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EXHIBIT 13
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IVAX CORPORATION
1998 FINANCIAL INFORMATION
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TABLE OF CONTENTS
Selected Financial Data 1
Management's Discussion and Analysis of Financial Condition
and Results of Operations 2
Report of Independent Certified Public Accountants 18
1998 Consolidated Financial Statements 19
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SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
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(in thousands, except per share data)(1)(2)
OPERATING DATA
Net revenues(3) $ 637,923 $ 594,286 $ 658,745 $ 785,949 $ 659,509
Income (loss) from continuing
operations(4) 24,617 (219,534) (134,989) 94,319 57,941
Income (loss) from discontinued
operations(5) 48,904 (8,701) (23,690) 20,482 31,931
Net income (loss) 71,594 (233,254) (160,752) 114,835 89,049
Basic earnings (loss) per common
share:
Continuing operations(4) .21 (1.81) (1.12) .81 .51
Discontinued operations(5) .41 (.07) (.19) .18 .28
Net earnings (loss) .60 (1.92) (1.33) .99 .78
Diluted earnings (loss) per common share:
Continuing operations(4) .21 (1.81) (1.12) .79 .46
Discontinued operations(5) .41 (.07) (.19) .17 .26
Net earnings (loss) .60 (1.92) (1.33) .96 .71
Weighted average number of common
shares outstanding:
Basic 119,116 121,496 120,949 116,065 113,565
Diluted 119,264 121,496 120,949 119,539 124,675
Cash dividends per common share $ -- $ -- $ .05 $ .08 $ .06
BALANCE SHEET DATA
Working capital(6) $ 269,511 $ 238,918 $ 415,927 $ 354,733 $ 265,656
Total assets 778,015 790,736 1,333,648 1,184,828 946,313
Total long-term debt, net of
current portion 77,776 94,193 442,819 210,759 162,305
Shareholders' equity 453,208 435,039 695,128 789,172 634,456
Book value per common share(7) 3.80 3.58 5.72 6.69 5.56
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(1) Figures have been restated to reflect the acquisition of Zenith
Laboratories, Inc. in 1994 which was accounted for under the pooling of
interests method of accounting. The March 1, 1996 acquisition of Elvetium
S.A. (Argentina), Alet Laboratories S.A.E.C.I. y E. and Elvetium S.A.
(Uruguay) (collectively "Elvetium"), and the September 30, 1995
acquisition of Pharmatop Limited, which were accounted for under the
pooling of interests method of accounting, were recorded as of January 1,
1996 and 1995, respectively. Historical figures have not been restated to
give retroactive effect to the Elvetium and Pharmatop Limited acquisitions
due to the immateriality of the related amounts. Figures include the
results of the following businesses acquired by purchase since their
respective acquisition dates: ImmunoVision, Inc. on July 17, 1995; and 60%
of the shares of Galena a.s., on July 25, 1994 (subsequently increased
through open market purchases to 74%).
(2) Figures have been restated to reflect the classification of IVAX's
intravenous products, personal care products and specialty chemicals
businesses as discontinued operations.
(3) Figures have been restated to conform to current classifications.
(4) Includes restructuring costs of $6,862, $14,274 and $5,324 and asset
write-downs of $5,360, $23,814 and $63,749 in 1998, 1997 and 1996,
respectively.
(5) Includes $42,583 net gain on the sale of the personal care products
division in 1998, $12,623 net gain on the sales of the intravenous
products and specialty chemicals business in 1997, and $48,442 of asset
write-downs in 1996.
(6) Excludes net assets of discontinued operations.
(7) Assumes conversion of Zenith Laboratories, Inc.'s cumulative convertible
preferred stock in 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the 1998 Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements included on pages 25 to 47 of this Financial
Information Section. Except for historical information contained herein, the
matters discussed below are forward-looking statements made pursuant to the safe
harbor provisions of the 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. These factors may cause IVAX's results to differ materially from the
forward looking statements made in this report or otherwise made by or on behalf
of IVAX.
RESULTS OF OPERATIONS
OVERVIEW
IVAX's operations are conducted through subsidiaries involved
primarily in generic and branded pharmaceuticals. Presently, a significant
portion of IVAX's revenues and gross profits are generated from sales of
generic prescription and over-the-counter pharmaceutical products. IVAX's
future success is largely dependent upon its ability to develop, obtain
approval for, efficiently manufacture, and market, in the short term,
commercially viable generic pharmaceutical products, and in the long term,
commercially viable generic and branded pharmaceutical products.
In the short term, IVAX's revenues and profits may vary significantly
from period to period, as well as in comparison to corresponding prior periods,
as a result of regulatory and competitive factors unique to the generic
pharmaceutical industry. Such factors include the timing of new generic drug
approvals received by IVAX, the number and timing of generic drug approvals for
competing products, the timing of IVAX's initial shipments of newly approved
generic drugs, strategies adopted by brand-name companies to maintain market
share, and IVAX's cost of manufacturing. The first company to receive
regulatory approval for and to introduce a generic drug is usually able to
capture significant market share from the branded drug and to achieve
relatively high market share, revenues and gross profits from sales of the
drug. As other generic versions of the same drug enter the market, however,
sales volumes, market share, prices, revenues and gross profits decline,
sometimes significantly. In addition, the initial shipments by the first
company to introduce a generic drug are often significant as customers fill
their initial inventory requirements.
Because of these competitive factors, IVAX intends to emphasize the
development of generic pharmaceutical products that are expected to encounter
less intensive competition, such as drugs 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 developing and marketing these specialty generics, it can mitigate the
pricing pressures facing other generic drugs. Developing specialty generics
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.
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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.
IVAX's pharmaceutical revenues may also be affected by the level of
provisions for estimated returns and inventory credits, as well as other sales
returns and allowances established by IVAX. The custom in the pharmaceutical
industry is generally to grant customers the right to return purchased goods.
In the generic pharmaceutical industry, this custom has resulted in a practice
of suppliers issuing inventory credits (also known as shelf-stock adjustments)
to customers based on the customers' existing inventory following decreases in
the market price of the related generic pharmaceutical product. The
determination to grant a credit to a customer following a price decrease is
generally at the discretion of IVAX, and generally not pursuant to contractual
arrangements with customers. These credits allow customers with established
inventories to compete with those buying product at the current market price,
and allow IVAX to maintain shelf space, market share and customer loyalty.
Provisions for estimated returns and inventory credits are established
by IVAX concurrently with the recognition of revenue. The provisions are
established in accordance with generally accepted accounting principles based
upon consideration of a variety of factors, including actual return and
inventory credit experience for products during the past several years by
product type, the number and timing of regulatory approvals for the product by
competitors of IVAX, both historical and projected, the market for the product,
estimated customer inventory levels by product and projected economic
conditions. Actual product returns and inventory credits incurred are, however,
dependent upon future events, including price competition and the level of
customer inventories at the time of any price decreases. IVAX continually
monitors the factors that influence the pricing of its products and customer
inventory levels and makes adjustments to these provisions when management
believes that actual product returns and inventory credits may differ from
established reserves.
IVAX's pharmaceutical revenues and profits may also be affected by
other factors. Certain raw materials and components used in the manufacture of
IVAX's products are 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 could result in delays in production, higher raw material
costs and loss of sales and customers.
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
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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 the
programs also results in reduced prices to non-wholesaler customers. As a
result of the institution of the programs, the generic drug industry
experienced a significant reduction in the prices charged by suppliers for many
generic pharmaceutical products during the second and third quarters of 1996.
Price decreases continued in 1997 and 1998, but at an increasingly slower rate
in each of those years than in the prior year.
Price is a key competitive factor in the generic pharmaceutical
business. To effectively compete on the basis of price and remain profitable, a
generic drug manufacturer must manufacture its products in a cost-effective
manner. In the past, IVAX's manufacturing costs have had a negative impact on
its operating results. Therefore, beginning in the third quarter of 1996 and
continuing throughout 1997 and 1998, IVAX announced and initiated several
restructuring programs in an effort to enhance operating efficiencies and
reduce costs. These objectives are to be achieved through workforce reductions,
facility dispositions and consolidations and other cost saving measures
throughout the organization.
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.
Certain prior period amounts presented herein have been reclassified
to conform to the current period's presentation.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Income from continuing operations was $24.6 million for the year ended
December 31, 1998, compared to a loss from continuing operations of $219.5
million for the year ended December 31, 1997. Net income for the year ended
December 31, 1998 was $71.6 million, compared to a net loss of $233.3 million
for the prior year. The year ended December 31, 1998 and 1997 included a $1.1
million net extraordinary gain and a $2.1 million net extraordinary loss,
respectively, relating to the extinguishment of debt. See Note 9, Debt, in the
Notes to Consolidated Financial Statements. Results for the year ended December
31, 1998 also included a $3.0 million charge resulting from the write-off of
start-up costs previously capitalized, reflected as a cumulative effect of a
change in accounting principle. Results for the year ended December 31, 1997
included a $2.9 million charge reflected as a cumulative effect of a change in
accounting principle relating to the write-off of business process
reengineering costs previously capitalized. See Note 2, Summary of Significant
Accounting Policies - Change in Accounting Principle, in the Notes to
Consolidated Financial Statements.
Earnings per share from continuing operations was $.21 for the year
ended December 31, 1998, compared to a loss per share from continuing
operations of $1.81 for the prior year. Net income per share was $.60 for the
year ended December 31, 1998, compared to a net loss per share of $1.92 for the
prior year. Earnings per share from discontinued operations was $.41 for the
year ended
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December 31, 1998, compared to a loss from discontinued operations of $.07 for
the prior year. The net extraordinary gain recorded in 1998 and the net
extraordinary loss recorded in 1997 relating to the early extinguishment of
debt resulted in a $.01 gain and $.02 loss per share, respectively. The
cumulative effect of a change in accounting principle resulted in a $.03 loss
per common share in 1998 and a $.02 loss per common share in 1997.
NET REVENUES AND GROSS PROFIT
Net revenues for the year ended December 31, 1998 totaled $637.9
million, an increase of $43.6 million or 7.3%, from the $594.3 million reported
in the prior year. The $43.6 million increase is comprised of an increase of
$92.7 million in net revenues of IVAX's domestic operations, offset by a
decrease of $49.1 million in net revenues of IVAX's international operations.
Domestic net revenues totaled $291.9 million for the year ended
December 31, 1998, compared to $199.2 million for 1997. The $92.7 million, or
46.5%, increase in domestic net revenues was primarily attributable to lower
sales returns and allowances and $18.0 million recognized from the settlement
of litigation with Abbott Laboratories ("Abbott") concerning the marketing of
terazosin hydrochloride, the generic equivalent of Abbott's Hytrin(R). Under
the settlement, Abbott agreed to pay IVAX $6.0 million per quarter until the
earlier of February 2000 or the market introduction of a generic version of
terazosin hydrochloride by anyone other than IVAX. Royalties from ALZA
Corporation ("ALZA") relating to the 1997 sale of the rights to Elmiron(R) and
certain other urological products and increased sales volume of certain generic
pharmaceutical products also contributed to the increase. This increase was
partially offset by lower prices of certain generic pharmaceutical products and
lower net product revenues due to the sale of the rights to Elmiron(R) and
certain other urology products in the United States and Canada to ALZA during
September of 1997.
During 1998 and 1997, IVAX's United States generic pharmaceutical
operations recorded provisions for sales returns and allowances which reduced
gross sales by $112.8 million and $217.9 million, respectively.
IVAX's international operations generated net revenues of $346.0
million for the year ended December 31, 1998, compared to $395.1 million for
1997. The $49.1 million, or 12.4%, decrease in international net revenues was
primarily due to decreased sales at IVAX's United Kingdom and Czech Republic
operations. The decrease in sales at IVAX's United Kingdom operations is
primarily due to the following: lower net revenues resulting from a license
agreement entered into in the prior period relating to its breath-operated
inhaler device; the discontinuance of certain contract manufacturing
arrangements (which was done to provide capacity to manufacture certain higher
margin products for the United States market for which IVAX is awaiting receipt
of regulatory approval); and price declines for generic products. This decrease
was partially offset by net revenues attributable to a license agreement
related to IVAX's dry powder inhaler device entered into in the third quarter
of 1998; and to sales growth and product launches of branded products. The
decrease in sales at IVAX's Czech Republic operations is primarily due to lower
sales of raw materials primarily resulting from the loss of market share, and
to a lesser extent, lower export sales primarily to Russia as a result of
unfavorable economic conditions.
Gross profit for the year ended December 31, 1998 increased $126.9
million, or 111.0%, from the same period of the prior year. Gross profit was
$241.2 million (37.8% of net revenues) for the year ended December 31, 1998,
compared to $114.3 million (19.2% of net revenues) for the year ended December
31, 1997. The increase in gross profit percentage is primarily due to lower
sales
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returns and allowances, and to a lesser extent, lower manufacturing costs,
lower inventory provisions, revenues attributable to the Abbott settlement at
IVAX's United States generic pharmaceutical operations and the 1998 impact of
the launch of a high margin generic pharmaceutical product.
