SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 2)
Annual Report Pursuant To Section 13 Of The
Securities Exchange Act Of 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 1-09623
IVAX CORPORATION
INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NUMBER
STATE OF FLORIDA 16-1003559
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
305-575-6000
Securities Registered Pursuant To Section 12(b) Of The Act
Name of each exchange
Title of each class on which registered
Common Stock, par value $.10 American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 31, 2000, there were 156,269,324 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 2000, was approximately $3.3 billion.
This Form 10-K/A is being filed to amend Part II items 7 and 8 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, as
amended.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the 1999 Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements on pages 22 to 45 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 Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, competitive, governmental, and technological factors affecting IVAX'
operations, markets, products and prices, and other factors discussed elsewhere
in this report and the documents filed by IVAX with the Securities and Exchange
Commission ("SEC"). These factors may cause IVAX' results to differ materially
from the statements made in this report or otherwise made by or on behalf of
IVAX.
Results of Operations
Overview
IVAX' operations are conducted through subsidiaries involved primarily
in the manufacture and sale of proprietary, branded and generic pharmaceuticals.
Presently, a significant portion of IVAX' revenues and gross profits are
generated from sales of generic prescription and over-the-counter pharmaceutical
products. IVAX' future success is largely dependent upon its ability to develop,
obtain approval for, efficiently manufacture, and market commercially viable
pharmaceutical products.
All per share amounts, except for cash dividends per share, have been
retroactively restated to reflect the 3-for-2 stock split payable February 22,
2000. Certain prior period amounts presented herein have been reclassified to
conform to the current period's presentation.
Year ended December 31, 1999 compared to the year ended December 31, 1998
Net income for the year ended December 31, 1999 was $70.7 million
compared to $71.6 million for the prior year. Income from continuing operations
was $69.5 million for the year ended December 31, 1999 compared to $24.6 million
for the prior year. The years ended December 31, 1999 and 1998 included $.6
million and $1.1 million net extraordinary gains 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 included a $48.9 million gain from
discontinued operations (See Note 7, Discontinued Operations, in the Notes to
Consolidated Financial Statements) and 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 (See Note 2, Summary of Significant
Accounting Policies - Change in Accounting Principle, in the Notes to
Consolidated Financial Statements).
Net earnings per share (diluted) were $.43 for the year ended December
31, 1999, compared to $.40 for the prior year. Earnings per share (diluted) from
continuing operations were $.42 for the year ended December 31, 1999 compared to
$.14 for the prior year. The early extinguishment of debt during 1999 and 1998
resulted in $.01 gains per share. In addition, during 1998, discontinued
operations resulted in $.27 earnings per share and the cumulative effect of a
change in accounting principle resulted in a $.02 loss per share.
Net Revenues and Gross Profit
Net revenues for the year ended December 31, 1999 totaled $656.3
million, an increase of $30.7 million, or 4.9%, from the $625.6 million reported
in the prior year. This increase was comprised of an
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increase of $15.5 million in net revenues from North American operations, an
increase of $14.2 million in net revenues from European operations and an
increase of $0.1 million from Latin American and other operations.
North American operations net revenues totaled $274.6 million for the
year ended December 31, 1999, compared to $259.1 million in 1998. The $15.5
million, or 6.0%, increase was primarily attributable to increased sales volume
and lower sales returns and allowances offset by lower sales prices of certain
generic pharmaceutical products. Net revenues included $19.4 million and $18.0
million in 1999 and 1998, respectively, from the settlement of litigation with
Abbott Laboratories ("Abbott") concerning patents for 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. During the third quarter of 1999, a generic version of
terazosin hydrochloride was introduced into the market by a competitor reducing
quarterly payments that IVAX receives under the settlement from $6.0 million to
$3.0 million.
North American operations recorded provisions for sales returns and
allowances that reduced gross sales by $90.8 million and $112.8 million in 1999
and 1998, respectively. The decrease of $22 million was primarily due to lower
shelf-stock adjustments, promotions and returns in 1999 than 1998 due to a
combination of lower customer inventory levels and reduced price discounting as
a result of improved price stability of generic pharmaceuticals.
In November 1999, IVAX entered into a three-year product collaboration
and development services agreement with Bristol-Myers Squibb Company ("BMS") in
the areas of inhalation technology and oncology. With respect to inhalation
technology, the agreement calls for IVAX and BMS to collaborate to develop one
or more of BMS' proprietary molecules using IVAX' patented devices, which BMS
would purchase from IVAX. BMS would retain the worldwide rights to market
respiratory products containing its compounds. On the oncology side, BMS'
Taxol(R) (paclitaxel) is the leading anti-cancer drug in the world, with 1999
sales estimated to reach approximately $1.5 billion. However, Taxol is an
injectable product and is not orally available. As part of the agreement, BMS
has been granted an option to negotiate, for six months, a license to IVAX'
patented system for making paclitaxel orally available. IVAX received $5.0
million under the agreement during 1999.
European operations generated net revenues of $322.6 million for the
year ended December 31, 1999, compared to $308.4 million for 1998. The $14.2
million, or 4.6%, increase was primarily due to increased net sales in the
United Kingdom offset by decreases in Eastern Europe. The increase resulted from
higher sales volume. The decrease in Eastern Europe was due to decreased volume
and the effect of foreign exchange rate differences. European operations
recorded provisions for sales returns and allowances that reduced gross sales by
$26.2 million and $14.2 million in 1999 and 1998, respectively. The increase of
$12 million was primarily due to increased provision for promotional expenses
due to competitive generic market conditions within the United Kingdom.
Gross profit for the year ended December 31, 1999 increased $58.3
million, or 25.5%, to $287.1 million (43.8% of net revenues) from $228.8 million
(36.6% of net revenues) for the year ended December 31, 1998. The increase in
the gross profit percentage was primarily attributable to product mix, lower
cost of sales due to reduced raw material costs, lower operating costs due to
plant consolidation, lower sales returns and allowances, and increased other
revenue.
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Operating Expenses
Selling expenses decreased $.5 million, or .7%, to $79.0 million in
1999 (12.0% of net revenues) from $79.5 million (12.7% of net revenues) in 1998.
General and administrative expenses totaled $85.1 million (13.0% of net
revenues) in 1999, a decrease of $3.3 million, or 4.0%, from $88.4 million
(14.1% of net revenues) in 1998. The decrease was primarily attributable to
lower executive severance payments at corporate headquarters and $3.2 million
received in settlement of a patent infringement lawsuit offset by higher legal
fees at North American operations, higher bad debt provisions at Asian
operations and increased accruals for incentive compensation.
Research and development expenses totaled $54.2 million (8.3% of net
revenues) in 1999 compared to $48.6 million (7.8% of net revenues) in 1998, an
increase of $5.5 million, or 11.4%. The increase in research and development
expenses in 1999 over 1998 was due to biostudies associated with the development
of generic pharmaceuticals at IVAX' North American operations and the initiation
of clinical trials in the United Kingdom. The future level of research and
development expenditures will depend on, among other things, the outcome of
clinical testing of products under development, delays or changes in government
required testing and approval procedures, technological and competitive
developments, strategic marketing decisions and liquidity.
During 1999 and 1998, IVAX recorded restructuring costs and asset
write-downs of ($.6) million and $12.2 million, respectively. The credit
recorded in 1999 was primarily due to the reversal of a previously recorded
reserve for a note receivable and 15% interest in a partnership received as
consideration for the 1998 sale of a Ft. Lauderdale, Florida facility. Due to
the uncertainty of collectability, these assets were fully reserved in 1998. In
1999 the note was collected in full, the partnership interest was sold and the
reserve against the assets was reversed.
During 1998, IVAX initiated restructuring programs at its United
Kingdom pharmaceutical operations. As discussed in the 1998 10-K, it was
anticipated that these programs would result in approximately $12.0 million in
annual pre-tax cost savings. The anticipated cost savings were substantially
achieved in 1999. Also during 1998, IVAX decided to cease manufacturing at its
Northvale, New Jersey plant for an estimated annual pre-tax cost savings of $3.4
million. However, the estimated cost savings were not fully achieved in 1999
primarily because of delays in the transfer of products from Northvale to its
manufacturing plant in Cidra, Puerto Rico.
Other Income (Expense)
Interest income decreased $5.8 million to $6.1 million in 1999 from
$12.0 million in 1998 due to lower levels of cash on hand primarily due to the
repurchase of common stock outstanding.
Interest expense decreased $1.3 million to $5.6 million in 1999 from
$6.9 million in 1998 primarily due to the retirement of IVAX' 6 1/2% Convertible
Subordinated Notes in the amount of $31.4 million during 1999.
Other income, net, totaled $19.5 million in 1999, compared to $32.8
million in 1998, a decrease of $13.3 million. Royalty and milestone payments
from the 1997 sale of rights to Elmiron(R) and certain other urology products in
the United States and Canada to ALZA Corporation ("ALZA") amounted to $13.0
million and $12.4 million in 1999 and 1998, respectively, and are included in
other income as additional gain on the sale of product rights. During 1998, IVAX
reversed $15.0 million of previously recorded reserves related to a 1997
research and development cost sharing arrangement with ALZA that
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was terminated in July, 1998. The reserve was established for IVAX' obligations
under the cost sharing arrangement that resulted from IVAX' 1997 sale of product
rights to Elmiron(R) and three other urology products in the United States and
Canada to ALZA. The reserve reversal reflects an adjustment to increase a
previously recognized gain on the sale of the product rights.
Year ended December 31, 1998 compared to 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 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
prior year. The years 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 1998 and 1997 also included a
$3.0 million charge and a $2.9 million charge, respectively, resulting from a
cumulative effect of a change in accounting principle (See Note 2, Summary of
Significant Accounting Policies - Change in Accounting principle, in the Notes
to Consolidated Financial Statements).
Net earnings per share were $.40 for the year ended December 31, 1998,
compared to a net loss per share of $1.28 for the prior year. Earnings per share
from continuing operations were $.14 for the year ended December 31, 1998
compared to a net loss per common share of $1.21 for the prior year. Earnings
per share from discontinued operations were $.27 for the year ended December 31,
1998, compared to a loss from discontinued operations of $.05 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 per share and a $.01 loss per share, respectively. The cumulative effect of
a change in accounting principle resulted in a $.02 loss per share in 1998 and a
$.01 loss per share in 1997.
Net Revenues and Gross Profit
Net revenues for the year ended December 31, 1998 totaled $625.6
million, an increase of $31.3 million, or 5.3%, from the $594.3 million reported
in the prior year. This increase was comprised of an increase of $58.3 million
in net revenues from North American operations and an increase of $14.5 million
from Latin American and other operations offset by a decrease of $41.5 million
in net revenues from European operations.
North American operations' net revenues totaled $259.1 million for the
year ended December 31, 1998, compared to $200.8 million for 1997. The $58.3
million, or 29.0%, increase in North American net revenues was primarily
attributable to lower sales returns and allowances, increased sales volume of
certain generic pharmaceutical products and $18.0 million recognized from the
settlement of litigation with Abbott concerning patents for terazosin
hydrochloride, the generic equivalent of Abbott's Hytrin (R).
