================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
-------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------
Commission file number 0-31475
ANDRX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-1013859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Southwest 47th Avenue 33314
Fort Lauderdale, FL (Zip Code)
(Address of Principal Executive
Offices)
954-584-0300
(Registrant's telephone number, including area code)
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 twelve 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
------------- -------------
The number of shares outstanding of each of the issuer's series of common stock
as of November 8, 2000:
Andrx Group common stock 69,248,000
Cybear Group common stock 15,203,000
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<PAGE>
ANDRX CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
In September 2000, Andrx Corporation completed a reorganization whereby it
acquired the outstanding shares of common stock of Cybear Inc. that it did not
own, reincorporated in Delaware and created two new classes of common stock:
o Andrx Group Common Stock (the "Andrx common stock"), to track the performance
of Andrx Corporation and subsidiaries, other than its ownership of Cybear
Inc. (the "Andrx Group"); and
o Cybear Group Common Stock (the "Cybear common stock"), to track the
performance of Cybear Inc. (the "Cybear Group").
Throughout this Andrx Corporation Form 10-Q, the words "Andrx Corporation" or
the "Company" refer to Andrx Corporation, and all of its subsidiaries taken as a
whole, and "management" and "board of directors" refer to the management and
board of directors of Andrx Corporation. In addition, "Andrx" refers to Andrx
Corporation and all of its subsidiaries, prior to the reorganization, and to the
Andrx Group following the reorganization, and "Cybear" refers to Cybear, Inc.
and its subsidiaries prior to the reorganization and to the Cybear Group
following the reorganization.
Holders of Andrx common stock and Cybear common stock are stockholders of Andrx
Corporation, have no specific rights to assets designated to Andrx or Cybear and
are subject to all the risks and uncertainties of Andrx Corporation described in
Andrx Corporation's Annual Report on Form 10-K for the year ended December 31,
1999.
Subsequent to the reorganization, Andrx Corporation is presenting consolidated
financial statements and also separate financial statements relating to the
business of Andrx and the business of Cybear.
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ANDRX CORPORATION
Unaudited Consolidated Balance Sheets -
as of September 30, 2000 and December 31, 1999 4
Unaudited Consolidated Statements of Income -
for the three and nine months ended September 30, 2000 and 1999 5
Unaudited Consolidated Statements of Cash Flows -
for the nine months ended September 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
ANDRX
Unaudited Consolidated Balance Sheets -
as of September 30, 2000 and December 31, 1999 15
Unaudited Consolidated Statements of Income -
for the three and nine months ended September 30, 2000 and 1999 16
Unaudited Consolidated Statements of Cash Flows -
for the nine months ended September 30, 2000 and 1999 17
Notes to Unaudited Consolidated Financial Statements 18
CYBEAR
Unaudited Consolidated Balance Sheets -
as of September 30, 2000 and December 31, 1999 25
Unaudited Consolidated Statements of Operations -
for the three and nine months ended September 30, 2000 and 1999 26
Unaudited Consolidated Statements of Cash Flows -
for the nine months ended September 30, 2000 and 1999 27
Notes to Unaudited Consolidated Financial Statements 28
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 36
Andrx Corporation 38
Andrx 43
Cybear 47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 53
Item 2. Changes in Securities 53
Item 4. Submission of Matters to a Vote of Security Holders 53
Item 5. Other Information 54
Item 6. Exhibits and Reports on Form 8-K 54
SIGNATURES 55
</TABLE>
3
<PAGE>
ANDRX CORPORATION
PART 1
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 130,549 $ 32,555
Investments available-for-sale, at market value 212,178 90,863
Accounts receivable, net 76,649 72,032
Inventories 82,476 78,771
Deferred income tax assets, net 18,431 18,442
Prepaid and other current assets, net 10,791 11,658
---------------- ----------------
Total current assets 531,074 304,321
Property, plant and equipment, net 67,014 39,873
Other assets, net 28,480 13,760
---------------- ----------------
Total assets $ 626,568 $ 357,954
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 55,154 $ 51,863
Accrued liabilities 29,271 35,639
Bank loan - 20,226
Income taxes payable - 15,730
---------------- ----------------
Total current liabilities 84,425 123,458
---------------- ----------------
Commitments and contingencies (Notes 8 and 9)
Minority interest - 13,524
---------------- ----------------
Shareholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000 shares
authorized; none issued and outstanding - -
Common Stocks:
Andrx common stock; $0.001 par value, 100,000,000 shares
authorized; 69,196,000 and 62,973,000 shares issued and outstanding
as of September 30, 2000 and December 31, 1999, respectively 69 63
Cybear common stock $0.001 par value, 50,000,000 shares authorized;
15,203,000 shares issued and outstanding as of September 30, 2000; none
issued and outstanding as of December 31, 1999 15 -
Additional paid-in capital 417,932 140,700
Retained earnings 124,173 80,303
Accumulated other comprehensive loss, net of income taxes (46) (94)
---------------- ----------------
Total shareholders' equity 542,143 220,972
---------------- ----------------
Total liabilities and shareholders' equity $ 626,568 $ 357,954
================ ================
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated balance sheets.
4
<PAGE>
ANDRX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Distributed products $ 85,019 $ 66,113 $ 231,653 $ 195,246
Manufactured products 43,101 42,092 133,209 82,981
Stipulation fees - - - 70,733
Licensing and other 4,126 3,210 11,443 4,939
------------- -------------- ------------- -------------
Total revenues 132,246 111,415 376,305 353,899
------------- -------------- ------------- -------------
Operating expenses
Cost of goods sold 78,038 59,880 214,298 172,326
Selling, general and administrative 16,088 14,288 41,968 40,608
Research and development 14,646 6,129 33,340 16,689
Cybear Internet operating expenses 9,196 3,886 22,193 10,626
Reorganization costs 2,098 - 2,098 -
------------- -------------- ------------- -------------
Total operating expenses 120,066 84,183 313,897 240,249
------------- -------------- ------------- -------------
Income from operations 12,180 27,232 62,408 113,650
Other income (expense), net
Minority interest in Cybear 901 779 4,146 1,593
Gain on sale of Cybear shares - - - 300
Interest income 4,498 1,251 8,813 2,154
Interest expense (40) (510) (735) (1,147)
------------- -------------- ------------- -------------
Income before income taxes 17,539 28,752 74,632 116,550
Income taxes 6,782 10,925 30,762 42,899
------------- -------------- ------------- -------------
Net income $ 10,757 $ 17,827 $ 43,870 $ 73,651
============= ============== ============= =============
EARNINGS (LOSS) PER SHARE (See Note 3)
ANDRX COMMON STOCK:
Net income $ 16,056 $ 17,827 $ 49,169 $ 73,651
============= ============== ============= =============
Net income per Andrx common stock:
Basic $ 0.23 $ 0.28 $ 0.75 $ 1.19
============= ============== ============= =============
Diluted $ 0.22 $ 0.27 $ 0.72 $ 1.13
============= ============== ============= =============
Weighted average shares outstanding:
Basic 69,076,000 62,828,000 65,892,000 61,644,000
============= ============== ============= =============
Diluted 71,862,000 65,406,000 68,629,000 64,898,000
============= ============== ============= =============
CYBEAR COMMON STOCK:
Net loss $ (5,299) $ (5,299)
============= =============
Basic and diluted net loss per Cybear common stock $ (0.35) $ (0.35)
============= =============
Basic and diluted weighted average shares outstanding 15,203,000 15,203,000
============= =============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
5
<PAGE>
ANDRX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 43,870 $ 73,651
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 6,441 3,016
Minority interest (4,146) (1,593)
Gain on sale of Cybear shares - (300)
Income tax benefits related to exercises of stock options 18,013 5,871
Changes in operating assets and liabilities:
Accounts receivable, net 978 (41,616)
Inventories 457 (41,420)
Prepaid and other assets 4,429 (10,365)
Accounts payable and accrued liabilities (7,721) 38,193
Income taxes payable (15,730) 1,739
--------------- ---------------
Net cash provided by operating activities 46,591 27,176
--------------- ---------------
Cash flows from investing activities
Purchases of investments available-for-sale, net (121,256) (60,532)
Purchases of property, plant and equipment (31,334) (14,801)
Acquisition of Valmed Pharmaceutical, Inc., net of cash acquired (15,195) -
Acquisition of Telegraph Consulting Corporation - (1,177)
Costs associated with purchase of Cybear minority interest (2,838) -
--------------- ---------------
Net cash used in investing activities (170,623) (76,510)
--------------- ---------------
Cash flows from financing activities
Net proceeds from Andrx's public share offering 235,819 -
Proceeds from exercises of stock options and warrants 6,070 6,324
Net borrowings (repayments) under bank loan (20,226) 16,060
Net proceeds from Cybear's public equity offering - 50,787
Net proceeds from sale of Cybear shares - 300
Capital transactions of Cybear, net 363 122
--------------- ---------------
Net cash provided by financing activities 222,026 73,593
--------------- ---------------
Net increase in cash and cash equivalents 97,994 24,259
Cash and cash equivalents, beginning of period 32,555 17,459
--------------- ---------------
Cash and cash equivalents, end of period $ 130,549 $ 41,718
=============== ===============
Supplemental disclosure of cash paid during the period for
Interest $ 735 $ 1,147
=============== ===============
Income taxes $ 28,940 $ 35,290
=============== ===============
Supplemental disclosure of non-cash investing activities
Value of Cybear common stock issued $ 17,363 -
Less book value of minority interest at acquisition date (9,757) -
--------------- ---------------
Goodwill resulting from purchase of Cybear minority interest $ 7,606 -
=============== ===============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
6
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements for each period include the balance sheets, results of
operations and cash flows of Andrx Corporation. All significant intercompany
items and transactions have been eliminated in consolidation. In the opinion of
management, the accompanying unaudited consolidated financial statements have
been prepared by Andrx Corporation pursuant to the rules and regulations of the
United States Securities and Exchange Commission ("SEC"). Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to those rules and
regulations. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's unaudited financial position and results of
operations. The unaudited results of operations for the three and nine months
ended September 30, 2000 and cash flows for the nine months ended September 30,
2000 are not necessarily indicative of the results of operations or cash flows
which may be expected for the remainder of 2000. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Andrx and Cybear Annual
Reports on Form 10-K for the year ended December 31, 1999.
In May 1999 and March 2000, Andrx implemented two-for-one stock splits
in the form of 100% stock dividends. All shares of Andrx common stock and per
share amounts included herein give effect to these stock splits.
Certain prior year amounts have been reclassified to conform to the
current period presentation.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101") which summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The effective date of SAB 101 for the Company is the quarter ending December 31,
2000. The Company continues to evaluate the impact of the provisions that SAB
101 will have on revenue recognition in future periods. Based on the Company's
initial evaluation, management believes SAB 101 will not have a material impact
on its future results of operations.
7
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
2. CORPORATE STRUCTURE
On September 7, 2000, Andrx completed a reorganization whereby it
acquired the outstanding equity of Cybear that it did not own, reincorporated in
Delaware, and created two new classes of common stock: Andrx common stock to
track the performance of Andrx Corporation other than its ownership of Cybear
and Cybear common stock to track the performance of Cybear. In connection with
the reorganization, Andrx shareholders exchanged each share of common stock held
for one share of Andrx common stock and .1489 shares of Cybear common stock and
Cybear shareholders other than Andrx exchanged each share of common stock held
for one share of Cybear common stock. The reorganization was effective as of
September 7, 2000.
Subsequent to the reorganization, Andrx Corporation is presenting
consolidated financial statements and also separate financial statements
relating to the business of Andrx and the business of Cybear. Holders of Andrx
common stock and Cybear common stock have no specific rights to assets of Andrx
or Cybear as Andrx Corporation holds title to all its assets and is responsible
for all of its liabilities, regardless of how it allocates assets and
liabilities among the classes of common stocks for financial statement
presentation purposes. Holders of Andrx common stock and Cybear common stock are
therefore subject to the risks of investing in the businesses, assets and
liabilities of Andrx Corporation as a whole. For instance, the assets allocated
to each class of common stock may be subject to Company-wide claims of creditors
and stockholder litigation.
Andrx Corporation's consolidated financial statements include
consolidated operating results, along with net income (loss), basic and diluted
earnings (loss) per share, basic and diluted shares outstanding for each series
of common stock. The consolidated financial statements do not reflect
consolidated basic and diluted earnings (loss) per share since there is no
underlying equity security related to the consolidated financial results.
8
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
3. EARNINGS (LOSS) PER SHARE
As a result of the reorganization, Andrx Corporation's earnings for the
three and nine months ended September 30, 2000 have been allocated to each
series of common stock. The net income used in computing net income per share of
Andrx common stock is based on the consolidated results of Andrx, including the
majority ownership of Cybear through September 6, 2000 and the net income of
Andrx, excluding Andrx' 100% ownership of Cybear from September 7, 2000 to
September 30, 2000. The shares used in computing the net income per share of
Andrx common stock are based on the weighted average shares of Andrx common
stock outstanding for the three and nine months ended September 30, 2000 and
1999. The net loss and shares used in the computation of net loss per share of
Cybear common stock for the three and nine months ended September 30, 2000 are
based solely on the period from September 7, 2000 (the effective date of
issuance of Cybear common stock) to September 30, 2000.
There are no antidiutive options to purchase Andrx common stock for the
three months ended September 30, 2000 and 1999. For the nine months ended
September 30, 2000 and 1999, antidilutive options to purchase 12,902 and 40,250,
respectively, weighted average shares of Andrx common stock were outstanding.
The computation of Andrx diluted net income per share for the nine months ended
September 30, 2000 excludes the effects of these options as such effect are
antidilutive.
For all periods presented, the Cybear basic and diluted net loss per
share is based on the weighted average number of shares of the Cybear common
stock outstanding since the effect of common stock equivalents was antidilutive.