OPERATING EXPENSES
Selling expenses totaled $79.5 million (12.5% of net revenues) in
1998, compared to $100.2 million (16.9% of net revenues) in 1997. The decrease
of $20.7 million was primarily attributable to reduced sales force and
promotional costs of IVAX's United States proprietary pharmaceutical operations
as a result of the sale of the rights to Elmiron(R) and certain other urology
products in the United States and Canada to ALZA during September of 1997. The
implementation of previously announced restructuring plans also resulted in
reduced selling expenses at IVAX's domestic generic pharmaceutical operations
due to reductions in sales personnel and promotional costs.
General and administrative expenses totaled $88.4 million (13.9% of
net revenues) in 1998, compared to $116.2 million (19.6% of net revenues) in
1997, a decrease of $27.8 million. The decrease is primarily attributable to
lower costs at IVAX's domestic generic pharmaceutical operations, its corporate
headquarters, and its United Kingdom operations as a result of the
implementation of previously announced restructuring plans, and to a lesser
extent, lower depreciation and bad debt expenses at IVAX's United Kingdom and
domestic pharmaceutical operations.
Research and development expenses in 1998 decreased $4.8 million, or
9%, compared to 1997, to a total of $48.6 million (7.6% of net revenues). The
future level of research and development expenditures will depend on, among
other things, the outcome of clinical testing of products under development,
delays or changes in government required testing and approval procedures,
technological and competitive developments, and strategic marketing decisions.
During 1998 and 1997, IVAX recorded restructuring costs and asset
write-downs of $12.2 million and $38.1 million, respectively. During 1998, IVAX
continued its ongoing efforts to reduce costs and enhance operating efficiency
by initiating restructuring programs at its United Kingdom pharmaceutical
operations and continuing restructuring of its United States pharmaceutical
operations. During the first quarter of 1998, IVAX recorded a pre-tax charge of
$.7 million comprised of $.5 million for severance and other employee
termination benefits and $.2 million for the write-down of leasehold
improvements associated with the consolidation of certain packaging operations
in the United Kingdom. During the third quarter of 1998, IVAX recorded a
pre-tax charge of $12.9 million, comprised of $3.2 million for severance and
other employee termination benefits, $4.3 million associated with lease
commitments, and $5.4 million in asset write-downs resulting from management's
reevaluation of the carrying value of certain long-lived assets primarily in
conjunction with initiatives to further consolidate facilities of IVAX's United
Kingdom operations. This restructuring plan will eliminate 360 positions from
the workforce throughout all functions. The consolidation process is
anticipated to be completed by the end of 1999 and is expected to generate
approximately $12.0 million in annual pre-tax cost savings.
Also, during 1998, IVAX recorded a pre-tax charge of $15.6 million
comprised of $2.6 million for severance and other employee termination
benefits, $4.4 million for estimated plant closure costs and $8.6 million for
asset write-downs resulting from management's decision to cease manufacturing
at its Northvale, New Jersey pharmaceutical facility and the reevaluation of
the carrying value of certain long-lived assets of IVAX's domestic generic
pharmaceutical operations due to facility consolidation and market conditions.
The New Jersey restructuring plan will eliminate 165 positions. This
restructuring and the continued consolidation of manufacturing is anticipated
to generate approximately $3.4 million
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of annual pre-tax cost savings. This impact was offset by the reversal of $17.0
million of previously recorded restructuring reserves, primarily related to two
facilities that were sold in 1998, that ultimately were not needed.
Pursuant to the restructuring programs, during 1998 IVAX sold its Ft.
Lauderdale, Florida office, packaging and warehouse facility and its Syosset,
New York pharmaceutical manufacturing facility which were closed in the first
quarter of 1998; sold its Kirkland, Quebec, Canada pharmaceutical manufacturing
facility; and sold its Shreveport, Louisiana pharmaceutical manufacturing
facility which was closed in the fourth quarter of 1996 and closed two of its
London, England manufacturing facilities. During 1997, IVAX consolidated its
United States pharmaceutical distribution facilities into a single leased
distribution center in Kenton County, Kentucky. IVAX also expects to cease
manufacturing at its Northvale, New Jersey pharmaceutical facility in 1999.
Production from these facilities has been or will be transferred to other IVAX
manufacturing facilities.
OTHER INCOME (EXPENSE)
Interest income increased $6.3 million in 1998, as compared to 1997.
Higher levels of cash on hand due to proceeds received from the divestiture of
certain businesses classified as discontinued operations and the sale of
certain product rights during 1997 accounted for the increase in interest
income. See Note 5, Divestitures, and Note 6, Sale of Product Rights in the
Notes to Consolidated Financial Statements.
Interest expense decreased $7.8 million in 1998, as compared to 1997,
primarily due to the repayment of IVAX's revolving credit facility during the
second quarter of 1997.
Other income, net, was $20.4 million in 1998, compared to $53.4
million in 1997. In the 1997 third quarter, a $43.2 million pre-tax gain was
recognized on the sale of the rights of Elmiron(R) and three other urology
products in the United States and Canada to ALZA. See Note 6, Sale of Product
Rights, in the Notes to Consolidated Financial Statements for further
discussion. At the time of the sale, a reserve of $15.0 million was established
for IVAX's obligations under a research and development cost sharing
arrangement with ALZA related to the sale. On July 24, 1998, IVAX and ALZA
terminated the cost-sharing arrangement and, as a result of this termination,
the reserve of $15.0 million was reversed during the third quarter of 1998,
reflecting an adjustment to increase the previously recognized gain on the sale
of those product rights.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
IVAX reported a net loss of $233.3 million for the year ended December
31, 1997, compared to a net loss of $160.8 million for the year ended December
31, 1996. Loss from continuing operations was $219.5 million for the year ended
December 31, 1997, compared to a loss from continuing operations of $135.0
million for the prior year. Loss from discontinued operations was $8.7 million
for the year ended December 31, 1997, compared to a loss from discontinued
operations of $23.7 million for the prior year. Results for both periods
included a $2.1 million net extraordinary loss relating to the extinguishment
of debt. Results for the year ended December 31, 1997 also included a $2.9
million charge resulting from a cumulative effect of a change in accounting
principle.
Net loss per common share was $1.92 for the year ended December 31,
1997, compared to a net loss of $1.33 for the prior year. Loss per common share
from continuing operations was $1.81 for
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the year ended December 31, 1997, compared to a loss of $1.12 for the prior
year. Loss per common share from discontinued operations was $.07 for the year
ended December 31, 1997, compared to a loss from discontinued operations of
$.19 for the prior year. The net extraordinary losses recorded in both periods
relating to the early extinguishment of debt and the cumulative effect of a
change in accounting principle in 1997 each resulted in a $.02 loss per common
share.
NET REVENUES AND GROSS PROFIT
Net revenues for the year ended December 31, 1997 totaled $594.3
million, a decrease of $64.4 million, or 9.8%, from the $658.7 million reported
in the prior year. An increase of $28.7 million in net revenues of IVAX's
international operations was more than offset by a decrease of $93.1 million in
net revenues of IVAX's domestic operations.
Domestic net revenues totaled $199.2 million for the year ended
December 31, 1997, compared to $292.3 million for 1996. The $93.1 million, or
31.9%, decrease in domestic net revenues was primarily attributable to lower
prices and sales volumes of certain generic pharmaceutical products. This
decline was partially offset by lower sales returns and allowances as well as
net revenues generated by certain new generic pharmaceutical products
manufactured by IVAX and introduced into the market during 1997.
During 1997 and 1996, IVAX's United States generic pharmaceutical
operations recorded provisions for sales returns and allowances which reduced
gross sales by $217.9 million and $281.1 million, respectively. The decline in
sales returns and allowances during the year ended December 31, 1997 compared
to the same period of the prior year was primarily due to unusually high
provisions for these items during 1996. The factors contributing to the
unusually high provisions in 1996 are discussed in "Results of Operations -
Overview".
IVAX's international operations generated net revenues of $395.1
million for the year ended December 31, 1997, compared to $366.4 million for
1996. The $28.7 million, or 7.8%, increase in international net revenues was
primarily due to increased sales volumes of generic pharmaceutical products
and, to a lesser extent, the favorable impact of foreign currency fluctuations.
These increases were partially offset by lower fees from a license agreement
relating to IVAX's breath-operated inhaler device.
Gross profit for the year ended December 31, 1997 decreased $47.7
million, or 29%, from the prior year. Gross profit was $114.3 million (19.2% of
net revenues) for the year ended December 31, 1997, compared to $162.0 million
(24.6% of net revenues) for the year ended December 31, 1996. The decrease in
gross profit percentage is primarily due to price declines and unfavorable
product mix for both the United States generic pharmaceutical and international
operations. These decreases were partially offset by lower sales returns and
allowances at IVAX's United States generic pharmaceutical operations.
OPERATING EXPENSES
Selling expenses totaled $100.2 million (16.9% of net revenues) in
1997, compared to $98.8 million (15.0% of net revenues) in 1996, an increase of
$1.4 million. The increase was primarily attributable to additional sales force
and promotional costs related to IVAX's international operations. These
increases were partially offset by a decrease in selling expenses of the United
States generic
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pharmaceutical operations as a result of fewer product promotions and
reductions in sales and marketing personnel.
General and administrative expenses totaled $116.2 million (19.6% of
net revenues) in 1997, compared to $111.1 million (16.9% of net revenues) in
1996, an increase of $5.1 million. The increase is primarily attributable to an
increase in salary costs, legal expenses and settlement costs, and consulting
fees related to Year 2000 compliance (see "Liquidity and Capital Resources").
These increases were partially offset by lower bad debt provisions at IVAX's
United States generic pharmaceutical operations which were unusually high in
the comparable period of the prior year as a result of the 1996 bankruptcy of a
wholesaler customer.
Research and development expenses in 1997 increased 3.2% compared to
1996, to a total of $53.4 million (9.0% of net revenues). The future level of
research and development expenditures will depend on, among other things, the
outcome of clinical testing of products under development, delays or changes in
government required testing and approval procedures, technological and
competitive developments, strategic marketing decisions and liquidity.
During 1997 and 1996, IVAX recorded restructuring costs and asset
write-downs of $38.1 million and $69.1 million, respectively. During 1996, IVAX
instituted a restructuring program aimed at reducing costs and enhancing
operating efficiency at its United States generic pharmaceutical operations.
The restructuring program primarily involved facility consolidations, workforce
reductions and other cost saving measures. As a result, during 1996, IVAX
recorded a pre-tax charge of $13.2 million ($7.9 million after-tax) associated
with the United States generic pharmaceutical operations comprised of $2.3
million for severance and other employee termination benefits; $3.0 million for
plant closure and related costs; and $7.9 million to reduce the carrying value
of facilities to be closed and held for sale to their estimated fair market
value. The employee termination benefits during 1996 primarily represent
severance pay and other benefits associated with the elimination of
approximately 358 employee positions in the manufacturing, sales and marketing
and research and development areas of IVAX's United States generic
pharmaceutical operations.
Also during 1996, IVAX management reevaluated the carrying value of
goodwill related to those assets held and used in IVAX's United States generic
pharmaceutical operations. This reevaluation was necessitated by management's
determination that the expected future results of operations and cash flows
from that business would be substantially lower than previously expected. As a
result, IVAX recorded a charge of $55.9 million (pre- and after-tax) to reduce
the carrying value of goodwill related to those operations. The write-down
reduced amortization expense by approximately $1.6 million annually. See Note
7, Discontinued Operations, in the Notes to Consolidated Financial Statements
for a discussion of asset write-downs of the specialty chemicals business.
During 1997, IVAX continued its ongoing efforts to reduce costs and
enhance operating efficiency by initiating further restructuring programs
primarily at its corporate headquarters and United States generic
pharmaceutical operations. As a result, during 1997, IVAX recorded a pre-tax
charge of $14.3 million ($14.0 million after-tax) comprised of $5.1 million for
severance and other employee termination benefits and $9.2 million for certain
costs associated primarily with further manufacturing facility closures and
additional costs associated with facilities held for sale in connection with
the 1996 restructuring program. The employee termination benefits during 1997
primarily represent severance pay and other benefits associated with the
elimination of approximately 275 employee positions at IVAX's corporate
headquarters and throughout all functions of IVAX's United States generic
pharmaceutical operations. In addition, IVAX recorded a charge of $23.8 million
(pre-
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and after-tax) to reduce the carrying value of certain assets to their
estimated fair market value in conjunction with these initiatives.
The $2.3 million and $.6 million of merger expenses incurred in 1997
and 1996, respectively, were primarily related to a proposed merger with Bergen
Brunswig Corporation ("Bergen"), which was terminated in March 1997.
OTHER INCOME (EXPENSE)
Interest income increased $4.6 million in 1997, as compared to 1996,
primarily due to higher levels of cash on hand resulting from the proceeds
received from the divestiture of certain businesses classified as discontinued
operations and the sale of certain product rights. See Note 5, Divestitures,
and Note 6, Sale of Product Rights, in the Notes to Consolidated Financial
Statements for further discussion.