North American operations recorded provisions for sales returns and
allowances that reduced gross sales by $112.8 million and $217.9 million in 1998
and 1997, respectively. The $105.1 million decrease in provisions was due
primarily to lower provisions for rebates, wholesaler's average cost (WAC)
adjustments, returns and promotional costs. The rebate provision was lower due
to improvements in the rebate structure for existing customers and the loss of
customers with a high rebate structure. The provision for WAC adjustments was
reduced because significant WAC reductions occurring in 1997 were not repeated
in 1998 due to improved price stability. The returns provision and promotion
expenses were reduced because IVAX eliminated quarter-end promotions in 1997 to
encourage customers to reduce inventory levels.
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European operations generated net revenues of $308.4 million in 1998
compared to $349.9 million for 1997. The $41.5 million, or 11.9%, decrease was
primarily due to decreased sales at IVAX' United Kingdom and Czech Republic
operations. The decrease in sales at the United Kingdom operations was due to
lower net revenues from a license agreement related to its breath-operated
inhaler device, the discontinuance of certain contract manufacturing
arrangements, and price declines for generic products. This decrease was
partially offset by net revenues attributable to a license agreement related to
IVAX' dry-powder inhaler device and to sales growth and product launches of
branded products. The decrease in sales at the Czech Republic operations was
primarily due to lower sales of raw materials primarily resulting from loss of
market share, and to a lesser extent, lower export sales primarily to Russia as
a result of unfavorable economic conditions. During 1998 and 1997, European
operations recorded provisions for sales returns and allowances that reduced
gross sales by $14.2 million and $5.9 million, respectively. The increase of
$8.3 million was primarily due to increased provision for promotional costs in
response to competitive generic market conditions within the United Kingdom.
Gross profit for the year ended December 31, 1998 increased $114.5
million, or 100.2%, from the prior year. Gross profit was $228.8 million (36.6%
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 the gross profit percentage was primarily due to lower sales returns
and allowances, and to a lesser extent, lower manufacturing costs, lower
inventory provisions, revenues attributable to the Abbott settlement at IVAX'
North American generic pharmaceutical operations and the 1998 launch of a high
margin generic pharmaceutical product.
Operating Expenses
Selling expenses totaled $79.5 million (12.7% 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 at North American 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 in September 1997. The implementation of
restructuring plans also resulted in reduced selling expenses at North American
generic pharmaceutical operations due to reductions in both sales personnel and
promotional costs.
General and administrative expenses totaled $88.4 million (14.1% 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 was primarily attributable to lower
costs at IVAX' North American generic pharmaceutical operations, its corporate
headquarters, and its United Kingdom operations as a result of the
implementation of restructuring plans, and to a lesser extent, lower
depreciation and bad debt expense at IVAX' United Kingdom and United States
operations.
Research and development expenses in 1998 decreased $4.8 million, or
9%, compared to 1997, to a total of $48.6 million (7.8% of net revenues). The
decrease in 1998 was due to staff reductions as part of a restructuring in the
United Kingdom and completion of clinical trials by the North American
operations.
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 efforts to reduce costs and enhance operating efficiency by
initiating restructuring programs at its United Kingdom operations and
continuing restructuring of its North American pharmaceutical operations. During
1998, IVAX recorded pre-tax charges totaling $13.6 million, consisting of $5.4
million in asset write-downs resulting from management's re-evaluation of the
carrying value of certain long-lived assets related to facility consolidation,
$4.3 million associated with lease commitments, $3.6 million of severance and
other
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employee termination benefits, and $.2 million for the write-down of leasehold
improvements relating to the consolidation of certain packaging operations in
the United Kingdom. The United Kingdom restructuring eliminated approximately
260 positions. Also, during 1998, IVAX recorded a pre-tax charge of $15.6
million comprised of $8.6 million for asset write-downs resulting from
management's decision to cease manufacturing at its Northvale, New Jersey
pharmaceutical facility and the re-evaluation of the carrying value of certain
long-lived assets, $4.4 million for estimated plant closure costs due to
facility consolidation and market conditions and $2.7 million for severance and
other employee termination benefits at IVAX' North American generic
pharmaceutical operations. The New Jersey restructuring plan eliminated
approximately 165 positions. This impact was offset by the reversal of $17.0
million of previously recorded restructuring reserves that were ultimately not
needed primarily related to two facilities that were sold in 1998.
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
domestic pharmaceutical distribution facilities into a single leased
distribution center in Kenton County, Kentucky.
It was anticipated that the restructuring programs at corporate
headquarters and North American operations described above, as discussed in the
1997 10-K, would reduce manufacturing and operating expenses by $25.0 million to
$35.0 million. The cost savings achieved during 1998 were within the original
estimate range.
Other Income (Expense)
Interest income increased $6.3 million in 1998 to $12.0 million
compared to $5.7 million in 1997. Higher levels of cash on hand resulting from
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 (See Note 5, Divestitures, and Note 6, Sale of
Product Rights in the Notes to Consolidated Financial Statements).
Interest expense decreased $7.8 million to $6.9 million in 1998 from
$14.7 million in 1997, primarily due to the repayment of IVAX' revolving credit
facility during the second quarter of 1997.
Other income, net was $32.8 million in 1998, compared to $53.4 million
in 1997. In the third quarter of 1997, a $43.2 million pre-tax gain was
recognized on the sale of the rights to 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). At the time of the
sale, a reserve of $15.0 million was established for IVAX' obligations under a
research and development cost sharing arrangement with ALZA related to the sale.
During the third quarter of 1998, IVAX and ALZA terminated the cost-sharing
arrangement and, as a result, the $15.0 million reserve was reversed, reflecting
an adjustment to increase the previously recognized gain on the sale of those
product rights. Also included in other income in 1998 was $12.4 million in
royalty and milestone payments received from the sale of rights to Elmiron and
certain other urology products to ALZA.
Recently Issued Accounting Standards
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, ("SAB No. 101") which requires
implementation by June 30, 2000. As a result,
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IVAX commenced a review of its revenue recognition policies for conformity with
SAB No. 101. IVAX believes its revenue recognition policies comply with the
guidance provided in SAB No. 101, except with respect to up-front and possibly
milestone cash payments received under certain licensing arrangements. SAB No.
101 generally provides that up-front payments, whether or not they are
refundable, should be deferred as revenue and recognized over the license
period. IVAX' accounting policy is to immediately recognize as revenue such cash
payments that are nonrefundable or where the probability of refund is remote.
IVAX believes its accounting policy is in accordance with generally accepted
accounting principles and practice in the pharmaceutical industry.
SAB No. 101 will require IVAX to change its accounting method for such
licensing payments by June 30, 2000. IVAX is reviewing recent contracts that
involved the receipt of significant up-front payments, but is awaiting further
implementation guidance from the SEC staff with respect to SAB No. 101 before
completing this review. To date, IVAX has identified one licensing arrangement
which may require a change in accounting method for payments received. This
arrangement may result in a cumulative change in accounting principle charge of
approximately $6.3 million, net of tax, when SAB No. 101 is implemented. The
offsetting impact will result in deferred revenue which will be recognized in
income through 2011. At this time, IVAX has not identified any other contracts
that will be impacted by SAB No. 101, but its review is continuing. Although
IVAX anticipates implementing SAB No. 101 in the second quarter of 2000, the
cumulative effect of a change in accounting principle must be retroactively
adopted as of the beginning of the first quarter of 2000.
Liquidity and Capital Resources
At December 31, 1999, working capital, excluding net assets of
discontinued operations, was $124.4 million compared to $269.5 million and
$238.9 million at December 31, 1998 and 1997, respectively. Cash and cash
equivalents were $41.4 million at December 31, 1999, compared to $208.6 million
and $199.2 million at December 31, 1998 and 1997, respectively.
Net cash provided by operations during 1999 was $62.7 million compared
to $59.3 million and $90.8 million in 1998 and 1997, respectively. The increase
in cash provided by operating activities during 1999 compared to 1998 was
primarily due to non-cash items. The decrease in cash provided by operating
activities in 1998 compared to 1997 was primarily due to the 1997 receipt of a
$52.5 million federal income tax refund and reductions in accounts receivable
and inventory resulting from increased cash collections, lower net revenues and
improved inventory management at United States generic pharmaceutical
operations.
Net cash of $37.5 million was used for investing activities during 1999
compared to $40.0 million and $372.7 million provided by investing activities in
1998 and 1997, respectively. The increase in cash used by investing activity in
1999 is primarily attributable to the payments of $5 million for the acquisition
of additional common stock of Galena, a.s., the Czech Republic subsidiary,
increasing IVAX' ownership from 74% to 86%, and $3.4 million for 100% ownership
of Institute for Drug Research, Ltd., ("IDR") in Budapest, Hungary. The 1998
cash generated by investing activities was attributable to the sale of IVAX'
personal care products business for net proceeds of $84.7 million, two
manufacturing facilities for $13.3 million, an office, packaging and warehousing
facility for $5.8 million and $12.4 million from the sale of product rights.
Offsetting these impacts were reductions of $21.9 million for capital
expenditures and $16.6 million for acquisition of patents, trademarks, licenses
and other intangibles in 1999. The decrease in 1998 compared to 1997 was due to
the 1997 sale of McGaw, Inc., the intravenous products business, for $320.0
million in cash (subject to certain post-closing adjustments), a significant
portion of the specialty chemicals business for $41.1 million in cash and
certain product rights for $75.0 million.
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The additional shares of Galena, a.s. were purchased primarily under a
tender offer, initiated May 19, 1999 and expired July 19, 1999, for all
outstanding shares. IVAX may purchase additional shares of the Czech Republic
subsidiary, as they become available.
At the 1998 sale of the personal care products business, IVAX received
$35.0 million in cash and a $50 million secured note due November 30, 1998. In
August 1998, the $50 million note was sold without recourse for $48.5 million.
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.
The sale of the intravenous products business in the second quarter of
1997 to B. Braun of America, Inc. ("B. Braun"), a subsidiary of B. Braun
Melsungen A.G., for $320.0 million in cash also included additional future
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 system, presently in development by McGaw, is a multi-compartment
intravenous drug delivery system devised for drugs that have limited stability
after mixing. To date, no contingent payments have been collected under the B.
Braun purchase agreement.
During the third quarter of 1997, IVAX completed the sale of a
significant portion of the assets of its specialty chemical business in three
separate transactions in which IVAX received a total of $41.1 million in cash.
During the third quarter of 1997, IVAX sold the United States and
Canadian marketing rights to its proprietary drug Elmiron(R) and three
additional urology products to 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. Royalty and milestone payments from the 1997 sale of rights to
Elmiron amounted to $13.0 million and $12.4 million in 1999 and 1998,
respectively.
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 operating results, liquidity or financial
position, 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 were $42.7 million in 1999
compared to $64.6 million in 1998 and $45.7 million in 1997. The decrease in
1999 compared to 1998 and the increase in 1998 compared to 1997 was due to $29.1
million of costs incurred in 1998 to complete a new headquarters at IVAX' United
Kingdom pharmaceutical operations allowing consolidation into one location.
