SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-09623
IVAX CORPORATION
INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NUMBER
STATE OF FLORIDA 16-1003559
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
305-575-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of each exchange on
Title of each class which registered
COMMON STOCK, PAR VALUE $.10 AMERICAN STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 20, 1997, there were 121,482,617 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 20, 1997, was approximately $1.3 billion.
DOCUMENTS INCORPORATED BY REFERENCE: None
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IVAX CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1996
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................ 1
Item 2. Properties..........................................................13
Item 3. Legal Proceedings............................ ......................13
Item 4. Submission of Matters to a Vote of Security Holders ................16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ................................................17
Item 6. Selected Financial Data.............................................18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................19
Item 8. Financial Statements and Supplementary Data.........................32
Item 9. Changes in and Disagreements with Accountants on Accouting and
Financial Disclosure................................................32
PART III
Item 10. Directors and Executive Officers of the Registrant ................33
Item 11. Executive Compensation.............................................35
Item 12. Security Ownership of Certain Beneficial Owners and Management.....39
Item 13. Certain Relationships and Related Transactions ....................41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ..............................................43
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PART I
ITEM 1. BUSINESS
GENERAL
IVAX Corporation is a holding company with subsidiaries involved in
generic and branded pharmaceuticals, intravenous solutions and related products,
IN VITRO diagnostics, personal care products, and specialty chemicals. IVAX'
principal business is the research, development, manufacture, marketing and
distribution of health care products. IVAX was incorporated in Florida in 1993,
as successor to a Delaware corporation formed in 1985, and its principal
executive offices are located at 4400 Biscayne Boulevard, Miami, Florida 33137;
its telephone number is (305) 575-6000. All references to "IVAX" or the
"Company" in this Form 10-K mean IVAX Corporation and its subsidiaries unless
the context otherwise requires.
PHARMACEUTICALS
IVAX' pharmaceutical operations accounted for approximately 56%, 61%
and 57% of its consolidated net revenues during the years ended December 31,
1996, 1995 and 1994, respectively. Since its inception, IVAX' pharmaceutical
business has grown through the development and acquisition of brand name,
generic and over-the-counter pharmaceutical products, the license of technology
and products from third parties, and the acquisition of other businesses. IVAX
presently markets several brand name pharmaceutical products and a wide variety
of generic and over-the-counter pharmaceutical products primarily in the United
States and the United Kingdom. IVAX also maintains direct operations in
Argentina, Canada, the Czech Republic, Hong Kong, Ireland, Italy, Germany,
Poland, Russia, the Slovak Republic, and Uruguay, and markets its products
through distributors or joint ventures in other foreign markets, including
China. IVAX also markets a line of veterinary products primarily in the United
States.
BRAND NAME PRODUCTS
IVAX markets brand name products under the Baker Norton(trademark)
name, including the following products which are marketed primarily in the
United States: Elmiron(R), an innovative drug used for the treatment of
interstitial cystitis; Proglycem(R), used to treat hyperinsulinemia; and the
urological medications Bicitra(R), Polycitra(R), Polycitra-K Crystals(R),
Polycitra-LC(trademark, Neutra-Phos(R), and Neutra-Phos-K(trademark). Also under
the Baker Norton(R) name, IVAX markets the following products primarily in the
United Kingdom: the cardiovascular medications Cordilox(R), Spiro-Co(R),
Fru-Co(R) and Cardilate(R); Diasorb(R), an antidiarrheal product; Terfenor(R),
an antihistamine; Pro-Banthine(R), an anticholinergic useful as adjunctive
therapy in the treatment of peptic ulcers; Serenace(R), a neuroleptic used for
psychiatric disorders; the respiratory medications Beclazone(R), Salamol(R) and
Cromogen(R), metered dose inhalers and Easi-Breathe(trademark) breath activated
inhalers and the Steri-Neb(trademark) line of nebulization products; the sterile
water products Steri-wash(R) and Pourpak(R); and the ophthalmic medications
Hay-Crom(R), Nasobec(R) and Glaucol(R). These products are marketed by IVAX'
direct sales force to physicians, pharmacies, hospitals, managed health care
organizations and government agencies, and are sold primarily to wholesalers,
distributors, hospitals and physicians.
Under the Baker Cummins Dermatologicals(R) name, IVAX manufactures and
markets various dermatological products, including the X-Seb(R) and P&S(R) line
of psoriasis, seborrhea and dandruff preparations, Acno(R) acne preparation, the
Aquaderm(R), Ultra Derm(R) and Ultramide-25(R) lines of dry skin preparations,
and the Baker's(R) disposable biopsy punch. These products are marketed
primarily in the United States and Canada to physicians, pharmacies, hospitals,
managed health care organizations and government agencies through IVAX' direct
sales force, and are sold primarily to wholesalers, distributors and physicians.
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GENERIC PRODUCTS
Generic drugs are therapeutically equivalent to their brand name
counterparts, but are generally sold at lower prices as alternatives to the
brand name products. Approximately 36%, 51% and 49% of IVAX' consolidated net
revenues for the years ended December 31, 1996, 1995 and 1994, respectively,
were attributable to worldwide sales of generic prescription and
over-the-counter drugs and vitamin supplements.
DOMESTIC. IVAX manufactures and markets in the United States
approximately 100 generic prescription and over-the-counter drugs in liquid,
capsule or tablet forms in an aggregate of approximately 170 dosage strengths.
IVAX distributes in the United States (but does not manufacture) approximately
700 additional generic prescription and over-the-counter drugs and vitamin
supplements, in various dosage forms, dosage strengths and package sizes. IVAX'
domestic generic drug distribution network encompasses most classes of the
pharmaceutical market, including wholesalers, retail drug chains, retail
pharmacies, hospital groups and nursing home providers.
INTERNATIONAL. IVAX is the largest manufacturer and distributor of
generic pharmaceuticals in the United Kingdom. IVAX manufactures and markets
under the "Norton" trade name approximately 155 generic prescription and
over-the-counter drugs in various dosage forms, dosage strengths and package
sizes, constituting an aggregate of approximately 338 products. Such products
are marketed to wholesalers, retail pharmacies, hospitals, physicians and
government agencies. In addition, IVAX manufactures and markets primarily in the
United Kingdom various "blow-fill-seal" pharmaceutical products, such as contact
lens solutions, unit dose eye drops, solutions for injection or irrigation, and
unit dose vials for nebulization to treat respiratory disorders. IVAX also
contract manufactures pharmaceutical products in the United Kingdom and Ireland
for other companies.
IVAX has sought to internationalize its business by either acquiring
pharmaceutical companies operating in important markets, forming strategic
alliances with other pharmaceutical companies in such markets, or establishing
offices in important markets.
IVAX owns a controlling interest in Galena a.s. ("Galena"), one of the
oldest and more established pharmaceutical companies based in the Czech
Republic. Galena develops, manufactures and markets a variety of pharmaceuticals
and veterinary products, as well as raw materials used in the manufacture of
pharmaceuticals, including cyclosporin and ergot alkaloids. Galena sells its
products primarily in Eastern European countries, including Russia. As part of
the acquisition, IVAX contributed to Galena rights to manufacture and market
certain products and products under development in certain countries.
IVAX is a 50% partner in two Chinese joint ventures, one with the
Peoples Republic of China named Beijing JiAi Pharmaceuticals Limited Liability
Company, which manufactures and markets inhalation products for respiratory
ailments, and the other with Kunming Pharmaceutical Factory named Kunming Baker
Norton Pharmaceutical Co., Ltd., which manufactures and markets a variety of
pharmaceutical products.
In December 1996, IVAX and Knoll AG ("Knoll"), a wholly-owned
subsidiary of BASF Aktiengesellschaft, modified their existing joint venture
established in March 1995 to market generic pharmaceutical products in Europe.
Under the new arrangement, IVAX is no longer a party to the joint venture, and
IVAX granted Knoll marketing rights in certain territories in Europe to certain
generic and proprietary pharmaceutical products. IVAX will receive royalties on
Knoll's net sales of such products.
In March 1996, IVAX acquired three affiliated pharmaceutical companies,
Elvetium S.A. (Argentina) and Alet Laboratorios S.A.E.C.I. y E., both
headquartered in Buenos Aires and engaged in the business of
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manufacturing and marketing pharmaceuticals in Argentina, and Elvetium S.A.
(Uruguay), headquartered in Montevideo and engaged in the business of
manufacturing and marketing pharmaceuticals in Uruguay.
VETERINARY PRODUCTS
IVAX formulates, packages and distributes under the "DVM
Pharmaceuticals" trade name various veterinary products primarily in the United
States, including topical dermatological agents (OxyDex(R), SulfOxyDex(R),
Relief(R), SebaLyt(R), NuSal-T(R)); ectoparasiticidals (SynerKyl(R), EctoKyl(R),
DuraKyl(R)); essential fatty acid nutritional supplements (DermCaps(R), 3V
Caps(trademark)); topical antiseptics (ChlorhexiDerm(trademark)); wound healing
dressings (BioDres(R)); otics (OtiCalm(R), Clearx(R)); and cleansing and
grooming formulations (HyLyt(R), D-Basic(trademark)). These products are
marketed through IVAX' direct sales force and a national network of ethical
veterinary distributors primarily to small animal practitioners, and are
manufactured to IVAX' specifications by third parties.
INTRAVENOUS PRODUCTS
IVAX' intravenous products group manufactures and markets a broad line
of basic and specialty intravenous solutions, irrigation solutions, intravenous
administration sets, infusion pumps and other infusion supplies and equipment,
primarily to hospitals and alternate site health care locations in the United
States and, through independent distributors, in various foreign markets,
including Australia, Canada, China, Europe, Hong Kong, Mexico, New Zealand,
Saudi Arabia, South America and Taiwan. IVAX' intravenous products operations
accounted for 30%, 27% and 30% of IVAX' consolidated net revenues for the years
ended December 31, 1996, 1995 and 1994, respectively.
BASIC INTRAVENOUS SOLUTIONS AND SETS. IVAX manufactures and sells a
broad line of basic large and small volume parenteral solutions. Basic
parenteral solutions are used to correct fluid and electrolyte imbalance, treat
dehydration, irrigate wounds and facilitate urological procedures. IVAX packages
many of its solutions in its patented EXCEL(R) flexible plastic container, which
IVAX believes offers certain advantages over competitive containers which are
made of polyvinylchloride ("PVC"), a material that has been shown to emit toxic
hydrogen chloride gas when incinerated. EXCEL(R) bags are made with a plastic
film that can be incinerated without toxic emission, weigh from 25% to 45% less
than comparable PVC containers, and have been shown to be compatible with
certain medications that cannot be administered in PVC containers because of
potentially harmful interactions that occur between the intravenous solution and
PVC.
IVAX' basic intravenous solutions are typically sold under contracts
that also provide for the sale of disposable administration sets. These sets
generally consist of tubing, filters and flow control devices that transfer the
solutions from their containers to the catheter used to access the patient's
venous system. IVAX develops, manufactures, markets and distributes a full line
of administration sets used as primary lines or secondary lines, filtered sets
and blood sets, together with accessories such as catheter plugs, spike
adapters, protected needles and needle-free systems. Such sets can be used with
a variety of manufacturers' products.
BASIC AND SPECIALTY NUTRITION SOLUTIONS. Nutrition solutions consist of
sterilized water mixed with dextrose, amino acids, lipids, electrolytes,
vitamins and minerals in various concentrations. Parenteral nutrition therapy is
used to intravenously supply nutrition to patients who are unable to ingest
sufficient nutrients orally. IVAX manufactures and sells a full line of products
used in providing basic parenteral nutrition therapy. IVAX also manufactures and
sells a number of specialized parenteral and enteral (oral) nutrition products
that have been specially formulated to meet the unique metabolic needs of
specific groups of patients, such as those with kidney and liver disease,
infants and children and immuno-suppressed patients.
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INFUSION PUMPS AND OTHER EQUIPMENT. Infusion pumps are used to
administer, measure and control the flow of solutions and drugs into a patient's
bloodstream. IVAX offers a line of infusion pumps used in both the hospital and
alternate site health care markets. The majority of IVAX' infusion pumps are
designed specifically for use, and are sold together, with its intravenous sets.
The Horizon(R) infusion pump incorporates innovations in microprocessor and
electromechanical technologies to increase functionality while reducing
instrument size and weight. IVAX believes that the Horizon(R) pump is especially
well suited for critical care use in the hospital. IVAX is also the leading
distributor of single and variable speed syringe pumps, and distributes a single
dose, disposable ambulatory infusion pump specifically designed for home
infusion pursuant to an alliance with another pump manufacturer.
OTHER PHARMACY PRODUCTS. IVAX sells several products to hospital and
home health care pharmacies for use in the formulation and administration of
intravenous solutions. These products include systems such as the HyperFormer(R)
computerized compounding and filling system for nutrition formulations, devices
that combine drugs in vials with solutions in bags, and pre-mixed antibiotics.
In addition, IVAX manufactures, and co-markets through a marketing agreement
with another pharmaceutical company, the product Hespan(R) in the United States.
Hespan(R) is a product derived from hydroxyethyl starch ("HES") powder that is
mixed with certain solutions to create a blood plasma expander for
administration to patients suffering from substantial blood loss and shock. HES
has been shown to be clinically equivalent to, is less expensive than, and does
not have the risk of infection inherent in, blood-derived plasma expanders.
CENTRAL ADMIXTURE PHARMACY SERVICE. Hospital pharmacies regularly use
large quantities of commercially manufactured nutrients, drugs and solutions to
"admix" a therapeutically effective final intravenous solution suitable for the
particular patient. The admixture process is very costly, requiring special
equipment, trained personnel, inventory maintenance, and quality assurance
procedures. To address the cost containment needs of hospital pharmacies, IVAX
offers comprehensive and cost-effective pharmacy admixture services. IVAX
presently operates eight pharmacy facilities, which admix and deliver
prescription-specific total parenteral nutrition solutions, cardioplegia
solutions, intravenous antibiotic therapies and other selected drug solutions,
serving more than 250 hospital and alternate site customers.