Antidilutive Cybear common stock equivalents consisted of options and warrants
to purchase 1,544,545 shares of Cybear common stock.
The following table reconciles the consolidated net income in the Andrx
Corporation consolidated financial statements to the separately presented
financial statements and reflects pro forma earnings (loss) per share of Andrx
and Cybear:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Andrx Corporation consolidated net income $ 10,757 $ 17,827 $ 43,870 $ 73,651
--------------------------- ---------------------------
Add back Cybear net loss included above:
Subsequent to reorganization 5,299 -- 5,299 --
Prior to reorganization 3,175 3,203 14,974 6,508
--------------------------- ---------------------------
Cybear net loss 8,474 3,203 20,273 6,508
Less minority ownership in Cybear net losses
prior to the reorganization (901) (779) (4,146) (1,593)
Less gain on sale of Cybear shares -- -- -- (300)
Intercompany eliminations (including income taxes) 33 (30) (4) 551
--------------------------- ---------------------------
Pro forma Andrx net income (excluding
Andrx' ownership of Cybear) $ 18,363 $ 20,221 $ 59,993 $ 78,817
=========================== ===========================
Pro forma earnings per share
Basic $ 0.27 $ 0.32 $ 0.91 $ 1.28
=========================== ===========================
Diluted $ 0.26 $ 0.31 $ 0.87 $ 1.21
=========================== ===========================
Pro forma weighted average shares outstanding
Basic 69,076,000 62,828,000 65,892,000 61,644,000
=========================== ===========================
Diluted 71,862,000 65,406,000 68,629,000 64,898,000
=========================== ===========================
Cybear net loss $ (8,474) $ (3,203) $ (20,273) $ (6,508)
=========================== ===========================
Pro forma basic and diluted loss per share $ (0.56) $ (0.21) $ (1.33) $ (0.43)
=========================== ===========================
Pro forma weighted average shares outstanding 15,203,000 15,203,000 15,203,000 15,203,000
=========================== ===========================
</TABLE>
For all periods presented, for the Cybear pro forma presentation,
shares outstanding of the Cybear common stock are assumed to be the weighted
average shares outstanding of Cybear common stock for the period from the
reorganization to September 30, 2000.
4. INCOME TAXES
For the three and nine months ended September 30, 2000, the Company
provided $6,782 and $30,762, respectively, for Federal and state income taxes or
39% and 41% of income before income taxes. For the three and nine months ended
September 30, 2000, the Company provided for income taxes in excess of the
expected annual effective combined Federal and state statutory rate of 37%,
primarily due to Andrx's inability to utilize its share of the losses of Cybear
during the period of June 23, 1999 (when Andrx's ownership of Cybear was reduced
below 80%) through September 6, 2000 (the day preceding the effective date of
the reorganization). Accordingly, Cybear is excluded from Andrx Corporation's
consolidated tax return and will file as a separate tax entity for all periods
from June 23, 1999 through September 6, 2000. Beginning on the effective date of
the reorganization, for tax purposes, Cybear's results of operations will be
included in the consolidated tax return of Andrx Corporation, as Andrx
Corporation owns 100% of Cybear.
9
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
For the three and nine months ended September 30, 1999, Andrx provided
$10,925 and $42,899, for Federal and state income taxes or 38% and 37%,
respectively, of income before income taxes. Andrx was not required to provide
for Federal and state income taxes at 39%, the then expected annual effective
combined Federal and state statutory rate primarily due to the utilization of
its net operating loss carryforwards, offset by Andrx's inability to utilize
Cybear's expected net losses incurred from June 23, 1999 through September 6,
2000.
In connection with the reorganization, Cybear and the other members of
the Andrx Corporation consolidated group entered into, among other things, a
Federal and state tax sharing agreement. Andrx Corporation will utilize the
separate return method of accounting for purposes of allocating Federal and
state consolidated income tax liabilities among group members. Under the terms
of the tax sharing agreement, a member of the group will be allocated its income
tax benefits and expenses in the year generated. Except as set forth in the
supplement referred to below, to the extent a member cannot utilize its income
tax benefits in the year generated, that member will not be compensated in that
year by other members of the Andrx Corporation consolidated group for
utilization of those benefits. Instead, if and when a member leaves the group,
Andrx Corporation may elect to reimburse that member for any unreimbursed income
tax benefits utilized. That reimbursement will take the form of a capital
investment by Andrx Corporation, for which it will receive stock. In the case of
any "tracking stock" members, such as Cybear, the stock received by Andrx
Corporation shall be in the form of Cybear common stock. In addition, if any
member of the group causes another member to become subject to state income tax
in a state where it would otherwise not be taxed on a separate company basis,
the member causing the income tax liability shall be fully responsible for the
state income tax of the other member. Subsequent to the reorganization, any
income tax benefits that Cybear is unable to utilize on a separate company basis
will be allocated to Andrx.
In October 2000, Andrx Corporation and Cybear signed a supplement to
the tax sharing agreement, whereby Cybear will be reimbursed by Andrx
Corporation for specific tax benefits utilized by Andrx Corporation in
connection with an election Cybear made on its 1999 Federal corporate tax return
to amortize certain expenses and/or attributes over a period of ten years and
agrees that it will make such election again on its separate 2000 Federal
corporate tax return for the period from January 1, 2000 to September 6, 2000
for certain expenses and/or attributes incurred within that period. Such
reimbursements from the Company will be accounted for by Cybear as a capital
contribution. As a result of the supplement to the tax sharing agreement, Cybear
may get reimbursed for the after-tax effect of amortizing approximately $6,000
of such expenses over 10 years.
Under the provisions of the tax sharing agreement related to the
reorganization, for financial statement purposes, at such time as Cybear
achieves profitability, or is otherwise able to recognize its tax benefits under
accounting principles generally accepted in the United States, if ever, Cybear
will recognize the benefit of its accumulated income tax benefits (which had
previously been utilized by Andrx) in its statement of operations with a
corresponding decrease to Cybear's equity (i.e., effectively accounted for as a
non-cash dividend). To the extent Andrx is profitable and is able to utilize
such tax benefit and Cybear is generating losses, it is expected that Andrx's
effective tax rate will be less than the statutory Federal and state rate. If
Cybear attains profitability or is otherwise able to recognize its tax benefits,
Andrx' effective tax rate may be greater than the statutory Federal and state
income tax rate to the extent of Cybear's then unreimbursed accumulated tax
benefits that can be realized (Andrx will then reverse the tax benefits
previously recorded, i.e., effectively transferring such tax benefits to Cybear
in the form of a non-cash equity transaction).
In connection with the reorganization, Andrx Corporation changed its
method of accounting for allocating income taxes to Andrx and Cybear from the
pro rata method to the separate return method.
The following table indicates the activity in the valuation allowance
against the Company's deferred tax assets:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ (8,322) $ (5,687) $ (3,957) $ (7,989)
Utilized 1,665 2,354 1,665 5,042
Provided for Cybear, separate company (1,175) (1,794) (5,540) (2,180)
------------- ------------- ------------- -------------
Balance, end of period $ (7,832) $ (5,127) $ (7,832) $ (5,127)
============= ============= ============= =============
</TABLE>
Under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, as of September 30, 2000, the Company recorded a valuation
allowance to reserve against 100% of the net deferred income tax assets that can
only be utilized by Cybear on a separate company basis of $7,832, which resulted
in the period from June 23, 1999 through September 6, 2000. From September 7,
2000 to September 30, 2000, under the provisions of the tax sharing agreement,
Andrx recorded a tax benefit of approximately $2,000. Under the provisions of
the supplement to the tax sharing agreement, Andrx recorded a tax benefit of
$1,665.
Net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in the ownership interest of significant shareholders
over a three-year period in excess of 50%.
10
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
5. JOINT VENTURES
In November 2000, Andrx Corporation and Watson Pharmaceuticals, Inc.
("Watson") amended the terms of the ANCIRC joint venture agreement. This joint
venture relates to the development, manufacture and sale of up to eight
bioequivalent controlled-release pharmaceutical products, two of which,
bioequivalent versions of Trental(R) and Oruvail(R), have already been approved
by the United States Food and Drug Administration ("FDA"). Under the amendment,
Andrx Corporation is solely responsible for all of the costs to develop,
manufacture and sell the remaining six products, and Watson may receive a
royalty on net sales, if any, from the commercialization of those products. The
amendment also provides that Andrx Corporation may elect to discontinue its
efforts to develop any of these six products at any time. The 50/50 joint
venture relationship for the two marketed products is continuing.
In August 2000, Andrx Corporation entered into CARAN, a 50/50 joint
venture with Carlsbad Technology, Inc. ("Carlsbad") to develop, manufacture and
sell three bioequivalent pharmaceutical products, all of which have been filed
with the FDA. Carlsbad developed and will manufacture the products and Andrx
will distribute such products.
Equity in the losses of the joint ventures, primarily research and
development expenses, are included in "Research and development" expenses in the
Unaudited Consolidated Statements of Income, included herein. Separate results
of the joint ventures are not presented because the results are not material.
6. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 10,757 $ 17,827 $ 43,870 $ 73,651
Unrealized gain (loss) on investments
available-for-sale, net (5) (49) 48 (75)
------------- ------------- ------------- -------------
Comprehensive income $ 10,752 $ 17,778 $ 43,918 $ 73,576
============= ============= ============= =============
</TABLE>
11
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
7. BUSINESS SEGMENTS
The Company operates in the following business segments:
o Anda, Inc. ("Anda") markets and distributes generic pharmaceuticals
manufactured by third parties primarily to independent pharmacies
and non-warehousing chains. Anda includes the activity of Valmed
Pharmaceuticals, Inc. after the acquisition date of March 15, 2000.
Anda operating results exclude participation in the sales of
products developed and manufactured by Andrx Pharmaceuticals, Inc.
("Andrx Pharm").
o Andrx Pharm develops bioequivalent versions of selected
controlled-release brand name pharmaceuticals utilizing its
proprietary drug delivery technologies and manufactures and sells
such products.
o Aura Laboratories, Inc. ("Aura Labs") applies the proprietary drug
delivery technologies developed by Andrx Pharm to the development of
brand name controlled-release formulations of existing drugs.
o Cybear is an information technology company that is using the
Internet to improve the efficiency of clinical, administrative and
communications tasks associated with patient care from providers
through the secure and reliable transmission of this information.
The category "Corporate and Other" consists of corporate headquarters,
which includes general and administrative expenses, interest income, income
taxes and adjustments for minority interest.
The Company evaluates the performance of the segments after all
intercompany sales are eliminated. The allocation of income taxes is not
evaluated at the segment level.
12
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
The following table presents financial information by business segment:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Cybear Other Consolidated
-------------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 82,732 $ 47,152 $ - $ 2,362 $ - $ 132,246
Income (loss) from operations 4,062 27,652 (5,739) (8,962) (4,833) 12,180
Interest income - - - 455 4,043 4,498
Interest expense (40) - - - - (40)
Total assets, end of period 154,541 97,606 223 44,035 330,163 626,568
<CAPTION>
Three Months Ended
September 30, 1999
---------------------------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Cybear Other Consolidated
-------------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 66,101 $ 45,223 $ - $ 91 $ - $ 111,415
Income (loss) from operations 4,821 31,596 (2,557) (3,807) (2,821) 27,232
Interest income - - - 634 617 1,251
Interest expense (510) - - - - (510)
Total assets, end of period 118,238 76,556 133 55,600 65,501 316,028
<CAPTION>
Nine Months Ended
September 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Cybear Other Consolidated
-------------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 228,039 $ 144,436 $ - $ 3,830 $ - $ 376,305
Income (loss) from operations 11,077 95,233 (12,655) (21,788) (9,459) 62,408
Interest income - - - 1,519 7,294 8,813
Interest expense (735) - - - - (735)
<CAPTION>
Nine Months Ended
September 30, 1999
---------------------------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Cybear Other Consolidated
-------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 195,234 $ 158,568 $ - $ 97 $ - $ 353,899
Income (loss) from operations 16,849 119,854 (5,525) (9,729) (7,799) 113,650
Interest income - - - 684 1,470 2,154
Interest expense (1,147) - - - - (1,147)
</TABLE>
13
<PAGE>
ANDRX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
8. CONTINGENCIES
On June 6, 2000, the United States District Court for the Eastern
District of Michigan granted plaintiffs' motion for partial summary judgment
against the Company and Aventis S.A. ("Aventis" or "HMRI") in the pending
putative class actions. The District Court determined that the Stipulation and
Agreement ("Stipulation") the Company had entered into with Aventis relating to
their Cardizem(R) CD patent litigation constitutes a restraint of trade that is
illegal per se under section 1 of the Sherman-Antitrust Act. On August 15, 2000,
the District Court granted the Company's and Aventis' motions to certify two
questions relating to this determination to the United States Court of Appeals.
Thereafter, as required under Federal Rules of Appellate Procedure, the Company
and Aventis have now filed motions requesting the appellate court to accept the
appeal as certified by the District Court. Those motions are still pending.
Also, on September 20, 2000, the District Court granted plaintiffs' motions to
amend their complaints to allege a nationwide class of purchasers suing under
State unjust enrichment laws. In due course, the Company and Aventis will be
given the opportunity to make motions to dismiss these new claims.
On October 26, 2000, the Federal district court in the District of
Columbia denied motion for reconsideration of the court's January 6, 2000
decision dismissing Biovail Corporation's ("Biovail") antitrust counterclaims
against the Company and reconfirmed that dismissal. The court found that any
"potential delay in the marketing of generic versions of Cardizem was more
directly caused by the applicable statutory scheme than by any agreement between
Andrx and HMRI" and, as such, "Biovail's allegation that it has been unable to
compete in the generic Cardizem market does not flow from the allegedly unlawful
agreement between Andrx and HMRI." Biovail has appealed this denial of
reconsideration and has sought to consolidate that appeal with its pending
appeal of the original order dismissing its counterclaims. Oral argument of that
appeal is scheduled to take place in early 2001.