Interest expense decreased $1.3 million in 1997, as compared to 1996,
primarily due to the repayment of IVAX's revolving credit facility. See Note 9,
Debt, in the Notes to Consolidated Financial Statements for further discussion.
Other income, net increased $46.7 million in 1997, as compared to
1996, primarily due to the $43.2 million pre-tax gain on the sale of the rights
to Elmiron(R) and three other urology products in the 1997 third quarter. See
Note 6, Sale of Product Rights, in the Notes to Consolidated Financial
Statements for further discussion.
DISCONTINUED OPERATIONS
Discontinued operations, net of taxes for 1998 includes the results of
operations of the personal care products business (through its sale in July
1998) and the vacuum pump fluids segment of specialty chemical business (through
its sale in February 1998). The personal care products business had break-even
operations during 1998. Income (loss) from discontinued operations totaled $48.9
million, $(8.7) million and $(23.7) million for the years ended December 31,
1998, 1997 and 1996, respectively. The third quarter of 1996 included charges of
$9.8 million ($6.2 million after-tax) and $38.7 million (pre- and after-tax) to
reduce the carrying value of certain fixed assets and goodwill, respectively,
related to certain segments of the specialty chemicals business. The year ended
December 31, 1997 included a net gain on sales of the intravenous products and
specialty chemicals businesses of $12.6 million. The year ended December 31,
1998 included a net gain on the divestiture of the personal care products
business of $48.9 million. Losses incurred on the sales and operations of the
vacuum pump fluids segment were charged against previously established reserves.
IVAX has completed the divestiture of its businesses classified as discontinued
operations. See Note 5, Divestitures and Note 7, Discontinued Operations, in the
Notes to Consolidated Financial Statements for further information.
CURRENCY FLUCTUATIONS
For 1998, 1997 and 1996, approximately 54%, 67% and 56%, respectively,
of IVAX's net revenues were attributable to operations which principally
generated revenues in currencies other than the United States dollar.
Fluctuations in the value of foreign currencies relative to the United States
dollar impact the reported results of operations for IVAX. If the United States
dollar weakens relative to the foreign currency, the earnings generated in the
foreign currency will, in effect, increase when converted
10
13
into United States dollars and vice versa. Although IVAX does not speculate in
the foreign exchange market, it does from time to time manage exposures that
arise in the normal course of business related to fluctuations in foreign
currency exchange rates by entering into offsetting positions through the use
of foreign exchange forward contracts. At December 31, 1998, no IVAX
subsidiaries were domiciled in highly inflationary environments. As a result of
exchange rate differences, net revenues decreased by $.2 million in 1998 as
compared to 1997, and increased by $1.1 million in 1997 as compared to 1996.
INCOME TAXES
IVAX's effective tax rate was 29%, (39%) and 29% in 1998, 1997 and
1996, respectively. IVAX's effective tax rate in 1997 was negative primarily
due to an increase in its tax provision for the establishment of a valuation
allowance on deferred tax assets of $114.7 million at a time when domestic
operations had significant losses. The establishment of this valuation
allowance in 1997 generated domestic deferred tax expense of $50.1 million,
despite the fact that IVAX's domestic operations generated losses.
At December 31, 1998, IVAX had substantial net operating loss and
credit carryforwards, some of which are subject to certain limitations. See
Note 10, Income Taxes, in the Notes to Consolidated Financial Statements for
further information.
IVAX's future effective tax rate will depend on the mix between
foreign and domestic taxable income or losses, the statutory tax rates of the
related tax jurisdictions, and the timing of the release, if any, of the
domestic valuation allowance. The mix between IVAX's foreign and domestic
taxable income may be significantly affected by the jurisdictions in which new
products are developed and manufactured.
As a result of establishing the valuation allowance discussed above,
the domestic deferred tax asset is fully reserved as of December 31, 1998.
Management expects that it will continue to maintain valuation allowances
related to any future deferred tax assets generated from its domestic
operations until such time as sustainable domestic taxable income is achieved.
At December 31, 1998, other current assets, other assets, and other
long-term liabilities include a $14.6 million net deferred tax asset, which
relates to foreign operations. Realization of this asset is dependent upon
generating sufficient future foreign taxable income. Although realization is
not assured, management believes it is more likely than not that the remaining
foreign net deferred tax asset will be realized based upon estimated future
taxable income of IVAX's foreign operations and, accordingly, no valuation
allowances for this asset were deemed necessary at December 31, 1998.
Management's estimates of future taxable income are subject to revision due to,
among other things, regulatory and competitive factors affecting the
pharmaceutical industries in the markets in which IVAX operates. Such factors
are discussed in the "Results of Operations - Overview" and elsewhere in this
report.
IVAX has historically received a United States tax credit under
Section 936 of the Internal Revenue Code for certain income generated by its
Puerto Rico and Virgin Islands operations. For 1998, 1997 and 1996, this credit
was approximately $ -0-, $1.5 million, and $5.7 million, respectively, and
completely offset the entire United States tax liability of such operations.
The Section 936 tax credit will be phased out over 5 years beginning in 2001.
11
14
YEAR 2000 UPDATE
IVAX believes that its global Year 2000 project is proceeding on
schedule. The project is addressing the issue of certain computer programs and
embedded chips being unable to distinguish between the years 1900 and 2000. The
project addresses risks related to information technology ("IT") systems, such
as computer equipment and software, as well as non-IT systems, such as
communication systems, alarm and security systems, manufacturing and
distribution equipment and control systems, and laboratory testing and
environmental control equipment and systems.
STATUS
IVAX initiated its Year 2000 project in 1997 and engaged an
independent consulting company to assist in coordinating its Year 2000 project.
The initial inventory, assessment and prioritization and planning phases were
completed by January 1998 and remediation and testing phases for both IT and
non-IT systems are well underway. Utilizing internal and external resources to
complete the remediation and testing of internal systems, IVAX anticipates that
such efforts will be completed by mid-1999. IVAX has determined that a portion
of its operating systems and equipment require modification or replacement to
ensure that they will be Year 2000 compliant and has accelerated the
implementation of new IT systems at two subsidiaries due to the Year 2000
issue. Implementation of the new IT systems is expected to mediate the majority
of the internal Year 2000 IT issues at these subsidiaries. None of IVAX's other
IT projects have been materially delayed or impacted due to the implementation
of the Year 2000 Project.
IVAX has commenced efforts to determine the extent to which it may be
impacted by Year 2000 issues of third parties, including suppliers, customers,
service providers and certain agencies and regulatory organizations. Contact
with major third parties has been initiated and follow-up activities are
planned where responses have not been received or risks have been identified.
IVAX estimates that the process of identifying and evaluating third-party risks
is 50% complete.
COSTS
The estimated total cost of the Year 2000 project, excluding the
direct costs of internal employees working on the project, is $15.0 million. As
of December 31, 1998, IVAX had incurred costs of approximately $6 million
related to this project, including the cost to implement the new IT systems.
The internal direct costs associated with IVAX employees working on the Year
2000 project cannot be quantified. The project is being funded by cash on hand
and from internally generated funds, which IVAX expects to be adequate to
complete the project.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect IVAX's results
of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, IVAX is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on IVAX's results of operations, liquidity or financial
condition. The Year 2000 project is expected to significantly reduce IVAX's
level of uncertainty about Year 2000 problems, including the Year 2000
compliance and readiness of its material third parties. IVAX believes that
completion of the project as scheduled will reduce the possibility of
significant interruptions of normal operations.
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15
In the first quarter of 1999, IVAX started the process of identifying
the most reasonably likely worst-case scenario associated with each of its
mission-critical processes, and developing a contingency plan for dealing with
each such scenario. IVAX currently plans to complete the identification of such
processes and scenarios, develop preliminary contingency plans by June 30,
1999, and then review and test the preliminary plans throughout the remainder
of 1999. IVAX anticipates that any necessary contingency plans will be
finalized by December 31, 1999. Such plans, however, will not guarantee that no
material adverse effects will occur.
The costs of IVAX's Year 2000 project and the dates on which IVAX
believes it will complete the various phases of this project are based upon
management's best estimates, which were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer code and embedded
technology, the performance of new systems and equipment, the reduction of
productivity pending completion of employee training and similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, IVAX's working capital, excluding net assets of
discontinued operations, totaled $269.5 million, compared to $238.9 million and
$415.9 million at December 31, 1997 and 1996, respectively. Cash and cash
equivalents were $208.6 million at December 31, 1998, compared to $199.2
million and $80.8 million at December 31, 1997 and 1996, respectively.
Net cash provided by operating activities during 1998 was $71.6
million compared to $90.8 million in 1997 and net cash used for operating
activities of $13.2 million in 1996. The decrease in cash provided by operating
activites during 1998 compared to 1997 and the increase from 1996 to 1997 was
primarily the result of IVAX receiving a $52.5 million refund of federal income
taxes paid in prior years during 1997, as well as reductions in accounts
receivable and inventory in 1997 mainly resulting from increased cash
collections, lower net revenues and improved inventory management at IVAX's
United States generic pharmaceutical operations. The 1998 net cash provided by
operating activities primarily reflects improved operating results adjusted for
non-cash items.
Net cash of $27.7 million was provided by investing activities in
1998, compared to $372.7 million in 1997 and net cash used for investing
activities of $86.9 million in 1996. The decrease in 1998 as compared to 1997
and the increase in 1997 as compared to 1996 was primarily attributable to cash
proceeds received during 1997 from the sale of the intravenous products
business, a significant portion of the specialty chemicals business, and
certain product rights.
On February 28, 1998, IVAX sold its vacuum pump fluids business, the
only remaining segment of its specialty chemicals business, for $3.9 million.
Effective July 14, 1998, IVAX completed the sale of its personal care products
business for $84.7 million (after certain post-closing adjustments). At closing,
IVAX received $35.0 million in cash and a $50.0 million secured note due
November 30, 1998. On August 27, 1998, IVAX sold the $50.0 million note, without
recourse, for $48.5 million in cash.
13
16
Effective May 30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its
intravenous products business, to B. Braun of America, Inc. ("B. Braun"), a
subsidiary of B. Braun Melsungen AG, for $320.0 million in cash (subject to
certain post-closing adjustments), additional payments of up to $80.0 million
contingent upon the combined operating results of McGaw and B. Braun's
principal United States operating subsidiary, and certain royalties based on
sales of the Duplex(TM) drug delivery system. The Duplex(TM) system, presently
in development by McGaw, is a multi-compartment intravenous drug delivery
system devised for drugs that have limited stability after mixing.
During July and August 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 $41.1 million in cash.
On September 18, 1997, IVAX sold the United States and Canadian
marketing rights to its proprietary drug Elmiron(R) and three additional
urology products to ALZA Corporation ("ALZA"). IVAX retained the rights to
these products outside of the United States and Canada. IVAX received $75
million in up-front payments in 1997 and royalty and milestone payments based
on the achievement of specified sales levels of Elmiron(R) in 1998. IVAX may
receive additional royalty and milestone payments from ALZA based on sales of
the products during the next few years.
In connection with the sale of its intravenous products and specialty
chemicals businesses, as well as certain of its facilities, IVAX has retained
certain contingent liabilities related to, among other things, environmental
and litigation matters. In addition, IVAX has agreed to indemnify the
purchasers of these operations and facilities against losses resulting from
breaches of representations and warranties made by IVAX in the agreements
governing these dispositions, as well as against certain other potential risks
and contingencies. Although IVAX does not expect these indemnification
obligations to materially adversely affect its earnings or operating results,
there can be no assurance that IVAX will not be subject to material
indemnification claims arising out of these transactions.
Cash utilized for capital expenditures was $64.6 million in 1998
compared to $45.7 million and $50.0 million in 1997 and 1996, respectively. The
decrease from 1997 as compared to 1996 was due to spending constraints imposed
by IVAX's revolving credit facility and, after termination of the facility,
further constraints imposed by management.
During 1998, $29.1 million of costs were incurred to complete a new
headquarters at IVAX's United Kingdom pharmaceutical operations allowing
consolidation into one location.
During the second quarter of 1998, IVAX sold its Kirkland, Quebec,
Canada pharmaceutical manufacturing facility (acquired in the first quarter of
1997) and its Syosset, New York pharmaceutical manufacturing facility for a
total of $13.3 million (subject to certain post-closing adjustments). During
the fourth quarter of 1998 IVAX sold its Ft. Lauderdale, Florida office,
packaging and warehouse facility for a total of $5.8 million.
During 1998, IVAX paid $14.6 million to NaPro BioTherapeutics, Inc.
("NaPro") as consideration for a license to NaPro's pending patents for a
paclitaxel formulation in the United States, Europe and certain other world
markets. In connection with the license, IVAX and NaPro terminated their
paclitaxel development and marketing agreement. During the third quarter of
1998, IVAX purchased Immunex's Abbreviated New Drug Application for paclitaxel,
the first filed with the U.S. Food and Drug Administration.
14
17
During the first quarter of 1997, IVAX purchased a pharmaceutical
manufacturing facility in Kirkland, Quebec, Canada for $10.5 million. During
1996 IVAX purchased additional shares of Galena, a.s. for cash of $12.4 million
increasing its ownership interest from 62% to approximately 74%.