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
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purchased Immunex's Abbreviated New Drug Application for paclitaxel, the first
filed with the U.S. Food and Drug Administration.
During the first quarter of 1997, IVAX purchased a pharmaceutical
manufacturing facility in Kirkland, Quebec, Canada (mentioned above) for $10.5
million.
Net cash of $189.0 million was used for financing activities in 1999
compared to $88.2 million in 1998 and $344.9 million in 1997. The increase in
1999 compared to 1998 was primarily due to increased repurchases of common
stock. The decrease in 1998 compared to 1997 reflected the payoff of IVAX'
revolving credit facility with a bank syndicate in the second quarter of 1997
totaling $270.1 million.
In December 1997, IVAX' Board of Directors approved a share repurchase
program authorizing IVAX to repurchase up to 7.5 million shares of IVAX common
stock. In December 1998, IVAX' Board of Directors approved an increase of 11.3
million shares to the share repurchase program. On April 13, 1999, June 17, 1999
and November 2, 1999, IVAX' Board of Directors approved additional increases in
the share repurchase program of 7.5 million, 2.3 million and 7.5 million shares,
respectively, of IVAX' common stock to supplement the 18.8 million shares
authorized in prior years, bringing the total to 36.0 million shares authorized
for repurchase. Through December 31, 1999, approximately 32.9 million shares
have been repurchased and 3.2 million remain authorized for repurchase. During
the second quarter of 1999, IVAX received $2.1 million in premiums on the
issuance of 2.3 million freestanding put options for IVAX common stock, in
connection with the share repurchase program. The put options bear strike prices
ranging from $8.96 to $9.00 and mature between March and June 2000. In the event
the put options are exercised, IVAX may elect to settle by one of three methods:
physical settlement by payment in exchange for IVAX shares, net cash settlement
or net share settlement. The maximum repurchase obligation under the physical
settlement method is $20.2 million (See Note 12, Shareholders Equity in the
Notes to Consolidated Financial Statements).
On October 12, 1999, IVAX acquired 100% ownership of the Institute for
Drug Research, Ltd., ("IDR") a pharmaceutical research and development company
in Budapest, Hungary, for $3.4 million plus assumption of $3.5 million in loans.
On November 18, 1999, IVAX issued a $50 million promissory note to
Frost-Nevada, Limited Partnership ("FNLP"), an entity related to IVAX' Chairman
and CEO. The note is due January 17, 2001 and bears interest at 10% payable
quarterly. Proceeds from the note were used to purchase IVAX common stock under
the share repurchase program (See Note 12, Shareholder's Equity). In conjunction
with the loan, FNLP was issued a warrant to purchase 750,000 shares of IVAX
common stock at an exercise price equal to the price paid for the repurchased
shares, $12 per share.
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 with a bank syndicate. 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.
During the third quarter of 1998, IVAX' Board of Directors authorized
the repurchase of $20 million face value of its 6 1/2% Convertible Subordinated
Notes. In December 1998, IVAX' 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. On August 11, 1999, IVAX'
Board of Directors approved an increase of $15.0 million of repurchases of the 6
1/2% Notes. During 1999 and 1998, IVAX repurchased a total of $31.4 million and
$16.0 million of its 6 1/2% Convertible Subordinated Notes due November 2001. On
February 9, 2000 IVAX called for redemption of the remaining balance of $43.7
million of 6 1/2% Notes.
10
In the first quarter of 1998, IVAX retired the remaining $6.7 million
of industrial revenue bonds that were due 2008. Also during 1998, IVAX'
international operations repaid $7.0 million of bank debt.
Proceeds from the exercise of stock options totaled $12.2 million, $3.0
million and $.2 million during 1999, 1998 and 1997, respectively.
No cash dividends were paid during 1999, 1998 or 1997.
IVAX plans to spend substantial amounts of capital in 2000 to continue
the research and development of pharmaceutical products. Although research and
development expenditures are expected to be between $70 million and $80 million
during 2000, actual expenditures will depend on, among other things, the outcome
of clinical testing or 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 2000 to
improve and expand its pharmaceutical and other related facilities.
IVAX' principal source 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 products under
development, that IVAX will be able to obtain regulatory approval for any such
product, or that any approved product will be produced in commercial quantities,
at reasonable costs, and be successfully marketed. IVAX may consider issuing
debt or equity securities in the future to fund potential acquisitions and
growth.
Currency Fluctuations
For 1999, 1998 and 1997, IVAX' net revenues attributable to operations
principally generated in currencies other than the United States dollar
approximated 54%, 55% and 66%, respectively. Fluctuations in the value of
foreign currencies relative to the United States dollar affect 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 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, 1999 and 1998, no IVAX subsidiaries were domiciled in highly
inflationary environments. As a result of exchange rate differences, net
revenues decreased by $11 million in 1999 compared to 1998, and decreased by $.2
million in 1998 compared to 1997.
Income Taxes
IVAX' effective tax rate was 17%, 29% and (39%) in 1999, 1998 and 1997,
respectively. IVAX recognized a $14.9 million tax provision for 1999 of which
$18.3 million relates to foreign operations and included a valuation allowance
of $4.1 million recorded in the second quarter against the UK deferred tax
asset. Offsetting the impact of the foreign provision was a net credit for
domestic taxes of $3.4 million resulting primarily from the reversal of $11.4
million of valuation allowances previously recorded against the domestic net
deferred tax asset. The effective tax rate in 1997 was negative primarily due to
an increase in the 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
11
valuation allowance in 1997 generated domestic deferred tax expense of $50.1
million, despite the fact that IVAX' domestic operations generated losses.
At December 31, 1999 and 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).
IVAX' 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' foreign and domestic taxable income
may be significantly affected by the jurisdiction in which new products are
developed and manufactured. The release of domestic valuation reserve recorded
in 1999 was based on management's estimate of U.S. taxable income in 2000.
Estimates beyond one year were not considered reliable due to the significant
losses incurred in 1996 and 1997.
At December 31, 1999, domestic and foreign net deferred tax assets
totaled $11.4 million and $10.3 million, respectively. Realization of the net
deferred tax assets is dependent upon generating sufficient future domestic and
foreign taxable income. Although realization is not assured, management believes
it is more likely than not that the net deferred tax assets will be realized.
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.
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 1999, 1998 and 1997, this credit was
approximately $2.4 million, $0 and $1.5 million, respectively, and completely
offset the entire United States tax liability of such operations. The Section
936 tax credit will be phased out over 4 years beginning in 2002.
Sales Returns and Allowances
IVAX' pharmaceutical revenues may 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 agreements 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
12
inventory levels and makes adjustments to these provisions when management
believes that actual product returns and inventory credits may differ from
established reserves.
Discontinued Operations
Income (loss) from discontinued operations totaled $.6 million, $48.9
million and ($8.7) million for the years ended December 31, 1999, 1998 and 1997,
respectively. Discontinued operations, net of taxes, in 1999 and 1998 included
the amortization of a deferred gain ($2.5 million at time of sale) on the
divestiture of the personal care products business representing principal and
interest, as collected, on a note receivable from the 1998 sale of one of the
personal care products operations that was fully reserved at the time of the
sale. Discontinued operations, net of taxes, in 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 the specialty chemical business
(through its sale in February 1998). The personal care products business had
break-even operations during 1998. Discontinued operations in 1998 reflected 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. The year ended
December 31, 1997 included a net gain on sales of the intravenous products and
specialty chemicals businesses of $12.6 million. In 1998, IVAX 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).
Risk of Product Liability Claims
Testing, manufacturing and marketing pharmaceutical products subject
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' business, results of operations or financial condition.
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' business, results of operations or financial condition (See Note
14, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements).
Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of IVAX.
IVAX, in the normal course of doing business, is exposed to the risks associated
with foreign currency exchange rates and changes in interest rates.
Foreign Currency Exchange Rate Risk - IVAX is exposed to exchange rate
risk when its U.S. and non-U.S. subsidiaries enter into transactions denominated
in currencies other than their functional currency. Certain firmly committed
transactions are hedged with forward foreign exchange contracts. As exchange
rates change, gains and losses on the exposed transactions are partially offset
by gains and losses related to the hedging contracts. Both the exposed
transactions and the hedging contracts are translated at current spot rates,
with gains and losses included in earnings. IVAX' derivative activities, which
primarily consist of forward foreign exchange contracts, are initiated primarily
to hedge third-party transactions.
The forward foreign exchange contracts generally require IVAX to
exchange local currencies for foreign currencies based on pre-established
exchange rates at the contracts' maturity dates. If the
13
counterparties to the exchange contracts do not fulfill their obligations to
deliver the contracted currencies, IVAX could be at risk for currency related
fluctuations. IVAX enters into these contracts with counterparties that it
believes to be credit worthy and does not enter into any leveraged derivative
transactions. As of December 31, 1999, IVAX had $35.5 million in forward foreign
exchange contracts outstanding.
Interest Rate Risk - IVAX' only material debt obligations relate to the
6 1/2% Convertible Subordinated Notes and the FNLP Note, which bear fixed rates
of interest. IVAX believes that its exposure to market risk relating to interest
rate risk is not material.
Commodity Price Risk - IVAX does not believe it is subject to any
material risk associated with commodity prices.
14
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by Regulation
S-X are included in this Form 10-K/A commencing on page F-1.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) In addition to the exhibits previously filed as exhibits to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999, as amended, the following additional
exhibits are filed herewith.
Exhibit Description
------- -----------
23.1 Consent of Arthur Andersen LLP.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
IVAX CORPORATION
Dated: November 7, 2000 By: /S/ Thomas E. Beier
---------------------------------
Thomas E. Beier
Senior Vice President and
Chief Financial Officer
16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
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 as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
ARTHUR ANDERSEN LLP
Miami, Florida
February 4, 2000 (except with respect to
the stock split discussed in Note 12 and
the matters discussed in Note 16, as to
which the dates are February
22, 2000 and March 10, 2000, respectively).
F-1
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
-----------------------
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 41,408 $ 208,593
Accounts receivable, net of allowances for doubtful
accounts of $22,058 ($22,834 in 1998) 110,472 109,732
Inventories 146,624 135,324
Other current assets 36,265 33,143
--------- ---------
Total current assets 334,769 486,792
Property, plant and equipment, net 226,198 210,228
Intangible assets, net 55,745 56,150
Other assets 17,802 24,845
--------- ---------
Total assets $ 634,514 $ 778,015
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 746 $ 1,229
Current portion of long-term debt 763 890
Accounts payable 48,675 48,614
Accrued income taxes payable 13,058 5,082
Accrued expenses and other current liabilities 147,154 161,466
--------- ---------
Total current liabilities 210,396 217,281
Long-term debt, net of current portion 47,854 77,776
Note payable - related party, net 45,619 --
Other long-term liabilities 8,672 12,617
Minority interest 9,414 17,133
Put options 20,188 --
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 152,235 shares (172,253 in 1998) 15,224 11,484
Capital in excess of par value 232,318 453,293
Retained earnings (accumulated deficit) 71,689 (700)
Accumulated other comprehensive loss (26,860) (10,869)
--------- ---------
Total shareholders' equity 292,371 453,208
--------- ---------
Total liabilities and shareholders' equity $ 634,514 $ 778,015
========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these balance sheets.