Although management is unable to predict the outcome of the litigation
described above, it continues to believe that its actions were lawful and in
fact enabled Andrx to market its bioequivalent Cardizem CD sooner.
In the multi-district litigation pending in the Federal district court
for the Southern District of New York with respect to the Company's
bioequivalent version of Prilosec(R), Astra has filed a belated motion to amend
the complaint in order to assert infringement claims against the Company under
an additional patent. The Company has opposed this motion.
The Southeast Regional office of the SEC has commenced an informal
inquiry of Cybear with respect to the relationships and agreements between
Cybear and Andrx, particularly with respect to Cybearclub LC, a joint venture
between Cybear and Andrx that is intended to promote the distribution of
healthcare products to physician offices through the Internet ("Cybearclub").
Cybear is cooperating voluntarily with the SEC.
In June 2000, Cybear received a claim from Nicebid.com for damages
allegedly incurred by Nicebid.com as a result of alleged breaches of an Internet
commerce contract between Nicebid.com and Telegraph Consulting Corporation
("TCC"). Cybear acquired TCC in 1999. Nicebid.com has requested that this matter
be submitted to arbitration if it cannot be resolved amicably. Cybear is
currently evaluating the claim and intends to vigorously defend against the
claim.
Except as stated above, there have been no other material developments
in any legal matters described in Andrx' Annual Report on Form 10-K for the year
ended December 31, 1999 and quarterly reports on Form 10-Q for the periods ended
March 31, 2000 and June 30, 2000.
9. SUBSEQUENT EVENT
On November 16, 2000, the Company entered into a definitive agreement
to acquire CTEX Pharmaceuticals, Inc., a privately owned pharmaceutical sale and
marketing company based in Jackson, Mississippi. The acquisition is for $30,000,
subject to adjustment, comprised of Andrx common stock and cash, and will be
accounted for using the purchase method of accounting. The acquisition is
subject to various closing conditions. The Company expects that the closing will
occur by the first quarter of 2001.
14
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 126,779 $ 17,795
Investments available-for-sale, at market value 197,894 64,791
Accounts receivable, net 75,064 71,928
Inventories 82,476 78,771
Deferred income tax assets, net 18,431 18,442
Prepaid and other current assets, net 8,966 7,335
----------- -----------
Total current assets 509,610 259,062
Property, plant and equipment, net 60,101 34,747
Other assets, net 14,545 8,298
----------- -----------
Total assets $ 584,256 $ 302,107
=========== ===========
LIABILITIES AND ANDRX EQUITY
Current liabilities
Accounts payable $ 54,532 $ 51,611
Accrued liabilities 28,160 32,860
Bank loan - 20,226
Income taxes payable - 15,730
----------- -----------
Total current liabilities 82,692 120,427
Commitments and contingencies (Notes 7 and 8)
Andrx equity 501,564 181,680
----------- -----------
Total liabilities and Andrx equity $ 584,256 $ 302,107
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated balance sheets.
15
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues
Distributed products $ 82,732 $ 66,101 $ 228,039 $ 195,234
Manufactured products 43,101 42,092 133,209 82,981
Stipulation fees - - - 70,733
Licensing fees 4,051 3,131 11,227 4,832
---------- ---------- ---------- ----------
Total revenues 129,884 111,324 372,475 353,780
---------- ---------- ---------- ----------
Operating expenses
Cost of goods sold 75,910 59,868 210,873 172,313
Selling, general and administrative 16,088 14,288 41,968 40,608
Research and development 14,646 6,129 33,340 16,689
Reorganization costs 2,098 - 2,098 -
---------- ---------- ---------- ----------
Total operating expenses 108,742 80,285 288,279 229,610
---------- ---------- ---------- ----------
Income from operations 21,142 31,039 84,196 124,170
Other income (expense)
Interest income 4,043 617 7,294 1,470
Interest expense (40) (510) (735) (1,147)
---------- ---------- ---------- ----------
Income before income taxes 25,145 31,146 90,755 124,493
Income taxes 6,782 10,925 30,762 45,676
---------- ---------- ---------- ----------
Net income $ 18,363 $ 20,221 $ 59,993 $ 78,817
========== ========== ========== ==========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
16
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 59,993 $ 78,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,068 2,325
Income tax benefits related to exercises of stock options 18,013 5,871
Changes in operating assets and liabilities:
Accounts receivable, net 2,459 (41,533)
Inventories 457 (41,420)
Prepaid and other assets 2,297 (8,048)
Accounts payable and accrued liabilities (8,087) 38,450
Income taxes payable (15,730) 1,739
----------- -----------
Net cash provided by operating activities 63,470 36,201
----------- -----------
Cash flows from investing activities:
Purchases of investments available-for-sale, net (133,132) (22,571)
Purchases of property, plant and equipment (27,868) (12,909)
Acquisition of Valmed Pharmaceutical, Inc., net of cash acquired (15,195) -
----------- -----------
Net cash used in investing activities (176,195) (35,480)
----------- -----------
Cash flows from financing activities
Net proceeds from public equity offering 235,819 -
Proceeds from exercises of stock options and warrants 6,070 6,324
Net borrowings (repayments) under bank loan (20,226) 16,060
Advances to Cybear, net of Andrx' utilization of Cybear's
income tax attributes and other 46 (5,477)
----------- -----------
Net cash provided by financing activities 221,709 16,907
----------- -----------
Net increase in cash and cash equivalents 108,984 17,628
Cash and cash equivalents, beginning of period 17,795 17,455
----------- -----------
Cash and cash equivalents, end of period $ 126,779 $ 35,083
=========== ===========
Supplemental disclosure of cash paid during the period for:
Interest $ 735 $ 1,147
=========== ===========
Income taxes $ 28,940 $ 35,290
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
17
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements for Andrx have been prepared pursuant to the rules and
regulations of the SEC. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to those rules and regulations. However, management believes
that the disclosures contained herein are adequate to make the information
presented not misleading. The unaudited consolidated financial statements
reflect, in the opinion of management, all material adjustments (which include
only normal recurring adjustments) necessary to present fairly Andrx's unaudited
financial position and results of operations. The unaudited results of
operations for the three and nine months ended September 30, 2000 and cash flows
for the nine months ended September 30, 2000 are not necessarily indicative of
the results of operations or cash flows which may be expected for the remainder
of 2000. The unaudited consolidated financial statements of Andrx should be read
in conjunction with the consolidated financial statements and related notes of
Andrx included in Andrx's Annual Report on Form 10-K for the year ended December
31, 1999 and the Andrx Corporation consolidated financial statements as of and
for the three and nine months ended September 30, 2000 and 1999, included herein
on pages 4 through 14.
In December 1999, the SEC issued SAB No. 101 which summarizes certain
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The effective date of SAB 101 for
Andrx is the quarter ending December 31, 2000. Andrx continues to evaluate the
impact of the provisions that SAB 101 will have on revenue recognition in future
periods. Based on Andrx's initial evaluation, management believes SAB 101 will
not have a material impact on its future results of operations.
2. CORPORATE STRUCTURE
Andrx Corporation is presenting the consolidated financial information
of Andrx in these Andrx unaudited consolidated financial statements. Andrx
common stock is common stock of Andrx Corporation, but is designed to reflect
the businesses of Andrx Corporation other than its ownership Cybear. Holders of
Andrx common stock have no specific rights to the assets of Andrx, as Andrx
Corporation continues to hold title to all of Andrx' assets and is responsible
for all of its liabilities, regardless of how it allocates assets and
liabilities among the classes of common stocks for financial statement
presentation purposes. Holders of Andrx common stock are therefore subject to
the risks of investing in the businesses, assets and liabilities of Andrx
Corporation as a whole. For instance, the assets allocated to each class of
common stock are subject to Company-wide claims of creditors and stockholder
litigation.
18
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
Although the reorganization that enables Cybear's results to be
excluded from Andrx became effective on September 7, 2000, the Unaudited
Consolidated Statements of Income included herein, exclude the results of Cybear
for all periods presented.
19
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
3. INCOME TAXES
Under the provisions of the tax sharing agreement related to the
reorganization, for financial statement purposes, at such time as Cybear
achieves profitability, or is otherwise able to recognize its tax benefits under
accounting principles generally accepted in the United States, if ever, Cybear
will recognize the benefit of its accumulated income tax benefits (which had
previously been utilized by Andrx) in its statement of operations with a
corresponding decrease to Cybear's total equity (i.e., effectively accounted for
as a non-cash dividend). To the extent Andrx is profitable and is able to
utilize such tax benefit and Cybear is generating losses, it is expected that
Andrx's effective tax rate will be less than the statutory Federal and state
rate. If Cybear attains profitability or is otherwise able to recognize its tax
benefits, Andrx' effective tax rate may be greater than the statutory Federal
and state income tax rate to the extent of Cybear's then unreimbursed
accumulated tax benefits that can be realized (Andrx will then reverse the tax
benefits previously recorded, i.e., effectively transferring such tax benefits
to Cybear in the form of a non-cash equity transaction).
In connection with the reorganization, Andrx Corporation changed its
method of accounting for allocating income taxes to Andrx and Cybear from the
pro rata method to the separate return method.
In October 2000, Andrx Corporation and Cybear signed a supplement to
the tax sharing agreement, whereby Cybear will be reimbursed by the Company for
specific tax benefits utilized by Andrx Corporation in connection with an
election Cybear made on its 1999 Federal corporate tax return to amortize
certain expenses and/or attributes over a period of ten years and agrees that it
will do so again on its separate 2000 Federal corporate tax return for the
period from January 1, 2000 through September 6, 2000 for certain expenses
and/or attributes incurred within that period. Such reimbursements will be
accounted for by Cybear as a capital contribution. As a result of this
agreement, Cybear may be reimbursed by Andrx for the after-tax effect of
amortizing approximately $6,000 of such expenses over ten years.
For the three and nine months ended September 30, 2000, Andrx provided
$6,782 and $30,762 respectively, for Federal and state income taxes or 27% and
34%, respectively, of income before income taxes. For the three and nine months
ended September 30, 2000, Andrx provided income taxes less than the effective
statutory rate of 37% due to its ability to utilize certain post-reorganization
tax benefits of Cybear in connection with the tax sharing agreement as
supplemented, as Cybear cannot recognize the income tax benefits it creates,
under the tax sharing agreement, Andrx will use and record such benefit. From
September 7, 2000 to September 30, 2000, under the provisions of the tax sharing
agreement, Andrx recorded a tax benefit of approximately $2,000. Under the
provisions of the supplement to the tax sharing agreement, Andrx recorded a tax
benefit of $1,665.
For the three and nine months ended September 30, 1999, Andrx provided
$10,925 and $45,676, respectively, for Federal and state income taxes or 35% and
37%, respectively, of income before income taxes. Andrx was not required to
provide for Federal and state income taxes at 39%, the then expected annual
effective combined Federal and state statutory rate due to the utilization of
Andrx's net operating loss carryforwards.
20
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
Net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in the ownership interest of significant stockholders
over a three-year period in excess of 50%.
4. JOINT VENTURES
In November 2000, Andrx Corporation and Watson amended the terms of the
ANCIRC joint venture agreement. This joint venture relates to the development,
manufacture and sale of up to eight bioequivalent controlled-release
pharmaceutical products, two of which, bioequivalent versions of Trental(R) and
Oruvail(R), have already been approved by the FDA. Under the amendment, Andrx
Corporation is solely responsible for all of the costs to develop, manufacture
and sell the remaining six products, and Watson may receive a royalty on net
sales, if any, from the commercialization of those products. The amendment also
provides that Andrx Corporation may elect to discontinue its efforts to develop
any of these six products at any time. The 50/50 joint venture relationship for
the two marketed products is continuing.
In August 2000, Andrx entered into CARAN, the 50/50 joint venture with
Carlsbad to develop, manufacture and sell three bioequivalent pharmaceutical
products, all of have been filed with the FDA. Carlsbad developed and will
manufacture the products and Andrx will distribute such products.
Equity in the losses of the joint ventures, primarily research and
development expenses, are included in "Research and development" expenses in the
Unaudited Consolidated Statements of Income included herein. Separate results of
the joint ventures are not presented because the results are not material.
21
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
5. COMPREHENSIVE INCOME
The components of Andrx's comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 18,363 $ 19,746 $ 59,993 $ 78,817
Unrealized gain (loss) on investments
available-for-sale, net (38) 11 (18) (15)
------------- ------------- ------------- -------------
Comprehensive income $ 18,325 $ 19,757 $ 59,975 $ 78,802
============= ============= ============= =============
</TABLE>
6. BUSINESS SEGMENTS
Andrx operates in the following business segments:
o Anda markets and distributes generic pharmaceuticals manufactured by
third parties primarily to independent pharmacies and
non-warehousing chains. Anda includes the activity of Valmed
Pharmaceuticals, Inc. after the acquisition date of March 15, 2000.
Anda operating results exclude participation in the sales of
products developed and manufactured by Andrx Pharm.
o Andrx Pharm develops bioequivalent versions of selected
controlled-release brand name pharmaceuticals utilizing its
proprietary drug delivery technologies and manufactures and sells
such products.
o Aura Labs applies the proprietary drug delivery technologies
developed by Andrx Pharm to the development of brand name
controlled-release formulations of existing drugs.
The category "Corporate and Other" consists of corporate headquarters,
which includes general and administrative expenses, interest income and income
taxes.
22
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
Andrx evaluates the performance of the segments after all intercompany
sales are eliminated. The allocation of income taxes is not evaluated at the
segment level.