Net cash of $88.2 million was used for financing activities in 1998,
compared to net cash used for financing activities of $344.9 million in 1997
and net cash provided by financing activities of $165.4 million in 1996,
respectively, primarily reflecting the payoff of IVAX's revolving credit
facility in June 1997.
On May 14, 1996, IVAX entered into a revolving credit agreement with a
bank syndicate which permitted borrowings of up to $425.0 million. On November
14, 1996, IVAX entered into an amendment to the May 14, 1996 revolving credit
agreement which, among other things, reduced permitted borrowings to $375.0
million and shortened the maturity of the line of credit from May 2001 to
November 1999. During 1996, proceeds from the credit facility were used to
refinance previously existing credit facilities and to make an investment in
and advances to McGaw to permit it to redeem its 10 3/8% Senior Notes due 1999
(the "Senior Notes"), and for working capital and general corporate purposes.
At December 31, 1996, $337.1 million in borrowings were outstanding under this
credit facility.
On June 24, 1997, IVAX utilized a portion of the McGaw sale proceeds
in the amount of $270.1 million to pay off the then outstanding balance of its
revolving credit facility. The facility was terminated in conjunction with the
payment and IVAX recognized a net extraordinary loss of $2.1 million on the
early extinguishment of debt.
In July 1998, IVAX's Board of Directors authorized the repurchase of
$20 million face value of its 6 1/2% Convertible Subordinated Notes. In
December 1998, IVAX's Board of Directors renewed its authorization to purchase
up to $20 million face value of the Notes, which includes the amount remaining
unpurchased from the July authorization. During 1998, IVAX repurchased a total
of $16.0 million face value of its 6 1/2% Convertible Subordinated Notes due
November 2001. An extraordinary gain of $1.1 million was recorded relating to
the repurchase. In the first quarter of 1998, IVAX retired $6.7 million of
industrial revenue bonds that were due 2008. Also during 1998, IVAX's
international subsidiaries repaid $7.0 million of bank debt.
Proceeds from the exercise of stock options totaled $3.0 million in
1998 compared to $.2 million in 1997 and $31.8 million in 1996.
During 1996, IVAX issued 1.5 million shares of its common stock to
acquire Elvetium. See Note 4, Mergers and Acquisitions, in the Notes to
Consolidated Financial Statements for further information concerning these
acquisitions.
During the first half of 1996, IVAX paid total cash dividends of $6.1
million, or $.05 per share, on its common stock. No cash dividends were paid
during 1997 and 1998.
In December 1997, IVAX's Board of Directors approved a share
repurchase program authorizing IVAX to repurchase up to 5 million shares of
IVAX common stock. In December 1998, IVAX's Board of Directors approved an
increase of 7.5 million shares, for a total of 12.5 million shares of IVAX
15
18
common stock that may be repurchased. Through December 31, 1998, IVAX
repurchased 7.1 million shares of common stock at a total cost, including
commissions, of $65.9 million.
During 1996, McGaw repurchased the remaining face value of the Senior
Notes at a purchase price of 102% of the outstanding principal amount of $87.6
million, plus accrued and unpaid interest, using proceeds from the May 14, 1996
credit facility contributed to McGaw by IVAX. Cash flows related to the
redemption of the Senior Notes are included in "Net financing activities of
discontinued operations" in the Consolidated Statements of Cash Flows included
in the Consolidated Financial Statements.
IVAX plans to spend substantial amounts of capital in 1999 to continue
the research and development of pharmaceutical products. Although research and
development expenditures are expected to be between $55 million and $65 million
during 1999, actual expenditures will depend on, among other things, the
outcome of clinical testing of products under development, delays or changes in
government required testing and approval procedures, technological and
competitive developments, strategic marketing decisions and liquidity. In
addition, IVAX plans to spend between $45 million and $50 million in 1999 to
improve and expand its pharmaceutical and other related facilities.
IVAX's principal sources of short term liquidity are existing cash and
internally generated funds, which IVAX believes will be sufficient to meet its
operating needs and anticipated capital expenditures over the short term. For
the long term, IVAX intends to utilize principally internally generated funds,
which are anticipated to be derived primarily from the sale of existing
pharmaceutical products and pharmaceutical products currently under
development. There can be no assurance 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. In addition, the 6 1/2% Notes are scheduled to mature in November
2001. To the extent that capital requirements exceed available capital or that
IVAX is required to refinance the 6 1/2% Notes, IVAX will need to seek
alternative sources of financing to fund its operations. IVAX has no existing
credit facility and no assurance can be given that alternative financing will
be available, if at all, in a timely manner, on favorable terms. If IVAX is
unable to obtain satisfactory alternative financing, IVAX may be required to
delay or reduce its proposed expenditures, including expenditures for research
and development, or sell additional assets in order to meet its future
obligations.
RISK OF PRODUCT LIABILITY CLAIMS
Testing, manufacturing and marketing pharmaceutical products subjects
IVAX to the risk of product liability claims. IVAX is a defendant in a number
of product liability cases, none of which IVAX believes will have a material
adverse effect on IVAX's business, financial condition or results of
operations. IVAX believes that it maintains an adequate amount of product
liability insurance, but there can be no assurance that its insurance will
cover all existing and future claims or that IVAX will be able to maintain
existing coverage or obtain additional coverage at reasonable rates. There can
be no assurance that claims arising under any pending or future product
liability cases, whether or not covered by insurance, will not have a material
adverse effect on IVAX's business, financial condition or results of
operations.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IVAX does not believe that it has material exposure to market rate
risk. IVAX's only material debt obligation relates to the 6 1/2% Notes, which
bear a fixed rate of interest. As noted above, IVAX may, however, require
additional financing to fund future obligations and no assurance can be given
that the terms of future sources of financing will not expose IVAX to material
market rate risk. IVAX does from time to time manage exposures that arise in
the normal course of business related to fluctuations in foreign currency rates
by entering into foreign exchange contracts. IVAX enters into these contracts
with counterparties that it believes to be creditworthy and does not enter into
any leveraged derivative transactions. IVAX does not believe that it has
material market rate risk associated with its foreign exchange forward
contracts due to the short term nature of the contracts and the notional
amounts outstanding. Information about IVAX's market sensitive instruments
constitutes a "forward-looking statement".
EURO
On January 1, 1999, certain member countries of the European Union
established a new common currency, the euro. Also on January 1, 1999, the
participating countries fixed the rate of exchange between their existing
legacy currencies and the euro. The new euro currency will eventually replace
the legacy currencies currently in use in each of the participating countries.
Euro bills and coins will not be issued until January 1, 2002.
Companies operating within the participating countries may, at their
discretion, choose to operate in either legacy currencies or the euro until
January 1, 2002. The Company expects its affected subsidiaries to continue to
operate in their respective legacy currencies for at least two years. The
Company can, however, accommodate transactions for customers and suppliers
operating in either legacy currency or euros.
The Company believes that the creation of the euro will not
significantly change its market risk with respect to foreign exchange. Having a
common European currency may result in certain changes to competitive
practices, product pricing and marketing strategies. Although we are unable to
quantify these effects, if any, management at this time does not believe the
creation of the euro will have a material effect on the Company.
17
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF IVAX CORPORATION:
We have audited the accompanying consolidated balance sheets of IVAX
Corporation, a Florida corporation, and subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IVAX Corporation
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 26, 1999 (except with respect to
matters discussed in Note 16, as to
which the date is March 19, 1999)
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21
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 208,593 $ 199,235
Accounts receivable, net of allowances for doubtful
accounts of $22,834 ($19,226 in 1997) 109,732 104,994
Inventories 135,324 145,716
Net assets of discontinued operations -- 37,820
Other current assets 33,143 22,939
------------- --------------
Total current assets 486,792 510,704
Property, plant and equipment, net 210,228 193,741
Intangible assets, net 56,150 39,458
Other assets 24,845 46,833
------------- --------------
Total assets $ 778,015 $ 790,736
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 1,229 $ 4,025
Current portion of long-term debt 890 7,858
Accounts payable 48,614 42,578
Accrued income taxes payable 5,082 9,126
Accrued expenses and other current liabilities 161,466 170,379
------------- --------------
Total current liabilities 217,281 233,966
Long-term debt, net of current portion 77,776 94,193
Other long-term liabilities 12,617 12,600
Minority interest 17,133 14,938
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 114,835 shares (121,518 in 1997) 11,484 12,152
Capital in excess of par value 453,293 515,234
Accumulated deficit (700) (72,294)
Accumulated other comprehensive loss (10,869) (20,053)
------------- --------------
Total shareholders' equity 453,208 435,039
------------- --------------
Total liabilities and shareholders' equity $ 778,015 $ 790,736
============= ==============
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
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22
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
NET REVENUES $ 637,923 $ 594,286 $ 658,745
COST OF SALES 396,752 479,982 496,776
------------- ------------- -------------
Gross profit 241,171 114,304 161,969
------------- ------------- -------------
OPERATING EXPENSES:
Selling 79,508 100,220 98,770
General and administrative 88,434 116,185 111,122
Research and development 48,615 53,409 51,729
Amortization of intangible assets 3,673 3,760 4,594
Restructuring costs and asset write-downs 12,222 38,088 69,073
Merger expenses -- 2,343 557
------------- ------------- -------------
Total operating expenses 232,452 314,005 335,845
------------- ------------- -------------
Income (loss) from operations 8,719 (199,701) (173,876)
OTHER INCOME (EXPENSE):
Interest income 11,972 5,738 1,126
Interest expense (6,857) (14,685) (15,996)
Other income, net 20,427 53,366 6,623
------------- ------------- -------------
Total other income (expense) 25,542 44,419 (8,247)
------------- ------------- --------------
Income (loss) from continuing operations before income
taxes and minority interest 34,261 (155,282) (182,123)
PROVISION (BENEFIT) FOR INCOME TAXES 10,047 60,166 (52,488)
------------- ------------- --------------
Income (loss) from continuing operations before minority
interest 24,214 (215,448) (129,635)
MINORITY INTEREST 403 (4,086) (5,354)
------------- ------------- -------------
Income (loss) from continuing operations 24,617 (219,534) (134,989)
DISCONTINUED OPERATIONS, NET OF TAXES 48,904 (8,701) (23,690)
------------- ------------- --------------
Income (loss) before extraordinary item and cumulative effect
of a change in accounting principle 73,521 (228,235) (158,679)
EXTRAORDINARY ITEM:
Gains (losses) on extinguishment of debt, net of a tax
benefit of $1,382 in 1996 1,121 (2,137) (2,073)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, net of a tax benefit of $1,295 in 1997 (3,048) (2,882) --
------------- ------------- -------------
NET INCOME (LOSS) $ 71,594 $ (233,254) $ (160,752)
============= ============= ==============
(Continued)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
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23
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Continued)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
BASIC AND DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
Continuing operations $ .21 $ (1.81) $ (1.12)
Discontinued operations .41 (.07) (.19)
Extraordinary items .01 (.02) (.02)
Cumulative effect of a change in accounting principle (.03) (.02) --
------------- ------------ --------------
Net earnings (loss) $ .60 $ (1.92) $ (1.33)
============== ============ =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 119,116 121,496 120,949
============== ============= ==============
Diluted 119,264 121,496 120,949
============== ============= ==============
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
21
24
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
COMMON STOCK RETAINED ACCUMULATED
--------------------- CAPITAL IN EARNINGS OTHER
NUMBER EXCESS OF (ACCUMULATED COMPREHENSIVE
OF SHARES AMOUNT PAR VALUE DEFICIT) INCOME (LOSS) TOTAL
--------- ------ ----------- ----------- -------------- ----------
BALANCE, January 1, 1996 118,026 $ 11,803 $ 461,603 $ 322,117 $ (6,351) $ 789,172
Comprehensive loss:
Net loss -- -- -- (160,752) -- (160,752)
Translation adjustment -- -- -- -- 12,840 12,840
Unrealized net gain on
available-for-sale equity
securities -- -- -- -- 461 461
Comprehensive Loss (147,451)
Issuances of common stock:
Exercise of stock options 1,881 188 31,651 -- -- 31,839
Contribution to 401(k) plan 78 8 2,078 -- -- 2,086
Acquisition accounted for
under the pooling of interests
method of accounting 1,491 149 (46) 5,652 -- 5,755
Effect of tax deductions received
from the exercise of stock options -- -- 19,784 -- -- 19,784
Cash dividends paid -- -- -- (6,057) -- (6,057)
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1996 121,476 12,148 515,070 160,960 6,950 695,128
Comprehensive loss:
Net loss -- -- -- (233,254) -- (233,254)
Translation adjustment -- -- -- -- (20,773) (20,773)
Unrealized net loss on
available-for-sale equity
securities -- -- -- -- (6,230) (6,230)
Comprehensive loss (260,257)
Issuances of common stock:
Exercise of stock options 42 4 148 -- -- 152
Effect of tax deductions
received from the exercise
of stock options -- -- 16 -- -- 16
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1997 121,518 12,152 515,234 (72,294) (20,053) 435,039
Comprehensive income:
Net income -- -- -- 71,594 -- 71,594
Translation adjustment -- -- -- -- 8,225 8,225
Unrealized net gain on
available-for-sale equity
securities -- -- -- -- 959 959
Comprehensive income 80,778
Issuances of common stock:
Exercise of stock options 397 40 2,918 -- -- 2,958
Repurchase of common stock (7,080) (708) (65,223) -- -- (65,931)
Value of stock options issued
to non-employees -- -- 364 -- -- 364
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1998 114,835 $ 11,484 $ 453,293 $ (700) $ (10,869) $ 453,208
========= ========= ========= ========= ========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