F-2
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
NET REVENUES $ 656,269 $ 625,573 $ 594,286
COST OF SALES 369,135 396,752 479,982
--------- --------- ---------
Gross profit 287,134 228,821 114,304
--------- --------- ---------
OPERATING EXPENSES:
Selling 78,979 79,508 100,220
General and administrative 85,102 88,434 116,185
Research and development 54,164 48,615 53,409
Amortization of intangible assets 3,121 3,673 3,760
Restructuring costs and asset write-downs (612) 12,222 38,088
Merger expenses -- -- 2,343
--------- --------- ---------
Total operating expenses 220,754 232,452 314,005
--------- --------- ---------
Income (loss) from operations 66,380 (3,631) (199,701)
OTHER INCOME (EXPENSE):
Interest income 6,142 11,972 5,738
Interest expense (5,556) (6,857) (14,685)
Other income, net 19,513 32,777 53,366
--------- --------- ---------
Total other income 20,099 37,892 44,419
--------- --------- ---------
Income (loss) from continuing operations
before income taxes and minority interest 86,479 34,261 (155,282)
PROVISION FOR INCOME TAXES 14,850 10,047 60,166
--------- --------- ---------
Income (loss) from continuing operations
before minority interest 71,629 24,214 (215,448)
MINORITY INTEREST (2,085) 403 (4,086)
--------- --------- ---------
Income (loss) from continuing operations 69,544 24,617 (219,534)
DISCONTINUED OPERATIONS, NET OF TAXES 585 48,904 (8,701)
--------- --------- ---------
Income (loss) before extraordinary item and
cumulative effect of a change in accounting
principle 70,129 73,521 (228,235)
EXTRAORDINARY ITEM:
Gains (losses) on extinguishment of debt, net of tax 593 1,121 (2,137)
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) $ 70,722 $ 71,594 $(233,254)
========= ========= =========
(Continued)
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-3
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Continued)
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.43 $ 0.14 $ (1.21)
Discontinued operations -- 0.27 (0.05)
Extraordinary items 0.01 0.01 (0.01)
Cumulative effect of a change in accounting principle -- (0.02) (0.01)
----------- ----------- -----------
Net income (loss) $ 0.44 $ 0.40 $ (1.28)
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.42 $ 0.14 $ (1.21)
Discontinued operations -- 0.27 (0.05)
Extraordinary items 0.01 0.01 (0.01)
Cumulative effect of a change in accounting principle -- (0.02) (0.01)
----------- ----------- -----------
Net income (loss) $ 0.43 $ 0.40 $ (1.28)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 161,508 178,674 182,243
=========== =========== ===========
Diluted 164,401 178,897 182,243
=========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-4
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, 1997 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)
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
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
---------
Comprehensive income:
Net income -- -- -- 70,722 -- 70,722
Translation adjustment -- -- -- -- (16,077) (16,077)
Unrealized net gain on
available-for-sale equity
securities -- -- -- -- 86 86
---------
Comprehensive income 54,731
Exercise of stock options 1,263 126 12,098 -- -- 12,224
Repurchase of common stock (14,851) (1,485) (219,913) -- -- (221,398)
Shares issued in acquisition 243 24 4,976 -- -- 5,000
Premium received on put options -- -- 2,079 -- -- 2,079
Put options - temporary equity -- -- (20,188) -- -- (20,188)
Warrants issued -- -- 4,875 -- -- 4,875
Pre-acquisition earnings of acquired company -- -- -- 1,667 -- 1,667
Value of stock options issued to
non-employees -- -- 173 -- -- 173
Effect of 3-for-2 stock split 50,745 5,075 (5,075) -- -- --
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1999 152,235 $ 15,224 $ 232,318 $ 71,689 $ (26,860) $ 292,371
========= ========= ========= ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-5
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 70,722 $ 71,594 $(233,254)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Restructuring costs and asset write-downs (612) 12,222 38,088
Depreciation and amortization 29,108 32,552 38,462
Deferred tax provision (benefit) (4,910) 3,623 50,194
Provision for allowance for doubtful accounts 4,147 7,650 8,973
Minority interest 2,085 (403) 4,086
Gain on sale of product rights (13,033) (27,350) (43,224)
Losses on disposal of assets, net 338 844 2,861
Losses (gains) on extinguishment of debt (593) (1,121) 2,137
Cumulative effect of a change in accounting principle -- 3,048 4,177
Loss (income) from discontinued operations (585) (48,904) 8,701
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (9,195) (9,586) 75,783
Decrease (increase) in inventories (16,631) 13,699 50,294
Decrease (increase) in other current assets 6,785 (10,567) 51,583
Decrease (increase) in other assets 1,266 8,000 (5,603)
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities (3,038) (2,867) 21,954
Increase (decrease) in other long-term liabilities (3,310) 907 (292)
Other, net (446) 891 (998)
Net cash provided by operating activities of discontinued operations 585 5,028 16,876
--------- --------- ---------
Net cash flows from operating activities 62,683 59,260 90,798
--------- --------- ---------
Cash flows from investing activities:
Proceeds from divestitures -- 87,885 361,105
Proceeds from sale of product rights 13,033 12,350 75,000
Capital expenditures (42,685) (64,622) (45,741)
Proceeds from sales of assets 932 22,159 8,757
Acquisitions of patents, trademarks, licenses and other intangibles (903) (17,543) (1,710)
Acquisitions of businesses and facilities, net of cash acquired (8,345) -- (10,500)
Investment in affiliated companies 465 -- --
Net investing activities of discontinued operations -- (202) (14,186)
--------- --------- ---------
Net cash flows from investing activities (37,503) 40,027 372,725
--------- --------- ---------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 53,059 3,895 47,989
Payments on long-term debt and loans payable (34,956) (29,152) (392,914)
Issuance of common stock 12,224 2,958 152
Repurchases of common stock (219,319) (65,931) --
Net financing activities of discontinued operations -- 10 (92)
--------- --------- ---------
Net cash flows from financing activities (188,992) (88,220) (344,865)
--------- --------- ---------
Effect of exchange rate changes on cash (3,373) (1,709) (229)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (167,185) 9,358 118,429
Cash and cash equivalents at the beginning of the year 208,593 199,235 80,806
--------- --------- ---------
Cash and cash equivalents at the end of the year $ 41,408 $ 208,593 $ 199,235
========= ========= =========
(Continued)
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-6
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
Year Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Supplemental disclosures:
Interest paid $ 4,572 $ 6,628 $ 21,313
======== ======== ========
Income tax payments (refunds) $ 3,913 $ 16,196 $(42,683)
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
Information with respect to 1999 acquisitions which were accounted for
under the purchase method of accounting is summarized as follows:
Fair value of assets acquired $ 12,308
Liabilities assumed 3,941
--------
8,367
Reduction of minority interest 7,046
--------
Net assets acquired 15,413
--------
Purchase price:
Cash (including related acquisition costs) 8,345
Fair market of stock issued 5,000
--------
Total 13,345
--------
Negative goodwill $ (2,068)
========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-7
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 proprietary
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.
(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' actual results in subsequent periods may
differ from the estimates and assumptions used in the preparation of the
accompanying consolidated financial statements. Significant estimates include
amounts for accounts receivable exposures, deferred tax asset allowances,
inventory reserves, environmental reserves, litigation, restructuring costs and
sales returns and allowances, including chargebacks, rebates, returns and
shelf-stock adjustments. Significant assumptions include IVAX' belief that the
outcome of contingencies indemnified by IVAX in the sale of certain businesses
will not have a material effect on future operations and that the probability of
a refund of previously recognized licensing revenue and gain on sale of product
rights is remote.
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.
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,
--------------------
1999 1998
-------- --------
Raw materials $ 62,932 $ 47,528
Work-in-process 10,773 27,878
Finished goods 72,919 59,918
-------- --------
Total inventories $146,624 $135,324
======== ========
F-8
Property, Plant and Equipment - Property, plant and equipment are
carried at cost less accumulated depreciation and amortization and consist of
the following:
December 31,
--------------------
1999 1998
-------- --------
Land $ 12,443 $ 9,816
Buildings and improvements 164,139 148,182
Machinery and equipment 159,654 154,141
Furniture and computer equipment 55,577 51,691
-------- --------
Total cost 391,813 363,830
Less: Accumulated depreciation and amortization 165,615 153,602
-------- --------
Property, plant and equipment, net $226,198 $210,228
======== ========
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 that 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,
------------------
1999 1998
------- -------
Cost in excess of net assets of acquired companies $12,936 $15,492
Patents, trademarks, licenses and other intangibles 60,986 61,946
------- -------
Total cost 73,922 77,438
Less: Accumulated amortization 18,177 21,288
------- -------
Intangible assets, net $55,745 $56,150
======= =======
Cost in excess of net assets of acquired companies (goodwill) 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 4-20
years). As of December 31, 1999, the weighted average life of patents,
trademarks, licenses and other intangibles was 10.5 years. During 1999, IVAX
acquired a variety of patents in a purchase of Soft Drugs for $5,000 of IVAX
stock. IVAX also paid $5,000 for additional shares of Galena a.s. which resulted
in negative goodwill of $2,068. Intangible assets, net decreased from 1998 to
1999 as a result of currency translation partially offset by the above
transactions. 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
F-9
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).
Foreign Currencies - IVAX' 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 Loss" caption in the shareholders'
equity section of the accompanying consolidated balance sheets. Amounts in the
statements of operations are translated at the average rates for the period.
Financial Instruments - The carrying amounts of cash and cash
equivalents, accounts receivable, loans payable and accounts 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 $35,515 at December 31,
1999, which mature January 2000 through September 2000, and $22,499 at December
31, 1998, which matured in January 1999 through September 1999.
In addition, IVAX has short-term 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 gains and losses on
these contracts are included in the consolidated statements of operations as
they arise. IVAX Corporation, the parent company, itself did not hold foreign
exchange forward contracts at December 31, 1999, 1998 or 1997. For the years
ended December 31, 1999 and 1998, IVAX recorded net foreign exchange losses of
$2,934 and $893, respectively. IVAX recorded net foreign exchange gains of $426
during 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 $121,286, $131,273 and $228,634 in
the years ended December 31, 1999, 1998 and 1997, 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 $38,065 and
$61,241, respectively, at December 31, 1999 and $42,366 and $69,044,
respectively, at December 31, 1998.
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.
F-10
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 license 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. Up-front and milestone payments that are nonrefundable or where the
probability of refund is remote are recognized as revenue when cash is received.
Net revenues in 1999 and 1998 included $1,214 and $8,286, respectively, of
milestone and up-front payments received under a license agreement that is
refundable based on the occurrence of certain events. IVAX believes the
probability of occurrence of these events is remote as the events are
controllable by IVAX.
Research and Development Costs - Research and developments costs
related to future products are expensed currently.
Income Taxes - The provision for income taxes is based on the
consolidated United States entities' and individual foreign companies' estimated
tax rates for the applicable year. Deferred taxes are determined utilizing the
asset and liability method 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).