The following table presents financial information by business segment:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
-----------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Other Andrx
-------------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 82,732 $ 47,152 $ - $ - $ 129,884
Income (loss) from operations 4,062 27,652 (5,739) (4,833) 21,142
Interest income - - - 4,043 4,043
Interest expense (40) - - - (40)
Total assets, end of period 156,264 97,606 223 330,163 584,256
<CAPTION>
Three Months Ended
September 30, 1999
-----------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Other Andrx
-------------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 66,101 $ 45,223 $ - $ - $ 111,324
Income (loss) from operations 4,821 31,596 (2,557) (2,821) 31,039
Interest income - - - 617 617
Interest expense (510) - - - (510)
Total assets, end of period 118,238 76,556 133 65,501 260,428
<CAPTION>
Nine Months Ended
September 30, 2000
-----------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Other Andrx
-------------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 228,039 $ 144,436 $ - $ - $ 372,475
Income (loss) from operations 11,077 95,233 (12,655) (9,459) 84,196
Interest income - - - 7,294 7,294
Interest expense (735) - - - (735)
<CAPTION>
Nine Months Ended
September 30, 1999
-----------------------------------------------------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharm Labs Other Andrx
-------------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 195,234 $ 158,546 $ - $ - $ 353,780
Income (loss) from operations 16,849 119,854 (5,525) (7,008) 124,170
Interest income - - - 1,470 1,470
Interest expense (1,147) - - - (1,147)
</TABLE>
23
<PAGE>
ANDRX
(representing Andrx Corporation other than its ownership of Cybear)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
7. CONTINGENCIES
On June 6, 2000, the United States District Court for the Eastern
District of Michigan granted plaintiffs' motion for partial summary judgment
against the Andrx and Aventis S.A. ("Aventis" or "HMRI") in the pending putative
class actions. The District Court determined that the Stipulation and Agreement
("Stipulation") Andrx had entered into with Aventis relating to their
Cardizem(R) CD patent litigation constitutes a restraint of trade that is
illegal per se under section 1 of the Sherman-Antitrust Act. On August 15, 2000,
the District Court granted Andrx' and Aventis' motions to certify two questions
relating to this determination to the United States Court of Appeals.
Thereafter, as required under Federal Rules of Appellate Procedure, Andrx and
Aventis have now filed motions requesting the appellate court to accept the
appeal as certified by the District Court. Those motions are still pending.
Also, on September 20, 2000, the District Court granted plaintiff's' motions to
amend their complaints to allege a nationwide class of purchasers suing under
State unjust enrichment laws. In due course, Andrx and Aventis will be given the
opportunity to make motions to dismiss these new claims.
On October 26, 2000, the Federal district court in the District of
Columbia denied motion for reconsideration of the court's January 6, 2000
decision dismissing Biovail's antitrust counterclaims against the Company and
reconfirmed that dismissal. The court found that any "potential delay in the
marketing of generic versions of Cardizem was more directly caused by the
applicable statutory scheme than by any agreement between Andrx and HMRI" and,
as such, "Biovail's allegation that it has been unable to compete in the generic
Cardizem market does not flow from the allegedly unlawful agreement between
Andrx and HMRI." Biovail has appealed this denial of reconsideration and has
sought to consolidate that appeal with its pending appeal of the original order
dismissing its counterclaims. Oral argument of that appeal is scheduled to take
place in early 2001.
Although management is unable to predict the outcome of the litigation
described above, it continues to believe that its actions were lawful and in
fact enabled Andrx to market its bioequivalent Cardizem CD sooner.
In the multi-district litigation pending in the Federal district court
for the Southern District of New York with respect to the Andrx bioequivalent
version of Prilosec (R), Astra has filed a belated motion to amend the complaint
in order to assert infringement claims against the Company under an additional
patent. The Company has opposed this motion.
The Southeast Regional office of the SEC has commenced an informal
inquiry of Cybear with respect to the relationships and agreements between
Cybear and Andrx, particularly with respect to Cybearclub, a joint venture
between Cybear and Andrx that is intended to promote the distribution of
healthcare products to physician offices through the Internet. Cybear is
cooperating voluntarily with the SEC.
Except as stated above, there have been no other material developments
in any legal matters described in Andrx's Annual Report on Form 10-K for the
year ended December 31, 1999 and quarterly reports on Form 10-Q for the periods
ended March 31, 2000 and June 30, 2000.
8. SUBSEQUENT EVENT
On November 16, 2000, Andrx entered into a definitive agreement to
acquire CTEX Pharmaceuticals, Inc., a privately owned pharmaceutical sales and
marketing company based in Jackson, Mississippi. The acquisition is for $30,000,
subject to adjustment, comprised of Andrx common stock and cash, and will be
accounted for using the purchase method of accounting. The acquisition is
subject to various closing conditions. Andrx expects that the closing will occur
by the first quarter of 2001.
24
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,770 $ 11,922
Investments available-for-sale, at market value 14,284 26,072
Accounts receivable, net 1,585 104
Convertible notes receivable, net 3,000 3,000
Prepaid and other current assets 488 1,382
------------ ------------
Total current assets 23,127 42,480
Property and equipment, net 6,913 5,126
Goodwill, net 13,570 3,819
Other assets, net 425 1,643
------------ ------------
Total assets $ 44,035 $ 53,068
============ ============
LIABILITIES AND CYBEAR EQUITY
Current liabilities
Accounts payable $ 622 $ 252
Accounts payable to Andrx 1,723 59
Accrued liabilities 1,111 2,779
------------ ------------
Total current liabilities 3,456 3,090
Commitments and contingencies (Notes 7 and 10)
Cybear equity 40,579 49,978
------------ ------------
Total liabilities and Cybear equity $ 44,035 $ 53,068
============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated balance sheets.
25
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Cybearclub LC telemarketing product sales $ 1,710 $ 12 $ 2,581 $ 12
Cybearclub LC Internet product sales 385 - 711 -
Other product sales 194 - 321 -
Web development, hosting and other services 71 23 207 23
Subscription 35 56 43 83
----------- ---------- ----------- ----------
Total revenues 2,395 91 3,863 118
----------- ---------- ----------- ----------
Operating expenses
Cost of sales 2,128 12 3,425 12
Network operations and operations support 1,068 763 3,276 2,186
Product development 727 988 2,515 2,134
Selling, general and administrative 1,843 1,804 6,652 4,685
Depreciation and amortization 1,241 361 2,563 901
Merger costs 317 - 1,202 -
Other non-recurring charges 4,000 - 6,022 -
----------- ---------- ----------- ----------
Total operating expenses 11,324 3,928 25,655 9,918
----------- ---------- ----------- ----------
Loss from operations (8,929) (3,837) (21,792) (9,800)
Other income (expense)
Interest income 455 634 1,519 684
Interest expense on advances from Andrx - - - (216)
----------- ---------- ----------- ----------
Loss before income taxes (8,474) (3,203) (20,273) (9,332)
Income tax benefit - - - 2,824
----------- ---------- ----------- ----------
Net loss $ (8,474) $ (3,203) $ (20,273) $ (6,508)
=========== ========== =========== ==========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
26
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (20,273) $ (6,508)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 2,563 901
Options granted to consultants - 90
Changes in operating assets and liabilities
Accounts receivable, net (1,481) (83)
Prepaid and other assets 2,132 (2,397)
Accounts payable and accrued liabilities 366 (257)
---------- ---------
Net cash used in operating activities (16,693) (8,254)
---------- ---------
Cash flows from investing activities
Proceeds from (purchases of) investments
available-for-sale, net 11,876 (37,961)
Purchases of property and equipment (3,656) (2,022)
Acquisition of Telegraph Consulting Corporation - (1,177)
---------- ---------
Net cash provided by (used in) investing activities 8,220 (41,160)
---------- ---------
Cash flows from financing activities
Proceeds from exercises of stock options 321 157
Proceeds from issuance of shares of common stock - 50,787
Advances from Andrx, net of Andrx utilization
of Cybear's income tax attributes - 5,101
---------- ---------
Net cash provided by financing activities 321 56,045
---------- ---------
Net increase (decrease) in cash and cash equivalents (8,152) 6,631
Cash and cash equivalents, beginning of period 11,922 4
---------- ---------
Cash and cash equivalents, end of period $ 3,770 $ 6,635
========== =========
Supplemental disclosure of non-cash investing and financing activities:
Purchase of Cybear minority interest by Andrx $ 10,444 $ -
========== =========
Conversion of advances from Andrx into shares of common stock $ - $ 7,446
========== =========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
27
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements for Cybear have been prepared pursuant to the rules and
regulations of the SEC. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to those rules and regulations. However, management believes
that the disclosures contained herein are adequate to make the information
presented not misleading. The unaudited consolidated financial statements
reflect, in the opinion of management, all material adjustments (which include
only normal recurring adjustments) necessary to present fairly Cybear's
unaudited financial position and results of operations. The unaudited results of
operations for the three and nine months ended September 30, 2000 and cash flows
for the nine months ended September 30, 2000 are not necessarily indicative of
the results of operations or cash flows which may be expected for the remainder
of 2000. The unaudited consolidated financial statements of Cybear should be
read in conjunction with the consolidated financial statements and related notes
in Andrx's Annual Report on Form 10-K and Cybear's Annual Report on Form 10-K
for the year ended December 31, 1999 and Andrx Corporation consolidated
financial statements as of and for the three and nine months ended September 30,
2000 and 1999, included herein, on pages 4 to 14.
Certain prior period amounts have been reclassified to conform to
current period presentation.
2. CORPORATE STRUCTURE
Andrx Corporation is presenting the consolidated financial information
of Cybear in these Cybear unaudited consolidated financial statements. Cybear
common stock is common stock of Andrx Corporation, but is designed to reflect
the business of Cybear. Holders of Cybear common stock have no specific rights
to the assets designated to Cybear, as Andrx Corporation continues to hold title
to all of Cybear's assets and is responsible for all of its liabilities,
regardless of how it allocates assets and liabilities among the classes of
common stocks for financial statement presentation purposes. Holders of Cybear
common stock are therefore subject to the risks of investing in the businesses,
assets and liabilities of Andrx Corporation as a whole. For instance, the assets
allocated to each class of common stock are subject to Company-wide claims of
creditors and stockholder litigation.
28
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
3. INCOME TAXES
Under the provisions of the tax sharing agreement related to the
reorganization, for financial statement purposes, at such time as Cybear
achieves profitability, or is otherwise able to recognize its tax benefits under
accounting principles generally accepted in the United States, if ever, Cybear
will recognize the benefit of its accumulated income tax benefits (which had
previously been utilized by Andrx) in its statement of operations with a
corresponding decrease to Cybear's total group equity (i.e., effectively
accounted for as a non-cash dividend). To the extent Andrx is profitable and is
able to utilize such tax benefit and Cybear is generating losses, it is expected
that Andrx's effective tax rate will be less than the statutory Federal and
state rate. If Cybear is ever able to attain profitability or is otherwise able
to recognize its tax benefits, Andrx's effective tax rate may be greater than
the statutory Federal and state income tax rate to the extent of Cybear's then
unreimbursed accumulated tax benefits that can be realized (Andrx will then
reverse the tax benefits previously recorded, i.e., effectively transferring
such tax benefits to Cybear in the form of a non-cash equity transaction).
In October 2000, Andrx Corporation and Cybear signed a supplement to
the tax sharing agreement, whereby Cybear will be reimbursed by Andrx
Corporation for specific tax benefits utilized by Andrx Corporation in
connection with an election Cybear made on its 1999 Federal corporate tax return
to amortize certain expenses and/or attributes over a period of ten years and
agrees that it will do so again on its separate 2000 Federal corporate tax
return for the period from January 1, 2000 to September 6, 2000 for certain
expenses and/or attributes incurred within that period. Such reimbursements will
be accounted for by Cybear as a capital contribution from Andrx. As a result of
this agreement, Cybear may be reimbursed by Andrx for the after-tax effect of
amortizing approximately $6,000 of such expenses over ten years.
In connection with the reorganization, Andrx Corporation changed its
method of accounting for allocating income taxes to Andrx and Cybear from pro
rata to separate return method.
Through the completion of its public offering in June 1999, Cybear's
results of operations for tax purposes were included in the consolidated income
tax return of Andrx, since Andrx owned at least 80% of the common stock of
Cybear. Cybear and Andrx had a tax allocation agreement pursuant to which
Federal income tax liabilities or benefits were allocated to Cybear on a pro
rata basis as if Cybear had filed a separate income tax return when Cybear's
taxable results are included in the consolidated income tax return of Andrx.
Upon completion of the public offering in June 1999, Andrx' ownership in Cybear
was reduced below 80%. Consequently, thereafter Cybear filed its income tax
returns separately, until September 7, 2000 (the effective date of the
reorganization). Upon the effective date of reorganization, Cybear's results of
operations, for tax purposes, will be included in the consolidated income tax
return of Andrx Corporation as Andrx Corporation owns 100% of Cybear.
For the three and nine months ended September 30, 2000, Cybear did not
record any income tax benefit as Andrx' ownership in Cybear was below 80%
through September 6, 2000 and Cybear generated net operating loss carryforwards.
Under the provisions of SFAS No. 109, "Accounting for Income Taxes", Cybear has
provided a valuation allowance to reserve against 100% of its net deferred tax
assets due to its history of net losses. For the nine months ended September 30,
1999, as Andrx utilized Cybear's income tax benefit, Cybear recorded $2,824 in
income tax benefit. This income tax benefit reflects the reimbursement from
Andrx for the utilization of Cybear's income tax attributes pursuant to the tax
allocation agreement prior to the reorganization.
4. GOODWILL
In September 2000, as a result of the reorganization, Andrx acquired
the outstanding equity of Cybear that Andrx did not
own, resulting in Cybear recording goodwill in the amount of $10,444, which is
being amortized on a straight line basis over its estimated useful life of ten
years. For the three and nine months ended September 30, 2000, such amortization
was $87.
