------------------------- (Principal Accounting Officer)
Thomas E. McClary
/s/ MARK ANDREWS Director March 31, 1999
- ---------------------------------------
Mark Andrews
- ---------------------------------------
/s/ ERNST BIEKERT, PH.D. Director March 31, 1999
- ---------------------------------------
Ernst Biekert, Ph.D.
/s/ CHARLES M. FERNANDEZ Director March 31, 1999
- ---------------------------------------
Charles M. Fernandez
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/s/ JACK FISHMAN, PH.D. Director March 31, 1999
- ---------------------------------------
Jack Fishman, Ph.D.
/s/ NEIL FLANZRAICH Director, President and Vice Chairman March 31, 1999
- ---------------------------------------
Neil Flanzraich
/s/ JANE HSIAO, PH.D. Director and Vice Chairman- March 31, 1999
- --------------------------------------- Technical Affairs
Jane Hsiao, Ph.D.
/s/ ISAAC KAYE Director and Deputy Chief March 31, 1999
- --------------------------------------- Executive Officer
Isaac Kaye
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30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF IVAX CORPORATION:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in IVAX Corporation's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 26, 1999 (except with respect to matters discussed
in Note 16, as to which the date is March 19, 1999). Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
Financial Statement Schedule II listed in Item 14 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This financial statement schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 26, 1999.
31
SCHEDULE II
IVAX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
(in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- --------------------------------
Balance at Charged to
Beginning Cost and Net Balance at
Description of Year Expenses Deductions Other End of Year
----------- ---------- ---------- ---------- ----- -----------
Year ended December 31, 1996 $11,064 30,737 (20,343) (1,397)(A) $20,061
======= ======= ======= ======= =======
Year ended December 31, 1997 $20,061 8,973 (8,702) (1,106) $19,226
======= ======= ======= ======= =======
Year ended December 31, 1998 $19,226 7,650 (4,643) 601 $22,834
======= ======= ======= ======= =======
- -------------
(A) Includes additions to the accounts receivable allowances as a result of the
acquisition of Elvetium.
ENVIRONMENTAL AND LITIGATION ACCRUAL RELATED TO DISCONTINUED OPERATIONS
- -----------------------------------------------------------------------
Balance at Charged to
Beginning Cost and Net Balance at
Description of Year Expenses Deductions Other End of Year
----------- ---------- ---------- ---------- ----- -----------
Year ended December 31, 1996 $ -- $ --
======= ======= ======= ======= =======
Year ended December 31, 1997 $ -- 2,000 $ 2,000
======= ======= ======= ======= =======
Year ended December 31, 1998 $ 2,000 2,900 (464) $ 4,436
======= ======= ======= ======= =======
RESTRUCTURING COSTS AND ASSET WRITE-DOWNS
- -----------------------------------------
Employee
Asset Termination Plant
Write-Downs Benefits Closures Total
----------- ----------- -------- --------
1996 restructuring costs and asset write-downs $ 63,749 $ 2,324 $ 3,000 $ 69,073
Cash payments during 1996 -- (370) (346) (716)
Non-cash activity (63,749) -- -- (63,749)
-------- -------- -------- --------
Balance at December 31, 1996 -- 1,954 2,654 4,608
1997 restructuring costs and asset write-downs 23,814 5,094 9,180 38,088
Cash payments during 1997 -- (2,400) (1,360) (3,760)
Non-cash activity (23,814) (101) (1,107) (25,022)
-------- -------- -------- --------
Balance at December 31, 1997 -- 4,547 9,367 13,914
1998 restructuring costs and asset write-downs 14,164 6,305 8,740 29,209
Reversals of restructuring costs and asset
write-downs charged in prior years (8,804) (442) (7,741) (16,987)
Cash payments during 1998 -- (3,538) (3,042) (6,580)
Non-cash activity (5,360) (1,098) 936 (5,522)
-------- -------- -------- --------
Balance at December 31, 1998 $ -- $ 5,774 $ 8,260 $ 14,034
======== ======== ======== ========