Earnings (Loss) Per Common Share - All share amounts have been restated
to reflect the 3-for-2 stock split which was effective February 22, 2000 (See
Note 12, Shareholders' Equity). A reconciliation of the denominator of the basic
and diluted earnings per share computation is as follows (in thousands):
Year Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
Basic weighted average number of shares outstanding 161,508 178,674 182,243
Effect of dilutive securities - stock options and warrants 2,893 223 --
------- ------- -------
Diluted weighted average number of shares outstanding 164,401 178,897 182,243
======= ======= =======
Not included in the calculation of diluted earnings per
share because their impact is antidilutive:
Stock options outstanding 3,179 6,953 15,086
Warrants 2,063 3,546 4,300
Put options 2,250 -- --
F-11
Stock-Based Compensation Plans - As permissible under Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, IVAX accounts for all stock-based compensation arrangements using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and discloses pro forma net
earnings and earnings per share amounts as if the fair value method had been
adopted. Accordingly, no compensation cost is recognized for stock option awards
granted at or above fair market value. Additionally, the pro forma net earnings
and earnings per share amounts are presented in Note 12, Shareholders' Equity.
Change in Accounting Principle - Statement of Position ("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
$.02 per share during 1998.
Emerging Issues Task Force ("EITF") Abstract No. 97-3 requires that the
costs of business process reengineering activities be expensed as incurred.
Accordingly, during the fourth quarter of 1997, IVAX reported a charge of $2,882
(net of a tax benefit of $1,295), or $.01 per share, for the write-off of
business process reengineering costs previously capitalized. Such costs are
being expensed as incurred prospectively.
Recently Issued Accounting Standards - IVAX is required to adopt SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, amends the effective date of SFAS
No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
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 shall
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' consolidated
financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, ("SAB No. 101") which requires
implementation by June 30, 2000. As a result, IVAX commenced a review of its
revenue recognition policies for conformity with SAB No. 101. IVAX believes its
revenue recognition policies comply with the guidance provided in SAB No. 101,
except with respect to up-front and possibly milestone cash payments received
under certain licensing arrangements. SAB No. 101 generally provides that
up-front payments, whether or not they are refundable, should be deferred as
revenue and recognized over the license period. IVAX' accounting policy is to
immediately recognize as revenue such cash payments that are nonrefundable or
where the probability of refund is remote. IVAX believes its accounting policy
is in accordance with generally accepted accounting principles and practice in
the pharmaceutical industry.
SAB No. 101 will require IVAX to change its accounting method for such
licensing payments by June 30, 2000. IVAX is reviewing recent contracts that
involved the receipt of significant up-front payments, but is awaiting further
implementation guidance from the SEC staff with respect to SAB No. 101 before
completing this review. To date, IVAX has identified one licensing arrangement
which may require a change in accounting method for payments received. This
arrangement may result in a cumulative change in accounting principle charge of
approximately $6,300, net of tax, when SAB No. 101 is implemented. The
offsetting impact will result in deferred revenue which will be recognized in
income through 2011. At this time, IVAX has not identified any other contracts
that will be impacted by SAB No. 101, but its review is continuing. Although
IVAX anticipates implementing SAB No. 101 in the second quarter of 2000, the
cumulative effect of a change in accounting principle must be retroactively
adopted as of the beginning of the first quarter of 2000.
F-12
(3) RESTRUCTURING COSTS AND ASSET WRITE-DOWNS:
During 1997, IVAX continued its 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 the facilities held for sale in connection
with the 1996 restructuring program. The employee termination benefits during
1997 primarily represented severance pay and other benefits associated with the
elimination of approximately 275 employee positions at IVAX' corporate
headquarters and throughout all functions of IVAX' 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.
During 1998, IVAX continued it 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 1998, IVAX recorded a pre-tax charge of
$13,562 comprised of $3,648 for severance and other employee termination
benefits, $4,308 associated with lease commitments, $215 for the write-down of
leasehold improvements and $5,391 in asset write-downs resulting from
management's re-evaluation of the carrying value of certain long-lived assets
primarily in conjunction with initiatives to further consolidate facilities of
IVAX' United Kingdom operations. This restructuring plan eliminated 260
positions from the workforce through 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 re-evaluation of the carrying value of certain
long-lived assets of IVAX' domestic generic pharmaceutical operations due to
facility consolidation and market conditions. The New Jersey restructuring plan
eliminated 165 positions. This restructuring and the continued consolidation of
manufacturing are 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 that were ultimately not needed primarily
related to two facilities that were sold in 1998.
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. In 1999, IVAX substantially ceased manufacturing at
its Northvale, New Jersey manufacturing facility. Production from these
facilities has been 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.
F-13
The components of the restructuring costs and asset write-downs,
spending and other activity, as well as the remaining restructuring reserve
balances at December 31, 1999, 1998 and 1997 are shown in the table below. The
restructuring reserve balances are included in "Accrued expenses and other
current liabilities" in the accompanying consolidated balance sheets. The asset
write-down column represents asset impairment losses for assets to be used in
operations as well as assets to be disposed of. In 1998 and 1999, due to changes
in circumstances, IVAX determined the asset impairments recorded for assets held
for disposal were higher than necessary and reversed such amounts into income.
These reversals are shown separately in the asset write-down column.
Annual
Restructuring
Employee Total Asset Costs And
Termination Plant Restructuring Write- Asset Write-
Benefits Closures Reserves downs downs
-------- -------- -------- ------- -------
Balance at January 1, 1997 $ 1,954 $ 2,654 $ 4,608
1997 restructuring costs and asset
write-downs 5,094 9,180 14,274 $ 23,814 $ 38,088
Cash payments during 1997 (2,400) (1,360) (3,760)
Non-cash activities (101) (1,107) (1,208)
--------- -------- --------- ----------
Balance at December 31, 1997 4,547 9,367 13,914 38,088
==========
1998 restructuring costs and asset
write-downs 6,305 8,740 15,045 14,164 29,209
Reversal of restructuring costs and
asset write-downs charged in
prior years (442) (7,741) (8,183) (8,804) (16,987)
Cash payments during 1998 (3,538) (3,042) (6,580)
Non-cash activity (1,098) 936 (162)
--------- -------- --------- ----------
Balance at December 31, 1998 5,774 8,260 14,034 12,222
==========
Reversal of restructuring costs and
asset write-downs charged in
prior years (73) - (73) (539) (612)
Cash payments during 1999 (4,264) (3,539) (7,803)
Non-cash activities 123 (298) (175)
--------- -------- --------- ----------
Balance at December 31, 1999 $ 1,560 $ 4,423 $ 5,983 $ (612)
========= ======== ========= ==========
(4) MERGERS AND ACQUISITIONS:
During 1999, IVAX increased its ownership interest in Galena, a.s. from
74% to 86% primarily through a tender offer and open market purchases. The total
cost of the shares acquired was $4,978. The net book value underlying the share
purchases was $7,046, resulting in negative goodwill of $2,068 being recorded in
the accompanying consolidated balance sheet.
On August 9, 1999, IVAX acquired a 30% interest in Indiana Protein
Technologies ("IPT"), a U.S. biotechnology research company, in exchange for a
development agreement in which IVAX, through its U.S. subsidiary, Baker Norton
Pharmaceuticals, will fund research and development of certain peptide-based
biotech pharmaceutical products. In the event that these projects are
successful, IVAX will receive an exclusive worldwide license to market the
products, with a royalty payable to IPT on profit from the sale of the products.
During 1999, $775 was funded to IPT, $233 of which is recorded in other assets
and the remainder is expensed as "Research and development expenses" in the
accompanying statement of operations for 1999.
On October 12, 1999, IVAX, through its Netherlands subsidiary, IVAX
International B.V. and Swiss subsidiary, IVAX Holdings A.G., acquired 100%
ownership of the Institute for Drug Research, Ltd., ("IDR") a pharmaceutical
research and development company in Budapest, Hungary, for $3,367 plus
assumption of $3,540 in loans.
On December 20, 1999, IVAX acquired Soft Drugs, a U.S. company with
ownership of certain patents for $5,000 in stock of IVAX, which was accounted
for as a purchase. In the event that IVAX does not utilize at least one of these
patents within thirty months, the prior owners may be required to return half of
the stock in exchange for the return of certain patents.
F-14
(5) DIVESTITURES:
Effective May 30, 1997, IVAX sold McGaw, Inc., its intravenous products
business, 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.
To date, no contingent payments have been collected.
During the third quarter of 1997, IVAX completed the sale of a
significant portion of the assets of its specialty chemical's business in three
separate transactions in which IVAX received an aggregate of $41,105 in cash.
During the first quarter of 1998, IVAX sold its vacuum pump fluids
business, the only remaining segment of IVAX' 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.
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 product subsidiaries.
The note is payable at $250 of principal plus interest per quarter. As of
December 31, 1999 and 1998, $1,500 and $2,250, respectively, of the gain on sale
related to this note was deferred. The gain on sale and results of operations of
the intravenous products, specialty chemicals and personal care products
businesses were classified as part of discontinued operations during 1998 and
1997 (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"). Although this sale represented an exit by
IVAX from the urology business in 1997, IVAX retained the rights to these
products outside of the United States and Canada. IVAX received $75,000 in
up-front payments in 1997. 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. 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, and 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' 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.
Royalty and milestone payments from the 1997 sale of rights to Elmiron(R) and
certain other urology products in the United States and Canada to ALZA amounted
to $13,033 and $12,350 in 1999 and 1998, respectively, and are included in other
income as additional gain on the sale of product rights. Royalties and milestone
payments receivable from ALZA included in "Other current assets" in the
accompanying consolidated balance sheets totaled $10,344 and $10,005 at December
31, 1999 and 1998, respectively. IVAX may receive additional royalties and
milestone payments from ALZA based on sales of the products during the
F-15
next few years. A portion of the up-front and milestone payments received and
included in other income, $32,200 as of December 31, 1999, is refundable if a
generic equivalent of Elmiron(R) is introduced by another company and IVAX'
patent rights are found to be invalid. IVAX believes the probability of
occurrence of these events is remote.
(7) DISCONTINUED OPERATIONS:
During 1997, IVAX' Board of Directors decided 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. The divestiture of
businesses classified as discontinued operations was completed in 1998. Results
of these operations were as follows:
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Intravenous Products (through May 30, 1997)
Net revenues (1) $ -- $ -- $ 140,634
========= ========= =========
Income from operations before taxes (2) $ -- $ -- $ 3,770
Income tax benefit -- -- (427)
--------- --------- ---------
Income from operations $ -- $ -- $ 4,197
--------- --------- ---------
Personal Care Products (through July 14, 1998)
Net revenues (1) $ -- $ 42,583 $ 73,870
========= ========= =========
Loss from operations before taxes (2) $ -- $ -- $ (18,254)
Income tax provision -- -- 3,283
--------- --------- ---------
Loss from operations $ -- $ -- $ (21,537)
--------- --------- ---------
Specialty Chemicals (3)
Net revenues (1) $ -- $ 850 $ 41,562
========= ========= =========
Loss from operations before taxes (2) $ -- $ -- $ (1,749)
Income tax provision -- -- 2,235
--------- --------- ---------
Loss from operations $ -- $ -- $ (3,984)
--------- --------- ---------
Sub-total loss from operations $ -- $ -- $ (21,324)
--------- --------- ---------
Divestitures (See Note 5)
Pre-tax gain on divestitures $ 585 $ 48,904 $ 44,715
Income tax provision -- -- 32,092
--------- --------- ---------
Net gain on divestitures $ 585 $ 48,904 $ 12,623
--------- --------- ---------
Total income (loss) from discontinued operations $ 585 $ 48,904 $ (8,701)
========= ========= =========
(1) Net revenues include intersegment sales of $14 and $569 for 1998 and
1997, respectively.