In the third quarter of 2000, management re-evaluated the expected
benefits to be received from its 1999 acquisition of Telegraph Consulting
Corporation ("TCC") and, as such, as of July 1, 2000, prospectively has revised
the life of the goodwill related to the acquisition from ten to three years. The
original goodwill recorded was $3,933, and the unamortized portion, as of
September 30, 2000, amounted to $3,212 and future quarterly amortization will
equal $410.
5. RELATED PARTY TRANSACTIONS
In August 1999, Cybear commenced the Cybearclub joint venture with
Andrx, intended to distribute healthcare products to physician offices through
the Internet. Capital contributions to, distributions from and net income or
loss generated by Cybearclub are allocated in proportion to Cybear's and Andrx's
interests in the joint venture. Such interests are 55% to Cybear and 45% to
Andrx. Cybearclub is managed by and under the direction of a management
committee comprised of five members. Three members are appointed by Cybear and
two members are appointed by Andrx. Based on its majority ownership and majority
representation on the management committee of Cybearclub, Cybear controls
Cybearclub and, accordingly, consolidates the accounts of Cybearclub.
As part of its own operations, Andrx purchases products from outside
vendors and distributes them to pharmacies and physician who it generally
contacts through telemarketers. In connection with Cybearclub, Andrx sells some
of those products to Cybearclub at cost and charges Cybearclub for the
telemarketing, purchasing, warehousing and distribution of the products
Cybearclub sells to the physician offices. Under the agreement negotiated by the
parties, such services were charged at a rate of 6% of gross sales but could
increase if Cybear achieves certain quarterly gross sales levels. For the three
and nine months ended September 30, 2000, Andrx charged Cybear $149 and $229,
respectively, for the services it provided. For the three and nine months ended
September 30, 1999, Andrx charged Cybear $1 for the services it provided.
29
<PAGE>
CYBEAR
(Representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
To help achieve Cybearclub's objective of having physicians purchase
its products through the Internet, Cybear's executive management initiated a
dual strategy of using telemarketers to induce physicians, including Andrx
physician customers, to begin placing orders with Cybearclub, and to then
transition those physicians from being purchasers who place their orders with a
telemarketer into customers who place orders directly through the Internet.
For the three months and nine month periods ended September 30, 2000,
Cybearclub reported $1,710 and $2,581, respectively, of revenue from orders
procured and entered by Andrx's telemarketers over the Internet, reported as
Cybearclub telemarketing product sales and $385 and $711, respectively, of
revenue from orders entered by physicians over the Internet, reported as
Cybearclub Internet product sales. For the three and nine months ended September
30, 1999, Cybearclub telemarketing product sales were $12. Cybearclub did not
have any Internet product sales for the three and nine months ended September
30, 1999.
For the three and six months ended June 30, 2000, Cybearclub
telemarketing product sales were $722 and $871, respectively, and Cybearclub
Internet product sales were $260 and $326, respectively.
As a result of an amendment to the joint venture agreement, beginning
October 9, 2000, Cybearclub revenues will consist solely of Internet product
sales from orders entered by physicians over the Internet. Revenues derived from
the telemarketing efforts of Andrx telemarketers will be recognized by Andrx and
not by Cybearclub. Due to this change, it is likely that Cybearclub total
revenues for the last quarter of 2000 and possibly in future quarters will be
less than as reported for the third quarter of 2000.
In the three and nine months ended September 30, 2000, Cybear developed
banner advertisement for certain Andrx customers and provided such Andrx
customers with advertising on its dr.cybear website. Andrx paid Cybear for such
services. Cybear recorded $16 and $34 as Web Development, Hosting and Other
Services Revenue for the three and nine months ended September 30, 2000,
respectively, for such services. Management believes that the amounts billed for
these services approximate fair market value.
Cybear and Andrx have a corporate services agreement whereby Andrx
provides Cybear with various management services. For the three and nine months
ended September 30, 2000 and 1999, Cybear incurred amounts for these services
based upon mutually agreed upon allocation methods. Management believes that the
amounts incurred for these services approximate fair market value. Costs for
such services were $30 for both the three months ended September 30, 2000 and
1999, and $90 for both the nine months ended September 30, 2000 and 1999.
Accounts payable to Andrx in the accompanying consolidated balance
sheets as of September 30, 2000 and December 31, 1999, represents amounts
payable to Andrx for the purchase of the products sold by Cybear and services
provided by Andrx.
30
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
In October 2000, Andrx Corporation and Cybear signed a supplement to
the previously referenced tax sharing agreement (See Note 3).
6. REVENUE RECOGNITION
Cybearclub is the joint venture between Cybear and Andrx to distribute
healthcare products to physician offices through the Internet (see Note 5).
Cybearclub's product sales and other product sales are earned when the products
have been received by the customer. Provisions for returns, pricing adjustments
and other adjustments related to Cybearclub's product sales and other product
sales are provided in the same period the related sales are recorded. Web
Development, Hosting and Other Services Revenue and Subscription Revenues are
earned when Cybear's services are provided. Historically, Cybear has entered
into certain agreements with medical organizations to provide subscription
services to the organizations' members in exchange for various consulting
services. Certain of these agreements resulted in net cash outflows.
Subscription services earned under agreements resulting in net cash outflows
were recorded as reductions of the amounts expensed for the consulting services
received. As of September 30, 2000, Cybear does not have any outstanding
subscription services agreements resulting in net cash outflows.
Cost of sales consists of the costs of the products purchased for
resale by Cybear, as well as fulfillment costs (see Note 5) provided by Andrx.
Cost of sales are recorded in the same period the related revenues are recorded.
In December 1999, the SEC issued SAB No. 101 which summarizes certain
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The effective date of SAB 101 for
Cybear is the quarter ending December 31, 2000. Cybear continues to evaluate the
impact of the provisions that SAB 101 will have on revenue recognition in future
periods. Based on its initial evaluation, Cybear believes SAB 101 will not have
a material impact on its future results of operations.
31
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
7. CONVERTIBLE NOTES RECEIVABLE, NET
In March 2000, Cybear entered into a software license agreement and a
development service agreement with AHT Corporation ("AHT") whereby, among other
things, Cybear obtained non-exclusive licenses to two AHT software applications
for $1,000 and whereby Cybear agreed to develop a software application for AHT
and received $950 for such services. These agreements are being accounted on a
net basis and the resulting net cash outflow of $50 is included in property and
equipment in the accompanying consolidated balance sheet as of September 30,
2000. Accordingly, no revenue was recorded in connection with entering into the
development service agreement. The capitalized property and equipment will be
amortized over three years, its estimated useful life. To the extent Cybear does
not perform the services described in the development service agreement by March
27, 2001, Cybear may be contingently liable for $950 previously received. Cybear
currently has the ability and intends to provide such services.
In connection with these agreements, Cybear loaned $4,000 to AHT in
exchange for a one-year convertible promissory note (the "AHT Note"), bearing
interest at the rate of 10% and is wholly or partially convertible, at Cybear's
option, into not more than 1,913,550 shares of AHT common stock at a conversion
price of the lower of $4.34 per share or 80% of the average market price of the
AHT common stock for the 30 trading days immediately preceding the conversion
date. Cybear was granted a perpetual license to the software applications,
including the source code to the software applications, if AHT defaulted in its
obligations under the AHT Note. Cybear recorded the AHT Note at its cost. In
addition, AHT granted Cybear a five year warrant (the "AHT Warrant") to purchase
300,000 shares of its common stock at a price of $4.34 per share.
In September 2000, AHT filed for bankruptcy protection. Due to the
uncertainty of collecting the AHT Note, Cybear recorded an allowance of $4,000
against the AHT Note which is included in other non-recurring charges in its
unaudited consolidated statements of operations for the three and nine months
ended September 30, 2000. Cybear will aggressively pursue all rights and
remedies to enforce its rights under the various agreements with AHT.
32
<PAGE>
CYBEAR
(Representing Cybear a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(in thousands, except for share and per share amounts)
8. OTHER NON-RECURRING CHARGES
For the three months ended September 30, 2000, Cybear recorded other
non-recurring charges of $4,000 consisting of an allowance against the AHT Note
included in Other non-recurring charges in the Unaudited Consolidated Statements
of Operations. AHT filed for bankruptcy protection in the third quarter of 2000.
Cybear recorded such allowance, despite collection efforts, due to the
uncertainty of collecting the AHT Note.
For the nine months ended September 30, 2000, Cybear recorded other
non-recurring charges of $6,022 representing an allowance against the AHT Note,
severance costs, impairment charges to certain assets and costs incurred to
resolve a dispute and to terminate certain agreements. Certain of these other
non-recurring charges pertained to an agreement whereby Cybear had future
monthly contractual obligations through June 2001, totaling approximately
$2,300. In March 2000, Cybear disputed the third party's performance under the
agreement. In June 2000, Cybear and the third party resolved their dispute,
agreed to terminate the agreement, and release each other from any continuing
obligations, other than certain mutual indemnification obligations, upon payment
by Cybear of $870 of the remaining $2,300 due from Cybear under the agreement.
9. COMPREHENSIVE LOSS
The components of Cybear's comprehensive loss are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net loss $ (8,474) $ (3,203) $ (20,273) $ (6,508)
Unrealized gain (loss) on investments
available-for-sale 43 (82) 88 (82)
---------------- ---------------- ---------------- ---------------
Comprehensive loss $ (8,431) $ (3,285) $ (20,185) $ (6,590)
================ ================ ================ ===============
</TABLE>
33
<PAGE>
CYBEAR
(representing Cybear, a wholly owned
subsidiary of Andrx Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000
(in thousands, except share and per share amounts)
10. CONTINGENCIES
In June 2000, Cybear received a claim from Nicebid.com for damages
allegedly incurred by Nicebid.com as a result of alleged breaches of an Internet
commerce contract between Nicebid.com and TCC. Cybear acquired TCC in 1999.
Nicebid.com has requested that this matter be submitted to arbitration if it
cannot be resolved amicably. Cybear is currently evaluating the claim and
intends to vigorously defend against the claim.
The Southeast Regional office of the SEC has commenced an informal
inquiry of Cybear with respect to the relationships and agreements between
Cybear and Andrx, particularly with respect to Cybearclub, a joint venture
between Cybear and Andrx that is intended to promote the distribution of
healthcare products to physician offices through the Internet. Cybear is
cooperating voluntarily with the SEC.
Except as stated above, there have been no other material developments
in any legal matters described in Cybear's Annual Report on Form 10-K for the
year ended December 31, 1999 and quarterly reports on Form 10-Q for the periods
ended March 31, 2000 and June 30, 2000.
34
<PAGE>
ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Andrx Corporation cautions readers that certain important factors may
affect the Company's actual results and could cause such results to differ
materially from any forward-looking statements which may be deemed to have been
made in this report or which are otherwise made by or on behalf of the Company.
For this purpose, any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing words such as "may", "will",
"to", "expect", "believe", "anticipate", "intend", "could", "would", "estimate",
or "continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Factors which may affect
the Company's results include, but are not limited to, the risks and
uncertainties associated with a drug delivery company which has only
commercialized a few products, has new technologies and limited manufacturing
experience, including but not limited to current and potential competitors with
significant technical and marketing resources, and dependence on key personnel.
The Company is also subject to the risks and uncertainties associated with all
drug delivery companies, including changes in regulatory schemes, difficulty in
receiving regulatory approval to market new products, compliance with government
regulations and patent infringement and other litigation. Additionally, the
Company is subject to risks and uncertainties associated with drug distribution
companies, including but not limited to, fierce competition and decreasing gross
profits. In addition, Cybear, Andrx' Internet based healthcare information
technology subsidiary is subject to the risks and uncertainties of an early
stage Internet company, including but not limited to, limited operating history,
substantial operating losses, availability of capital resources, ability to
effectively compete, unanticipated difficulties in product development, ability
to gain market acceptance and market share, ability to manage growth, reliance
on short-term non-exclusive contracts, ability to obtain content, Internet
security risks and uncertainty relating to the evolution of the Internet as a
medium for commerce, dependence on third party content providers, dependence on
key personnel, ability to protect intellectual property and the impact of future
government regulation. The Company is also subject to other risks detailed
herein or detailed from time to time in Andrx's and Cybear's filings with the
Securities and Exchange Commission.
Introduction
Andrx was organized in August 1992, and commenced marketing and
distributing bioequivalent pharmaceuticals manufactured by third parties. In
February 1993, Andrx began to engage in the development of bioequivalent
versions of controlled-release pharmaceuticals utilizing its proprietary drug
delivery technologies. During 1996, Andrx commenced its efforts to develop brand
name controlled-released products and an Internet based software application for
healthcare providers. Through October 9, 1997, Andrx' distribution operations
had generated substantially all of its revenues. On October 10, 1997, the FDA
granted final approval of Andrx' Abbreviated New Drug Application ("ANDA") for
its bioequivalent version of Dilacor XR(R), Andrx' first manufactured product,
which it immediately launched as Diltia XT(R).
35
<PAGE>
In September 1997, Andrx entered into a Stipulation and Agreement
("Stipulation") with Aventis S.A. ("Aventis") on the patent infringement
litigation involving Cardizem(R) CD in order to reduce the risks that both
parties faced as the case was litigated to its conclusion. Andrx agreed to
maintain the status quo in connection with the marketing of its product and to
dismiss certain claims against Aventis. Aventis agreed to compensate Andrx for
its lost profits, which were stipulated to be $100.0 million per year, if Andrx
ultimately prevailed in the litigation and to grant Andrx a license for Aventis'
patents under certain conditions, including if Andrx ultimately lost the
litigation. Aventis also agreed to make non-refundable interim quarterly
payments of $10.0 million to Andrx, beginning upon Andrx' receipt of final FDA
approval for its bioequivalent version of Cardizem(R) CD and continuing until
the litigation was resolved or certain other events occurred. In July 1998, the
FDA granted final marketing approval for Andrx' ANDA for a bioequivalent version
of Cardizem(R) CD. In June 1999, litigation concerning Cardizem(R) CD was
resolved and on June 23, 1999, Andrx launched its reformulated bioequivalent
version of Cardizem(R) CD, Cartia XT(R), which enjoyed a 180-day period of
marketing exclusivity through December 19, 1999.