DIAGNOSTICS
IVAX' IN VITRO diagnostics group, which develops, manufactures and
markets diagnostic products, accounted for approximately 1%, 1% and 2% of IVAX'
consolidated net revenues for the years ended December 31, 1996, 1995 and 1994,
respectively. IVAX manufactures and markets a line of enzyme immunoassays under
the Microassay(trademark) name which are used to detect the presence of
infectious diseases, such as measles, herpes and other viral diseases, and
auto-immune diseases, such as systemic lupus erythematosus, rheumatoid arthritis
and scleroderma, and a line of auto-immune antigens, reagents and other
diagnostic products. IVAX also manufactures and markets a line of products used
to identify elements of the human complement system. Complement is part of the
natural defense of the body against infectious disease as well as a major
mediator of inflammation, and deficiencies in complement components often lead
to or are symptoms of chronic infections. The diagnostic group's products are
marketed to clinical reference laboratories, hospital laboratories and research
institutions in the United States through IVAX' direct sales force. IVAX also
markets these products, as well as diagnostic products manufactured by others,
in Italy through a direct sales force to public hospitals and private medical
laboratories. Sales of IVAX' diagnostic products are also made through
independent distributors in various other foreign markets, including Central and
South America, the Far East, and certain Western European countries.
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PERSONAL CARE PRODUCTS
IVAX' personal care products group develops, manufactures and markets a
variety of personal care products, primarily within the United States. IVAX
markets over 250 products in three principal areas: hair care products designed
primarily for African American consumers, cosmetic products designed primarily
for dark-skinned women, and corrective cosmetics. This business segment
accounted for 7%, 5% and 6% of IVAX' consolidated net revenues for the years
ended December 31, 1996, 1995 and 1994, respectively.
HAIR CARE PRODUCTS. IVAX develops, manufactures and markets hair care
products designed primarily for African American consumers. Its product lines
are primarily hair relaxers, conditioners and shampoos designed for both retail
consumers and professional hair-care customers, and are marketed under brand
names such as Ultra Sheen(R), Classy Curl(R), Gentle Treatment(trademark), Afro
Sheen(R), Soft Touch(R), Sta-Sof-Fro(R), Ultra Star(R), Bantu(R) and Ultra
Sheen's Precise(R). Products for the retail consumer market are sold principally
through distributors servicing national and regional drug, grocery and mass
merchandising chains. Professional products are sold mainly through distributors
serving beauty salons and barber shops.
COSMETICS. IVAX sells a line of cosmetics for African American women
under the name Flori Roberts(R), which is marketed through department stores and
major retailers; a line of cosmetics for African American women under the name
Posner(R), which is marketed in drug stores, mass merchandisers and food stores,
as well as through distributors; and a line of cosmetics designed primarily for
dark-skinned women under the name Iman(trademark) Cosmetics, which is sold in
major department stores. These products are manufactured to IVAX' specifications
by third parties.
CORRECTIVE COSMETICS. IVAX sells a unique line of makeup designed to
conceal skin blemishes and other imperfections under the name Dermablend(R)
Corrective Cosmetics, which is sold in major department stores and mass
merchandising outlets. These products are manufactured to IVAX' specifications
by third parties.
SPECIALTY CHEMICALS
IVAX' specialty chemicals group manufactures and markets, primarily in
the United States and Canada, several hundred chemical products in three
distinct market segments: vacuum pump fluids, textile and denim products, and
cleaning products. This business segment accounted for approximately 6%, 5% and
6% of IVAX' consolidated net revenues for the years ended December 31, 1996,
1995 and 1994, respectively.
VACUUM PUMP FLUIDS. IVAX manufactures and markets specialized fluids
for all types of vacuum pump systems and distributes high vacuum greases and
synthetic lubricants manufactured by others for use in the semiconductor,
aerospace, food processing, pharmaceutical, metallurgical and other industries.
Sales are made through a direct sales force and a network of manufacturers'
representatives.
TEXTILES AND DENIM PRODUCTS. IVAX manufactures and markets: specialty
chemicals such as scouring, wetting, sizing, anti-slip and anti-static agents,
dye bath additives and softeners to textile mills for use in the preparation,
dying and finishing of textiles; and specialty chemicals such as strippers,
agers, conditioners, brighteners and enzymes under the Blue-J(R) and
STONE-EZE(R) names to denim processors and blue jean manufacturers to facilitate
the process of imparting a worn, soft, or abraded appearance to denim fabrics.
Sales of these products are made through IVAX' direct sales force.
CLEANING PRODUCTS. IVAX manufactures and markets a complete line of
industrial floor and carpet care products, germicidal cleaners, deodorants and
hand soaps, and a variety of industrial metal and synthetic
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cleaning pads. The complete line of products is sold through a national network
of over 600 distributors under the Franklin(R) and Brillo(R) brand names. Floor
care products and maintenance services are also sold to national and regional
account chains on a direct basis and through selected companies with national
distribution capabilities under the Masury-Columbia(R) and Brillo(R) brand names
and under private labels.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1996, 1995 and 1994, IVAX spent $73.4
million, $64.6 million and $48.7 million, respectively, for company-sponsored
research and development activities. Approximately 94%, 94% and 92% of such
amounts were devoted to pharmaceutical and intravenous related research and
development for the years 1996, 1995 and 1994, respectively. From time to time,
IVAX may supplement its research and development efforts by entering into
research and development agreements, joint ventures and other collaborative
arrangements with other companies to defray the cost of product development.
Statements in this Form 10-K concerning the timing of regulatory
filings and approvals are forward looking statements which are subject to risks
and uncertainties. The length of time necessary to complete clinical trials and
from submission of an application for market approval to a final decision by a
regulatory authority varies significantly. No assurance can be given that IVAX
will successfully complete the development of products under development, that
IVAX will be able to obtain regulatory approval for any such product, or that
any approved product may be produced in commercial quantities, at reasonable
costs, and successfully marketed.
PROPRIETARY PHARMACEUTICALS
IVAX is committed to the cost effective development of proprietary
pharmaceuticals directed primarily towards indications having relatively large
patient populations or for which limited or inadequate treatments are available.
IVAX seeks to accelerate product development and introduction by in-licensing
compounds, especially after clinical testing has begun, and by developing new
dosage forms of existing products or new therapeutic indications for existing
products. IVAX has programs for the development of a variety of proprietary
pharmaceuticals in varying stages of development.
IVAX received its first approval to market a proprietary drug in
September 1996, when the United States Food and Drug Administration (the "FDA")
cleared IVAX' New Drug Application ("NDA") for the marketing of its patented
prescription medication Elmiron(R) (pentosan polysulfate sodium). Elmiron(R) is
indicated for the relief of pain or discomfort associated with interstitial
cystitis, a chronic, progressive and debilitating urinary bladder disease
afflicting primarily women.
CERVENE(R). Cervene(R) is IVAX' trade name for an intravenous form of
the compound nalmefene indicated for the mitigation of central nervous system
damage following the occurrence of ischemic stroke. Nalmefene was originally
developed to reverse the effects of narcotic analgesia and drug overdoses, and
IVAX licensed this indication of the compound in the United States and Canada to
Ohmeda, Inc., which commenced to sell the product in the United States following
approval of its NDA in April 1995. IVAX believes that nalmefene may have
significantly broader applications, holds or is licensed under patents in the
United States and certain other countries covering the use of nalmefene for a
variety of indications, and is investigating different uses of the compound,
with particular emphasis on nalmefene for the treatment of ischemic stroke. In
early 1997, IVAX completed a placebo-controlled dose comparison study of
Cervene(R) which indicated an improved three-month outcome in stroke patients
compared to the placebo for patients less than 70 years of age, and a second
study is under analysis. The results of this analysis will determine the nature
and timing of any NDA submission relating to Cervene(R).
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PAXENE(trademark). Paxene(trademark), IVAX' tradename for paclitaxel,
is an off-patent compound which, in clinical trials sponsored by the National
Cancer Institute, exhibited promising results in the treatment of ovarian,
breast and other cancers. Bristol-Myers Squibb Company currently markets a
product containing paclitaxel under the brand name Taxol(R) for the treatment of
ovarian and breast cancer, and under applicable law, the FDA will not accept an
ANDA for a generic version of this product until December 1997. IVAX has entered
into an exclusive agreement with NaPro BioTherapeutics, Inc. ("NaPro") to
develop and market in the United States, Eurpoe and certain other territories
paclitaxel supplied by NaPro. IVAX intends to submit an NDA for
Paxene(trademark) for at least one indication during 1997. IVAX is also
conducting research involving analogues of paclitaxel and novel delivery systems
for this class of drugs.
INHALATION AEROSOL PRODUCTS. IVAX has substantial expertise in the
development, manufacture and marketing of respiratory drugs in metered dose
inhaler ("MDI") formulations, which are the most commonly used systems for
delivering respiratory medications. IVAX holds patents on a breath activated MDI
which is designed to overcome the difficulty many persons experience with
conventional MDIs in attempting to coordinate their inhalation with the emission
of the medication. IVAX' device, called Easi-Breathe(trademark), emits the
medication automatically upon inhalation, minimizing coordination problems and
better ensuring that the medication is delivered to the lungs. In 1995, IVAX
began marketing the asthma drugs albuterol (referred to abroad as salbutamol)
and beclomethasone in the Easi-Breathe(trademark) inhaler in the United Kingdom
and Ireland. In December 1996, IVAX licensed the Easi-Breathe(trademark) device
to Glaxo Wellcome PLC for use with Glaxo Wellcome's range of inhaled compounds
(including, among others, beclomethasone and salbutamol) mixed with
chlorofluorocarbon ("CFC") or hydrofluoroalkane ("HFA") propellants. The license
significantly expanded the terms of an existing agreement between the parties,
and generally grants Glaxo Wellcome the exclusive right to use the
Easi-Breathe(trademark) device for these compounds on a worldwide basis. IVAX
retained all rights to market all compounds, branded or generic, in its
Easi-Breathe(trademark) inhaler, other than the compounds subject to the
license. The license term remains effective at least for the duration of the
Easi-Breathe(trademark) patents, which expire in the year 2011. IVAX will
receive a combination of fixed/milestone payments and annual volume/revenue
related royalties under the license agreement. Fixed/milestone payments under
the license agreement are expected to total approximately $78 million during the
term of the license, of which $26.5 million was recognized in the 1996 fourth
quarter. IVAX is continuing to develop the Easi-Breathe(trademark) inhaler for
use with compounds not subject to the Glaxo Wellcome license, and during 1996
commenced marketing the asthma drug Cromogen(trademark) in the
Easi-Breathe(trademark) inhaler in the United Kingdom and Ireland.
The MDIs currently marketed by IVAX, including Easi-Breathe(R), use
CFCs as a propellant. In light of international agreements calling for the
eventual phase out of CFCs, IVAX is developing inhalation aerosol products which
do not contain CFCs. Also, IVAX has developed a multi-dose dry powder inhaler
("MDPI") which uses no gas propellant at all and is believed to have superior
dosing accuracy than competing models. In 1996, IVAX commenced clinical trials
in the United Kingdom for budesonide in IVAX' MDPI.
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GENERIC PHARMACEUTICALS
IVAX also focuses on the development of generic pharmaceutical products
with an emphasis on those products which are difficult to replicate or which are
used to treat large patient populations. By emphasizing the development of
difficult to replicate generic products, IVAX seeks to minimize competition and
obtain higher margin sales for its generic products. In addition, in evaluating
which product development projects to undertake, IVAX considers whether the new
product, once developed, will complement other IVAX products in the same
therapeutic family, or will otherwise assist in making IVAX' product line more
complete.
During 1996, IVAX received final FDA approval of 8 Abbreviated New Drug
Applications ("ANDAs") relating to 7 chemical compounds, and approval of 13
Abridged Product License Applications ("APLAs"), the United Kingdom equivalent
of an ANDA, from the United Kingdom Medicines Control Agency (the "MCA")
relating to 13 chemical compounds. As of March 27, 1997, IVAX had received final
FDA approval in 1997 of 2 ANDAs relating to 2 chemical compounds and had 15
ANDAs relating to 15 chemical compounds pending at the FDA, and 9 APLAs relating
to 9 chemical compounds pending at the MCA.
INTRAVENOUS
DUPLEX(trademark) DRUG DELIVERY SYSTEM. A wide variety of drugs
administered intravenously are not stable in solution. As a result, these drugs
are typically mixed with diluent just prior to administration or are mixed at
the site of manufacture, frozen for shipment, then thawed at the site of
administration. IVAX is in the advanced stages of developing what it believes
will be a more convenient and cost effective delivery system for this class of
drugs. The system, called Duplex(trademark), is a proprietary two compartment
intravenous bag using a peelable seal to hold the drug separate from the diluent
until just prior to administration. The nurse, physician or alternate site
administrator then breaks the seal, shakes the bag and administers the drug.
IVAX expects to utilize a form of its EXCEL(R) plastic container, described
under "Intravenous Products" above, in its manufacture of Duplex(trademark).
Prior to marketing in the United States, each drug delivered in the
Duplex(trademark) system will require FDA approval. Although there can be no
assurance, IVAX believes that it may be able to submit the first of its drug
approval applications for drugs to be delivered in the Duplex(trademark) system
beginning in mid-1998.
EXCEL(R) EXTENSIONS. IVAX is in the advanced stages of developing new
product lines, including larger volume EXCEL(R) containers, nutrition solutions
packaged in EXCEL(R) containers, and additional premixed drugs. Prior to
marketing in the United States, each of these solutions will require FDA
approval. Although there can be no assurance, IVAX believes that it may be able
to submit the first of its drug approval applications for these products
beginning in 1997.