(2) Includes an allocation of interest expense of $(232) and $5,799 for
1998 and 1997, respectively, based on the ratio of net assets of each
of the discontinued businesses to IVAX' 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.
F-16
(8) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
IVAX has ownership interests of 50% in various unconsolidated
affiliates. Undistributed earnings of these affiliates, as well as IVAX' equity
in their earnings, were not significant in any of the periods presented in the
accompanying consolidated financial statements.
At December 31, 1999 and 1998, 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 $918 and $785, respectively, and are
included in "Other assets" in the accompanying consolidated balance sheets. At
December 31, 1999 and 1998, net unrealized gains of $86 and $959, 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,
------------------
1999 1998
------- -------
6 1/2% Convertible Subordinated Notes due 2001. Interest payable
semi-annually. Convertible at the option of the holders into
2,063 and 3,546 shares of common stock at December 31, 1999
and 1998, respectively, at a conversion rate of $21.17 per share $43,661 $75,066
International subsidiaries' debt 4,945 3,551
Other 11 49
------- -------
Total long-term debt 48,617 78,666
Current portion of long-term debt 763 890
------- -------
Long-term debt, net of current portion $47,854 $77,776
======= =======
10% Note from related party due January 2001. Interest payable quarterly. $45,619 $ --
======= =======
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' Board of Directors authorized the repurchase of
$20,000 face value of its 6 1/2% Convertible Subordinated Notes. In December
1998, IVAX' 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. On August 11, 1999, IVAX' Board of Directors
approved an increase of $15,000 of repurchases of the 6 1/2% Notes. During 1999
and 1998, IVAX repurchased a total of $31,405 and $15,959 of its 6 1/2%
Convertible Subordinated Notes due November 2001. Extraordinary gains of $593
and $1,121 were recorded related to the debt repurchases during the years ended
December 31, 1999 and 1998, respectively.
On November 18, 1999, IVAX issued a $50,000 promissory note to
Frost-Nevada, Limited Partnership ("FNLP"), an entity related to IVAX' Chairman
and CEO. The note is due January 17, 2001 and bears interest at 10% payable
quarterly. Proceeds from the note were used to purchase IVAX common stock under
the share repurchase program (See Note 12, Shareholders' Equity). In conjunction
with the loan, FNLP was issued a warrant to purchase 750 shares of IVAX common
stock at an exercise price equal to the price paid for the repurchased shares,
$12 per share. The warrant is exercisable through November 2006. The fair value
of the warrant using the Black-Scholes option pricing model was $4,875
F-17
which was credited to capital in excess of par value. The note is recorded net
of the remaining value of the warrant, which is being amortized to interest
expense over the term of the note.
Certain of IVAX' international subsidiaries maintain relationships with
foreign banks providing short-term lines of credit in the aggregate amount of
approximately $19,000 at December 31, 1999 and 1998. Short-term borrowings
totaled $746 and $1,229 at December 31, 1999 and 1998, respectively, and are
included as "Loans payable" in the accompanying consolidated balance sheets.
The estimated fair values of long term notes and debt are as follows:
December 31,
------------------
1999 1998
------- -------
6 1/2% Convertible Subordinated Notes due 2001 $42,569 $72,063
10% Note 45,619 --
Other 4,956 3,600
------- -------
Total $93,144 $75,663
======= =======
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 $763, $90,026, $629, $632, $7 and $2,179,
respectively.
(10) INCOME TAXES:
The provision for income taxes on continuing operations consists of the
following:
Year Ended December 31,
---------------------------------
1999 1998 1997
-------- -------- --------
Current:
U.S. Federal $ 6,505 $ -- $ --
State 1,439 -- --
Puerto Rico and the U.S. Virgin Islands 81 509 679
Foreign 11,735 5,915 9,293
Deferred (4,910) 3,623 50,194
-------- -------- --------
Total $ 14,850 $ 10,047 $ 60,166
======== ======== ========
The components of income (loss) from continuing operations before
income taxes and minority interest are as follows:
Year Ended December 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
United States $ 43,339 $ 29,128 $(189,427)
Puerto Rico and the U.S. Virgin Islands 6,874 (991) 4,389
Foreign 36,266 6,124 29,756
--------- --------- ---------
Total $ 86,479 $ 34,261 $(155,282)
========= ========= =========
F-18
A reconciliation of the difference between the expected provision
(benefit) for income taxes using the statutory U.S. Federal tax rate and IVAX'
actual provision is as follows:
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Tax using statutory U.S. Federal tax rate $ 30,268 $ 11,991 $ (54,349)
Effect of state income taxes 833 -- --
Write-down of non-deductible cost in excess of
net assets of acquired companies 63 71 3,270
Utilization of net operating loss carryforwards (18,900) -- --
Establishment (reduction) of valuation
allowance on deferred tax assets (11,365) (10,575) 114,660
Foreign tax rate differential (2,194) (2,476) (5,949)
Effect of Puerto Rico taxes and tollgate 81 509 679
Puerto Rico and U.S. possessions tax incentives (2,406) -- (1,536)
Foreign operating losses 5,275 3,523 3,568
Tax claims and other matters 5,094 3,033 --
Other 8,101 3,971 (177)
--------- --------- ---------
Total $ 14,850 $ 10,047 $ 60,166
========= ========= =========
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 and, as a result,
the valuation allowance was reduced by $18,900 in 1999 and $44,975 in 1998. All
of the $18,900 reduction in 1999 was used against domestic continuing
operations. The $44,975 reduction in 1998 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. During 1999, the
valuation allowance was also reduced by $11,365 in recognition of future net
operating loss benefits reasonably expected to be realized in the coming year
and the related deferred tax asset is included in other current assets in the
accompanying consolidated balance sheets. Estimates beyond one year were not
considered reliable due to the significant losses incurred in 1996 and 1997. The
domestic deferred tax asset was fully reserved as of December 31, 1997 and 1998,
and approximately 90 percent reserved as of December 31, 1999.
Net foreign deferred tax assets amounted to $10,337 at December 31,
1999. Realization of the net deferred tax assets is dependent upon generating
sufficient future domestic and foreign taxable income. Although realization is
not assured, management believes it is more likely than not that the remaining
additional net deferred tax assets will be realized based upon estimated future
taxable income. 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 income 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 income taxes.
F-19
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,
---------------------
1999 1998
-------- --------
Accounts receivable allowances $ 26,698 $ 13,710
Reserves and accruals 18,939 22,411
Differences in capitalization of inventory costs 347 321
Other 217 (337)
Valuation allowance (33,952) (34,851)
-------- --------
Amount included in "Other current assets" 12,249 1,254
-------- --------
Basis differences on fixed assets 9,240 9,085
Depreciation differences on fixed assets 3,640 3,731
Recognition of revenue (1,137) (708)
Carrying value of long-term assets 18 8,266
Other (288) 1,991
Tax credits 10,960 10,946
Net operating losses 39,977 55,776
Valuation allowance (52,957) (73,407)
-------- --------
Amount included in "Other assets" 9,453 15,680
-------- --------
Other (2,286) (2,314)
-------- --------
Amount included in "Other long-term liabilities" (2,286) (2,314)
-------- --------
Net deferred tax asset $ 19,416 $ 14,620
======== ========
Income from Zenith Laboratories, Inc.'s ("Zenith") Puerto Rico
manufacturing operations is subject to certain tax exemptions under the terms of
a grant from the Puerto Rico government which will expire in 2017. The grant
reduced tax expense by approximately $747, $0 and $575 for the years ended
December 31, 1999, 1998 and 1997, 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 1999, 1998 and 1997, this credit was
approximately $2,406, $0 and $1,536, 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 4 years
beginning in 2002. Under the current tax law, no tax credit will be available
after December 31, 2005.
At December 31, 1999, IVAX has a U.S. net operating loss carryforward
of $105,203, which is comprised of:
Begin to Expire Amount
--------------- ---------
2003 $ 25,650
2012 79,553
---------
Total $ 105,203
=========
Of this amount, $25,650 represents limited net operating loss carryover
which can be used only at an annual rate of $3,028.
F-20
A portion of the net operating loss carryforwards, $21,120, relate to
the exercise of certain stock options, and, as a result, the future benefits of
$7,390 which will be 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, 1999, IVAX had consolidated tax credit carryforwards of
$10,960. The tax credits are comprised of foreign tax credits of $1,496, which
begin to expire in 2000, $1,131 of research and development credits, which begin
to expire in 2008, and $8,333 of minimum tax credits, which never expire.
Minority interest included in the accompanying consolidated statements
of operations is net of a provision for income taxes of ($2,049), $996, and
$2,228 for the years ended December 31, 1999, 1998 and 1997, respectively.
(11) 401(k) PLANS:
IVAX' employees within the United States and the Virgin Islands are
eligible to participate in a 401(k) retirement plan and Puerto Rico employees
are eligible to participate in a 165(e) plan, 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, 1999, 1998 and 1997
were $816, $627 and $2,025, respectively.
(12) SHAREHOLDERS' EQUITY:
Stock Split - On January 14, 2000, IVAX' Board of Directors approved a
3-for-2 stock split effective February 22, 2000, in the form of a stock dividend
for shareholders of record February 1, 2000. All weighted average share,
outstanding share, per share earnings and price and stock plan data contained in
the accompanying financial statements have been retroactively restated to give
effect to the stock split. To reflect the split, common stock was increased and
capital in excess of par value was decreased by $5,075.
Stock Option Plans - IVAX administers and has stock options outstanding
under IVAX' 1997 Employee Stock Option Plan ("1997 Plan"), IVAX' 1994 Stock
Option Plan ("1994 Plan"), IVAX' 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 6,000 shares of IVAX common stock. On February 26,
1999, IVAX' Board of Directors approved an increase to 12,000 shares of IVAX
common stock that may be issued under the 1997 Plan. The 1994 Plan permits the
issuance of options to employees, non-employee directors and consultants to
purchase up to 10,500 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 terms shall not
exceed ten years.