In June 1999, Andrx entered into an agreement with Geneva
Pharmaceuticals, Inc. ("Geneva"), a member of the Novartis pharmaceutical group,
for the sale and marketing of specified products. Geneva will fund the
development of controlled-release dosage forms of existing products that Andrx
is developing for submission as New Drug Applications (NDAs). Andrx granted
marketing rights to Geneva in specified territories for certain products
including one of Andrx' NDA products for the United States. Upon approval by the
FDA or other regulatory agencies, Andrx will receive royalties from the sale of
such products. In June 2000, Andrx amended its agreement with Geneva to include,
among other things, additional licensing fees to Andrx. Andrx has also committed
to continuing to sell Geneva's bioequivalent products through Anda, Inc., the
Company's distribution subsidiary.
In 1997, Andrx formed Cybear, its information technology subsidiary,
which uses the Internet to improve the efficiency of clinical, administrative
and communications tasks associated with patient care from providers through the
secure and reliable transmission of this information. In March 1999, Cybear
introduced its first product, a Physician Practice Portal, which is designed to
address the communications and operational needs of physicians. In June 1999,
Cybear completed a public equity offering of its shares at $16.00 per share,
thereby reducing Andrx' ownership in Cybear below 80%.
In August 1999, Andrx and Cybear formed Cybearclub, a joint venture to
distribute healthcare products to physicians through the Internet.
On September 7, 2000, Andrx completed a reorganization whereby Andrx
acquired the outstanding equity of Cybear, that it did not own, reincorporated
in Delaware, and created two new classes of common stock - Andrx common stock,
to track the performance of Andrx Corporation other than its ownership of
Cybear, and Cybear common stock, to track the performance of Cybear. In
connection with the reorganization, Andrx shareholders exchanged each share of
common stock held for one share of Andrx common stock and .1489 shares of Cybear
common stock and Cybear stockholders exchanged each share of Cybear common stock
(pre reorganization) held for one share of common stock. The reorganization was
effective on September 7, 2000.
36
<PAGE>
ANDRX CORPORATION
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2000 ("2000 QUARTER"), AS COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1999 ("1999 QUARTER")
For the 2000 Quarter, the Company reported net income of $10.8 million,
as compared to net income of $17.8 million for the 1999 Quarter.
Sales from distributed products increased by 28.6% to $85.0 million for
the 2000 Quarter, as compared to $66.1 million for the 1999 Quarter. The
increase in sales from distributed products reflects an increase in sales to
existing customers, an increase in the number of customers, as well as, the
distribution of new products launched by other pharmaceutical companies, offset
by overall price declines. The 2000 Quarter also includes sales from Valmed
Pharmaceuticals, Inc. ("Valmed"), which Andrx acquired in March 2000.
Sales from manufactured products were $43.1 million for the 2000
Quarter, as compared to $42.1 million in the 1999 Quarter. Sales from
manufactured products include sales of Diltia XT(R), the Company's bioequivalent
version of Dilacor XR(R), and Cartia XT(R), its bioequivalent version of
Cardizem CD(R), which enjoyed 180-days of marketing exclusivity through December
19, 1999.
The Company generated $4.1 million of licensing and other revenues in
the 2000 Quarter, as compared to $3.2 million in the 1999 Quarter, primarily
from the agreement with Geneva, as amended.
Gross profit from sales of distributed and manufactured products was
$50.1 million with a gross margin of 39.1% in the 2000 Quarter, as compared to
$48.3 million, with a gross margin of 44.7% in the 1999 Quarter. The increase in
gross profit is primarily the result of the increase in sales of manufactured
products within the product mix.
Selling, general and administrative expenses were $16.1 million or
12.2% of total revenues for the 2000 Quarter, as compared to $14.3 million or
12.8% of total revenues for the 1999 Quarter. Selling, general and
administrative expenses include royalties paid to the Company's Co-Chairman and
Chief Scientific Officer related to sales of Cartia XT(R).
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Research and development expenses were $14.6 million in the 2000
Quarter, as compared to $6.1 million in the 1999 Quarter. The increase in
research and development expenses of $8.5 million or 139% reflects the
continuing progress in and expansion of both the Company's bioequivalent (ANDA)
and brand name (NDA) drug development programs and reflects the equity in the
losses, primarily research and development expenses, of Andrx' ANCIRC joint
venture and CARAN joint venture, which began in August 2000.
Through Cybear, the Company incurred $9.2 million of Internet operating
expenses in the 2000 Quarter, as compared to $3.9 million in the 1999 Quarter.
See page 46 for the discussion of Cybear's operating results.
In the 2000 Quarter, the Company incurred $2.1 million of one-time
costs in connection with the reorganization.
Minority interest was $901,000 in the 2000 Quarter, as compared to
$779,000 in the 1999 Quarter. The increase in minority interest is a result of
the increase in Cybear's losses in the 2000 Quarter to $8.5 million from $3.2
million in the 1999 Quarter. Minority interest will not be recorded after the
reorganization.
Interest income was $4.5 million in the 2000 Quarter, as compared to
$1.3 million in the 1999 Quarter. The increase in interest income is the result
of the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 2000 Quarter, as compared to the 1999
Quarter. The increase was primarily the result of the net proceeds of $235.8
million received from Andrx's May 2000 public equity offering and the net cash
provided by operating activities. The Company invests in investment grade
interest bearing securities.
Interest expense decreased to $40,000 in the 2000 Quarter, as compared
to $510,000 in the 1999 Quarter. The decrease in interest expense was primarily
the result of a lower average level of borrowings under the Company's bank loan
during the 2000 Quarter, as compared to the 1999 Quarter. The borrowings are
primarily utilized to fund the Company's distribution operations.
For the 2000 Quarter, the Company provided $6.8 million for Federal and
state income taxes or 39% of income before income taxes. For the 2000 Quarter,
the Company provided for income taxes in excess of the expected annual effective
combined Federal and state statutory rate of 37%, primarily due to the Company's
inability to utilize its share of the losses of Cybear after the Company's
ownership of Cybear was reduced below 80% on June 23, 1999 through September 6,
2000, prior to the effective date of the reorganization. Accordingly, Cybear was
excluded from Andrx' consolidated tax return and will file as a separate tax
entity for all periods from June 23, 1999 through September 6, 2000. Beginning
on the effective date of reorganization, for tax purposes, Cybear's results of
operations will be included in the consolidated tax return of the Company, as
the Company owns 100% of Cybear and income tax benefits relating to Cybear which
are unable to be utilized by Cybear on a separate company basis, will be
allocated to Andrx.
In connection with the reorganization, effective September 7, 2000, the
Company changed its method of accounting for its allocation of income taxes to
each series of common stock from the pro rata method to the separate return
method. For the 1999 Quarter, the Company provided $10.9 million for Federal and
state income taxes or 38% of income before income taxes. The Company was not
required to provide for Federal and state income taxes at 39%, the then expected
annual effective combined Federal and state statutory rate primarily due to the
utilization of Andrx's net operating loss carryforwards, offset by Andrx's
inability to utilize Cybear's expected net losses incurred from June 23, 1999
through September 6, 2000.
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The basic and diluted weighted average shares of Andrx common stock
outstanding were 69.1 million and 71.9 million, respectively, in the 2000
Quarter, as compared to 62.8 million and 65.4 million, respectively, in the 1999
Quarter. Such increases resulted primarily from the Andrx's May 2000 public
equity offering of 5.2 million shares. All Andrx common stock share and per
share amounts reflect the June 1999 and May 2000 two-for-one stock splits
effected in the form of 100% stock dividends.
The basic and diluted weighted average shares of Cybear common stock
outstanding was 15.2 million for the 2000 Quarter, relating to the period from
September 7, 2000 (the effective date of issuance of Cybear common stock) to
September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 ("2000 PERIOD"), AS COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1999 ("1999 PERIOD")
For the 2000 Period, Andrx reported net income of $43.9 million, as
compared to net income of $73.7 million for the 1999 Period. The 1999 Period
includes $70.7 million in fees received pursuant to the Company's Stipulation
with Aventis.
For the 2000 Period, sales from distributed products increased by 18.6%
to $231.7 million, as compared to $195.2 million for the 1999 Period. The
increase in sales from distributed products reflects an increase in sales to
existing customers, an increase in the number of customers, as well as the
participation in the distribution of new products launched by other
pharmaceutical companies, offset by overall price declines. The 2000 Period also
includes sales from Valmed, which Andrx acquired in March 2000.
Sales from manufactured products increased by 60.5% to $133.2 million
for the 2000 Period, as compared to $83.0 million for the 1999 Period. Sales
from manufactured products include sales of Andrx's bioequivalent version of
Dilacor XR(R), Diltia XT(R) for the 2000 Period and the 1999 Period and Cartia
XT(R), its bioequivalent version of Cardizem(R) CD, commencing June 23, 1999,
which enjoyed 180-days of marketing exclusivity through December 19, 1999.
In the 1999 Period, Andrx received $70.7 million in interim and
retroactive Stipulation fees.
The recorded $11.4 million of licensing and other revenues in the 2000
Period, as compared to $4.9 million in the 1999 Period, primarily from the
agreement with Geneva, as amended.
Gross profit from sales of distributed and manufactured products was
$150.6 million with a gross margin of 41.3% in the 2000 Period, as compared to
$105.9 million or 38.1% in the 1999 Period. The increase in gross profit is
primarily the result of the increase in sales of manufactured products within
the product mix.
Selling, general and administrative expenses were $42.0 million or
11.2% of total revenues for the 2000 Period, as compared to $40.6 million or
11.5% of total revenues for the 1999 Period. Selling, general and administrative
expenses include royalties paid to the Company's Co-Chairman and Chief
Scientific Officer related to interim and retroactive Stipulation fees in the
1999 Period and sales of Cartia XT(R) commencing June 23, 1999.
Research and development expenses were $33.3 million in the 2000
Period, as compared to $16.7 million in the 1999 Period. The increase in
research and development expenses of 99.8% reflects the progress in and
expansion of the Company's development activities for its ANDA and NDA drug
development programs and includes the equity in losses of the Company's ANCIRC
joint venture and CARAN joint venture, which began in August 2000.
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In the 2000 Period, through Cybear, the Company incurred $22.2 million
of Internet operating expenses, as compared to $10.6 million in the 1999 Period.
See page 48 for the discussion of Cybear's operating results.
In the 2000 Period, the Company incurred $2.1 million of one-time costs
in connection with the reorganization.
Minority interest was $4.1 million in the 2000 Period, as compared to
$1.6 million in the 1999 Period. The increase in minority interest is a result
of the increase in Cybear's losses which increased in the 2000 Period to $20.3
million from $6.5 million in the 1999 Period. No minority interest will be
recorded after the reorganization.
In the 1999 Period, the Company recognized a gain of $300,000 on the
sale of Cybear equity to Cybear's then chairman pursuant to an existing
subscription agreement.
Interest income was $8.8 million in the 2000 Period, as compared to
$2.2 million in the 1999 Period. The increase in interest income is the result
of the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 2000 Period, as compared to the 1999
Period.
Interest expense decreased to $735,000 in the 2000 Period, as compared
to $1.1 million in the 1999 Period. The decrease in interest expense was
primarily the result of a lower average level of borrowings under the Company's
bank loan during the 2000 Period, as compared to the 1999 Period.
For the 2000 period, the Company provided $30.8 million for Federal and
state income taxes or 41% of income before income taxes. For the 2000 Period,
the Company provided for income taxes in excess of the expected annual effective
combined Federal and state statutory rate of 37%, primarily due to the Company's
inability to utilize its share of the losses of Cybear after the Company's
ownership of Cybear was reduced below 80% on June 23, 1999 through September 6,
2000, prior to the effective date of the reorganization. Accordingly, Cybear is
excluded from the Company's consolidated tax return and filed as a separate tax
entity for all periods from June 23, 1999 through September 6, 2000. Beginning
on the effective date of reorganization, for tax purposes Cybear's results of
operations will be included in the Company's consolidated tax return, as the
Company owns 100% of Cybear and income tax benefits relating to Cybear, unable
to be utilized on a separate company basis, will be allocated to Andrx. For the
1999 Period, the Company provided $42.9 million, for Federal and state income
taxes or 37% of income before income taxes. The Company was not required to
provide for Federal and state income taxes at 39%, the then expected annual
effective combined Federal and state statutory rate due to the utilization of
the Company's net operating loss carryforwards, offset by the Company's
inability to utilize Cybear's expected net losses incurred after June 23, 1999,
as the Company's ownership in Cybear was reduced below 80% from June 23, 1999
through September 6, 2000.
The basic and diluted weighted average shares of Andrx common stock
outstanding were 65.9 million and 68.6 million, respectively, in the 2000
Period, as compared to 61.6 million and 64.9 million, respectively, in the 1999
Period. The increases in such diluted weighted average shares of common stock
outstanding in the 2000 Period, as compared to the 1999 Period resulted
primarily from the May 2000 Andrx public equity offering. All share and per
share amounts reflect the June 1999 and May 2000 two-for-one stock splits
effected in the form of 100% stock dividends.
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The basic and diluted weighted average shares of Cybear common stock
outstanding was 15.2 million for the 2000 Period relating to the period from
September 7, 2000 (the effective date of issuance of Cybear common stock) to
September 30, 2000.
Liquidity and Capital Resources
As of September 30, 2000, the Company had $342.7 million in cash, cash
equivalents and investments available-for-sale of which $18.1 million related to
Cybear, and $446.6 million of consolidated working capital, of which $19.7
million pertains to Cybear.