GOVERNMENTAL REGULATION
IVAX' pharmaceutical, intravenous and diagnostic operations are subject
to extensive regulation by governmental authorities in the United States and
other countries with respect to the testing, approval, manufacture, labeling,
marketing and sale of pharmaceutical, intravenous and diagnostic products. IVAX
devotes significant time, effort and expense addressing the extensive government
regulations applicable to its business, and in general, the trend is towards
more stringent regulation.
The FDA requires extensive testing of new pharmaceutical products to
demonstrate that such products are both safe and effective in treating the
indications for which approval is sought. Testing in humans may not be commenced
until after an Investigational New Drug exemption is granted by the FDA. An NDA
must be submitted to the FDA for new drugs that have not been previously
approved by the FDA and for new combinations of, and new indications and new
delivery methods for, previously approved drugs.
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Three phases of clinical trials must be successfully completed before an NDA is
approved: phase I clinical trials, which involve the administration of the drug
to a small number of healthy subjects to determine safety, tolerance, absorption
and metabolism characteristics; phase II clinical trials, which involve the
administration of the drug to a limited number of patients for a specific
disease to determine dose response, efficacy and safety; and phase III clinical
trials, which involve the study of the drug to gain confirmatory evidence of
efficacy and safety from a wide base of investigators and patients. In the case
of a drug that has been previously approved by the FDA, an abbreviated approval
process is available. For such drugs an ANDA may be submitted to the FDA for
approval. For an ANDA to be approved, the drug must be shown to be bioequivalent
to the previously approved drug. The NDA and ANDA approval process generally
takes a number of years and involves the expenditure of substantial resources.
IVAX' parenteral solutions, including its nutrition solutions and
Duplex(trademark) system products, as well as the use of a different packaging
material, such as EXCEL(R), for existing approved parenteral solutions, also
require FDA approval.
IVAX' diagnostic products and substantially all of IVAX' infusion
instruments, administration sets and filling and admixture accessories are
considered medical devices, which require either a 510(k) premarket notification
clearance ("510(k)") or an approved Premarket Approval Application ("PMA") from
the FDA prior to marketing. A product qualifies for a 510(k) if it is
substantially equivalent to another medical device that was on the market prior
to May 28, 1976 and does not now have a PMA or has previously received 510(k)
premarket notification clearance and is lawfully on the market. The 510(k)
approval process can take several months and may involve the submission of data
demonstrating its equivalency to similar products in the market together with
other supporting information. An approved PMA application indicates that the FDA
has determined that a device has been proven to be safe and effective for its
intended use. The PMA process typically can last several years and requires the
submission of significant quantities of preclinical and clinical data as well as
manufacturing and other information.
IVAX' enteral nutrition products are currently classified as medical
foods, which are exempt from the NDA and ANDA approval process, and which are
regulated as food products under applicable federal law. Accordingly, these
products must conform to food safety and labeling requirements. IVAX' pharmacy
admixture services are, in general, regulated under the pharmacy laws and
regulations of the states in which such services are provided. Each facility
operates as a licensed pharmacy under the applicable pharmacy laws of the state
in which it is located and is also registered with the FDA.
On an ongoing basis, the FDA reviews the safety and efficacy of
marketed pharmaceutical and intravenous products and products considered medical
devices and monitors labeling, advertising and other matters related to the
promotion of such products. The FDA also regulates the facilities and procedures
of IVAX used to manufacture pharmaceutical, intravenous and diagnostic products
in the United States or for sale in the United States. Such facilities must be
registered with the FDA and all products made in such facilities must be
manufactured in accordance with "good manufacturing practices" established by
the FDA. The FDA periodically inspects IVAX' manufacturing facilities and
procedures to assure compliance. The FDA may cause the recall or withdraw
approvals of products if regulatory standards are not maintained. FDA approval
to manufacture a drug is site specific. In the event an approved manufacturing
facility for a particular drug becomes inoperable, obtaining the required FDA
approval to manufacture such drug at a different manufacturing site could result
in production delays.
In connection with its activities outside the United States, IVAX is
also subject to regulatory requirements governing the testing, approval,
manufacture, labeling, marketing and sale of pharmaceutical, intravenous and
diagnostic products, which requirements vary from country to country. Whether or
not FDA approval has been obtained for a product, approval of the product by
comparable regulatory authorities of foreign countries must be obtained prior to
marketing the product in those countries. The approval process may be more or
less rigorous from country to country, and the time required for approval may be
longer or
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shorter than that required in the United States. No assurance can be given that
clinical studies conducted outside of any country will be accepted by such
country, and the approval of any pharmaceutical, intravenous or diagnostic
product in one country does not assure that such product will be approved in
another country.
The federal and state governments in the United States, as well as many
foreign governments, including the United Kingdom, are exploring ways to reduce
medical care costs through health care reform. This effort has resulted in,
among other things, government policies that encourage the use of generic drugs
rather than brand name drugs to reduce drug reimbursement costs. Virtually every
state in the United States has a generic substitution law which permits the
dispensing pharmacist to substitute a generic drug for the prescribed brand name
product. The debate to reform the United States' health care system is expected
to be protracted and intense. Due to uncertainties regarding the ultimate
features of reform initiatives and their enactment and implementation, IVAX
cannot predict what impact any reform proposal ultimately adopted may have on
the pharmaceutical, intravenous or diagnostic industries or IVAX.
RAW MATERIALS
Raw materials essential to IVAX' business segments are generally
readily available from multiple sources. However, some raw materials used in the
manufacture of IVAX' pharmaceutical and intravenous products are currently
available from only one or a limited number of suppliers. Any curtailment in the
availability of such raw materials could be accompanied by production or other
delays as well as increased raw material costs, with consequent adverse effects
on IVAX' business and results of operations. Furthermore, because the FDA
requires that raw material suppliers be specified in applications for drug
approvals, changes in raw material suppliers could result in production delays.
COMPETITION
The pharmaceutical industry is highly competitive and includes numerous
established pharmaceutical companies, many of which have considerably greater
financial, technical, clinical, marketing and other resources and experience
than IVAX. The markets in which IVAX competes are undergoing, and are expected
to continue to undergo, rapid and significant technological change, and IVAX
expects competition to intensify as technological advances are made. IVAX
intends to compete in this marketplace by developing or licensing pharmaceutical
products that are either patented or proprietary and which are primarily for
indications having relatively large patient populations or for which limited or
inadequate treatments are available, and, with respect to generic
pharmaceuticals, by developing therapeutic equivalents to previously patented
products which are difficult to duplicate or which are used to treat large
patient populations. There can be no assurance, however, that developments by
others will not render IVAX' pharmaceutical products or technologies obsolete or
uncompetitive. In addition to product development, other competitive factors in
the pharmaceutical industry include product quality and price, reputation and
dissemination of technical information.
Revenues and gross profit derived from generic pharmaceutical products
tend to follow a pattern based on regulatory and competitive factors unique to
the generic pharmaceutical industry. As patents for brand name products and
related exclusivity periods mandated by regulatory authorities expire, the first
generic manufacturer to receive regulatory approval for generic equivalents of
such products is usually able to achieve relatively high market share, revenues
and gross profit. As other generic manufacturers receive regulatory approvals on
competing products, market share and prices typically decline. Accordingly, the
level of revenues and gross profit attributable to generic products developed
and manufactured by IVAX is dependent, in part, on IVAX' ability to develop and
rapidly introduce new products, the timing of regulatory approval of such
products, and the number and timing of regulatory approvals of competing
products. In addition to competition from other generic drug manufacturers, IVAX
faces competition from brand name
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companies as they increasingly sell their products into the generic market
directly by establishing, acquiring or forming licensing or business
arrangements with generic pharmaceutical companies. No regulatory approvals are
required for a brand name manufacturer to sell directly or through a third party
to the generic market, nor do such manufacturers face any other significant
barriers to entry into such market. In addition, brand name companies are
increasingly pursuing strategies to prevent or delay the introduction of generic
competition. These strategies include, among other things, seeking to establish
regulatory obstacles to demonstrate the bioequivalence of generic drugs to the
brand name products, and instituting legal actions based on process or other
patents that allegedly are infringed by the generic products.
During 1996, certain national drug wholesalers instituted programs
designed to provide cost savings to independent retail pharmacies on their
purchases of certain generic pharmaceutical products. Pursuant to the programs,
independent retail pharmacies generally agreed to purchase their requirements of
generic pharmaceutical products from one wholesaler and permitted the wholesaler
to select the product suppliers. Each wholesaler encouraged generic drug
suppliers to participate in its program by offering to purchase the wholesaler's
requirements of particular products from a single supplier. The programs
encouraged generic drug suppliers to aggressively bid to be the exclusive
supplier of products under the programs. The existence of the programs also
resulted in reduced prices to non-wholesaler customers. As a result of the
institution of the programs, the generic drug industry experienced a significant
reduction in the prices charged by suppliers for many generic pharmaceutical
products during the second and third quarters of 1996. Other wholesalers have
commenced or are expected to implement similar programs, and such programs may
be expanded to other product lines and customer groups.
Competition among suppliers of intravenous solutions and related
products to hospitals and alternate site providers has historically been intense
and, accordingly, IVAX' intravenous products group faces substantial competition
in its markets for all its products. There are three major suppliers of
intravenous solutions and related sets in the hospital and alternate site health
care markets: Baxter International, Inc. ("Baxter"), Abbott Laboratories
("Abbott") and IVAX. According to industry sources, based upon hospital census
beds under full line contract, the 1996 market shares of Baxter, Abbott and IVAX
were approximately 44%, 37% and 19%, respectively. Baxter and Abbott are
major diversified health care companies and have greater financial, research and
development, marketing and human resources than IVAX. Baxter and Abbott also
offer a broad range of medical products in addition to intravenous solutions,
sets and related products, which can be combined into more comprehensive bundles
than IVAX is able to offer. Competition in the intravenous products industry is
primarily based on quality of products and services, price, reputation with
group purchasing organizations, hospital administrators, materials managers,
pharmacists and nurses, and technological innovation and development.
PATENTS AND TRADEMARKS
IVAX seeks to obtain patent protection on its products and products
under development where possible. IVAX currently owns or is licensed under
various United States, United Kingdom and other foreign patents and patent
applications covering certain of its products, products under development,
product uses and manufacturing processes. Protection for individual products,
product uses or manufacturing processes extend for varying periods in accordance
with the date of grant and the legal life of the patents in the various
countries. The protection afforded, which may also vary from country to country,
depends on the type of patent and its scope of coverage. There is no assurance
that patents will be issued on pending applications or as to the scope or degree
of protection patents will afford IVAX. Although IVAX believes that its patents
and licenses are important to its business, no single patent or license is
currently material in relation to IVAX' business as a whole. IVAX believes that
the patents relating to EXCEL(R) are of material importance to the intravenous
products group.
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IVAX sells certain of its products under trademarks and seeks to obtain
protection for its trademarks by registering them in the United States, United
Kingdom and other countries where the products are marketed. At present, IVAX
does not consider its trademarks, individually or in the aggregate, to be
material in relation to its business as a whole. The trademarks of the specialty
chemicals group and the personal care products group, however, are well
established and recognized within their respective industries, and IVAX believes
that in the aggregate such trademarks are of material importance to the
specialty chemicals group and the personal care products group, respectively.
LICENSING
IVAX has obtained licenses from various inventors, universities and the
United States Government and will continue to seek new licenses from such
parties and others, including pharmaceutical companies, to promising technology
and compounds for development into new pharmaceutical products. Generally, these
licenses grant IVAX the right to complete development efforts initiated by
others and to market any resulting products. IVAX generally is required to pay a
royalty based on sales of the product. IVAX also grants licenses to other
pharmaceutical companies relating to technologies or compounds under development
and, in some cases, finished products. Generally, these licenses grant the
licensees the right to complete development work of the technology or compound,
or obtain regulatory approvals of a product, and thereafter market the product
in specified territories. These licenses often involve the payment of an
up-front fee and fees upon completion of certain development milestones, and
also provide for the payment of royalties based on sales of the product. IVAX
often retains the right to supply the product to the licensees.
SEASONALITY
While certain of IVAX' individual products may have a degree of
seasonality, there are no significant seasonal aspects to IVAX' business
segments, except that sales of pharmaceutical products indicated for colds and
flu symptoms are higher during the fourth quarter as customers supplement
inventories in anticipation of the cold and flu season, and IVAX' personal care
products group has historically experienced significant sales increases during
the third quarter as retailers supplement inventories in anticipation of
increased consumer purchasing during the holidays.
ENVIRONMENT
IVAX believes that its operations comply in all material respects with
applicable laws and regulations concerning the environment. Compliance with such
laws is not expected to require significant capital expenditures and has not
had, and is not presently expected to have, a material adverse affect on IVAX'
earnings or competitive position.
EMPLOYEES
As of February 28, 1997, IVAX had approximately 8,162 full time
employees, of which 5,582 were engaged in research and development, production
and associated support, 1,357 were engaged in sales, marketing and distribution,
and 1,223 were engaged in finance and general administration. By industry
segment, the employees were divided as follows: 1,846 in domestic
pharmaceuticals, 2,809 in international pharmaceuticals, 2,726 in the
intravenous products group, 275 in the personal care products group, 283 in
specialty chemicals, 110 in diagnostics, and 113 in corporate. The foregoing
information includes 937 employees of Galena, which is owned 74% by IVAX.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS
Specific financial information with respect to IVAX' industry segments
and foreign and domestic operations is provided in Note 11, Business Segment and
Geographic Information, in the Notes to Consolidated Financial Statements
included in this Form 10-K.
ITEM 2. PROPERTIES
IVAX owns or leases an aggregate of approximately 4.6 million square
feet of space in Argentina, Canada, Germany, Hong Kong, Ireland, Italy, Poland,
Russia, the Slovak Republic, the United Kingdom, the United States, and Uruguay,
which is used by the pharmaceutical group (56%), the intravenous group (24%),
the personal care products group (6%), the diagnostics group (2%), and the
specialty chemicals group (12%). IVAX believes its facilities are in
satisfactory condition, are suitable for their intended use and have capacities
considered appropriate to meet IVAX' present needs.