F-21
The following table presents additional information concerning the
activity in the stock option plans (number of shares in thousands):
1999 1998 1997
------------------------- ------------------------- -------------------------
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 13,445 $ 9.50 15,086 $ 13.25 15,153 $ 15.00
Granted 894 9.53 8,046 5.83 3,731 7.11
Exercised (1,895) 6.45 (597) 4.96 (63) 2.39
Terminated (2,652) 12.00 (9,090) 12.77 (3,735) 14.41
------ ------ ------
Balance at end of year 9,792 9.14 13,445 9.50 15,086 13.25
====== ====== ======
Exercisable at December 31, 5,326 $ 10.83 7,395 $ 11.62 9,330 $ 13.75
The following table summarizes information about fixed stock options
outstanding at December 31, 1999 (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 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
0.00 - 2.43 1 2.6 $ 2.38 1 $ 2.38
2.44 - 4.85 252 4.5 4.57 139 4.56
4.86 - 7.28 5,494 4.9 5.98 2,279 5.84
7.29 - 9.70 890 5.5 8.55 248 8.27
9.71 - 12.13 502 5.5 10.76 142 11.15
12.14 - 14.55 1,456 1.1 13.86 1,441 13.86
14.56 - 16.98 210 2.6 16.10 210 16.10
16.99 - 19.40 764 3.1 18.06 645 18.11
19.41 - 21.83 23 1.9 20.89 21 20.94
21.84 - 24.25 200 1.1 23.25 200 23.25
----------- -----------
9,792 4.1 9.14 5,326 10.83
=========== ===========
In December 1997, IVAX instituted a stock option exchange program in
which it offered holders of certain outstanding out-of-the-money (exercise price
in excess of then market prices) 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 4,500 stock options with exercise prices ranging from $6.59
to $23.25 were exchanged for approximately 3,150 stock options with an exercise
price of $5.55.
F-22
IVAX' 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,
-----------------------------------------
1999 1998 1997
---------- ---------- ----------
Net income (loss) as reported $ 70,722 $ 71,594 $ (233,254)
Pro forma net income (loss) 66,298 65,973 (241,452)
Basic EPS as reported 0.44 0.40 (1.28)
Pro forma basic EPS 0.41 0.37 (1.33)
Diluted EPS as reported 0.43 0.40 (1.28)
Pro forma diluted EPS 0.40 0.37 (1.32)
Pro forma weighted average fair value of options granted $ 4.05 $ 1.53 $ 4.80
Expected life (years) 4.1 4.6 4.8
Risk-free interest rate 4.57%-6.08% 4.37%-5.65% 5.51%-6.75%
Expected volatility 27% 27% 28%
Dividend yield 0% 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. In
addition, valuations are based on highly subjective assumptions about the
future, including stock price, volatility and exercise patterns.
Employee Stock Purchase Program - On June 17, 1999, the IVAX
Corporation 1999 Employee Stock Purchase Plan ("ESPP") was approved at the
Annual Meeting of Shareholders. IVAX' Board of Directors also approved the
purchase of common stock in the open market, as needed, for the ESPP. The
maximum number of shares available for sale under the ESPP is 4,200 subject to
future increases as stated in the plan. The ESPP became effective January 1,
2000 for employees based in the United States and Puerto Rico and allows them to
purchase IVAX common stock at 85% of the fair market value on the enrollment
date or exercise date, whichever is lower. The maximum amount of stock an
employee may purchase in a year is $25 and subsequent resale is restricted as
stated in the plan.
Share Repurchase Program - In December 1997, IVAX' Board of Directors
approved a share repurchase program authorizing IVAX to repurchase up to 7,500
shares of IVAX common stock. In December 1998, IVAX' Board of Directors approved
an increase of 11,250 shares to a total of 18,750 shares of IVAX common stock
that may be repurchased. In April, June and November 1999, IVAX' Board of
Directors approved increases of 7,500, 2,250, and 7,500 shares, respectively in
the share repurchase program. Cumulatively through December 31, 1999, IVAX
repurchased 32,897 shares of common stock at a total cost, including
commissions, of $287,329. Under Florida law, repurchased shares constitute
authorized but unissued shares.
Put Options- During the second quarter of 1999, IVAX issued 2,250
free-standing put options for IVAX common stock in connection with its share
repurchase program, as approved by the Board of Directors. These put options
bear strike prices ranging from $8.96 to $9.00 and will mature between March
2000 and June 2000, and generated premiums totaling $2,079 which were credited
to "Capital in excess of par value" in the accompanying consolidated balance
sheet. In the event the put options are exercised, IVAX may elect to settle by
one of three methods: physical settlement by payment in exchange for IVAX
shares, net cash settlement or net share settlement. The maximum potential
repurchase
F-23
obligation of $20,188 for physical settlement has been reclassified from
"Capital in excess of par value" into a temporary equity account - "Put options"
in the accompanying consolidated balance sheet at December 31, 1999. In the
event the put options expire unexercised, the obligation associated with these
instruments will be extinguished and the amount reclassified into "Capital in
excess of par value". At December 31, 1999, the market value of IVAX' common
stock exceeded the strike prices of the put options.
Diagnostics Stock Option Plan - Effective June 29, 1999, the Board of
Directors of IVAX Diagnostics, Inc., a wholly owned subsidiary of IVAX, approved
the IVAX Diagnostics, Inc. 1999 Stock Option Plan. The plan permits the issuance
of options to employees, non-employee directors and consultants of IVAX
Diagnostics to purchase up to 1,460 shares of the 14,600 authorized shares of
IVAX Diagnostics Inc. On June 29, 1999, non-qualified options of 796 shares of
common stock were granted with an exercise price of $1 per share, a vesting
schedule of 50% at the end of year 2 and 25% at the end of years 3 and 4 and an
expiration date of June 28, 2006.
Convertible Debt - In August 1999, IVAX' Board of Directors approved
the repurchase of an additional $15,000 face value of 6 1/2% Convertible
Subordinated Notes due November 2001. At December 31, 1999 and 1998, IVAX had
outstanding $43,661 and $75,066, respectively of these Notes (See Note 9, Debt).
The Notes are convertible at the option of the holders into 2,063 and 3,546,
respectively, of IVAX common stock at a conversion rate of $21.17 per share.
Dividends - IVAX did not pay dividends during the years ended December
31, 1999, 1998 and 1997.
(13) BUSINESS SEGMENT INFORMATION:
IVAX is a holding company with subsidiaries that operate in the
pharmaceutical business and are engaged in the research, development,
manufacture, marketing and sale of pharmaceutical products. Pharmaceutical
products include prescription drugs and over-the-counter products (See Note 5,
Divestitures, and Note 7, Discontinued Operations for information regarding
operations that have been sold). Ivax reviews financial information, allocates
resources and manages its business by major operating subsidiary. However, IVAX'
pharmaceutical subsidiaries utilize similar production processes, and sell
similar types of products to similar types of customers under similar regulatory
environments using similar methods of distribution. IVAX also expects these
subsidiaries to have similar long-term financial performance. Since these
pharmaceutical subsidiaries meet the aggregation criteria under paragraph 17 of
Statement of Financial Accounting No. 131, Disclosures about Segments of an
Enterprise and Related Information, the pharmaceutical operating subsidiaries
are aggregated into one reportable segment, pharmaceutical, and all other
subsidiaries are reported in Corporate and Other.
To provide additional information, IVAX has disaggregated its
pharmaceutical segment results into the geographic regions in which the
subsidiaries are located. The North America region contains IVAX subsidiaries in
the United States and Canada. The Europe region contains subsidiaries located in
Europe. Latin America consists of subsidiaries in South America. Corporate and
Other includes the diagnostic subsidiaries, animal health subsidiary and
subsidiaries located in other geographic regions as well as corporate activities
and elimination of intercompany transactions.
The information provided is based on internal reports and was developed
and utilized by management for the sole purpose of tracking trends and changes
in the results of the regions. The information, including the allocations of
expense and overhead, were calculated based on a management approach and may not
reflect the actual economic costs, contributions or results of operations of the
regions as stand alone businesses. If a different basis of presentation or
allocation were utilized, the relative contributions of the regions might differ
but the relative trends would, in management's view, likely not be materially
impacted.
F-24
The table below sets forth net revenue and profits in the regional
presentation.
North Latin Corporate Total
1999 America Europe America & Other IVAX
- --------------------------------------------------------------------------------------------------------------------------
External net sales $ 247,344 $ 290,743 $ 31,469 $ 34,850 $ 604,406
Intercompany sales 461 8,332 -- (8,793) --
Other revenue 26,761 23,570 1,512 20 51,863
--------- --------- --------- --------- ---------
Net revenue 274,566 322,645 32,981 26,077 656,269
--------- --------- --------- --------- ---------
Asset impairment and restructuring cost (1,289) 677 -- -- (612)
Income (loss) from operations 45,745 39,483 2,342 (21,190) 66,380
Interest income 95 931 4 5,112 6,142
Interest expense 53 (188) (84) (5,337) (5,556)
Other income/expense 26,886 (5,157) (735) (1,927) 19,067
Equity earnings of affiliate -- -- -- 446 446
Tax provision (benefit) 9,129 19,679 1,067 (15,025) 14,850
Income from continuing operations before
minority interest and extraordinary items 63,650 15,390 460 (7,871) 71,629
1998
- --------------------------------------------------------------------------------------------------------------------------
External net sales $ 239,393 $ 272,479 $ 33,547 $ 36,417 $ 581,836
Intercompany sales 701 12,414 -- (13,115) --
Other revenue 18,956 23,559 1,221 1 43,737
--------- --------- --------- --------- ---------
Net revenue 259,050 308,452 34,768 23,303 625,573
--------- --------- --------- --------- ---------
Asset impairment and restructuring cost (875) 13,150 -- (53) 12,222
Income (loss) from operations 8,892 5,506 1,329 (19,358) (3,631)
Interest income 47 1,612 3 10,310 11,972
Interest expense (63) (368) (316) (6,110) (6,857)
Other income/expense 14,530 (608) 478 16,746 31,146
Equity earnings of affiliate -- -- -- 1,631 1,631
Tax provision (benefit) 10,553 9,437 754 (10,697) 10,047
Income from continuing operations before
minority interest and extraordinary items 12,853 (3,295) 740 13,916 24,214
1997
- --------------------------------------------------------------------------------------------------------------------------
External net sales $ 196,550 $ 321,674 $ 32,327 $ 32,193 $ 582,744
Intercompany sales 2,783 19,258 -- (22,041) --
Other revenue 1,469 9,026 2,247 (1,200) 11,542
--------- --------- --------- --------- ---------
Net revenue 200,802 349,958 34,574 8,952 594,286
--------- --------- --------- --------- ---------
Asset impairment and restructuring cost 33,135 949 227 3,777 38,088
Income (loss) from operations (190,382) 37,490 (1,495) (45,314) (199,701)
Interest income (10) 993 5 4,750 5,738
Interest expense (679) (2,035) (527) (11,444) (14,685)
Other income/expense 23,558 5,418 75 23,138 52,189
Equity earnings of affiliate -- (16) -- 1,193 1,177
Tax provision (benefit) (52,338) 10,597 (30) 101,937/1/ 60,166
Income from continuing operations before
minority interest and extraordinary items (115,175) 31,253 (1,912) (129,614) (215,448)
- ----------------
/1/ During 1997, IVAX established $114,660 in valuation allowances,
primarily against its domestic deferred tax assets generated from
losses incurred by its domestic operations.