22
25
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ 71,594 $ (233,254) $ (160,752)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Restructuring costs and asset write-downs 12,222 38,088 69,073
Depreciation and amortization 32,552 38,462 32,371
Deferred tax provision (benefit) 3,623 50,194 (50,243)
Provision for allowances for doubtful accounts 7,650 8,973 30,737
Minority interest (403) 4,086 5,354
Gain on sale of product rights (15,000) (43,224) --
Losses (gains) on disposal of assets, net 844 2,861 (3,969)
Losses (gains) on extinguishment of debt (1,121) 2,137 1,640
Cumulative effect of a change in accounting principle 3,048 4,177 --
Loss (income) from discontinued operations (48,904) 8,701 23,690
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (9,586) 75,783 80,184
Decrease (increase) in inventories 13,699 50,294 (28,947)
Decrease (increase) in other current assets (10,567) 51,583 (21,918)
Decrease (increase) in other assets 8,000 (5,603) (4,230)
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities (2,867) 21,954 (1,579)
Increase (decrease) in other long-term liabilities 907 (292) 2,864
Other, net 891 (998) (1,753)
Net cash provided by operating activities of
discontinued operations 5,028 16,876 14,277
--------- ----------- ----------
Net cash provided by (used for) operating activities 71,610 90,798 (13,201)
--------- ----------- ----------
Cash flows from investing activities:
Proceeds from divestitures 87,885 361,105 --
Proceeds from sale of product rights -- 75,000 --
Capital expenditures (64,622) (45,741) (49,982)
Proceeds from sales of assets 22,159 8,757 9,470
Acquisitions of patents, trademarks, licenses and other intangibles (17,543) (1,710) (1,848)
Acquisitions of businesses and facilities, net of cash acquired -- (10,500) (12,006)
Net investing activities of discontinued operations (202) (14,186) (32,579)
--------- ----------- ----------
Net cash provided by (used for) investing activities 27,677 372,725 (86,945)
--------- ----------- ----------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 3,895 47,989 600,371
Payments on long-term debt and loans payable (29,152) (392,914) (373,293)
Issuance of common stock 2,958 152 31,839
Cash dividends paid -- -- (6,057)
Repurchases of common stock (65,931) -- --
Net financing activities of discontinued operations 10 (92) (87,473)
--------- ----------- ----------
Net cash (used for) provided by financing activities (88,220) (344,865) 165,387
--------- ----------- ----------
Effect of exchange rate changes on cash (1,709) (229) 845
--------- ----------- ----------
Net increase in cash and cash equivalents 9,358 118,429 66,086
Cash and cash equivalents at the beginning of the year 199,235 80,806 14,720
--------- ----------- ----------
Cash and cash equivalents at the end of the year $ 208,593 $ 199,235 $ 80,806
========== =========== ==========
(Continued)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
23
26
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
Supplemental disclosures:
Interest paid $ 6,628 $ 21,313 $ 21,172
============== ============= ==============
Income tax payments (refunds) $ 16,196 $ (42,683) $ 12,870
============== ============== ==============
Supplemental schedule of non-cash investing and financing activities:
Information with respect to IVAX's 1996 acquisition which was accounted
for under the purchase method of accounting is summarized as follows:
1996
--------------
Fair value of assets acquired $ --
Liabilities assumed --
--------------
--
Reduction of minority interest (5,219)
--------------
5,219
==============
Purchase price:
Cash (including related acquisition costs) 12,362
--------------
Cost in excess of net assets of acquired companies $ 7,143
==============
During the year ended December 31, 1996, contributions to the 401(k)
retirement plan resulted in the issuance of 78 shares of IVAX common stock
totaling $2,086.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
24
27
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Financial amounts in thousands, except per share data)
(1) ORGANIZATION:
IVAX Corporation is a holding company with subsidiaries engaged
primarily in the research, development, manufacture and marketing of branded
and generic pharmaceuticals. These products are sold primarily to customers
within the United States and the United Kingdom. All references to "IVAX" mean
IVAX Corporation and its subsidiaries unless otherwise required by the context.
IVAX's future revenues and profitability are largely dependent upon
its ability to continue to develop, obtain approval for, efficiently
manufacture and market commercially-viable pharmaceutical products. Revenues
and profits derived from generic pharmaceuticals, which presently constitute
IVAX's principal business, may vary significantly from period to period, as
well as in comparison to corresponding prior periods, as a result of regulatory
and competitive factors unique to the generic pharmaceutical industry. Such
factors include, among other things, the timing of new generic drug approvals
received by IVAX, the number and timing of generic drug approvals for competing
products, the timing of IVAX's initial shipments of newly approved generic
drugs, strategies adopted by brand-name companies to maintain market share, and
IVAX's cost of manufacturing. Certain raw materials and components used in the
manufacture of IVAX's products are available from limited sources, and in some
cases, a single source. In addition, because raw material sources for
pharmaceutical products must generally be approved by regulatory authorities,
changes in raw material suppliers could result in delays in production, higher
raw material costs and loss of sales and customers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of IVAX Corporation and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Investments in affiliates representing 20% to 50% ownership
interests are recorded under the equity method of accounting. Investments in
affiliates representing less than 20% ownership interests are recorded at cost.
The minority interest held by third parties in a majority owned subsidiary is
separately stated. Certain amounts presented in the accompanying consolidated
financial statements for prior periods have been reclassified to conform to the
current period's presentation.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. IVAX's actual results in subsequent periods may
differ from the estimates and assumptions used in the preparation of the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS - IVAX considers all investments with a
maturity of three months or less as of the date of purchase to be cash
equivalents.
25
28
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market. Components of inventory cost include materials, labor and
manufacturing overhead. In evaluating whether inventory is stated at the lower
of cost or market, management considers such factors as the amount of inventory
on hand, estimated time required to sell such inventory, remaining shelf life
and current market conditions. Reserves are provided as appropriate.
Inventories consist of the following:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
Raw materials $ 47,528 $ 49,227
Work-in-process 27,878 25,386
Finished goods 59,918 71,103
------------- --------------
$ 135,324 $ 145,716
============= ==============
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
carried at cost less accumulated depreciation and amortization and consist of
the following:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
Land $ 9,816 $ 10,932
Buildings and improvements 148,182 116,978
Machinery and equipment 154,141 152,396
Furniture and computer equipment 51,691 55,881
------------- --------------
363,830 336,187
Less: Accumulated depreciation
and amortization 153,602 142,446
------------- --------------
$ 210,228 $ 193,741
============= ==============
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows: buildings and improvements
(10-50 years), machinery and equipment (3-15 years) and furniture and computer
equipment (2-10 years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or their estimated useful
lives. Costs of major additions and improvements are capitalized and
expenditures for maintenance and repairs which do not extend the life of the
assets are expensed. Upon sale or disposition of property, plant and equipment,
the cost and related accumulated depreciation or amortization are eliminated
from the accounts and any resulting gain or loss is credited or charged to
operations.
INTANGIBLE ASSETS - Intangible assets are carried at cost less
accumulated amortization and consist of the following:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
Cost in excess of net assets of acquired companies $ 15,492 $ 15,343
Patents, trademarks, licenses and other intangibles 61,946 41,226
------------- --------------
77,438 56,569
Less: Accumulated amortization 21,288 17,111
------------- --------------
$ 56,150 $ 39,458
============= ==============
26
29
Cost in excess of net assets of acquired companies is amortized using
the straight-line method over periods not exceeding 40 years. Patents,
trademarks, licenses and other intangibles are amortized using the
straight-line method over their respective estimated lives (ranging from 4-25
years). During 1998, IVAX paid $14,565, consisting of $12,448 in cash and
$2,117 investment in common stock and a note receivable, for a patent license
for a paclitaxel formulation in the United States, Europe and certain other
world markets and also acquired an Abbreviated New Drug Application for
paclitaxel.
Following any acquisition, IVAX continually evaluates whether later
events and circumstances have occurred that indicate that the remaining
estimated useful life of intangible assets may require revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate
that an asset acquired in a purchase business combination and related goodwill
may be impaired, IVAX uses various methods to estimate the asset's future cash
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is recognized based
on the excess of the carrying amount over the estimated fair value of the
asset. Any impairment amount is charged to operations (See Note 3,
Restructuring Costs and Asset Write-Downs).
LONG-LIVED ASSETS - On January 1, 1996, IVAX adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Adoption did
not have a material effect on the consolidated financial statements (See Note
3, Restructuring Costs and Asset Write-Downs).
FOREIGN CURRENCIES - IVAX's operations include subsidiaries which are
located outside of the United States. Assets and liabilities as stated in the
local reporting currency are translated at the rate of exchange prevailing at
the balance sheet date. The gains or losses that result from this process are
shown in the "Accumulated Other Comprehensive Income (Loss)" caption in the
shareholders' equity section of the accompanying consolidated balance sheets.
Statement of operations amounts are translated at the average rates for the
period.
FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, accounts receivable, loans payable, accounts payable and accrued
income taxes payable approximate fair value due to the short maturity of the
instruments and reserves for potential losses, as applicable. The disclosed
fair value of other assets and long-term debt is estimated using quoted market
prices, whenever available, or an appropriate valuation method (See Note 8,
Investments In and Advances to Unconsolidated Affiliates, and Note 9, Debt).
IVAX does not speculate in the foreign exchange market. IVAX may,
however, from time to time manage exposures that arise in the normal course of
business related to fluctuations in foreign currency rates by entering into
foreign exchange forward contracts. IVAX enters into these contracts with
counterparties that it believes to be creditworthy and does not enter into any
leveraged derivative transactions. Gains and losses on these contracts are
included in the consolidated statements of operations as they arise. Costs
associated with entering into these contracts are amortized over the contracts'
lives, which typically are less than one year. IVAX held foreign exchange
forward contracts with notional principal amounts of $22,499 at December 31,
1998, which mature January 1999 through September 1999, and $2,870 at December
31, 1997, which matured in January 1998 through May 1998.
In addition, IVAX has intercompany balances that are denominated in
foreign currencies. A portion of these balances are hedged, from time to time,
using foreign exchange forward contracts, and
27
30
gains and losses on these contracts are included in the consolidated statements
of operations as they arise. For the year ended December 31, 1998, IVAX
recorded a foreign exchange gain of $2,639. There were no material intercompany
foreign exchange gains or losses in 1997 and 1996. IVAX Corporation, the parent
company, itself did not hold foreign exchange forward contracts at December 31,
1998 and 1997.
REVENUE RECOGNITION - Revenues and the related cost of sales are
recognized at the time product is shipped. Net revenues are comprised of gross
revenues less provisions for expected customer returns, inventory credits,
discounts, promotional allowances, volume rebates, chargebacks and other
allowances. These sales provisions totaled $131,273, $228,634 and $291,382 in
the years ended December 31, 1998, 1997 and 1996, respectively. The reserve
balances related to these provisions and included in "Accounts receivable, net
of allowances for doubtful accounts" and "Accrued expenses and other current
liabilities" in the accompanying consolidated balance sheets are $44,997 and
$73,343, respectively, at December 31, 1998, and $53,702 and $56,514,
respectively, at December 31, 1997.
The custom in the pharmaceutical industry is generally to grant
customers the right to return purchased goods. In the generic pharmaceutical
industry, this custom has resulted in a practice of suppliers issuing inventory
credits (also known as shelf-stock adjustments) to customers based on the
customers' existing inventory following decreases in the market price of the
related generic pharmaceutical product. The determination to grant a credit to
a customer following a price decrease is generally at the discretion of IVAX,
and generally not pursuant to contractual arrangements with customers.
Provisions for estimated returns and inventory credits are established
by IVAX concurrently with the recognition of revenue. The provisions are
established in accordance with generally accepted accounting principles based
upon consideration of a variety of factors, including actual return and
inventory credit experience for products during the past several years by
product type, the number and timing of regulatory approvals for the product by
competitors of IVAX, both historical and projected, the market for the product,
estimated customer inventory levels by product and projected economic
conditions. Actual product returns and inventory credits incurred are, however,
dependent upon future events, including price competition and the level of
customer inventories at the time of any price declines. IVAX continually
monitors the factors that influence the pricing of its products and customer
inventory levels and makes adjustments to these provisions when management
believes that actual product returns and inventory credits may differ from
established reserves.
Royalty and licensing fee income are recognized when obligations
associated with earning the royalty or licensing fee have been satisfied and
are included in "Net revenues" in the accompanying consolidated statements of
operations.
RESEARCH AND DEVELOPMENT COSTS - IVAX-sponsored research and
development costs related to future products are expensed currently.