IVAX operates seventeen pharmaceutical manufacturing facilities, three
of which are located in Waterford, Ireland; two of which are located in each of
Miami, Florida and London, England; one of which is located in each of Kirkland,
Canada; Buenos Aires, Argentina; Northvale, New Jersey; St. Croix, Virgin
Islands; Cidra, Puerto Rico; Syosset, New York; Falkenhagen, Germany; Harlow,
England; Runcorn, England; and Montevideo, Uruguay. IVAX' personal care products
manufacturing facility is located in Chicago, Illinois. IVAX' intravenous
manufacturing facilities are located in Irvine, California and Sabana Grande,
Puerto Rico. IVAX' specialty chemicals manufacturing facilities are located in
Churchville, New York; Chicago, Illinois; Rock Hill, South Carolina; Lawrence,
Massachusetts; and Marion, Ohio. IVAX' diagnostics manufacturing facilities are
located in Miami, Florida and Springdale, Arkansas. IVAX owns all of the Miami
and Chicago manufacturing facilities, and the Kirkland, Buenos Aires, Cidra,
Syosset, Falkenhagen, Churchville, Rock Hill, and Marion facilities, and leases
its remaining manufacturing facilities.
In connection with a restructuring program instituted by IVAX in the
third quarter of 1996 to, among other things, reduce costs and improve
efficiencies in its United States generic pharmaceutical operations, IVAX is
consolidating certain of its facilities. IVAX closed its Shreveport, Louisiana
pharmaceutical manufacturing facility in the fourth quarter of 1996 and expects
to close its Syosset, New York pharmaceutical manufacturing facility during the
second quarter of 1997. Production from those facilities will be transferred to
IVAX' Kirkland, Canada facility, acquired in January, 1997.
IVAX maintains sales offices and distribution centers in Argentina,
Canada, China, Hong Kong, Italy, Poland, Russia, Uruguay, and various parts of
the United States and the United Kingdom, most of which are held pursuant to
leases. None of such leases are material to IVAX.
ITEM 3. LEGAL PROCEEDINGS
In late April 1995, Zenith Laboratories, Inc., a wholly owned
subsidiary of IVAX ("Zenith"), received approvals from the FDA to manufacture
and market the antibiotic cefaclor in capsule and oral suspension formulations.
Cefaclor is the generic equivalent of Ceclor(R), a product of Eli Lilly and
Company ("Lilly"). On April 27, 1995, Lilly filed a lawsuit against Zenith and
others styled ELI LILLY AND COMPANY V. AMERICAN CYANAMID COMPANY, BIOCRAFT
LABORATORIES, INC., ZENITH LABORATORIES, INC. AND BIOCHIMICA OPOS S.P.A. in the
United States District Court for the Southern District of Indiana, Indianapolis
Division. In general, the lawsuit alleges that Zenith's cefaclor raw material
supplier, a third party unaffiliated with IVAX, manufactures cefaclor raw
material in a manner which infringes two process patents owned by Lilly, and
that Zenith and the other defendants knowingly and willfully infringed and
induced the supplier to
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infringe the patents by importing the raw material into the United States. The
lawsuit seeks to enjoin Zenith and the other defendants from infringing or
inducing the infringement of the patents and from making, using or selling any
product incorporating the raw material provided by such supplier, and seeks an
unspecified amount of monetary damages and the destruction of all cefaclor raw
material manufactured by the supplier and imported into the United States. In
August 1995, the Court denied Lilly's motion for preliminary injunction which
sought to prevent Zenith from selling cefaclor until the merits of Lilly's
allegations could be determined at trial. On May 10, 1996, the United States
Court of Appeals for the Federal Circuit affirmed the district court's denial of
Lilly's motion for preliminary injunction. On February 28, 1997, Lilly filed an
amended complaint which alleges the infringement of an additional patent, and
also filed a motion to add to the lawsuit additional defendants who are not
affiliated with IVAX or Zenith.
In September 1994, individuals purporting to be shareholders of IVAX
filed a class action complaint against IVAX and all but one of its directors as
of that date and certain of its officers in the United States District Court for
the Southern District of Florida which consolidates, amends and supplements a
number of similar complaints filed earlier in 1994. The consolidated lawsuit is
styled HARVEY M. JASPER RETIREMENT TRUST AND HARVEY M. JASPER INDIVIDUAL
RETIREMENT ACCOUNT ET AL. VS. IVAX CORPORATION AND PHILLIP FROST ET AL.
Plaintiffs seek to act as representatives of a class consisting of all
purchasers of IVAX' common stock between January 14 and May 2, 1994, including
as a subclass parties who exchanged their shares of common stock of McGaw, Inc.
("McGaw") for IVAX' common stock in connection with IVAX' acquisition of McGaw
in March 1994. In general, the complaint alleges violations of Sections 10(b),
14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder, and Sections 11, 12(2) and 15 of the Securities
Act of 1933, as amended (the "Securities Act"), as well as a claim for negligent
misrepresentation. The complaint alleges that IVAX made untrue statements of
material fact and omitted to state material facts necessary to make statements
made not misleading in its public disclosure documents, in communications to
securities analysts and the public, and in IVAX' registration statement and
proxy statement-prospectus distributed in connection with the acquisition of
McGaw, relating primarily to net revenues and earnings, verapamil sales, and the
effects of competition in the verapamil market on IVAX' net revenues and
earnings. The complaint seeks an unspecified amount of compensatory and
rescissionary damages, equitable and injunctive relief, interest, litigation
costs and attorneys' fees. The non-management directors of IVAX initially named
as defendants in the suit were dismissed without prejudice from the consolidated
actions pursuant to a stipulation filed in January 1995. In November 1995, the
defendants' motion to dismiss the consolidated amended complaint was denied. In
January 1997, the parties entered into a memorandum of understanding ("MOU"),
pursuant to which the parties have agreed to settle the action in its entirety
in exchange for the payment by defendants and their insurers of $7.5 million.
The agreement reflected in the MOU is contingent upon the execution by the
parties of a mutually acceptable settlement agreement, and is ultimately
contingent upon Court approval after all class members have been given notice of
the proposed settlement and an opportunity to be heard thereon.
In June 1994, the former chairman and chief executive officer of McGaw
filed, in his individual capacity, an action styled JAMES M. SWEENEY VS. IVAX
CORPORATION AND PHILLIP FROST, M.D. against IVAX and Dr. Frost, the Chairman of
the Board and Chief Executive Officer of IVAX, in the United States District
Court for the Central District of California. The complaint alleges essentially
the same securities laws violations and negligent misrepresentation claim as
alleged in the consolidated class action suit described above, as well as
certain additional state law claims. The complaint seeks up to $21 million in
compensatory damages (and up to $48 million in rescissionary damages upon tender
of IVAX shares held by plaintiff), as
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well as punitive damages, litigation costs and attorneys' fees. This action has
been transferred to the United States District Court for the Southern District
of Florida. Although the lawsuit was initially consolidated for all purposes
with the class action suit described above, in August 1995, the Court entered an
order allowing the former McGaw chairman to opt out of the class action and to
proceed under his separate complaint.
In April 1995, an action styled VENTANA PARTNERSHIP III, L.P. AND VENTANA
EQUITY EXPANSION PARTNERSHIP IV, L.P. VS. IVAX CORPORATION, PHILLIP FROST, M.D.,
ISAAC KAYE AND ANDREW ZINZI was filed against IVAX and certain of its officers
in the United States District Court for the Southern District of California. The
complaint alleges essentially the same securities laws violations and negligent
misrepresentation claim as alleged in the consolidated class action suit
described above. The complaint seeks in excess of $21 million in compensatory,
consequential, rescissionary and punitive damages, as well as litigation costs.
This action was transferred to the United States District Court for the Southern
District of Florida and was consolidated with the class action suit described
above.
In July 1994, an action styled ABS MB INVESTMENT LIMITED PARTNERSHIP
AND ABS MB LTD. VS. IVAX CORPORATION was filed against IVAX in the United States
District Court for the District of Maryland. Plaintiffs, shareholders of McGaw
at the time of its acquisition by IVAX, alleged that IVAX violated Sections 11
and 12(2) of the Securities Act, as well as certain state securities laws, and
that it breached certain provisions of the merger agreement and IVAX' bylaws, by
issuing to plaintiffs shares of IVAX' common stock subject to the restrictions
imposed by Rule 145 promulgated under the Securities Act and Accounting Series
Release 135. The plaintiffs claim that, as a result of the restrictions imposed
on the certificates issued to them, they suffered damages from the loss of value
of their shares, and seek damages of $11 million, plus expenses and attorneys'
fees. In June 1995, the Court entered an order denying plaintiffs' motion for
summary judgment with respect to the claims alleging that IVAX breached certain
provisions of the merger agreement and IVAX' bylaws and granted IVAX' motion to
dismiss such counts. The Court denied IVAX' motion to dismiss the counts
relating to alleged violation of Sections 11 and 12(2) of the Securities Act and
alleged violations of certain state securities laws, as well as its motion to
transfer venue. In October 1995, the Court entered an order granting the
plaintiffs' motion to amend their complaint to assert new causes of action under
the Uniform Commercial Code and granting the plaintiffs' motion for
reconsideration of the dismissal of the claims alleging breach of IVAX' bylaws,
and ordered that such counts be reinstated.
In November 1996, individuals purporting to be shareholders of IVAX
filed a class action complaint styled MALIN, ET AL. VS. IVAX CORPORATION AND
PHILLIP FROST, ET AL. against IVAX and certain of its current or former officers
or directors in the United States District Court for the Southern District of
Florida which consolidates, amends and supplements a number of similar
complaints filed earlier in 1996. The plaintiffs seek to act as representatives
of a class consisting of all purchasers of IVAX' common stock between July 31,
1995 and June 27, 1996. The consolidated amended complaint alleges violations of
Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated by the Securities and Exchange Commission, and also asserts a claim
for negligent misrepresentation. The complaint generally alleges that IVAX made
untrue statements of material fact and omitted to state material facts necessary
to make statements made not misleading in its public disclosure documents and in
communications to the public regarding its operations and financial results and
that its financial statements were not prepared in accordance with generally
accepted accounting principles. These allegations are centered around claims
that IVAX failed to disclose that it offered its customers shelf stock
adjustments and failed to establish reserves for such credits. In general, the
complaint seeks an unspecified amount of compensatory damages, pre-judgment
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interest, litigation costs and attorney's fees.
On March 5, 1997, individuals purporting to be shareholders of IVAX
Corporation filed a class action complaint styled ALAN M. HARRIS AND YITZCHOK
WOLPIN V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS against IVAX, its
Chairman and its Chief Financial Officer in the United States District Court for
the Southern District of Florida. Plaintiffs seek to act as representatives of a
class consisting of all persons who purchased IVAX common stock or call options
during the period from September 30, 1996 through November 11, 1996 and who were
allegedly damaged thereby. The complaint alleges violations of Section 10(b) of
the Securities Act of 1934 and negligent misrepresentation. The complaint
alleges that defendants made untrue statements of material fact and omitted to
state material facts necessary to make statements made not misleading in a
September 30, 1996 press release regarding IVAX' earnings outlook for the third
quarter of 1996. The complaint seeks unspecified compensatory damages,
pre-judgment interest, attorneys' fees and litigation costs.
In connection with its unilateral termination of the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of November 10, 1996, among BBI
Healthcare Corporation, Bergen Brunswig Corporation ("Bergen"), IVAX, BBI-I Sub,
Inc. and BBI-B Sub, Inc., Bergen filed a complaint against IVAX in the United
States District Court for the Southern District of New York on March 21, 1997.
The lawsuit is styled BERGEN BRUNSWIG CORPORATION VS. IVAX CORPORATION.
Plaintiff alleges, among other things, that IVAX breached the Merger Agreement.
The complaint seeks the recovery of a $50 million termination fee, an
unspecified amount of compensatory damages, interest, litigation costs and
attorneys' fees. IVAX does not believe that Bergen had a legal right to
terminate the Merger Agreement, and intends to pursue a counterclaim against
Bergen for breach of the Merger Agreement.
IVAX intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to IVAX, could have a material, adverse effect on IVAX'
financial position and results of operations. IVAX ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
IVAX is involved in various other legal proceedings arising in the
ordinary course of business, some of which involve substantial amounts. While it
is not feasible to predict or determine the outcome of these proceedings, in the
opinion of management, based on a review with legal counsel, any losses
resulting from such legal proceedings will not have a material adverse impact on
the financial position or results of operations of IVAX.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IVAX' common stock is listed on the American Stock Exchange and is
traded under the symbol IVX. The following table sets forth the high and low
closing prices of IVAX' common stock as reported on the composite tape of the
American Stock Exchange and the cash dividends paid by IVAX for each of the
quarters indicated:
1995
---------------------------------
QUARTER HIGH LOW DIVIDEND
------- ------ ------ --------
First $26.00 $19.50 $ -
Second 27.50 23.25 .04
Third 31.13 23.88 -
Fourth 31.38 22.75 .04
1995
---------------------------------
QUARTER HIGH LOW DIVIDEND
------- ------ ------ --------
First $30.00 $25.38 $ -
Second 31.00 14.75 .05
Third 16.63 12.75 -
Fourth 18.50 9.81 -
As of the close of business on March 20, 1997, there were approximately
6,316 record holders of IVAX' common stock.