Net cash provided by operating activities was $46.6 million in the 2000
Period, as compared to $27.2 million in the 1999 Period. The 2000 Period
includes net income of $43.9 million, decreases in prepaid and other assets of
$4.4 million and income tax benefits related to exercises of stock options of
$18.0 million, offset by decreases in accounts payable and accrued liabilities
of $7.7 million and income taxes payable of $15.7 million. In comparison, the
1999 Period includes net income of $73.7 million, increases in accounts payable
and accrued liabilities of $38.2 million and income tax benefits related to
exercises of stock options of $5.9 million, offset by increases in accounts
receivable of $41.6 million, inventories of $41.4 million and prepaid and other
assets of $10.4 million.
Net cash used in investing activities was $170.6 million in the 2000
Period, as compared to $76.5 million in the 1999 Period. In the 2000 Period and
1999 Period, the Company purchased $121.3 million and $60.5 million,
respectively, of investments available-for-sale. In the 2000 Period and 1999
Period, the Company invested $31.3 million and $14.8 million, respectively, in
property, plant and equipment. In the 2000 Period, the Company acquired Valmed
for $15.2 million, including transaction costs, net of cash acquired. In the
2000 Period, the Company also incurred $2.8 million in costs pertaining to the
reorganization. In the 1999 Period, the Company incurred $1.2 million for the
acquisition of TCC.
Net cash provided by financing activities was $222.0 million in the
2000 Period, as compared to $73.6 million in the 1999 Period. Net cash provided
by financing activities in the 2000 Period consisted primarily of $235.8 million
in net proceeds from Andrx' May 2000 public equity offering, $6.1 million in
proceeds from the issuance of shares of common stock upon the exercises of stock
options, offset by $20.2 million of repayments on net borrowings under the
Company's bank loan. Net cash provided by financing activities for the 1999
Period consisted of $6.3 million in proceeds from the issuance of shares of
common stock upon the exercises of stock options and warrants, $16.1 million of
net borrowings under the Company's bank loan and $50.8 million in net proceeds
from Cybear's public equity offering in June 1999.
The Company had no outstanding borrowings as of September 30, 2000
under its distribution subsidiary's $30.0 million bank loan, as compared to
$20.2 million in borrowings as of December 31, 1999. Borrowings under the bank
loan are secured by all of the assets of that operation, and are subject to a
borrowing base related to the value of that operation's accounts receivable and
inventories. The bank loan agreement requires compliance by the Company with
certain covenants including the maintenance of minimum working capital and net
worth levels by the distribution subsidiary.
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The Company anticipates that its cash requirements will continue to
increase due to the construction of its research and development, manufacturing,
distribution and corporate facilities, including the related equipment
purchases. Additionally, the Company's cash requirements include research and
development for branded and bioequivalent products, acquisitions of products,
product candidates, and/or companies. The Company anticipates that, for the year
ending December 31, 2000, it will incur approximately $50 million in research
and development expenses related to Andrx' bioequivalent (ANDA) and brand (NDA)
development programs. The Company anticipates that its existing capital
resources will be sufficient to enable it to maintain its operations for the
foreseeable future.
ANDRX
Results of Operations
2000 Quarter, as compared to the 1999 Quarter
For the 2000 Quarter, Andrx reported net income of $18.4 million, as
compared to net income of $20.2 million for the 1999 Quarter.
Sales from distributed products increased by 25.2% to $82.7 million for
the 2000 Quarter, as compared to $66.1 million for the 1999 Quarter. The
increase in sales from distributed products reflects an increase in sales to
existing customers, an increase in the number of customers, as well as, the
distribution of new products launched by other pharmaceutical companies, offset
by overall price declines. The 2000 Quarter also includes sales from Valmed,
which Andrx acquired in March 2000.
Sales from manufactured products were $43.1 million for the 2000
Quarter, as compared to $42.1 million in the 1999 Quarter. Sales from
manufactured products include sales of Diltia XT(R), Andrx's bioequivalent
version of Dilacor XR(R), and Cartia XT(R), Andrx's bioequivalent version of
Cardizem CD(R), which enjoyed 180-days of marketing exclusivity through December
19, 1999.
The Company generated $4.1 million of licensing revenues in the 2000
Quarter, as compared to $3.1 million in the 1999 Quarter, primarily from the
agreement with Geneva, as amended.
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Gross profit from sales of distributed and manufactured products was
$49.9 million with a gross margin of 39.7% in the 2000 Quarter, as compared to
$48.3 million, with a gross margin of 44.7% in the 1999 Quarter. The increase in
gross profit is primarily the result of the increase in sales of manufactured
products within the product mix.
Selling, general and administrative expenses were $16.1 million or
12.4% of total revenues for the 2000 Quarter, as compared to $14.3 million or
12.8% of total revenues for the 1999 Quarter. Selling, general and
administrative expenses include royalties paid to the Company's Co-Chairman and
Chief Scientific Officer related to sales of Cartia XT(R).
Research and development expenses were $14.6 million in the 2000
Quarter, as compared to $6.1 million in the 1999 Quarter. The increase in
research and development expenses of $8.5 million or 139% reflects the
continuing progress in and expansion of both Andrx's bioequivalent (ANDA) and
brand name (NDA) drug development programs and reflects the equity in losses of
Andrx's ANCIRC joint venture and starting in August 2000, CARAN joint venture.
In the 2000 Quarter, Andrx incurred $2.1 million of one-time costs in
connection with the reorganization.
Interest income was $4.0 million in the 2000 Quarter, as compared to
$617,000 in the 1999 Quarter. The increase in interest income is the result of
the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 2000 Quarter, as compared to the 1999
Quarter. The increase was primarily the result of the net proceeds of $235.8
million received from Andrx' May 2000 public equity offering, and the net cash
provided by operating activities. Andrx invests in investment grade interest
bearing securities.
Interest expense decreased to $40,000 in the 2000 Quarter, as compared
to $510,000 in the 1999 Quarter. The decrease in interest expense was primarily
the result of a lower average level of borrowings under Andrx' bank loan during
the 2000 Quarter, as compared to the 1999 Quarter. The borrowings are primarily
utilized to fund Andrx' distribution operations.
For the 2000 Quarter, Andrx provided $6.8 million for Federal and state
income taxes or 27% of income before income taxes. For the 2000 Quarter, Andrx
provided for income taxes less than the effective statutory rate of 37% due to
its ability to utilize certain post-reorganization tax benefits of Cybear. As
Cybear currently cannot recognize the income tax benefits it creates under the
new tax sharing agreement, as supplemented, Andrx will use and record such
benefit.
For the 1999 Quarter, Andrx provided $10.9 million for Federal and
state income taxes or 35%, of income before income taxes. Andrx was not required
to provide for Federal and state income taxes at 39%, the then expected annual
effective combined Federal and state statutory rate due to the utilization of
Andrx's net operating loss carryforwards.
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2000 Period as compared to 1999 Period
For the 2000 Period, Andrx reported net income of $60.0 million, as
compared to net income of $78.8 million for the 1999 Period. The 1999 Period
includes $70.7 million of fees received pursuant to Andrx's stipulation with
Aventis.
For the 2000 Period, sales from distributed products increased by 16.8%
to $228.0 million, as compared to $195.2 million for the 1999 Period. The
increase in sales from distributed products reflects an increase in sales to
existing customers, an increase in the number of customers, as well as the
participation in the distribution of new products launched by other
pharmaceutical companies, offset by overall price declines. The 2000 Period also
includes sales from Valmed, which Andrx acquired in March 2000.
Sales from manufactured products increased by 60.5% to $133.2 million
for the 2000 Period, as compared to $83.0 million for the 1999 Period. Sales
from manufactured products include sales of the Andrx's bioequivalent version of
Dilacor XR(R), Diltia XT(R) for the 2000 Period and the 1999 Period and
commencing June 23, 1999, Cartia XT(R), Andrx's bioequivalent version of
Cardizem(R) CD which enjoyed 180-days of marketing exclusivity through December
19, 1999.
In the 1999 Period, Andrx received $70.7 million in interim and
retroactive Stipulation fees.
Andrx recorded $11.2 million of licensing revenues in the 2000 Period,
as compared to $4.8 million in the 1999 Period, primarily from the agreement
with Geneva, as amended.
Gross profit from sales of distributed and manufactured products was
$150.4 million with a gross margin of 41.6% in the 2000 Period, as compared to
$105.9 million or 38.1% in the 1999 Period. The increase in gross profit is
primarily the result of the increase in sales of manufactured products within
the product mix.
Selling, general and administrative expenses were $42.0 million or
11.3% of total revenues for the 2000 Period, as compared to $40.6 million or
11.5% of total revenues for the 1999 Period. Selling, general and administrative
expenses include royalties paid to the Company's Co-Chairman and Chief
Scientific Officer related to interim and retroactive Stipulation fees in the
1999 Period and sales of Cartia XT(R) commencing June 23, 1999.
Research and development expenses were $33.3 million in the 2000
Period, as compared to $16.7 million in the 1999 Period. The increase in
research and development expenses of 99.8% reflects the progress in and
expansion of Andrx's development activities for its ANDA and NDA drug
development programs and also reflects the equity in losses of Andrx' ANCIRC
joint venture and starting in August 2000, CARAN joint venture.
In the 2000 Period, Andrx incurred $2.1 million of one-time costs in
connection with the reorganization.
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Interest income was $7.3 million in the 2000 Period, as compared to
$1.5 million in the 1999 Period. The increase in interest income is the result
of the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 2000 Period, as compared to the 1999
Period. The increase was primarily the result of net proceeds of $235.8 million
received from Andrx May 2000 public equity offering and net cash provided by
operating activities.
Interest expense decreased to $735,000 in the 2000 Period, as compared
to $1.1 million in the 1999 Period. The decrease in interest expense was
primarily the result of a lower average level of borrowings under Andrx's bank
loan during the 2000 Period, as compared to the 1999 Period.
For the 2000 Period, Andrx provided $30.8 million for Federal and state
income taxes or 34% of income before income taxes. For the 2000 Period, Andrx
provided income taxes less than the effective statutory rate of 37% due to its
ability to utilize certain post-reorganization tax benefits of Cybear. As Cybear
currently cannot recognize the income tax benefits it creates, under the new tax
sharing agreement, Andrx will use and record such benefit. For the 1999 Period,
Andrx provided $45.7 million for Federal and state income taxes or 37%, of
income before income taxes. Andrx was not required to provided for Federal and
state income taxes at 39%, the then expected annual effective combined Federal
and state statutory rate due to the utilization of Andrx's net operating loss
carryforwards.
Liquidity and Capital Resources
As of September 30, 2000, Andrx had $324.7 million in cash, cash
equivalents and investments available-for-sale, and $426.9 million of working
capital.
Net cash provided by operating activities was $63.5 million in the 2000
Period, as compared to $36.2 million in the 1999 Period. The 2000 Period
includes net income of $60.0 million, decreases in prepaid and other assets of
$2.3 million, decreases in accounts receivable of $2.5 million and income tax
benefits related to exercises of stock options of $18.0 million, offset by
decreases in accounts payable and accrued liabilities of $8.1 million and income
taxes payable of $15.7 million. In comparison, the 1999 Period includes net
income of $78.8 million, increases in accounts payable and accrued liabilities
of $38.5 million and income tax benefits related to exercises of stock options
of $5.9 million, offset by increases in accounts receivable of $41.5 million,
inventories of $41.4 million and prepaid and other assets of $8.0 million.
Net cash used in investing activities was $176.2 million in the 2000
Period, as compared to $35.5 million in the 1999 Period. In the 2000 Period and
1999 Period, Andrx purchased $133.1 million and $22.6 million, respectively, of
investments available-for-sale. In the 2000 Period and the 1999 Period, Andrx
invested $27.9 million and $12.9 million, respectively, in property, plant and
equipment. In the 2000 Period, Andrx acquired Valmed for $15.2 million including
transaction costs, net of cash acquired.
Net cash provided by financing activities was $221.7 million in the
2000 Period, as compared to $16.9 million in the 1999 Period. Net cash provided
by financing activities in the 2000 Period consisted primarily of $235.8 million
in net proceeds from Andrx' May 2000 public equity offering, $6.1 million in
proceeds from the issuance of shares of common stock upon the exercises of stock
options, offset by $20.2 million of repayments on net borrowings under Andrx's
bank loan. Net cash provided by financing activities for the 1999 Period
consisted of $6.3 million in proceeds from the issuance of shares of common
stock upon the exercises of stock options and warrants, $16.1 million of net
borrowings under Andrx's bank loan offset by 5.5 million of advances to Cybear,
net of utilization of Cybear's income tax attributes and other.
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Andrx had no outstanding borrowings as of September 30, 2000, under its
distribution subsidiary's $30.0 million bank loan, as compared to $20.2 million
in borrowings as of December 31, 1999. Borrowings under the bank loan are
secured by all of the assets of that operation, and are subject to a borrowing
base related to the value of that operation's accounts receivable and
inventories. The bank loan agreement requires compliance by Andrx with certain
covenants including the maintenance of minimum working capital and net worth
levels by the distribution subsidiary.
Andrx anticipates that its cash requirements will continue to increase
due to the construction of its research and development, manufacturing,
distribution and corporate facilities, including the related equipment
purchases. Additionally, Andrx's cash requirements include research and
development for branded and bioequivalent products, acquisitions of products,
product candidates, and/or companies. Andrx anticipates that for the year ending
December 31, 2000 it will incur approximately $50 million in research and
development related to our bioequivalent (ANDA) and brand (NDA) development
programs. Andrx anticipates that its existing capital resources will be
sufficient to enable it to maintain its operations for the foreseeable future.