INCOME TAXES - The provision (benefit) for income taxes is based on
the consolidated United States entities' and individual foreign companies'
estimated tax rates for the applicable year. IVAX utilizes the asset and
liability method, and deferred taxes are determined based on the estimated
future tax effects of differences between the financial accounting and tax
bases of assets and liabilities under the applicable tax laws. Deferred income
tax provisions and benefits are based on the changes in the deferred tax asset
or tax liability from period to period. See Note 10, Income Taxes.
28
31
STOCK-BASED COMPENSATION PLANS - In 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 allows either adoption of a fair value method of
accounting for stock-based compensation plans or continuation of accounting
under Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations with supplemental disclosures.
IVAX has chosen to account for all stock-based compensation arrangements under
which employees receive shares of IVAX common stock under APB Opinion No. 25
with related disclosures under SFAS No. 123. Pro forma net earnings (loss) per
common share amounts, as if the fair value method had been adopted, are
presented in Note 12, Shareholders' Equity. The adoption of SFAS No. 123 did
not have a material impact on IVAX's results of operations, financial position
or cash flows.
EARNINGS (LOSS) PER COMMON SHARE - During 1997, IVAX adopted SFAS No.
128, EARNINGS PER SHARE. SFAS No. 128 establishes standards for computing and
presenting basic and diluted earnings (loss) per share. Basic earnings (loss)
per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. In the computation of
diluted earnings (loss) per share, the weighted average number of common shares
outstanding is adjusted for the effect of all dilutive potential common stock.
In computing diluted earnings (loss) per share, IVAX has utilized the treasury
stock method. All prior periods earnings (loss) per share data have been
restated to conform with SFAS No. 128.
For the years ended December 31, 1996 and 1997, there was no
difference between basic and diluted loss per common share. A reconciliation of
the denominator of the basic and diluted earnings per share computation for
income from continuing operations is as follows for the year ended December 31,
1998 (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
Basic weighted average number of shares outstanding 119,116 121,496 120,949
Effect of dilutive securities - stock options 148 -- --
-------------- ------------- --------------
Diluted weighted average number of shares outstanding 119,264 121,496 120,949
============== ============= ==============
Not included in the calculation of diluted earnings
per share because their impact is antidilutive:
Stock options outstanding 4,635 10,057 10,102
Warrants 2,364 2,867 2,867
CHANGE IN ACCOUNTING PRINCIPLE - Emerging Issues Task Force ("EITF")
Abstract No. 97-3 requires that the costs of business process reengineering
activities are to be expensed as incurred. This consensus applies to business
process reengineering activities that are part of an information technology
project. Beginning in 1995, IVAX's wholly-owned subsidiary, Norton Healthcare
Limited ("Norton Healthcare"), initiated an enterprise Business Excellence
program that combines design and installation of business processes and
software packages. Under the Business Excellence initiatives, Norton Healthcare
had capitalized certain external costs associated with business process
reengineering activities as part of the software asset. EITF Abstract No. 97-3
prescribes that previously capitalized business process reengineering costs
should be expensed and reported as a cumulative effect of a change in
accounting principle. Accordingly, for the fourth quarter of 1997, IVAX
reported a charge of $2,882 (net of a tax benefit of $1,295), or $.02 per
share, for the write-off of business process reengineering costs previously
capitalized. Such costs are being expensed as incurred prospectively.
29
32
SOP 98-5, Reporting on the Cost of Start-Up Activities, requires that
costs of start-up activities, as well as organizational costs, be expensed as
incurred. The initial application has been reported by IVAX as a cumulative
effect of a change in accounting principle reflecting a write-off of start-up
costs of $3,048, or $.03 per share, previously capitalized and included in
"Other assets" in the accompanying consolidated balance sheet as of December
31, 1997. The initial application is shown effective January 1, 1998, in
accordance with the provisions of SOP 98-5.
RECENTLY ISSUED ACCOUNTING STANDARDS - IVAX is required to adopt SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, in the
first quarter of 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Management believes that the
adoption of SFAS No. 133 will not have a material impact on IVAX's consolidated
financial statements.
(3) RESTRUCTURING COSTS AND ASSET WRITE-DOWNS:
During 1996, IVAX instituted a restructuring program aimed at reducing
costs and enhancing operating efficiency at its United States generic
pharmaceutical operations. The restructuring program primarily involved
facility consolidations, workforce reductions and other cost saving measures.
As a result, during 1996, IVAX recorded a pre-tax charge of $13,174 associated
with the United States generic pharmaceutical operations comprised of $2,324
for severance and other employee termination benefits; $3,000 for plant closure
and related costs; and $7,850 to reduce the carrying value of facilities to be
closed and held for sale to their estimated fair market value. The employee
termination benefits during 1996 primarily represent severance pay and other
benefits associated with the elimination of approximately 358 employee
positions in the manufacturing, sales and marketing and research and
development areas of IVAX's United States generic pharmaceutical operations.
Also during 1996, IVAX management reevaluated the carrying value of
goodwill related to those assets held and used in IVAX's United States generic
pharmaceutical operations. This reevaluation was necessitated by management's
determination that the expected future results of operations and cash flows
from that business would be substantially lower than previously expected. As a
result, IVAX recorded a charge of $55,899 to reduce the carrying value of
goodwill related to those operations. See Note 7, Discontinued Operations, for
a discussion of asset write-downs of the specialty chemicals business.
During 1997, IVAX continued its ongoing efforts to reduce costs and
enhance operating efficiency by initiating further restructuring programs
primarily at its corporate headquarters and United States generic
pharmaceutical operations. As a result, during 1997, IVAX recorded a pre-tax
charge of $14,274 comprised of $5,094 for severance and other employee
termination benefits and $9,180 for certain costs associated primarily with
further manufacturing facility closures and additional costs associated with
facilities held for sale in connection with the 1996 restructuring program. The
employee termination benefits during 1997 primarily represent severance pay and
other benefits associated with the elimination of approximately 275 employee
positions at IVAX's corporate headquarters and throughout all functions of
IVAX's United States generic pharmaceutical operations. In addition, IVAX
recorded a charge of $23,814 to reduce the carrying value of certain assets to
their estimated fair market value in conjunction with these initiatives.
30
33
During 1998, IVAX continued its ongoing efforts to reduce costs and
enhance operating efficiency by initiating restructuring programs at its United
Kingdom pharmaceutical operations and continuing restructuring of its United
States pharmaceutical operations. During the first quarter of 1998, IVAX
recorded a pre-tax charge of $696 comprised of $481 for severance and other
employee termination benefits and $215 for the write-down of leasehold
improvements associated with the consolidation of certain packaging operations
in the United Kingdom. During the third quarter of 1998, IVAX recorded a
pre-tax charge of $12,866, comprised of $3,167 for severance and other employee
termination benefits, $4,308 associated with lease commitments, and $5,391 in
asset write-downs resulting from management's reevaluation of the carrying
value of certain long-lived assets primarily in conjunction with initiatives to
further consolidate facilities of IVAX's United Kingdom operations. This
restructuring plan will eliminate 360 positions from the workforce throughout
all functions.
Also, during 1998, IVAX recorded a pre-tax charge of $15,647 comprised
of $2,657 for severance and other employee termination benefits, $4,432 for
estimated plant closure costs and $8,558 for asset write-downs resulting from
management's decision to cease manufacturing at its Northvale, New Jersey
pharmaceutical facility and the reevaluation of the carrying value of certain
long-lived assets of IVAX's domestic generic pharmaceutical operations due to
facility consolidation and market conditions. The New Jersey restructuring plan
will eliminate 165 positions. This restructuring and the continued
consolidation of manufacturing is anticipated to generate approximately $3,400
of annual pre-tax cost savings. This impact was offset by the reversal of
$16,987 of previously recorded restructuring reserves, primarily related to two
facilities that were sold in 1998, that ultimately were not needed.
Pursuant to the restructuring programs, during 1998 IVAX sold its Ft.
Lauderdale, Florida office, packaging and warehouse facility, its Syosset, New
York pharmaceutical manufacturing facility, its Kirkland, Quebec, Canada
pharmaceutical manufacturing facility, and its Shreveport, Louisiana
pharmaceutical manufacturing facility and closed two of its London, England
manufacturing facilities. During 1997, IVAX consolidated its United States
pharmaceutical distribution facilities into a single leased distribution center
in Kenton County, Kentucky. IVAX also expects to cease manufacturing at its
Northvale, New Jersey manufacturing facility in 1999. Production from these
facilities has been or will be transferred to other IVAX manufacturing
facilities.
These restructuring costs and asset write-downs are shown as
"Restructuring costs and asset write-downs" in the accompanying consolidated
statements of operations. Management determined the amount of the write-downs
by estimating the fair market value of the impaired assets using various
valuation techniques, including discounted cash flow analysis, independent
appraisals and third party offers.
31
34
The components of the restructuring costs and asset write-downs,
spending and other activity, as well as the remaining reserve balances at
December 31, 1998, 1997 and 1996, which are included in "Property, plant and
equipment, net" and in "Accrued expenses and other current liabilities" in the
accompanying consolidated balance sheets, are as follows:
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 charged 14,164 6,305 8,740 29,209
Reversal 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
============== ============== ============== ===============
(4) MERGERS AND ACQUISITIONS:
On March 1, 1996, IVAX acquired Elvetium S.A. (Argentina), Alet
Laboratorios S.A.E.C.I. y E. and Elvetium S.A. (Uruguay), three affiliated
companies engaged in the manufacture and marketing of pharmaceuticals in
Argentina and Uruguay, in exchange for 1,490,909 shares of IVAX common stock.
Although the acquisition was accounted for using the pooling-of-interests
method of accounting, the acquisition was recorded as of January 1, 1996, and
the accompanying consolidated financial statements have not been restated to
give retroactive effect to the acquisition due to the immateriality of the
related amounts.
In 1996, IVAX increased its ownership interest in Galena to 74% with
additional open market purchases totaling $12,362.
(5) DIVESTITURES:
Effective May 30, 1997, IVAX sold McGaw for $320,000 in cash (subject
to certain post-closing adjustments), additional payments of up to $80,000
contingent upon the combined operating results of McGaw and the buyer's
principal United States operating subsidiary and certain royalties based on
sales of McGaw's Duplex(TM) drug delivery system.
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 $41,105 in cash.
During February 1998, IVAX sold its vacuum pumps fluids business, the only
remaining segment of IVAX's specialty chemicals business, for $3,885 in cash
(subject to certain post-closing adjustments). IVAX retained certain real
estate assets of the specialty chemicals business which are held for sale.
32
35
Effective July 14, 1998, IVAX completed the sale of its personal care
products business for $84,700 (after certain post-closing adjustments). At
closing, IVAX received $35,000 in cash and a $50,000 secured note due November
30, 1998. On August 27, 1998, IVAX sold the $50,000 note, without recourse, for
$48,500 in cash. In addition, IVAX received a note for $2,500, as partial
consideration from the sale of one of the personal care products subsidiaries.
The note is payable at $250 of principal plus interest per quarter. As of
December 31, 1998, $2,250 of the gain on sale related to this note was deferred
and will be recognized as the note is collected.
The gain on sale and results of operations of the intravenous
products, specialty chemicals businesses and personal care products business
were classified as part of discontinued operations for all periods presented
(See Note 7, Discontinued Operations).
(6) SALE OF PRODUCT RIGHTS:
On September 18, 1997, IVAX sold the United States and Canadian
marketing rights to its proprietary drug Elmiron(R) and three additional urology
products to ALZA Corporation ("ALZA"). IVAX retained the rights to these
products outside of the United States and Canada. IVAX received $75 million in
up-front payments in 1997 and royalty and milestone payments based on the
achievement of specified sales levels of Elmiron(R) in 1998. Royalty and
milestone payment receivables from ALZA included in "Other current assets" in
the accompanying consolidated balance sheets totaled $10,005 and $561 at
December 31, 1998 and 1997, respectively. IVAX may receive additional royalty
and milestone payments from ALZA based on sales of the products during the next
few years. Included in "Other income, net" in the accompanying consolidated
statements of operations for the year ended December 31, 1997, is a $43,224 gain
on the sale transaction. The gain is net of $15,000 in reserves provided for a
related research and development cost-sharing arrangement included in "Accrued
expenses and other current liabilities" in the accompanying consolidated balance
sheet as of December 31, 1997, the write-off of $11,774 in certain assets of the
domestic proprietary pharmaceutical operations, $3,000 in payments due to a
third party associated with an existing licensing agreement, and $2,002
primarily in severance and other employee termination benefits associated with
workforce reductions in IVAX's domestic proprietary pharmaceutical operations.
On July 24, 1998, IVAX and ALZA terminated the research and development
cost-sharing arrangement and, as a result of the termination, the reserve of
$15,000 was reversed during the third quarter of 1998, reflecting an adjustment
to increase the previously recognized gain on the sale of those product rights.