IVAX has, since the second quarter of 1993, paid semi-annual cash
dividends to its shareholders. IVAX did not declare a dividend for the second
half of 1996 since the terms of IVAX' existing line of credit facility, as
amended on November 14, 1996, prohibit IVAX from paying cash dividends to its
shareholders. IVAX' future dividend policy will depend on IVAX' earnings,
capital requirements, financial condition, the requirements of any financing
agreements to which IVAX is a party and other factors considered relevant by
IVAX' Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (1)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues $ 1,151,307 $1,259,766 $1,134,806 $1,062,945 $853,497
Income (loss) before extraordinary
items (158,679)(2) 114,801 89,872 107,982 37,410
Net income (loss) (160,752) 114,835 89,049 99,354 29,820
Earnings (loss) per common share:
Earnings (loss) before
extraordinary items (1.31) .96 .77 .94 .37
Net earnings (loss) (1.33) .96 .76 .87 .29
Weighted average number of
common shares outstanding 120,949 119,253 116,339 114,722 99,642
Cash dividends per common share $ .05 $ .08 $ .06 $ .04 $ -
BALANCE SHEET DATA
Working capital $ 535,273 $ 470,905 $ 332,818 $ 295,413 $214,479
Total assets 1,401,900 1,335,310 1,106,704 1,001,279 848,075
Total long-term debt, net of
current portion 443,424 298,857 253,839 278,708 334,722
Shareholders' equity 695,128 789,172 634,456 527,772 339,657
Book value per common share (3) 5.72 6.69 5.56 4.65 3.05
</TABLE>
(1) Figures have been restated to reflect the acquisition of the following
companies, each of which was accounted for under the pooling of interests method
of accounting: Zenith Laboratories, Inc. and McGaw, Inc. in 1994; Johnson
Products Co., Inc. in 1993; Willen Drug Company, DVM Pharmaceuticals, Inc.,
Waverley Pharmaceutical Limited, and H N Norton Co. in 1992. The March 1, 1996
acquisition of Elvetium S.A. (Argentina), Alet Laboratories S.A.E.C.I. y E. and
Elvetium S.A. (Uruguay), (collectively "Elvetium"), and the September 30, 1995
acquisition of Pharmatop Limited which were accounted for under the pooling of
interests method of accounting, were recorded as of January 1, 1996 and 1995,
respectively. Historical figures have not been restated to give retroactive
effect to the Elvetium and Pharmatop Limited acquisitions due to the
immateriality of the related amounts. Figures include the results of the
following businesses acquired by purchase since the respective acquisition
dates: ImmunoVision, Inc. on July 17, 1995; 60% of the shares of Galena a.s., on
July 25, 1994 (subsequently increased through open market purchases to 74%);
certain assets and the assumption of certain liabilities of Elf Atochem North
America, Inc. on June 7, 1993 and Flori Roberts, Inc. on July 28, 1992.
(2)Includes restructuring costs and other asset write-downs of $13,642 and
$104,341, respectively.
(3) Assumes conversion of Zenith's cumulative convertible preferred stock.
-18-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements. Except for historical information contained herein, the
matters discussed below are forward looking statements made pursuant to the safe
harbor provisions of the Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, competitive, governmental, and technological factors affecting IVAX'
operations, markets, products and prices, and other factors discussed elsewhere
in this report and the documents filed by IVAX with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
OVERVIEW
IVAX' operations are conducted through subsidiaries involved in
pharmaceuticals, intravenous products, IN VITRO diagnostics, personal care
products and specialty chemicals. Information regarding the results of
operations and financial position of IVAX' principal business segments is set
forth in Note 11, Business Segment and Geographic Information, in the Notes to
Consolidated Financial Statements.
Historically, IVAX' revenues and profits have increased primarily as a
result of the acquisition of other businesses and the successful development and
marketing of generic pharmaceutical products. IVAX' future success is largely
dependent upon its ability to develop, manufacture and market, in the
short term, commercially viable generic pharmaceutical products, and in the long
term, commercially viable generic and proprietary pharmaceutical products. In
the short term, IVAX' revenues and profits from its pharmaceutical operations
may vary significantly from period to period, as well as in comparison to
corresponding prior periods, as a result of regulatory and competitive factors
unique to the generic pharmaceutical industry. Such factors include the timing
of new generic drug approvals received by IVAX, the number and timing of generic
drug approvals for competing products, the timing of IVAX' initial shipments of
newly approved generic drugs, strategies adopted by brand name companies to
maintain market share, and the effects of sales promotion programs. The first
company to receive regulatory approval for and to introduce a generic drug is
usually able to capture significant market share from the branded drug and to
achieve relatively high revenues and gross profits from sales of the drug. As
other generic versions of the same drug enter the market, however, market share,
prices, revenues and gross profits decline, sometimes significantly. In
addition, the initial shipments by the first company to introduce a generic drug
are often significant as customers fill their initial inventory requirements.
In addition to competition from other generic drug manufacturers, the
Company faces competition from brand name companies as they increasingly sell
their products into the generic market directly by establishing, acquiring or
forming licensing or business arrangements with generic pharmaceutical
companies. No regulatory approvals are required for a brand name manufacturer to
sell directly or through a third party to the generic market, nor do such
manufacturers face any other significant barriers to entry into such market. In
addition, brand name companies are increasingly pursuing strategies to prevent
or delay the introduction of generic competition. These strategies include,
among other things, seeking to establish regulatory obstacles to demonstrate the
bio-equivalence of generic drugs to the brand name products and instituting
legal actions based on process or other patents that allegedly are infringed by
the generic products.
IVAX' pharmaceutical revenues may also be affected by the level of
reserves for estimated returns and inventory credits established by IVAX. The
custom in the pharmaceutical industry is to
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<PAGE>
generally grant customers the right to return purchased goods. In the
generic pharmaceutical industry, this custom has resulted in a practice of
suppliers issuing shelf-stock adjustments (also known as inventory credits) to
customers based on the customer's existing inventory following decreases in the
price of the supplier's generic pharmaceutical products. The determination to
grant a credit to a customer following a price decrease is generally at the
discretion of IVAX, and generally not pursuant to contractual arrangements with
customers. These credits allow customers with established inventories to compete
with those buying product at the current market price, and allow IVAX to
maintain shelf space, market share and customer loyalty.
Reserves for estimated returns and inventory credits are established by
IVAX concurrently with the recognition of revenue for a particular product. The
amount of reserves are established in accordance with generally accepted
accounting principles based upon consideration of a variety of factors,
including actual return and inventory credit experience for products during the
past several years by product type, the number and timing of regulatory
approvals for the product by competitors of IVAX, both historical and projected,
the market for the product, and projected economic conditions. Actual product
returns and inventory credits incurred are, however, dependent upon future
events, including price competition and the level of customer inventories at the
time of any price declines. IVAX continually monitors the factors that influence
the pricing of its products and customer inventory levels and makes adjustments
to these reserves when management believes that actual product returns and
inventory credits may differ from established estimates.
IVAX' pharmaceutical revenues and profits may also be affected by other
factors. Certain raw materials and components used in the manufacture of IVAX'
products are available from limited sources, and in some cases, a single source.
Furthermore, because raw material sources for pharmaceutical products must
generally be approved by regulatory authorities, changes in raw material
suppliers could result in production delays and higher raw material costs. In
addition, FDA approval to manufacture a drug is site specific. In the event an
approved manufacturing facility for a particular drug becomes inoperable,
obtaining the required FDA approval to manufacture such drug at a different
manufacturing site could also result in production delays.
During 1996, certain national drug wholesalers instituted programs
designed to provide cost savings to independent retail pharmacies on their
purchases of certain generic pharmaceutical products. Pursuant to the programs,
independent retail pharmacies generally agreed to purchase their requirements of
generic pharmaceutical products from one wholesaler and permitted the wholesaler
to select the product suppliers. Each wholesaler encouraged generic drug
suppliers to participate in its program by offering to purchase the wholesaler's
requirements of particular products from a single supplier. The programs
encouraged generic drug suppliers to aggressively bid to be the exclusive
supplier of products under the programs. The existence of the programs also
resulted in reduced prices to non-wholesaler customers. As a result of the
institution of the programs, the generic drug industry experienced a significant
reduction in the prices charged by suppliers for many generic pharmaceutical
products during the second and third quarters of 1996. Other wholesalers have
commenced or are expected to implement similar programs, and such programs may
be expanded to other product lines and customer groups. Also during 1996, the
Company experienced increased competition for certain of its more important
domestic generic pharmaceutical products as a result of product approvals
obtained by competitors.
The price declines for certain generic pharmaceutical products
manufactured by the Company caused by the competitive factors described above,
including the wholesaler programs, combined with certain other factors discussed
below, resulted in a net loss for 1996. As a result of reported losses, the
Company was not in compliance with certain financial covenants under its
revolving line of credit
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<PAGE>
agreement as of the end of the second and third quarters of 1996. The Company
obtained waivers of the non-compliance as of the end of the 1996 second and
third quarters, and entered into an amendment to the credit agreement during the
fourth quarter. As of December 31, 1996, the Company was in compliance with the
amended credit agreement.
During the 1996 fourth quarter, the Company entered into a merger
agreement with Bergen Brunswig Corporation ("Bergen"), a national drug
wholesaler and a significant customer of the Company's domestic generic
pharmaceutical business. The merger was intended to create a vertically
integrated pharmaceutical company by combining a drug manufacturer with a drug
wholesaler. During the 1997 first quarter, Bergen unilaterally terminated the
merger agreement and subsequently instituted a lawsuit against the Company
alleging that the Company breached the merger agreement. See Note 14, Subsequent
Events, in the Notes to Consolidated Financial Statements. Following
announcement of the proposed merger, various customers of IVAX' generic
pharmaceutical business, some of which are competitors of Bergen, expressed
concerns about continuing to do business with IVAX after consummation of the
proposed merger. The Company does not know the impact, if any, the announcement
of the merger had on sales of IVAX' products to customers other than Bergen or
the effect the termination will have on future sales to Bergen. During 1996,
IVAX' domestic pharmaceutical business generated net revenues of $289.6 million
of which approximately 10% were attributable to sales to Bergen.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
IVAX reported a net loss of $160.8 million for the year ended December 31,
1996 compared to net income of $114.8 million for the year ended December 31,
1995. Loss before extraordinary items was $158.7 million for the year ended
December 31, 1996 compared to income before extraordinary items of $114.8
million for the prior year. Net loss for 1996 included $2.1 million in
extraordinary losses, net of tax, from the early extinguishment of debt.
Loss before extraordinary items per common share was $1.31 for the year
ended December 31, 1996 compared to earnings per common share of $.96 in the
prior year. Net loss per common share was $1.33 for the year ended December 31,
1996 compared to net earnings per share of $.96 for the prior year. The net
extraordinary loss of $.02 per common share recorded in 1996 related to the
early extinguishment of debt.
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
1996 1995
---------------------- ----------------------
NET GROSS NET GROSS
REVENUES PROFIT REVENUES PROFIT
---------- --------- ---------- ---------
Pharmaceuticals $ 648,674 $ 183,055 $ 774,240 $ 326,625
Intravenous products 343,028 122,025 339,978 133,067
Other operations 161,828 71,859 147,045 64,038
Intersegment eliminations (2,223) - (1,497) -
---------- --------- ---------- ---------
Total $1,151,307 $ 376,939 $1,259,766 $ 523,730
========== ========= ========== =========
Net revenues totaled $1,151.3 million for 1996, a decrease of $108.5
million, or 9%, from the $1,259.8 million reported in the prior year. Gross
profit decreased $146.8 million for 1996, or 28%, as
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<PAGE>
compared to 1995. Gross profit totaled $376.9 million (33% of net revenues) for
the year ended December 31, 1996, compared to $523.7 million (42% of net
revenues) for the prior year.
Net revenues of IVAX' pharmaceutical operations, which represented
approximately 56% of 1996 consolidated net revenues, decreased $125.6 million
from 1995. Net revenues of IVAX' domestic pharmaceutical operations decreased
$216.3 million while net revenues of IVAX' international operations increased
$90.7 million.
Domestic pharmaceutical net revenues totaled $289.6 million for the
year ended December 31, 1996, compared to $506.2 million for the prior year. The
$216.6 million, or 43%, decrease in domestic pharmaceutical net revenues was
primarily attributable to significant price declines for generic drugs
manufactured by the Company, including verapamil HCl ER and cefaclor, during the
second and third quarters of 1996, a time when customers had significant
inventories of such drugs. The significant price declines were caused by the
competitive factors described in the "Overview," including the introduction of
additional competing products by other generic drug suppliers and the effect of
the wholesaler programs instituted during the year to provide cost savings to
independent retail pharmacies. These factors resulted in depressed customer
re-orders and increases in the reserves for customer inventory credits and
expected returns. In addition, to avoid exacerbating the inventory situation,
the Company decreased promotional activities during the 1996 third quarter which
further reduced sales volumes. During 1996 and 1995, the Company's domestic
generic pharmaceutical business provided reserves for expected inventory credits
and returns of $177.3 million and $47.5 million, respectively. At December 31,
1996 and 1995, reserves for expected inventory credits and returns for the
domestic generic pharmaceutical business were $65.9 million and $14.1 million,
respectively.
Net revenues attributable to sales of verapamil HCl ER tablets
manufactured by IVAX totaled $22.9 million in 1996 compared to $96.5 million in
1995. The decline in net revenues was due primarily to a decline in both the net
selling price and unit volume and, to a lesser extent, a higher level of
customer inventory credits. During 1996, another generic version of one of the
dosage strengths of verapamil sold by IVAX was introduced by a competitor.
Net revenues attributable to sales of cefaclor, the generic equivalent
of Eli Lilly and Company's Ceclor(R), an antibiotic indicated for the treatment
of infections, approved in April 1995, declined to $14.0 million in 1996 from
$70.0 million in 1995. This decline was primarily attributable to price and
volume declines, increased reserves for expected returns and higher levels of
customer inventory credits due to increased competition in the generic cefaclor
market. In January 1997, IVAX announced the recall in the United States of
cefaclor as a result of the recall of the principal raw material used in the
manufacture of the generic drug. IVAX is presently seeking approval for an
alternate source of raw material, but can not predict when it will be in a
position to re-commence the manufacture and sale of cefaclor.