F-25
The following table reconciles long-lived assets by geographic region
to the consolidated total:
North Latin Corporate Total
Year America Europe America & Other IVAX
- --------------------------------------------------------------------------------
1999 $ 54,491 $207,188 $ 7,413 $ 21,200 $290,292
1998 57,793 184,174 7,977 25,601 275,545
1997 66,972 152,307 7,546 28,996 255,821
The following table shows capital expenditures and
depreciation/amortization by region:
Region Capital Expenditures Depreciation/Amortization
- ------ --------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
North America $ 6,386 $ 5,006 $ 3,691 $ 8,005 $10,168 $12,839
Europe 33,588 58,299 40,610 16,446 20,634 21,701
Latin America 539 463 294 1,133 987 864
IVAX sells products in a large number of countries; however, only two
countries, the United States and the United Kingdom, have net revenues that are
material to consolidated net revenue. Additionally, IVAX has material amounts of
long-lived assets in only those two countries. The following table summarizes
net revenues based on the location of the third party customer and long-lived
assets based on the country of physical location:
United United
GEOGRAPHIC AREAS: States Kingdom Other Total
--------------------------------------------------
Net revenues 1999 $303,420 $229,761 $123,088 $656,269
1998 279,532 203,863 142,178 625,573
1997 199,208 217,489 177,589 594,286
Long-lived assets 1999 75,569 158,544 56,179 290,292
1998 83,007 149,569 42,969 275,545
1997 84,704 125,040 46,077 255,821
NET REVENUES BY PRODUCT TYPE:
Net Revenues
------------------------------------
1999 1998 1997
-------- -------- --------
Proprietary & Branded $219,788 $246,212 $305,951
Generic 387,347 318,555 199,960
Other 49,134 60,806 88,375
-------- -------- --------
Total $656,269 $625,573 $594,286
======== ======== ========
No single customer accounted for 10% or more of IVAX' consolidated net
revenues for any of the three years ended December 31, 1999. Other revenues
included in net revenues in the accompanying consolidated statements of
operations consist of license fees, royalties, and development service fees.
Other revenues include $19,402 and $18,000 during 1999 and 1998, respectively,
from the settlement of patent litigation with Abbott Laboratories discussed in
Note 14, Commitments and Contingencies.
In November 1999, IVAX entered into a three-year product collaboration
and development services agreement with Bristol-Myers Squibb Company ("BMS") in
the areas of inhalation technology and oncology. With respect to inhalation
technology, the agreement calls for IVAX and BMS to collaborate to develop one
or more of BMS' proprietary molecules using IVAX' patented devices, which BMS
would purchase from IVAX. BMS would retain the worldwide rights to market
respiratory
F-26
products containing its compounds. On the oncology side, BMS' Taxol(R)
(paclitaxel) is the leading anti-cancer drug in the world, with 1999 sales
estimated to reach approximately $1.5 billion. However, Taxol(R) is an
injectable product and is not orally available. As part of the agreement, BMS
was granted an option to negotiate, for six months, a license to IVAX' patented
system for making paclitaxel orally available. IVAX received $5,000 under the
agreement during 1999.
Long-lived assets exclude the long-term net deferred tax asset included
in "Other assets" on the accompanying consolidated balance sheets.
(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, 1999 totaled
approximately $5,626, $5,226 and $5,022, respectively. The future minimum lease
payments under noncancellable capital leases and their related assets recorded
at December 31, 1999 and 1998 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, 1999, were as follows:
Operating
Leases
------------
2000 $ 4,333
2001 2,767
2002 1,657
2003 846
2004 842
Thereafter 305
------------
Total minimum lease payments $ 10,750
============
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 and also filed a motion to add to the
lawsuit additional defendants who are not affiliated with IVAX or Zenith. Lilly
subsequently filed a second amended complaint but did not revise its allegations
regarding Zenith. Zenith has filed a motion for partial summary judgment and has
asserted a counterclaim, which remain 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.
F-27
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.
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 the FDA to market bulk cefaclor in the United States. The claims asserted
against Zenith are predicated on Zenith's sale in the United States of retail
dosage units of cefaclor manufactured using Opos' bulk cefaclor. Lilly alleges
that Zenith, in marketing and selling retail dosage units of cefaclor
manufactured from Opos' bulk cefaclor, used false and misleading descriptions
and representations regarding Zenith's cefaclor product. The relief sought by
Lilly against Zenith, jointly and severally with the American Home Defendants
and Rugby, is an accounting to Lilly for any and all profits derived by Zenith
from the sale of cefaclor and an award of damages to Lilly, in an unspecified
amount, allegedly sustained by Lilly as a result of Zenith's alleged acts of
misrepresentation and unfair competition. Lilly further seeks an award of treble
damages and litigation costs, including attorneys' fees and interest. Under its
unjust enrichment claim, Lilly seeks restitution in an unspecified amount
against Zenith, jointly and severally with the other defendants. In June 1997,
Zenith filed a motion to dismiss the action, which was granted in June 1998.
Plaintiffs filed an amended complaint and, 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 consolidated, amended and
supplemented 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
alleges that IVAX made untrue statements of material fact and omitted to state
material facts necessary to make statements made not misleading in its public
disclosure documents and in communications to the public regarding its
operations and financial results and that its financial statements were not
prepared in accordance with generally accepted accounting principles. These
allegations are centered around 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. On
November 9, 1998, IVAX filed a motion to dismiss the amended complaint, which
was granted on July 1, 1999. Plaintiffs have filed a notice of appeal.
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
F-28
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'
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 on July 27, 1999, the district court's opinion was affirmed. Plaintiffs
have filed a motion for rehearing, which remains pending.
In December 1998, Louisiana Wholesale Drug Co. filed an action
purporting to be a class action 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. Nine additional class action lawsuits containing allegations
similar to those in the Louisiana Wholesale suit were filed in various
jurisdictions between July 1999 and January 2000. Zenith Goldline has filed a
potentially dispositive motion in the Louisiana Wholesale case raising defenses
that would also be applicable to the other pending cases. All cases are in the
early stages of litigation, and any prediction as to their eventual outcomes
would be premature. On March 13, 2000 the Federal Trade Commission ("FTC")
announced that it had issued complaints against, and negotiated consent decrees
with, Abbott Laboratories and Geneva Pharmaceuticals arising out of an
investigation of the same settlements that are being challenged in these
lawsuits. The FTC took no action against Zenith Goldline. The FTC determinations
are subject to a thirty-day public comment period, after which they will be
final.
Zenith has been named in a number of individual and class action
lawsuits in both state and federal courts involving the diet drug combination of
fenfluramine and phentermine, commonly known as "fen-phen". Generally, these
lawsuits seek damages for personal injury, wrongful death and loss of
consortium, as well as punitive damages, under a variety of liability theories
including strict product liability, breach of warranty and negligence. Zenith
did not manufacture either fenfluramine or phentermine, but did distribute the
generic version of phentermine manufactured by Eon Labs Manufacturing, Inc.
("Eon") and Camall Company. Although Zenith had a very small market share, to
date Zenith has been named in approximately 4,482 cases and has been dismissed
from approximately 763 cases, with an additional 1,127 dismissals pending.
Zenith intends to vigorously defend all of the lawsuits, and while management
believes that its defense will succeed, as with any litigation, there can be no
assurance of this. Currently Zenith is being defended and indemnified by Eon. In
the event that Eon discontinues providing this defense and indemnity, Zenith has
its own product liability insurance. While Zenith's insurance carriers have
issued reservations of rights, Zenith believes that it has adequate coverage.
Although it is impossible to predict with certainty the outcome of litigation,
in the opinion of management, this litigation will not have a material adverse
impact on the financial condition or results of operation of IVAX.
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'
financial position and results of operations. IVAX' ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
In February 1993, Smith & Nephew, Inc., a Delaware corporation, filed
an action against IVAX and Solopak, Inc., a Delaware corporation, in Illinois
state court. On June 17, 1999, the parties entered into a settlement agreement
pursuant to which the lawsuit was dismissed with prejudice on August 11, 1999.
F-29
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.
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following tables summarize selected quarterly data of IVAX for the
years ended December 31, 1999 and 1998:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- -----------
1999
- ----
Net revenues (1) $ 147,616 $ 154,309 $ 163,310 $ 191,034 $ 656,269
Gross profit (1) 61,778 67,647 72,798 84,911 287,134
Income from continuing operations (2) 9,717 13,120 16,929 29,778 69,544
Income from discontinued operations 290 290 5 -- 585
Net income 10,040 13,495 17,409 29,778 70,722
Basic earnings per common share:
Continuing operations 0.06 0.08 0.10 0.19 0.43
Extraordinary item -- -- 0.01 -- 0.01
Net earnings 0.06 0.08 0.11 0.19 0.44
Diluted earnings per common share:
Continuing operations 0.06 0.08 0.10 0.18 0.42
Extraordinary item -- -- 0.01 -- 0.01
Net earnings 0.06 0.08 0.11 0.18 0.43
1998
- ----
Net revenues (1) $ 145,195 $ 149,526 $ 157,945 $ 172,907 $ 625,573
Gross profit (1) 48,769 55,061 60,319 64,672 228,821
Income (loss) from continuing
operations (3) (3,661) 3,577 7,488 17,213 24,617
Income 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 (0.02) 0.02 0.04 0.10 0.14
Discontinued operations -- -- 0.23 0.04 0.27
Extraordinary item -- -- -- 0.01 0.01
Net earnings (loss) (4) (0.04) 0.02 0.27 0.15 0.40
(1) Amounts have been restated to conform to current period's presentation.
(2) The third and fourth quarters of 1999 include restructuring costs of
$586 and a reversal of previously recorded restructuring reserves of
$1,198, respectively.
(3) The first, third, and fourth quarters of 1998 include restructuring
costs and asset write-downs of $696, $12,865, and ($1,339),
respectively.
(4) The first quarter of 1998 was restated in the third quarter to reflect
the adoption of SOP 98-5, 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.
F-30
(16) SUBSEQUENT EVENTS:
On February 9, 2000, IVAX called for redemption the remaining balance
of $43,661 of the 6 1/2% Convertible Subordinated Notes. On March 10, 2000, IVAX
redeemed $273 of the 6 1/2% Notes in cash and the remainder by issuance of 2,032
shares of common stock.
In March 2000, individuals purporting to be shareholders of IVAX filed
a class action complaint against IVAX and certain of its current and former
officers and directors in the Circuit Court of the 11th Judicial Circuit in and
for Dade County, Florida. The plaintiff seeks to act as the representative of a
class consisting of all purchasers of IVAX common stock between December 19,
1997 and the date of class certification. The complaint generally alleges that
IVAX' adoption of a shareholder rights plan containing a provision that would
limit the ability of certain members who might be added to the Board of
Directors following a change of control to approve a decision to redeem the
rights, which is commonly known as a "dead hand" provision, is a violation of
the Florida Business Corporation Act and IVAX' articles of incorporation and
by-laws. Plaintiffs seek an injunction invalidating this provision, as well as
damages in an unspecified amount which, in the opinion of management, would not
be material.
F-31
EXHIBITS INDEX
EXHIBIT DESCRIPTION
------- -----------
23.1 Consent of Arthur Andersen LLP.