33
36
(7) DISCONTINUED OPERATIONS:
During 1997, IVAX's Board of Directors determined to divest its
intravenous products, personal care products and specialty chemicals
businesses. As a result, IVAX classified these businesses as discontinued
operations and has included their results of operations in "Discontinued
operations, net of taxes" in the accompanying consolidated statements of
operations. Results of these operations were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
INTRAVENOUS PRODUCTS (THROUGH MAY 30, 1997)
Net revenues(1) $ -- $ 140,634 $ 343,028
============== ============= ==============
Income from operations before taxes(2) $ -- $ 3,770 $ 13,759
Income tax benefit -- (427) (6,771)
-------------- ------------- --------------
Income from operations $ -- $ 4,197 $ 20,530
-------------- ------------- --------------
PERSONAL CARE PRODUCTS (THROUGH JULY 14, 1998)
Net revenues (1) $ 42,583 $ 73,870 $ 80,000
============== ============= ==============
Income (loss) from operations before taxes(2) $ -- $ (18,254) $ 6,089
Income tax provision -- 3,283 1,686
-------------- ------------- --------------
Income (loss) from operations $ -- $ (21,537) $ 4,403
-------------- ------------- --------------
SPECIALTY CHEMICALS(3)
Net revenues(1) $ 850 $ 41,562 $ 67,857
============== ============= ==============
Loss from operations before taxes(2) $ -- $ (1,749) $ (53,274)
Income tax provision (benefit) -- 2,235 (4,651)
-------------- ------------- --------------
Loss from operations $ -- $ (3,984) $ (48,623)
-------------- ------------- --------------
Sub-total income (loss) from operations $ -- $ (21,324) $ (23,690)
-------------- ------------- --------------
DIVESTITURES (SEE NOTE 5)
Pre-tax gain on divestitures $ 48,904 $ 44,715 $ --
Income tax provision -- 32,092 --
-------------- ------------- --------------
Net gain on divestitures $ 48,904 $ 12,623 $ --
-------------- ------------- --------------
Total income (loss) from discontinued operations $ 48,904 $ (8,701) $ (23,690)
============== ============= ==============
- ----------------------
(1) Net revenues include intersegment sales of $14, $569 and $2,165 for 1998,
1997 and 1996, respectively.
(2) Includes an allocation of interest expense of $(232), $5,799 and $6,556
for 1998, 1997 and 1996, respectively, based on the ratio of net assets of
each of the discontinued businesses to IVAX's consolidated total capital.
(3) Includes results of operations of a significant portion of the specialty
chemical business through its sale during the third quarter of 1997 and
the results of operations of the vacuum pump fluids business through its
sale in February 1998.
34
37
During 1996, IVAX management reevaluated the carrying value of certain
long-lived assets and goodwill related to those assets to be held and used in
IVAX's specialty chemicals business. This reevaluation was necessitated by
management's determination that, based on recent results of operations during
that period and conditions and trends of that business, the expected future
cash flows to be derived from the assets and related goodwill would be
substantially lower than had previously been expected. As a result, management
reduced the carrying value of certain long-lived assets and goodwill of the
specialty chemicals business by recording pre-tax charges of $9,753 and
$38,689, respectively. Management determined the amount of the charges based on
various valuation techniques, including discounted cash flow analysis and net
realizable value for assets to be held and used. The asset write-downs related
to the specialty chemicals business have been included in "Discontinued
operations, net of taxes" in the accompanying consolidated statements of
operations.
IVAX has completed the divestiture of its businesses classified as
discontinued operations.
(8) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
IVAX has ownership interests of 50% in various other unconsolidated
affiliates. Undistributed earnings of these affiliates, as well as IVAX's
equity in their earnings, were not significant in any of the periods presented
in the accompanying consolidated financial statements.
At December 31, 1998 and 1997, IVAX held marketable equity securities
which it classified as available-for-sale. Based on quoted market prices, the
securities are stated at fair value of $785 and $3,405, respectively, and are
included in "Other assets" in the accompanying consolidated balance sheets. At
December 31, 1998 and 1997, net unrealized losses of $4 and $963, respectively,
are included in "Accumulated other comprehensive loss" in the accompanying
consolidated balance sheets.
(9) DEBT:
Long-term debt consists of the following:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
6-1/2% Convertible Subordinated Notes due 2001. Interest payable
semi-annually. Convertible at the option of the holders into 2,364 and 2,867
shares of common stock at December 31, 1998 and 1997, respectively, at a
conversion rate of $31.75 per share. $ 75,066 $ 91,025
Industrial revenue bonds due 2008. Collateralized by mortgages on
real property and equipment and a standby letter of credit. Interest
payable semi-annually at adjustable rates (4.35% at December 31,
1997). -- 6,700
International subsidiaries' debt 3,551 3,862
Other 49 464
------------- --------------
Total long-term debt 78,666 102,051
Current portion of long-term debt 890 7,858
------------- --------------
Long-term portion of long-term debt $ 77,776 $ 94,193
============= ==============
35
38
During 1997, IVAX utilized a portion of the proceeds from the sale of
its intravenous products business (See Note 5, Divestitures) to pay the
$270,147 then outstanding balance of its revolving credit facility. The
facility was terminated in conjunction with this payment, resulting in IVAX
recording an extraordinary loss of $2,137 primarily related to the write-off of
deferred financing costs.
In July 1998, IVAX's Board of Directors authorized the repurchase of
$20,000 face value of its 6 1/2% Convertible Subordinated Notes. In December
1998, IVAX's Board of Directors renewed its authorization to purchase up to
$20,000 face value of the Notes, which includes the amount remaining
unpurchased from the July authorization. During 1998, IVAX repurchased a total
of $15,959 face value of its 6 1/2% Convertible Subordinated Notes due November
2001. An extraordinary gain of $1,121 was recorded relating to the repurchase.
Certain of IVAX's international subsidiaries maintain relationships
with foreign banks providing uncommitted borrowings in the aggregate amounts of
approximately $6,500 and $7,033 at December 31, 1998 and 1997, respectively.
Outstanding borrowings under these lines of credit totaled $1,229 and $4,025 at
December 31, 1998 and 1997, respectively, and are included as "Loans payable"
in the accompanying consolidated balance sheets.
The estimated fair values of IVAX's long-term debt are as follows:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
6 1/2% Convertible Subordinated Notes due 2001 $ 72,063 $ 77,826
Other 3,600 11,026
------------- --------------
$ 75,663 $ 88,852
============= ==============
Fair value of the 6 1/2% Convertible Subordinated Notes due 2001 is
based on available quoted market prices. Management believes that the carrying
amounts of other debt approximate the fair value.
The stated future maturities of all long-term debt for the next five
years and thereafter are approximately $890, $778, $75,722, $638, $638 and $0,
respectively.
(10) INCOME TAXES:
The provision (benefit) for income taxes on continuing operations
consists of the following:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
Current
U.S. Federal $ -- $ -- $ (25,033)
State -- -- (4,140)
Puerto Rico and the U.S. Virgin Islands 509 679 3,093
Foreign 5,915 9,293 23,835
Deferred 3,623 50,194 (50,243)
-------------- ------------- --------------
$ 10,047 $ 60,166 $ (52,488)
============== ============= ==============
36
39
The components of income (loss) from continuing operations before
income taxes and minority interest are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
United States $ 29,128 $ (189,427) $ (276,693)
Puerto Rico and the U.S. Virgin Islands (991) 4,389 16,993
Foreign 6,124 29,756 77,577
-------------- ------------- --------------
$ 34,261 $ (155,282) $ (182,123)
============== ============= ==============
A reconciliation of the difference between the expected provision
(benefit) for income taxes using the statutory U.S. Federal tax rate and IVAX's
actual provision is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
Tax using statutory U.S. Federal tax rate $ 11,991 $ (54,349) $ (63,743)
Effect of state income taxes -- -- (3,908)
Write-down of non-deductible cost in excess of
net assets of acquired companies 71 3,270 20,057
Establishment/(reduction) of valuation
allowance on deferred tax assets (10,575) 114,660 --
Foreign tax rate differential (2,476) (5,949) (7,879)
Effect of Puerto Rico taxes and tollgate 509 679 3,876
Puerto Rico and U.S. possessions tax incentives -- (1,536) (5,734)
Foreign operating losses 3,523 3,568 3,439
Tax claims and other matters 3,033
Other 3,971 (177) 1,404
-------------- ------------- --------------
$ 10,047 $ 60,166 $ (52,488)
============== ============= ==============
During 1997, IVAX established $114,660 in valuation allowances,
primarily against its domestic deferred tax assets generated from losses
incurred by its domestic operations. Previously reserved net operating loss
carryforwards were utilized to offset domestic taxable income in 1998 and, as a
result, the valuation allowance was reduced by $44,975 in 1998. The $44,975
reduction was comprised of a $10,575 decrease related to utilization against
domestic continuing operations, a $28,200 decrease due to utilization against
domestic discontinued operations, and a $6,200 decrease related to an
adjustment to the domestic net operating loss carryforward based on adjustments
made to prior tax periods. The domestic deferred tax asset is fully reserved as
of December 31, 1997 and 1998. Management expects that it will continue to
maintain valuation allowances related to any future deferred tax assets
generated from its domestic operations until such time as sustainable domestic
taxable income is achieved.
37
40
Deferred taxes arise due to timing differences in reporting of certain
income and expense items for book purposes and income tax purposes. A detail of
the significant components of deferred tax assets (liabilities) included in
"Other current assets," "Other assets" and "Other long-term liabilities," in
the accompanying consolidated balance sheets is as follows:
DECEMBER 31,
---------------------------------
1998 1997
------------- --------------
Accounts receivable allowances $ 13,710 $ 485
Reserves and accruals 22,411 30,401
Differences in capitalization of inventory costs 321 434
Other (337) 3,920
Valuation allowance (34,851) (33,903)
------------- --------------
Amount included in "Other current assets" 1,254 1,337
------------- --------------
Basis differences on fixed assets 9,085 8,932
Depreciation differences on fixed assets 3,731 9,566
Recognition of revenue (708) (410)
Carrying value of long-term assets 8,266 6,952
Other 1,991 2,865
Tax credits 10,946 9,891
Net operating losses 55,776 105,745
Valuation allowance (73,407) (119,330)
------------- --------------
Amount included in "Other assets" 15,680 24,211
------------- --------------
Other (2,314) (5,914)
------------- --------------
Amount included in "Other long-term liabilities" (2,314) (5,914)
------------- --------------
Net deferred tax asset $ 14,620 $ 19,634
============= ==============
Income from Zenith Laboratories, Inc.'s ("Zenith's") Puerto Rico
manufacturing operations is subject to certain tax exemptions under the terms
of a grant from the Puerto Rico government which was extended during 1998 and
now expires in 2017. The grant reduced tax expense by approximately $0,
$575, and $1,837 for the years ended December 31, 1998, 1997 and 1996,
respectively. Under the terms of the grant, Zenith is required to maintain
certain employment levels.
IVAX has historically received a United States tax credit under
Section 936 of the Internal Revenue Code for certain income generated by its
Puerto Rico and Virgin Islands operations. For 1998, 1997 and 1996, this credit
was approximately $0, $1,536, and $5,734, respectively, and completely
offset the entire United States tax liability of such operations. In 1996,
Congress repealed the Section 936 tax credit and it will be phased out over 5
years beginning in 2001.
38
41
At December 31, 1998, IVAX has a U.S. net operating loss carryforward
of $145,846, which is comprised of:
BEGIN TO EXPIRE ANNUAL LIMITATION AMOUNT
--------------- ----------------- ------
2002 -- $ 9,000
2003 $3,000 28,910
2006 -- 3,106
2007 -- 6,771
2012 -- 98,059
-----------
$ 145,846
===========
The deferred tax asset related to the future benefit of these net
operating loss carryforwards has been reduced to zero by a valuation allowance
at December 31, 1998.
The $3,106 of net operating loss carryforwards, which will begin to
expire in 2006, relate to the exercise of certain stock options, and, as a
result, the benefits recognized from the reduction of the valuation allowances
related to these net operating loss carryforwards will increase paid in
capital. This increase will be recorded once the domestic valuation allowance
has been fully utilized.
At December 31, 1998, IVAX had consolidated tax credit carryforwards
of $10,946. The tax credits are comprised of foreign tax credits of $3,053,
which begin to expire in 1999, $1,131 of research and development credits,
which begin to expire in 2008, and $6,762 of minimum tax credits, which never
expire.
Realization of the net deferred tax asset of $14,620, which relates to
foreign operations, is dependent upon generating sufficient future foreign
taxable income. Although realization is not assured, management believes it is
more likely than not that the remaining additional net deferred tax asset will
be realized based upon estimated future taxable income of IVAX's foreign
operations and, accordingly, no valuation allowances for this asset were deemed
necessary at December 31, 1998. Management's estimates of future taxable income
are subject to revision due to, among other things, regulatory and competitive
factors affecting the pharmaceutical industries in the markets in which IVAX
operates.
United States taxes have not been provided on undistributed earnings
of foreign subsidiaries, as such earnings are being retained indefinitely by
such subsidiaries for reinvestment. The distribution of these earnings would
first reduce the domestic valuation allowance before resulting in additional
United States taxes.