Sales of IVAX' albuterol metered dose inhaler, the generic equivalent of
Glaxo Inc.'s Ventolin(R) Inhalation Aerosol, used in the treatment of asthma,
contributed $32.5 million to 1996 net revenues as compared to $8.6 million in
1995 following its fourth quarter launch. Net revenues attributable to sales of
albuterol metered dose inhaler were negatively impacted during 1996 by price
competition combined with elevated customer inventory levels following the
drug's launch. During 1996, other generic drug manufacturers launched competing
products. In addition, the company marketing the brand name version of the drug
is also marketing a generic form of the product through a third party.
During 1996, IVAX commenced domestic sales of eight newly approved generic
products. Among these new product approvals was cefadroxil, the generic
equivalent of Bristol-Myers Squibb's
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<PAGE>
antibiotic Duricef(R), approved in March 1996, which contributed net revenues
of $40.2 million in 1996. IVAX experienced limited price competition with
respect to sales of cefadroxil during 1996, and consequently, customer
inventory credits had a limited impact on net revenues of this product. Although
IVAX remains the only FDA approved generic manufacturer of cefadroxil, the
company marketing the brand name version of this drug is marketing its own
generic form of this product through an affiliate.
As noted in the "Overview," other manufacturers may obtain regulatory
approvals or otherwise determine to market generic products equivalent to IVAX'
manufactured generic products, such as cefadroxil, albuterol, and verapamil, in
1997 and thereafter. As other companies commence to market products which
compete with those manufactured by IVAX, the resulting competition is likely to
reduce IVAX' net revenues and gross profit generated from those products.
IVAX' international pharmaceutical operations generated net revenues of
$359.0 million in 1996 compared to $268.0 million in 1995. The $91.0 million, or
34%, increase in international pharmaceutical net revenues included an increase
of $36.1 million attributable to the operations of Elvetium S.A. (Argentina),
Alet Laboratorios S.A.E.C.I.E. and Elvetium S.A. (Uruguay), (collectively,
"Elvetium"), acquired in March 1996. Although the acquisition of Elvetium was
accounted for as a pooling of interests, the acquisition was recorded as of
January 1, 1996 and IVAX' historical results of operations were not restated to
give retroactive effect to the acquisition due to the immateriality of the
related amounts. The remaining $54.9 million increase in net revenues of IVAX'
international pharmaceutical operations was primarily due to higher sales of
branded respiratory products and licensing fees. Net revenues attributable to
branded respiratory products (not including licensing fees) represented
approximately 13% of total international pharmaceutical net revenues in both
1996 and 1995. In the fourth quarter of 1996, IVAX entered into a license
agreement relating to its breath operated inhaler device pursuant to which it
recognized fees of $26.5 million in the 1996 fourth quarter.
The gross profit percentage of IVAX' pharmaceutical operations was 28.2%
in 1996 as compared to 42.2% in 1995. The decline in the gross profit percentage
was primarily attributable to price declines for United States generic drugs and
higher levels of customer inventory credits and reserves for expected returns
relating to United States generic pharmaceutical operations discussed above.
These factors more than offset the increase in gross profit percentage for the
international pharmaceutical division.
Net revenues of the intravenous products division totaled $343.0
million in 1996, an increase of $3.0 million from the $340.0 million reported
for 1995. The increase in net revenues resulted primarily from higher sales
volume of basic nutrition sets and solutions and increased net revenues
attributable to continued growth in alternate site healthcare locations,
partially offset by lower net revenues attributable to Hespan(R), McGaw's brand
name blood plasma expansion product. Gross profit was $122.0 million in 1996
compared to $133.1 million in 1995. The gross profit percentage of the
intravenous products division decreased to 35.6% in 1996 from 39.1% in 1995. The
reduction in gross profit compared to 1995 and the decrease in the gross profit
percentage were primarily due to the reduction in the net selling price of
Hespan(R), higher unfavorable manufacturing variances and inventory obsolescence
reserves. Gross profit generated by the intravenous products division is likely
to continue to decrease in 1997 as compared to 1996 as a result of competitive
pressures.
Net revenues and gross profit of IVAX' personal care products, diagnostics
and specialty chemicals operations, excluding intersegment eliminations,
represented approximately 14% and 19%, respectively, of consolidated net
revenues and consolidated gross profit in 1996. Combined net revenues and gross
profit of these other operations increased $14.8 million and $7.8 million,
respectively,
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<PAGE>
compared to 1995 primarily due to the introduction by the personal care products
group of the Iman(TM) product line, which was acquired in November 1995.
OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
<TABLE>
<CAPTION>
RESTRUCTURING
GENERAL RESEARCH AMORTIZATION COSTS AND
AND AND OF ASSET MERGER
SELLING ADMINISTRATIVE DEVELOPMENT INTANGIBLES WRITE-DOWNS EXPENSES TOTAL
---------- -------------- ----------- ----------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
- ----
Pharmaceuticals $ 118,972 $ 92,241 $ 50,111 $ 4,294 $ 69,073 $ 71 $334,762
Intravenous products 54,341 22,291 18,762 3,199 468 - 99,061
Other operations 47,223 14,542 4,480 2,586 48,442 - 117,273
Corporate and other - 21,982 - 37 - 486 22,505
---------- --------- --------- -------- --------- ------ --------
Total $ 220,536 $ 151,056 $ 73,353 $ 10,116 $ 117,983 $ 557 $573,601
========== ========= ========= ======== ========= ====== ========
1995
- ----
Pharmaceuticals $ 85,107 $ 58,520 $ 44,492 $ 2,411 $ - $ - $190,530
Intravenous products 55,050 29,846 16,005 4,657 - - 105,558
Other operations 41,270 13,596 4,105 2,430 - - 61,401
Corporate and other - 15,422 - - - 3,392 18,814
---------- --------- --------- -------- --------- ------ --------
Total $ 181,427 $ 117,384 $ 64,602 $ 9,498 $ - $3,392 $376,303
========== ========= ========= ======== ========= ====== ========
</TABLE>
Selling expenses totaled $220.5 million (19.2% of net revenues) in 1996
compared to $181.4 million (14.4% of net revenues) in 1995, an increase of $39.1
million. Selling expenses of Elvetium, acquired during the first quarter of
1996, accounted for $14.1 million of the increase. The remaining $25.0 million
increase was primarily due to increased sales and marketing expenses associated
with the launch of newly approved products of IVAX' pharmaceutical operations
and the introduction by the personal care products group of the Iman/registered
trademark/ product line.
General and administrative expenses totaled $151.1 million (13.1% of net
revenues) in 1996 compared to $117.4 million (9.3% of net revenues) for the
prior year. The $33.7 million increase in general and administrative expenses of
IVAX' pharmaceutical operations, in comparison to the prior year, was
principally the result of the impact of a full twelve months of general and
administrative expenses of Elvetium during 1996, increased bad debt expense and
higher personnel related expenditures of the international pharmaceuticals
operations, and an increase in bad debt expense of the domestic pharmaceutical
operations mainly resulting from a wholesaler customer filing a Chapter 11
bankruptcy petition during the third quarter of 1996. The intravenous products
division reported a decrease of $7.6 million in this expense category compared
to 1995 principally as a result of lower legal settlement costs. Corporate
general and administrative expenses increased $6.6 million from the prior year
primarily due to increases in personnel, insurance and facilities costs.
Research and development expenses for 1996 rose $8.8 million, or 13.5%, in
comparison to the prior year, to a total of $73.4 million. Expenditures by IVAX'
pharmaceutical operations represented 68% of the total research and development
expenses for 1996. The increase in research and development expenses in
comparison to the prior year reflects IVAX' continuing focus on the development
of new and improved products. The future level of research and development
expenditures will depend on, among other things, the outcome of clinical testing
of products under development, delays or changes in government required testing
and approval procedures, technological and competitive developments, and
strategic marketing decisions.
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<PAGE>
The $.5 million of merger expenses recorded in 1996 were primarily
related to a proposed merger with Bergen, which was unilaterally terminated by
Bergen on March 20, 1997. Additional merger expenses of approximately $1.5
million attributable to the proposed merger with Bergen were incurred during the
first quarter of 1997. The $3.4 million of merger expenses reported for 1995
were primarily related to a proposed merger with Hafslund Nycomed which was
abandoned in November 1995.
During the third and fourth quarters of 1996, IVAX instituted a
restructuring program aimed at identifying and implementing strategies to reduce
costs and improve efficiencies in both the United States generic pharmaceutical
operations and intravenous products operations by consolidating facilities and
reducing workforce. As a result, during the third quarter of 1996, the Company
recorded a pre-tax charge of $14.0 million associated with the United States
generic pharmaceutical operations comprised of $2.3 million for severance and
other employee termination benefits; $3.0 million for plant closure and related
costs; and $8.7 million for the estimated loss on sales of closed facilities. In
the fourth quarter of 1996, the charge for loss on sales of facilities was
adjusted by $.8 million as certain assets will be transferred to the Company's
Kirkland, Canada facility, acquired in January 1997, for use in operations.
During the fourth quarter of 1996, the Company recorded a pre-tax charge of $.5
million associated with its intravenous products operations primarily related to
severance and other employee termination benefits. The employee termination
benefits during the third and fourth quarter of 1996 primarily represent
severance pay and other benefits associated with the elimination of
approximately 530 employee positions in the manufacturing, sales and marketing
and research and development areas of the United States generic pharmaceutical
and intravenous products operations. Pursuant to the restructuring program, IVAX
closed its Shreveport, Louisiana pharmaceutical manufacturing facility in the
fourth quarter of 1996 and expects to close its Syosset, New York pharmaceutical
manufacturing facility during the second quarter of 1997. Production from these
facilities has been or will be transferred to the Kirkland facility.
Prior to third quarter 1996 reporting, IVAX management reevaluated
the carrying value of certain long-lived assets and goodwill related to those
assets to be held and used in IVAX' United States generic pharmaceutical and
specialty chemicals operations. This reevaluation was required by management's
determination that, based on recent results of operations and conditions and
trends, the expected future cash flows derived from the assets and related
goodwill would be substantially lower than had been previously expected. As a
result, management reduced the carrying value of goodwill related to the United
States generic pharmaceutical operations by a pre-tax charge of $55.9 million
and the carrying value of the long-lived assets and goodwill of the specialty
chemicals operations by a pre-tax charge of $9.8 million and $38.7 million,
respectively. The write-downs will reduce depreciation and amortization expenses
by approximately $4.3 million annually, and will increase annual net income by
approximately $3.7 million. Other income, net, decreased $12.8 million compared
to 1995, primarily due to the sale of IVAX' investment in preferred stock of
North American Vaccine, Inc. which resulted in a pre-tax gain of $12.8 million
in 1995. Increased interest expense of $6.4 million in 1996, as compared to the
prior year, was primarily associated with additional borrowings to fund working
capital.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
IVAX reported net income of $114.8 million for the year ended December 31,
1995, an increase of $25.8 million from the $89.0 million of net income in 1994.
Earnings per common share were $.96 for the year ended December 31, 1995, as
compared to $.76 per common share reported for 1994.
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<PAGE>
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
1995 1994
---------------------- ----------------------
NET GROSS NET GROSS
REVENUES PROFIT REVENUES PROFIT
---------- --------- ---------- ---------
Pharmaceuticals $ 774,240 $ 326,625 $ 643,496 $ 273,260
Intravenous products 339,978 133,067 337,884 139,931
Other operations 147,045 64,038 153,641 68,254
Intersegment eliminations (1,497) - (215) -
---------- --------- ---------- ---------
Total $1,259,766 $ 523,730 $1,134,806 $ 481,445
========== ========= ========== =========
Net revenues totaled $1,259.8 million for 1995, an increase of $125.0
million, or 11%, from the $1,134.8 million reported in the prior year. Gross
profit increased $42.3 million, or 9%, as compared to 1994. Gross profit totaled
$523.7 million (41.6% of net revenues) for the year ended December 31, 1995,
compared to $481.4 million (42.4% of net revenues) for the prior year.
Net revenues of IVAX' pharmaceutical operations, which represented
approximately 61% of 1995 consolidated net revenues, increased $130.7 million
from 1994. Net revenues of IVAX' domestic and international pharmaceutical
operations increased $65.8 million and $64.9 million, respectively. The 1995
market introduction of and related promotional programs for new generic products
manufactured by IVAX was the principal factor leading to the rise in the net
revenues of IVAX' domestic pharmaceutical operations from $440.4 million in 1994
to a total of $506.2 million in 1995.
Net revenues attributable to sales of cefaclor, approved during April
1995, totaled $70.0 million in 1995. See "Results of Operations - Year Ended
December 31, 1996 compared to the year ended December 31, 1995" for a discussion
of the 1997 recall of the raw material used in the manufacture of cefaclor.
During the latter part of the third quarter and throughout the fourth quarter of
1995, IVAX commenced domestic sales of nine other generic products approved
during that period, contributing an additional $37.1 million in net revenues to
its domestic pharmaceutical operations. These new products included the December
introduction of IVAX' albuterol metered dose inhaler which contributed $8.6
million to 1995 net revenues. Although sales of these new products were a
significant factor contributing to the overall increase in net revenues of the
domestic pharmaceutical operations compared to 1994, the levels of revenues
generated during the introduction period of a new generic drug are often higher
than the levels experienced for routine inventory replenishment by customers in
the months following the drug's introduction.
During 1995, the Company's domestic generic pharmaceutical business
provided reserves for expected inventory credits and returns of $47.5 million as
compared to $24.0 million in the prior year primarily as a result of the rise in
net revenues. At December 31, 1995 and 1994, reserves for expected inventory
credits and returns for the domestic generic pharmaceutical business were $14.1
million and $6.0 million, respectively.