CYBEAR
Results of Operations
2000 Quarter, as compared to 1999 Quarter
Cybear generated $2.4 million in revenues for the 2000 Quarter, as
compared to $91,000 in the 1999 Quarter. Revenues for the 2000 Quarter include
$2.1 million from Cybearclub (telemarketing sales of $1.7 million and Internet
sales of $385,000), Cybear's joint venture with Andrx to distribute healthcare
products to physician offices through the Internet, $194,000 from other product
sales, $71,000 from web development, hosting and other services and $35,000 from
subscription services. Revenues for the 1999 Quarter included $12,000 from
Cybearclub telemarketing sales, $23,000 from web development, hosting and other
services and $56,000 from subscription services.
To help achieve Cybearclub's objective of having physicians purchase
its products through the Internet, Cybear's executive management initiated a
dual strategy of using Andrx telemarketers to both induce physicians, including
Andrx' physician customers, to begin placing orders with Cybearclub, and to then
transition those physicians from being purchasers who place their orders with a
telemarketer into customers who place their orders through the Internet.
For the three months ended September 30, 2000, Cybearclub reported $1.7
million of revenue from orders procured and entered by Andrx telemarketers over
the Internet, reported as Cybearclub telemarketing product sales and $385,000 of
revenue from orders entered by physicians over the Internet, reported as
Cybearclub Internet product sales. For the three months ended September 30,
1999, Cybearclub telemarketing product sales were $12,000. Cybearclub did not
have any Internet product sales for the three and nine months ended September
30, 1999.
Cybear and Andrx have determined that beginning October 9, 2000
Cybearclub revenues will consist solely of Internet product sales from orders
entered by physicians over the Internet. Revenues derived from the telemarketing
efforts of Andrx telemarketers will be recognized by Andrx, and not by
Cybearclub. Due to this change, it is likely that Cybearclub total revenues for
the last quarter of 2000 and possibly in future quarters will be less than as
reported for the third quarter 2000.
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Cybear had $2.1 million in cost of sales for the 2000 Quarter, as
compared to $12,000 in the 1999 Quarter. Cost of sales consists of the costs of
the products purchased from Andrx for resale by Cybear, as well as fulfillment
costs provided by Andrx.
Network operations and operations support costs were $1.1 million in
the 2000 Quarter, as compared to $763,000 in the 1999 Quarter. The increase in
network operations and operations support costs for the 2000 Quarter related
primarily to the expansion of the network operations center and operations
support infrastructure.
Product development costs were $727,000 for the 2000 Quarter, as
compared to $988,000 for the 1999 Quarter. The decrease in the product
development costs for the 2000 Quarter reflects a more focused approach in
management strategy concerning the progress and expansion of Cybear's product
development activities.
Selling, general and administrative expenses were $1.8 million for both
the 2000 and 1999 Quarters. Selling, general and administrative costs relate
primarily to the maintenance of the administrative infrastructure.
Depreciation and amortization expense was $1.2 million for the 2000
Quarter, as compared to $361,000 for the 1999 Quarter. The increase in
depreciation and amortization for the 2000 Quarter resulted primarily from
Cybear's purchases of computer hardware and software used in its network
operations center and the development of its products, leasehold improvements
related to its corporate headquarters and network operations center. In
addition, the depreciation and amortization expense includes amortization
expense of $87,000 on the $10.4 million of goodwill related to the
reorganization and $410,000 on the $3.9 million of goodwill related to the
acquisition of TCC in 1999. In the 2000 Quarter, management re-evaluated the
expected benefits to be received for its 1999 acquisition of TCC and, as such,
as of July 1, 2000, prospectively has revised the life of the goodwill related
to the acquisition from ten to three years. The original goodwill amounted to
$3.9 million, and the unamortized portion, as of September 30, 2000 amounted to
$3.2 million, and its future quarterly amortization will amount to $410,000.
Merger costs of $317,000 were incurred for the 2000 Quarter in
connection with the reorganization.
Other non-recurring charges were $4.0 million for the 2000 Quarter.
This consists of an allowance against a convertible note receivable from a third
party due to the uncertainty of collection as that third party filed for
bankruptcy protection in the 2000 Quarter.
Cybear had interest income of $455,000 in the 2000 Quarter and $634,000
in the 1999 Quarter. The interest income resulted primarily from the investment
of the net proceeds generated from the June 1999 public equity offering in money
market funds and investment grade interest bearing securities and from Cybear's
convertible notes receivable.
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Under the provisions of SFAS No. 109, "Accounting for Income Taxes",
Cybear has provided a valuation allowance to reserve against 100% of its net
deferred tax assets due to its history of net losses. Accordingly, for the 2000
and 1999 Quarters, Cybear did not record any income tax benefits.
2000 Period as compared to 1999 Period
Cybear generated $3.9 million in revenues for the 2000 Period, as
compared to $118,000 in the 1999 Period. Revenues for the 2000 Period includes
$3.3 million from Cybearclub (telemarketing sales of $2.6 million and Internet
sales of $711,000), $321,000 from other product sales, $207,000 from web
development, hosting and other services and $43,000 from subscription services.
The 1999 Period included $12,000 from Cybearclub telemarketing sales, $23,000
from web development, hosting and other services and $83,000 from subscription
services.
Cybear had $3.4 million in cost of sales for the 2000 Period and
$12,000 for the 1999 Period. The increase in cost sales relates to the increase
in product sales.
Network operations and operations support costs were $3.3 million in
the 2000 Period, as compared to $2.2 million in the 1999 Period. The increase in
network operations and operations support costs for the 2000 Period related
primarily to the expansion of the network operations and operations support
infrastructure.
Product development costs were $2.5 million for the 2000 Period, as
compared to $2.1 million for the 1999 Period. During the 2000 Period,
management's strategy is to have a more focused approach to product development.
Selling, general and administrative expenses were $6.7 million for the
2000 Period compared to $4.7 million for the 1999 Period. During the 2000
Period, management is primarily maintaining the selling, marketing and
administrative infrastructure established in 1999.
Depreciation and amortization expense was $2.6 million for the 2000
Period, as compared to $901,000 for the 1999 Period. The increase in
depreciation and amortization for the 2000 Period resulted primarily from
Cybear's purchases of property and equipment. In addition, the 2000 Period
depreciation and amortization expense includes amortization expense of $87,000
related to the $10.4 million of goodwill related to the September 7, 2000
reorganization and $607,000 related to the acquisition of TCC on September 17,
1999.
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In the third quarter of 2000, management re-evaluated the expected benefits to
be received from its 1999 acquisition of TCC and, as such, as of July 1, 2000,
prospectively has revised the life of the goodwill related to the acquisition
from ten to three years.
Merger costs of $1.2 million were incurred for the 2000 Period in
connection with the reorganization.
Other non-recurring charges were $6.0 million for the 2000 Period.
These charges consist of a provision for a convertible note receivable from a
third party that filed for bankruptcy protection in the 2000 Quarter, severance
costs, impairment charges to certain assets and costs incurred to resolve a
dispute and terminate certain agreements.
Cybear had interest income of $1.5 million in the 2000 Period and
$684,000 in the 1999 Period. The interest income in the 2000 Period resulted
primarily from the investments of the net proceeds generated from the June 1999
public offering and from Cybear's convertible notes receivable.
Interest expense of $216,000 in the 1999 Period represented interest on
the amount due to Andrx under the credit agreement between the two companies to
fund Cybear's operations.
Liquidity and Capital Resources
As of September 30, 2000, Cybear had $18.1 million in cash, cash
equivalents and investments available-for-sale and $19.7 million of working
capital.
Net cash used in operating activities was $16.7 million for the 2000
Period, as compared to $8.3 million for the 1999 Period. The 2000 Period
includes a net loss of $20.3 million, an increase in accounts receivable of $1.5
million, offset by decreases in prepaid and other assets of $2.1 million. The
1999 Period includes a net loss of $6.5 million and an increase in prepaid and
other assets of $2.4 million offset by depreciation and amortization expense of
$901,000.
Under the provisions of SFAS No. 109, Cybear has provided a valuation
allowance to reserve against 100% of its net deferred tax assets due to its
history of net losses. Accordingly, for the 2000 Period, Cybear did not record
any income tax benefits. For the 1999 Period, Cybear recorded a tax benefit of
$2.8 million per the pre reorganization tax sharing agreement.
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Net cash provided by investing activities was $8.2 million in the 2000
Period, as compared to net cash used in investing activities of $41.2 million in
the 1999 Period. In the 2000 Period, Cybear received proceeds of $11.9 million
from sales of investments available-for-sale and purchased $3.7 million in
property and equipment consisting mainly of computer hardware and software used
in its network operations center. In the 1999 Period, Cybear invested $38.0
million in investments available-for-sale, used $1.2 million for the acquisition
of TCC and also purchased $2.0 million of property and equipment.
Net cash provided by financing activities was $321,000 for the 2000
Period, as compared to $56.0 million for the 1999 Period. In the 2000 Period,
net cash provided by financing activities consisted of proceeds generated from
the exercises of stock options. In the 1999 Period, net cash provided by
financing activities consisted of $50.8 million in net proceeds generated from
the public offering of 3,450,000 shares of common stock of Cybear and $5.1
million of advances from Andrx to fund Cybear's operations, net of the
reimbursement from Andrx for the utilization of Cybear's income tax attributes
pursuant to the tax allocation agreement.
Cybear has incurred net operating losses and negative cash flows from
operating activities since its inception. Cybear intends to continue to incur
significant expenses in product development, network operations, customer
support, sales and marketing and administrative areas. As a result, Cybear
expects to continue to incur substantial operating losses for the foreseeable
future, and may never achieve or sustain profitability.
Cybear believes that its existing capital resources will be sufficient
to enable it to meet its anticipated working capital and capital expenditure
requirements for at least the next 12 months. Cybear expects negative cash flows
and net losses to continue for the foreseeable future and certain modifications
of its business plan being considered may further increase its working capital
and capital expenditure requirements. Whether or not the business plan is
modified, Cybear may need to raise additional capital through public or private
debt or equity financing or through funding from Andrx. Currently, Cybear has no
agreements or arrangements with respect to raising that capital, including with
Andrx. Additional funding, whether obtained through public or private debt or
equity financing or from Andrx, may not be available when required or may not be
available on terms favorable to Cybear, if at all. If additional financing is
not available, Cybear may be required to further modify its business plan or to
delay, scale back or eliminate some or all of its product development and
deployment programs.
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In October, 2000, Andrx and Cybear signed a supplement to the tax
sharing agreement, whereby Cybear will be reimbursed by Andrx for specific tax
benefits generated by Cybear between June 23, 1999 and September 6, 2000
utilized by Andrx. As a result of this agreement Cybear may be reimbursed by
Andrx for the after tax effect of amortizing approximately $6,000 of certain
expenses over 10 years.
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ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 8 to the "Notes to Unaudited Consolidated Financial
Statements of Andrx Corporation" included in Part 1 Item 1 of this report.
ITEM 2. CHANGES IN SECURITIES
On September 5, 2000, shareholders approved a reorganization whereby
Andrx acquired the outstanding shares of common stock of Cybear, Inc. that it
did not own, reincorporated in Delaware, created and two new classes of common
stock: Andrx common stock to track the performance of Andrx Corporation other
than its ownership of Cybear and Cybear common stock to track the performance of
Cybear.
Additional information with respect to the Andrx common stock and
Cybear common stock and the respective voting and other rights of the holders of
each class of stock is set forth under the heading "Description of Andrx common
stock and Cybear common stock" in the Joint Proxy Statement Prospectus of the
Company dated May 31, 2000, as amended, included in the Company's Registration
Statement on Form S-4 (No. 333-38226) filed with the Securities and Exchange
Commission on May 31, 2000 and July 21, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On September 5, 2000, Andrx held its Annual Meeting of
Shareholders (the "Annual Meeting").
(b) Not applicable.
(c) At the Annual Meeting, the following matters were voted upon by
Andrx shareholders:
1. APPROVAL OF THE REORGANIZATION PROPOSAL AND ADOPTION OF THE PLAN OF
MERGER.
With respect to the foregoing matter, 49,727,611 shares voted in favor,
265,624 shares voted against, and 107,309 shares abstained. There were
12,317,637 broker non-votes.
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2. ELECTION OF DIRECTORS
The following table sets forth the name of each nominee and the voting
with respect to each nominee for director.
FOR WITHHOLD AUTHORITY
--- ------------------
Chih-Ming J. Chen, Ph.D. 61,686,629 731,552
Irwin C. Gerson 61,782,680 635,501
Michael A. Schwartz, Ph.D. 61,782,680 635,501
3. APPROVAL OF ADOPTION OF ANDRX' 2000 STOCK OPTION PLAN
With respect to the foregoing matter, 37,186,522 shares were voted for
in favor, 12,717,252 against and 196,770 shares abstained. There were 12,317,637
broker non-votes.
4. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS ANDRX'
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT FOR THE YEAR ENDING DECEMBER
31, 2000.
With respect to the foregoing matter, 62,342,705 shares were voted in
favor, 19,485 shares against and 55,991 shares abstained. There were no broker
non-votes.
ITEM 5. OTHER INFORMATION
On November 16, 2000, Andrx entered into a definitive agreement to
acquire CTEX Pharmaceuticals, Inc., a privately owned pharmaceutical sales and
marketing company based in Jackson, Mississippi. The acquisition is for $30
million, subject to adjustment, comprised of Andrx common stock and cash, and
will be accounted for using the purchase method of accounting. The acquisition
is subject to various closing conditions. Andrx expects that the closing will
occur by the first quarter of 2001 and that the acquisition will have a neutral
to modestly accretive affect on its future financial results. Andrx estimates
that CTEX, will generate net revenue of approximately $4.5 million in the 2000
fourth quarter and approximately $25.0 million in 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule (for SEC only)
(b) Reports on Form 8-K - None
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SIGNATURE
Pursuant to the requirements 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.
Date: November 20, 2000
By: /s/ Alan P. Cohen
--------------------------------------------
Alan P. Cohen
Co-chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Angelo C. Malahias
--------------------------------------------
Angelo C. Malahias
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit Description
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27.1 Financial Data Schedule