Minority interest included in the accompanying consolidated statements
of operations is net of a provision for income taxes of $996, $2,228, and
$3,116 for the years ended December 31, 1998, 1997 and 1996, respectively.
39
42
(11) 401(k) PLANS:
IVAX's employees within the United States, the United States Virgin
Islands and Puerto Rico are eligible to participate in 401(k) retirement plans,
which permit pre-tax employee payroll contributions (subject to certain
limitations) and discretionary employer matching contributions. Total matching
contributions (including those of discontinued operations) for the years ended
December 31, 1998, 1997 and 1996 were $647, $2,025 and $3,272, respectively, a
portion of which was made in IVAX common stock in 1996.
(12) SHAREHOLDERS' EQUITY:
STOCK OPTION PLANS - IVAX administers and has stock options
outstanding under IVAX's 1997 Employee Stock Option Plan ("1997 Plan"), IVAX's
1994 Stock Option Plan ("1994 Plan"), IVAX's 1985 Stock Option Plan ("1985
Plan"), and certain stock option plans assumed in business acquisitions. The
options outstanding under the plans assumed in the business acquisitions were
converted into options to acquire IVAX common stock using the applicable
exchange ratios. No additional stock options may be issued under the 1985 Plan
or the plans assumed in the business acquisitions.
The 1997 Plan permits the issuance of options to employees and
consultants to purchase up to 4,000 shares of IVAX common stock. The 1994 Plan
permits the issuance of options to employees, non-employee directors and
consultants to purchase up to 7,000 shares of IVAX common stock. Both plans
provide that the exercise price of the issued options shall be no less than the
fair market value of the common stock on the date of grant and that the option
term of such options shall not exceed ten years.
The following table presents additional information concerning the
activity in the stock option plans (number of shares in thousands):
1998 1997 1996
--------------------------- -------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- ---------------
Balance at beginning of year 10,057 $ 19.87 10,102 $ 22.50 10,198 $ 20.51
Granted 5,364 8.75 2,487 10.67 2,621 26.07
Exercised (398) 7.44 (42) 3.59 (1,881) 16.93
Terminated (6,060) 19.16 (2,490) 21.61 (836) 21.90
---------- ---------- ----------
Balance at end of year 8,963 14.25 10,057 19.87 10,102 22.50
========== ========== ==========
Exercisable at December 31, 4,930 $ 17.43 6,220 $ 20.62 4,454 $ 21.51
40
43
The following table summarizes information about fixed stock options
outstanding at December 31, 1998 (number of shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- --------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- ------------------ ----------- ---------------- -------------- ------------ --------------
0.00 - 3.64 1 3.6 $ 3.57 1 $ 3.57
3.64 - 7.28 211 5.6 6.81 66 6.68
7.28 - 10.91 4,973 5.3 8.88 1,576 8.50
10.91 - 14.55 293 4.9 12.22 120 12.25
14.55 - 18.19 212 3.1 16.51 211 16.52
18.19 - 21.83 1,902 2.1 20.42 1,808 20.41
21.83 - 25.47 464 3.3 22.94 464 22.94
25.47 - 29.10 752 3.5 26.86 534 26.95
29.10 - 32.74 21 3.1 31.09 16 31.27
32.74 - 36.38 134 2.1 34.88 134 34.88
-------------- ---------------
8,963 4.3 14.25 4,930 17.43
============== ===============
In December 1997, IVAX instituted a stock option exchange program in
which it offered holders of certain outstanding out-of-the-money stock options,
excluding executive officers and directors of IVAX, the right to exchange such
options for the same or a lesser number of new options with a lower exercise
price and, in some cases, a modified vesting schedule and term. As a result of
the exchange program, on January 23, 1998, approximately 3,000 stock options
with exercise prices ranging from $9.88 to $34.88 were exchanged for
approximately 2,100 stock options with an exercise price of $8.33.
IVAX's pro forma net income (loss), pro forma net income (loss) per
common share and pro forma weighted average fair value of options granted, with
related assumptions, assuming IVAX had adopted the fair value method of
accounting for all stock-based compensation arrangements consistent with the
provisions of SFAS No. 123, using the Black-Scholes option pricing model for
all options granted after January 1, 1995, are indicated below:
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997
--------------- ----------------
Pro forma net income (loss) $ 65,973 $ (241,452)
Pro forma net income (loss) per common share $ .55 $ (1.99)
Pro forma weighted average fair value of options granted $ 2.29 $ 7.20
Expected life (years) 4.6 4.8
Risk-free interest rate 4.37%-5.65% 5.51%-6.75%
Expected volatility 27% 28%
Dividend yield 0% 0%
As the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
41
44
In December 1997, IVAX's Board of Directors approved a share repurchase
program authorizing IVAX to repurchase up to 5,000 shares of IVAX common stock.
In December 1998, IVAX's Board of Directors approved an increase of 7,500
shares, to a total of 12,500 shares of IVAX common stock that may be
repurchased. Through December 31, 1998, IVAX repurchased 7,080 shares of common
stock at a total cost, including commissions, of $65,932. Under Florida law,
repurchased shares constitute authorized but unissued shares.
CONVERTIBLE DEBT - At December 31, 1998 and 1997, IVAX had outstanding
$75,066 and $91,025, respectively of 6 1/2% Convertible Subordinated Notes due
2001 (See Note 9, Debt). The notes are convertible at the option of the holders
into 2,364 and 2,867 shares, respectively, of IVAX common stock at a conversion
rate of $31.75 per share.
DIVIDENDS - IVAX did not pay dividends during the years ended December
31, 1998 and 1997. During the year ended December 31, 1996, IVAX paid a cash
dividend of $.05 per share with respect to its common stock, totaling $6,057.
(13) BUSINESS SEGMENT INFORMATION:
IVAX is a holding company whose subsidiaries operate in the
pharmaceutical business and are engaged in the development, manufacture,
marketing and sale of pharmaceutical products. Pharmaceutical products include
prescription drugs, over-the-counter products and animal health products. See
Note 5, Divestitures, and Note 7, Discontinued Operations, for information
regarding operations that have been sold. IVAX adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, as of
December 31, 1998.
UNITED UNITED CZECH
GEOGRAPHIC AREAS: STATES KINGDOM REPUBLIC OTHER TOTAL
- ----------------- ------ ------- -------- ------- -------
Net revenues 1998 $ 291,882 $ 203,863 $ 19,076 $ 123,102 $ 637,923
1997 199,208 217,489 22,595 154,994 594,286
1996 292,285 228,431 27,343 110,686 658,745
Long-lived assets 1998 83,007 149,569 25,645 17,324 275,545
1997 84,704 125,040 15,485 30,592 255,821
1996 165,422 103,791 17,301 23,861 310,375
No single customer accounted for 10% or more of IVAX's consolidated net
revenues for any of the three years ended December 31, 1998. Other revenues
included in net revenues in the accompanying consolidated statements of
operations consist of license fees and royalties totaling $56,087 (including
$18,000 from the settlement of patent litigation with Abbott Laboratories
discussed in Note 14), $11,542 and $31,307 in 1998, 1997 and 1996, respectively.
Long-lived assets excludes the long-term net deferred tax asset included in
"Other assets" on the accompanying consolidated balance sheets.
42
45
(14) COMMITMENTS AND CONTINGENCIES:
LEASES - IVAX leases office, plant and warehouse facilities and
automobiles under noncancellable operating leases. Motor vehicles, production
equipment and certain manufacturing facilities are also leased under capital
leases. Rent expense for the three years ended December 31, 1998 totaled
approximately $5,226, $5,022 and $5,540, respectively. The future minimum lease
payments under noncancellable capital leases and their related assets recorded
at December 31, 1998 and 1997 were not material. The future minimum lease
payments under noncancellable operating leases with initial or remaining terms
of one year or more at December 31, 1998, were as follows:
OPERATING
LEASES
-------------
1999 $ 5,131
2000 4,615
2001 3,018
2002 2,022
2003 1,272
Thereafter 4,781
-------------
Total minimum lease payments $ 20,839
=============
LEGAL PROCEEDINGS - In April 1995, 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 in federal court alleging that Zenith's
cefaclor raw material supplier, a third party unaffiliated with IVAX,
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 the supplier 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 such supplier, and seeks an unspecified amount of monetary
damages and the destruction of all cefaclor raw material manufactured by the
supplier 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. 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 Zenith's supplier of raw
material used to manufacture the product.
On April 18, 1997, Lilly initiated another federal court action
involving cefaclor 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 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
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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 Food and Drug Administration ("FDA") by
Biochimica Opos S.p.A. ("Opos"), Zenith's supplier of cefaclor raw material,
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 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. Zenith
filed a motion to dismiss in June 1997, which was granted in June 1998.
Plaintiffs filed an amended complaint and, in November 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 against IVAX and certain of its current and
former officers or directors in federal court 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 federal securities laws
and also asserts a claim for negligent misrepresentation. The complaint
generally asserts 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 claims that IVAX failed to disclose that
product sales were subject to shelf stock adjustments and failed to establish
reserves for such adjustments. On August 18, 1998, the court dismissed the
action without prejudice and, on September 30, 1998, plaintiffs filed an
amended complaint. In general, the amended complaint seeks an unspecified
amount of compensatory damages, pre-judgment interest, litigation costs and
attorney's fees. On November 9, 1998, IVAX filed a motion to dismiss the
amended complaint, which remains pending.
In 1997, two class action complaints were filed in federal court by
individuals purporting to be shareholders of IVAX Corporation against IVAX, its
chairman and its former chief financial officer. The two actions were
subsequently consolidated, and the plaintiffs in the consolidated 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.
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In February 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 ("Subsidiary"), in Illinois state court. 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 this Subsidiary substantially all of the
assets of Smith & Nephew Solopak, a division of S&N (the "Division"), for $19
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 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 court granted IVAX's motion for summary judgement. S&N is
expected to pursue an appeal of this decision.
In December 1998, an action purporting to be a class action was filed
in the United States District Court for the Southern District of Florida
against Abbott Laboratories, Geneva Pharmaceuticals and Zenith, 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 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.
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.
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 the financial position or results of operations of IVAX.
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(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following tables summarize selected quarterly data of IVAX for the
years ended December 31, 1998 and 1997:
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
1998
Net revenues(1) $ 146,277 $ 154,617 $ 158,757 $ 178,272 $ 637,923
Gross profit 49,851 60,152 61,131 70,037 241,171
Income (loss) from continuing
operations(2) (3,661) 3,577 7,488 17,213 24,617
Income (loss) from discontinued
operations -- -- 40,733 8,171 48,904
Net income (loss)(4) (6,709) 3,577 48,536 26,190 71,594
Basic and diluted earnings (loss)
per common share:
Continuing operations (.03) .03 .06 .15 0.21
Discontinued operations -- -- .34 .06 0.41
Net earnings (loss)(4) (.06) .03 .41 .22 0.60
Cash dividends per share(5): -- -- -- -- --
Market prices per common share:
High $9.50 $10.56 $10.19 $12.56
Low 6.19 8.44 7.38 7.31
1997
Net revenues(1) $ 165,678 $ 171,785 $ 124,393 $ 132,430 $ 594,286
Gross profit 48,870 45,708 3,889 15,837 114,304
Loss from continuing
operations(3) (11,092) (52,824) (78,754) (76,864) (219,534)
Income (loss) from discontinued
operations 3,153 7,447 (11,380) (7,921) (8,701)
Net loss (7,939) (47,514) (90,134) (87,667) (233,254)
Basic and diluted earnings (loss)
per common share:
Continuing operations (.09) (.43) (.65) (.63) (1.81)
Discontinued operations .02 .06 (.09) (.07) (.07)
Net loss (.07) (.39) (.74) (.72) (1.92)
Cash dividends per share(5): -- -- -- -- --
Market prices per common share:
High $13.50 $11.75 $12.63 $11.13
Low 9.63 6.50 8.75 6.63
- ------------------
(1) Figures have been restated to conform to current classifications.
(2) The first, third, and fourth quarter of 1998 includes restructuring costs
and asset write-downs of $696, $12,865, and ($1,339) respectively.
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(3) The third and fourth quarter of 1997 includes restructuring costs of
$4,359 and $9,915, respectively. The second and fourth quarter of 1997
includes asset write-downs of $20,500 and $3,314, respectively.
(4) The first quarter of 1998 was restated in the third quarter to reflect the
adoption of SOP98-5, Reporting on the Cost of Start-Up Activities, which
resulted in a $3,048 loss from the cumulative effect of a change in
accounting principle.
(5) The declaration and payment of dividends is made at the discretion of
IVAX's Board of Directors.
(16) SUBSEQUENT EVENTS:
From January 1, 1999 through March 19, 1999, IVAX repurchased 4,236
shares of IVAX common stock at a total cost, including commissions, of $55,266.
Cumulatively, IVAX has repurchased 11,316 shares of IVAX common stock at a
total cost of $121,197 under the share repurchase program described in Note 12,
Shareholders' Equity.
On February 26, 1999, IVAX's Board of Directors approved an increase
to 8,000 shares of IVAX common stock that may be issued under the 1997 Employee
Stock Option Plan described in Note 12, Shareholders' Equity.
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