Net revenues attributable to sales of verapamil HCl ER tablets
manufactured by IVAX totaled $96.5 million in 1995 compared to $119.1 million in
1994. The decline in net revenues was due primarily to a reduction in the net
selling price of verapamil caused by competition, offset in part by increased
unit volume caused by an increase in the substitution rate of generic verapamil
for brand name verapamil. IVAX had been the sole United States supplier of
generic verapamil until March 1994, when Zenith Laboratories, Inc. ("Zenith")
began distribution of generic verapamil supplied by a company marketing
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<PAGE>
brand name verapamil. Notwithstanding IVAX' pooling of interests acquisition of
Zenith in December 1994, competition in the generic verapamil market continued
during 1995 because Zenith's former verapamil supplier commenced distribution
of generic verapamil through another generic pharmaceutical company.
IVAX' international pharmaceutical operations generated net revenues of
$268.0 million in 1995 compared to $203.1 million in 1994. The $64.9 million
increase in international pharmaceutical net revenues included an increase of
$40.4 million attributable to the operations of Galena a.s. ("Galena"). The July
1994 acquisition of a majority interest in Galena was accounted for as a
purchase, and accordingly, Galena's results of operations are included in IVAX'
consolidated financial statements only since the acquisition date. The remaining
$24.5 million increase in net revenues of IVAX' international pharmaceutical
operations was primarily due to higher sales of branded respiratory products in
the United Kingdom accompanied by the favorable impact of exchange rate
differences in comparison to the prior year. Net revenues attributable to sales
of branded respiratory products represented approximately 13% of the total net
revenues of the international pharmaceutical operations in 1995 as compared to
approximately 12% of the total during the prior year.
The gross profit percentage of IVAX' pharmaceutical operations was 42.2%
in 1995 as compared to 42.5% in 1994. The gross profit percentage remained
relatively constant in comparison to the prior year due primarily to domestic
sales of generic products approved during 1995 and manufactured by IVAX, which
were sold at a higher margin, in combination with a shift in sales mix to higher
margin branded products manufactured by IVAX' international pharmaceutical
operations. The margin contribution of these products almost entirely offset the
decrease in the gross profit margin resulting from the competition in the
domestic generic pharmaceutical distribution business experienced during 1995.
Net revenues of the intravenous products division totaled approximately
$340.0 million in 1995, an increase of $2.1 million from the $337.9 million
reported for 1994. The increase in net revenues resulted primarily from higher
sales of infusion pumps and needle-free intravenous sets and increased revenues
from admixture services, partially offset by lower net revenues attributable to
both Hespan(R) and specialty nutrition solutions. Net revenues for 1994 also
included a $2.0 million one-time settlement of a contractual obligation. Gross
profit was $133.1 million in 1995 compared to $139.9 million in 1994. The gross
profit percentage of the intravenous products division decreased from 41.4% in
1994 to 39.1% in 1995. The reduction in gross profit and the decrease in the
gross profit percentage were primarily due to the reduction in the net selling
price of Hespan(R) caused by competition and the decrease in selling prices of
the specialty nutrition solutions. In February 1995, another pharmaceutical
company introduced a generic version of Hespan(R) in the United States resulting
in both lower prices and a reduction in the intravenous products division's
share of the market.
Net revenues and gross profit of IVAX' personal care products, diagnostics
and specialty chemicals operations, excluding intersegment eliminations,
represented approximately 12% of consolidated net revenues and consolidated
gross profit in 1995. Combined net revenues of these other operations decreased
$6.6 million from 1994 primarily as a result of lower net revenues attributable
to textile and denim product sales of IVAX' specialty chemicals group. Declines
in gross profit were experienced by each of IVAX' other operations during 1995,
resulting in a decrease in combined gross profit of $4.2 million compared to
1994.
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OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
<TABLE>
<CAPTION>
GENERAL RESEARCH AMORTIZATION
AND AND OF MERGER
SELLING ADMINISTRATIVE DEVELOPMENT INTANGIBLES EXPENSES TOTAL
-------- -------------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995
- ----
Pharmaceuticals $ 85,107 $ 58,520 $ 44,492 $ 2,411 $ - $190,530
Intravenous products 55,050 29,846 16,005 4,657 - 105,558
Other operations 41,270 13,596 4,105 2,430 - 61,401
Corporate and other - 15,422 - - 3,392 18,814
-------- -------- -------- -------- -------- --------
Total $181,427 $117,384 $ 64,602 $ 9,498 $ 3,392 $376,303
======== ======== ======== ======== ======== ========
1994
- ----
Pharmaceuticals $ 71,148 $ 48,893 $ 31,838 $ 3,536 $ 10,191 $165,606
Intravenous products 56,697 22,493 12,779 5,835 - 97,804
Other operations 39,937 15,618 4,044 2,514 - 62,113
Corporate and other - 12,238 - - 2,858 15,096
-------- -------- -------- -------- -------- --------
Total $167,782 $ 99,242 $ 48,661 $ 11,885 $ 13,049 $340,619
======== ======== ======== ======== ======== ========
</TABLE>
Selling expenses totaled $181.4 million (14.4% of net revenues) in 1995
compared to $167.8 million (14.8% of net revenues) in 1994, an increase of $13.6
million. An increase in selling expenses of IVAX' international pharmaceutical
operations, due primarily to the rise in its net revenues, accounted for
approximately 87% of this increase, or $11.9 million.
General and administrative expenses totaled $117.4 million (9.3% of net
revenues) in 1995 compared to $99.2 million (8.7% of net revenues) for the prior
year. The $9.6 million increase in general and administrative expenses of IVAX'
pharmaceutical operations, in comparison to the prior year, was principally the
result of increased general and administrative expenses of the international
pharmaceutical operations primarily due to higher facilities and personnel
related expenditures, the impact of a full twelve months of general and
administrative expenses of Galena during 1995, and the unfavorable effect of
exchange rate differences. The intravenous products division reported an
increase of $7.4 million in this expense category compared to 1994 principally
as a result of a $4.9 million adverse arbitration award during the 1995 fourth
quarter related to a contract dispute, in combination with increased legal
expenses incurred throughout the year. Corporate general and administrative
expenses increased $3.2 million from the prior year primarily due to increases
in personnel, travel and facilities costs.
Research and development expenses for 1995 rose $15.9 million, or 33%, in
comparison to the prior year, to a total of $64.6 million. Over 75% of the
growth in this expense category was concentrated in IVAX' pharmaceutical
operations. The increase in research and development expenses in comparison to
the prior year reflects IVAX' continuing focus on the development of new and
improved products.
Amortization expense decreased $2.4 million compared to 1994 as a result
of the write-off of deferred financing costs associated with the March 1994
retirement of debt by the intravenous products division, in combination with the
effect of the amortization of the excess of the fair value of assets acquired
from Galena over the purchase price paid.
The $3.4 million of merger expenses reported for 1995 were primarily
related to a proposed merger with Hafslund Nycomed which was abandoned in
November 1995. The $13.0 million of merger
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expenses incurred during the prior year were principally attributable to the
December 1994 acquisition of Zenith.
Other income, net, increased $17.4 million compared to 1994 primarily due
to the sale of IVAX' investment in preferred stock of North American Vaccine,
Inc. which resulted in a pre-tax gain of $12.8 million. Higher licensing and
grant revenues of IVAX' international pharmaceutical operations and a gain on
the sale of certain trademarks by IVAX' personal care products group,
contributed to the remaining $4.6 million increase in other income, net, as
compared to 1994.
CURRENCY FLUCTUATIONS
For 1996, 1995 and 1994, approximately 33%, 22% and 19%, respectively, of
IVAX' net revenues were attributable to operations which principally generated
revenues in currencies other than the United States dollar. Fluctuations in the
value of foreign currencies relative to the United States dollar impact the
reported results of operations for IVAX. If the United States dollar weakens
relative to the foreign currency, the earnings generated in the foreign currency
will, in effect, increase when converted into United States dollars and vice
versa. Although IVAX does not speculate in the foreign exchange market, it does
from time to time manage exposures that arise in the normal course of business
related to fluctuations in foreign currency exchange rates by entering into
offsetting positions through the use of foreign exchange forward contracts. At
December 31, 1996, no IVAX subsidiaries were domiciled in highly inflationary
environments. As a result of exchange rate differences, net revenues decreased
by $3.3 million in 1996 as compared to 1995, and increased by $6.4 million in
1995 as compared to 1994.
INCOME TAXES
IVAX' effective tax rate was 29%, 19% and 25% in 1996, 1995 and 1994,
respectively. For the three years ended December 31, 1996, the effective tax
rate for IVAX' foreign subsidiaries was 17%, 22% and 19%, respectively. IVAX'
consolidated effective tax rate in 1996 was higher than in 1995 and in 1994
primarily as a result of domestic losses benefited at the prevailing federal and
state statutory rates which exceeded foreign income taxed at the prevailing
generally lower foreign rates. During 1996, IVAX recognized a $62.2 million tax
benefit which includes the recognition of a deferred tax asset of $7.1 million
by McGaw following an adjustment by the Internal Revenue Service of the tax
basis amortization of certain intangible assets; the recognition of a $5.3
million deferred tax asset in connection with the third quarter 1996
restructuring charge; and the recognition of a $3.6 million deferred tax asset
in connection with the third quarter 1996 write-down of certain fixed assets of
IVAX' specialty chemicals business. During 1995 and 1994, IVAX' consolidated tax
provision was reduced by $6.5 million and $6.6 million, respectively, as a
result of the release of valuation allowances associated with the realization of
the benefits of available net operating loss carryforwards and other temporary
differences. Certain subsidiaries of IVAX, including McGaw and Zenith, have net
operating loss carryforwards which are subject to certain limitations. For
further information see Note 8, Income Taxes, in the Notes to Consolidated
Financial Statements. IVAX' future consolidated effective tax rate will, to a
large extent, depend on the mix between foreign and domestic taxable income and
the statutory tax rates of the related tax jurisdictions. The mix between IVAX'
foreign and domestic taxable income may be significantly affected by the
jurisdictions in which new products are manufactured.
At December 31, 1996, other current assets, other assets, and other
long-term liabilities include a $115.2 million net deferred tax asset.
Realization of this asset is dependent upon generating sufficient future taxable
income. Although realization is not assured, management believes that the
deferred tax asset will be realized based upon estimated future taxable income
and, accordingly, no additional valuation
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allowances were deemed necessary at December 31, 1996. Management's estimates
of future taxable income are subject to revision due to, among other things,
regulatory and competitive factors affecting the generic pharmaceutical
industry. Such factors are discussed in the "Overview" and elsewhere in this
report.
IVAX has historically received a United States tax credit under Section
936 of the Internal Revenue Code for certain income generated by its Puerto Rico
and Virgin Island operations. For 1996 and 1995, this credit was approximately
$12.4 million and $17.3 million, respectively, and completely offset the entire
United States tax liability of such operations. In 1996, Congress repealed the
Section 936 tax credit and it will be phased out over 5 years beginning in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, IVAX' working capital totaled $535.3 million,
compared to $470.9 million and $332.8 million at year-end 1995 and 1994,
respectively. Cash and cash equivalents were $80.8 million at December 31, 1996
compared to $14.7 million at year-end 1995 and $37.0 million on the same date in
1994.
Net cash used for operating activities during 1996 was $13.2 million
compared to net cash provided from operating activities of $16.4 million and
$94.1 million in 1995 and 1994, respectively. The increase in cash used for
operating activities during 1996 as compared to 1995 was primarily the result of
operating losses incurred during 1996, partially offset by a decrease in the
level of accounts receivable. The decline in cash generated from operating
activities between 1995 and 1994 was primarily due to a higher rate of growth in
accounts receivable, partially offset by increased net income. The increase in
accounts receivable during 1995 was primarily due to the launch of new
manufactured generic products by the domestic generic pharmaceutical operations
during the 1995 third and fourth quarters and the extension of credit terms in
connection with the launch of those products. Accounts receivable subsequently
declined during 1996 in connection with lower net revenues and as the 1995
launch accounts receivable became due.
Net cash of $86.9 million was used for investing activities in 1996, a
decrease of $10.4 million and $24.2 million from 1995 and 1994, respectively.
Cash utilized for capital expenditures decreased from $103.4 million and $93.9
million in 1995 and 1994, respectively, to a total of $82.9 million in 1996.
Approximately 90% of the total capital expenditures made in 1996 were devoted to
IVAX' pharmaceuticals and intravenous products operations. During 1996, IVAX
received cash proceeds of $10.4 million from the sale of property, plant and
equipment, most of which related to the sale of a manufacturing facility located
in the United Kingdom. During 1995, IVAX sold its investment in preferred stock
of North American Vaccine, Inc. for approximately $16.3 million in cash. During
1994, IVAX used $11.8 million in cash, including the payment of acquisition
related expenses and net of cash acquired, to obtain a majority ownership
interest in Galena. In 1996 and 1995, IVAX purchased additional shares of Galena
for cash of $12.4 million and $2.1 million, respectively, increasing its
ownership interest to approximately 74%.
On March 25, 1994, IVAX established a revolving credit facility permitting
borrowings of up to $100.0 million, which was amended in November 1995 to
increase permitted borrowings to $130.0 million and was further amended in March
1996 to provide for an additional $45.0 million in available borrowings and to
extend its maturity. Borrowings outstanding under this facility were $99.0
million and $45.0 million at December 31, 1995 and 1994, respectively. During
1995, amounts borrowed under the revolving credit facility were primarily used
to fund working capital requirements and to fund capital
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expenditure programs within IVAX' pharmaceuticals and intravenous products
operations. During 1994, borrowings under the revolving credit facility were
used, in part, to finance IVAX' acquisition of a controlling interest in Galena
and to repay McGaw's $52.5 million of term (floating rate) notes and the amounts
borrowed under McGaw's revolving facility which totaled $11.1 million as of
December 31, 1993. McGaw's credit facility was terminated in June 1994. In
November 1995, IVAX obtained an unsecured floating rate overdraft facility
which provided for advances up to $10.0 million. As of December 31, 1996,
$10.0 million was outstanding under the overdraft facility. The revolving credit
facility providing for borrowings of up to $10.0 million previously maintained
by Zenith expired in June 1995.
On May 14, 1996, IVAX entered into a revolving line of credit agreement
with a bank syndicate which permitted borrowings of up to $425.0 million, and
IVAX terminated the revolving line of credit agreement discussed above. On
November 14, 1996, IVAX entered into an amendment to the May 14, 1996 revolving
credit agreement which, among other things, reduced permitted borrowings to
$375.0 million and shortened the maturity of the line of credit from May 2001 to
November 1999. At December 31, 1996, $337.1 million in borrowings were
outstanding under this credit facility. During 1996, proceeds from the credit
facility were used to refinance previously existing credit facilities to make an
investment in and advances to McGaw to permit it to redeem its 10 3/8% Senior
Notes due 1999 ("Senior Notes"), and for working capital and general corporate
purposes.
Pursuant to the terms of the amended credit facility, IVAX, among other
things, pledged to the lenders stock of certain subsidiaries and certain
accounts receivable, inventory, intangible assets, and property, plant and
equipment; agreed to not dispose of any of its assets without lender approval
other than in the ordinary course of business; agreed to not consummate any
acquisitions without lender approval; agreed to not pay cash dividends; and
agreed to limit capital expenditures and indebtedness. The amended credit
facility also contains various financial covenants, including required minimum
levels of tangible net worth and earnings before interest expense, income taxes,
depreciation and amortization.
During 1995 and 1994, IVAX redeemed a total of $1.0 million and $18.5
million, respectively, face value of its 6 1/2% Convertible Subordinated Notes
Due 2001. Additionally, during 1995 and 1994, McGaw repurchased $3.4 million and
$2.0 million, respectively, face value of its 10 3/8% Senior Notes at a purchase
price of 101% of the outstanding principal amount plus accrued and unpaid
interest. During 1996, McGaw repurchased the remaining face value of its Senior
Notes at a purchase price of 102% of the outstanding principal amount of $87.6
million, plus accrued and unpaid interest, using proceeds from the May 14, 1996
credit facility contributed to McGaw by IVAX.
Proceeds from the exercise of stock options and warrants totaled $31.8
million in 1996, an increase of $7.3 million from 1995 and $25.8 million from
1994.
During the first half of 1996, IVAX paid total cash dividends of $6.1
million, or $.05 per share, on its common stock. This compared to the $9.3
million, or $.08 per share, and $5.2 million, or $.06 per share, in dividends
paid on IVAX' common stock during 1995 and 1994, respectively. Immediately prior
to its acquisition by IVAX in December 1994, Zenith paid a dividend of $2.1
million on its preferred stock, constituting all unpaid cumulative dividends
with respect to such stock. Under the terms of the amended credit facility, as
discussed above, IVAX is prohibited from paying cash dividends.
During 1996, IVAX issued 1.5 million shares of its common stock to acquire
Elvetium, valued at approximately $42.3 million as of the acquisition date.
During 1995, IVAX issued 350,000 shares of its common stock valued at
approximately $10.5 million as of the acquisition date in connection with the
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acquisition of a pharmaceutical distribution company in Poland, and
approximately $4.9 million in cash in connection with three other acquisitions.
During 1994, IVAX issued an aggregate of approximately 41 million shares of
common stock having a value of $923.6 million at the respective issuance dates
to consummate the acquisitions of McGaw and Zenith. See Note 4, Mergers and
Acquisitions, in the Notes to Consolidated Financial Statements for further
information concerning these acquisitions.
IVAX plans to spend substantial amounts of capital in 1997 to continue the
research and development of its pharmaceutical and intravenous products.
Although combined research and development expenditures are planned to increase
by approximately 10% to 20% in comparison to 1996, actual expenditures will
depend on, among other things, the outcome of clinical testing of products under
development, delays or changes in government required testing and approval
procedures, technological and competitive developments and strategic marketing
decisions. In addition, IVAX plans to spend approximately $75.0 million in 1997
to improve and expand its pharmaceutical, intravenous and other related
facilities, within the limits agreed to under the terms of the amended credit
facility.
IVAX has incurred approximately $21.9 million in capital expenditures in
developing its Duplex(TM) drug delivery system, a proprietary system for
medications administered intravenously, and expects to commit approximately
$29.0 million in additional capital expenditures relating to the design,
manufacture, and installation of equipment needed to manufacture the system. The
marketing of pharmaceutical products in the Duplex(TM) system requires approval
of the FDA. No assurance can be given that IVAX will be able to successfully
complete the development of the Duplex(TM) system or that required regulatory
approvals will be obtained and, accordingly, a risk exists that the current and
future capitalized costs associated with the equipment required to manufacture
the system could be impaired.
IVAX' principal sources of short term liquidity are borrowings under the
credit facility and internally generated funds. In addition, during 1997, IVAX
expects to receive an estimated $39.1 million refund of Federal income taxes
paid in prior years. IVAX believes its short term financing needs will be
satisfied by these sources. The availability of the credit facility is subject
to IVAX' continued compliance with the financial and other covenants contained
in the credit agreement, including a covenant requiring minimum levels of
earnings before interest expense, income taxes, depreciation and amortization on
a quarterly basis. IVAX' ability to satisfy these covenants will depend on its
quarterly results which are subject to the risks described elsewhere in this
report. If IVAX does not satisfy any of the credit agreement covenants in future
periods, the lenders have the right, among other things, to require immediate
repayment of all outstanding indebtedness and to prohibit future borrowings
under the credit facility. If the lenders require repayment of such
indebtedness, IVAX would be compelled to seek alternative sources of financing
to satisfy its obligations. Finding an alternative source of financing may
involve a significant amount of time, and no assurance can be given that the
terms of alternative financing would be available, if at all, on the same or
similar terms as the existing credit facility. If IVAX were unable to obtain
satisfactory alternative financing, IVAX may be required to sell assets in order
to meet its obligations to its lenders. For the long term, IVAX believes it will
be able to obtain long term capital and financing to the extent necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the names, ages, positions held, and
business experience during the past five years of the persons serving as
directors and executive officers of IVAX as of March 20, 1997. Each director
holds office until the next annual meeting of shareholders or until his
successor is elected and qualified. Officers serve at the discretion of the
Board of Directors.
DIRECTORS
MARK ANDREWS. Mr. Andrews, age 46, has served as a director of IVAX
since 1987. He has served as the Chairman of the Board of Directors and Chief
Executive Officer of American Exploration Company (oil and gas exploration and
production) since 1980, and was its President from 1980 to 1988.
LLOYD BENTSEN. Mr. Bentsen, age 76, has served as a director of IVAX
since February 1995. He served as the 69th Secretary of the Treasury of the
United States from January 1993 until December 1994. From 1971 until his
appointment as Secretary of the Treasury, he served as a United States Senator
from the State of Texas. He is a director of Panhandle Eastern, Inc. (natural
gas), American International Group, Inc. (insurance), New Holland Limited (farm
equipment) and Fomento Economico Mexicano, SA de CV (beverages).
ERNST BIEKERT, PH.D. Dr. Biekert, age 72, has served as a director of
IVAX since 1991. He is a professor at the University of Heidelberg in Germany.
He was the Chairman of the Board and Chief Executive Officer of Knoll A.G.
(pharmaceuticals) from 1968 to 1985. Dr. Biekert was a consultant to BASF A.G.
(chemicals and pharmaceuticals) from 1985 to 1987 and was Chairman of its
pharmaceutical division from 1975 to 1985.
DANTE B. FASCELL. Mr. Fascell, age 80, has served as a director of IVAX
since 1993. He has been a partner of Holland & Knight, a Florida law firm, since
May 1994. He was of counsel to Fine Jacobson Schwartz Nash & Block, P.A., a
Florida law firm, from 1993 to 1994. From 1955 to 1993, he served as a member of
the United States House of Representatives, and was Chairman of the House
Foreign Affairs Committee from 1984 to January 1993.
JACK FISHMAN, PH.D. Dr. Fishman, age 66, has served as a director of
IVAX since 1987 and as a Vice Chairman of the Board of Directors of IVAX since
1991. From 1991 to February 1995, he served as IVAX' Chief Scientific Officer.
He is an Adjunct Professor at The Rockefeller University and Director of
Research of Strang Cornell Cancer Research Laboratory, a non-profit entity
associated with Cornell University Medical College. Dr. Fishman was President of
IVAX from 1988 to 1991, and served as a Research Professor of Biochemistry and
Molecular Biology at the University of Miami from 1988 to 1992.
PHILLIP FROST, M.D. Dr. Frost, age 60, has served as Chairman of the
Board of Directors and Chief Executive Officer of IVAX since 1987. He served as
IVAX' President from July 1991 until January 1995. He was the Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of the
Board of Directors of Whitman Education Group, Inc. (proprietary education),
Vice Chairman of the Board of Directors of North American Vaccine, Inc. (vaccine
research and development), Vice Chairman of the Board of Directors of
Continucare Corporation (managed health care), Vice Chairman of the Board of
Directors of Pan Am Corporation (airline), and a director of Northrop Grumman
Corp. (aerospace), American Exploration Company (oil and
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gas exploration and production), and NaPro BioTherapeutics, Inc.
(biopharmaceutical research and development). He is a trustee of the University
of Miami and a member of the Board of Governors of the American Stock Exchange.
HAROLD S. GENEEN. Mr. Geneen, age 87, has served as a director of IVAX
since 1992. He has served as the Chairman of the Board of Directors of Gunther
International Ltd. (automated document assembly systems) since September 1993.
He also serves on the boards of a number of privately-held companies. He was
Chairman of the Board of Directors of Finlay Enterprises, Inc. (retail jewelry)
from 1988 through 1993. Mr. Geneen was Chairman of the Board of Directors of ITT
Corporation from 1965 until 1979, remained on the Board of Directors of ITT
Corporation until 1983, and presently is Chairman Emeritus of ITT Corporation.
Mr. Geneen is also Chairman Emeritus of ITT Hartford Group, Inc. and ITT
Industries, Inc. He is a member of the Board of Trustees of New York University,
the Board of Trustees of the Salk Institute, and the Board of Governors of the
University of Miami School of Medicine.
JANE HSIAO, PH.D. Dr. Hsiao, age 49, has served as a director of IVAX
and as IVAX' Vice Chairman-Technical Affairs since February 1995. From 1992
until February 1995, she served as IVAX' Chief Regulatory Officer and Assistant
to the Chairman, and as Vice President-Quality Assurance and Compliance of Baker
Norton Pharmaceuticals, Inc., IVAX' principal proprietary pharmaceutical
subsidiary. From 1987 to 1992, Dr. Hsiao was Vice President-Quality Assurance,
Quality Control and Regulatory Affairs of Baker Norton Pharmaceuticals, Inc.
LYLE KASPRICK. Mr. Kasprick, age 64, has served as a director of IVAX
since 1987. Mr. Kasprick is a private investor. He has served as a director of
North American Vaccine, Inc. (vaccine research and development) since 1989, and
served as its Chairman from June 1991 to January 1995. Mr. Kasprick is a member
of the Board of Directors of the University of North Dakota Foundation.
ISAAC KAYE. Mr. Kaye, age 67, has served as Deputy Chief Executive
Officer and a director of IVAX since 1990, and as Chief Executive Officer of
Norton Healthcare Limited, IVAX' principal United Kingdom pharmaceutical
subsidiary, since 1990. Mr. Kaye is a director of Whitman Education Group, Inc.
(proprietary education).
HARVEY M. KRUEGER. Mr. Krueger, age 67, has served as a director of
IVAX since 1991. He has served as a Senior Managing Director of Lehman Brothers
since 1991. For more than five years prior thereto, he was a Managing Director
of Lehman Brothers and its predecessor companies. He is a director of Automatic
Data Processing, Inc. (computing services), R.G. Barry Corp. (footwear), Chaus,
Inc. (women's clothing), and Electric Fuel Corp. (batteries for electric
automobiles). Mr. Krueger is also on the International Advisory Board of Club
Mediteranee, S.A. (resorts).
JOHN H. MOXLEY III, M.D. Dr. Moxley, age 62, has served as a director
of IVAX since 1989. He has served as Managing Director, North American Health
Care Division, of Korn/Ferry International (executive recruiting firm) since
1992 and as Vice President since 1989. From 1987 to 1989, he was a self-
employed medical consultant. From 1981 to 1987, Dr. Moxley served as Senior Vice
President of Corporate Planning and Alternative Services for American Medical
International, Inc. (hospitals).
ROBERT C. STRAUSS. Mr. Strauss, age 55, has served as a director of
IVAX and as IVAX' President and Chief Operating Officer since March 1997. Prior
to joining IVAX, Mr. Strauss served as President and Chief Executive Officer of
Cordis Corporation (angiography and neuroscience). Mr. Strauss is Chairman of
the Board of Directors of Miami Children's Hospital and a trustee of the
University of Miami.
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MICHAEL WEINTRAUB. Mr. Weintraub, age 58, has served as a director of
IVAX since 1987. Mr. Weintraub is a private investor. Since 1979, he has been a
director of Gibson Security Corp., a privately-owned investment company, and has
served as its Chairman and President since 1990.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
SAMUEL BRODER, M.D. Dr. Broder, age 52, has served as IVAX' Senior Vice
President-Research and Development and Chief Scientific Officer since March
1995. He held various positions at the National Cancer Institute since 1972,
serving as its Director from 1989 until February 1995.
MICHAEL W. FIPPS. Mr. Fipps, age 54, has served as IVAX' Chief
Financial Officer since July 1994. From 1973 to June 1994, he held various
positions at Bergen Brunswig Corporation (pharmaceutical wholesaler), serving as
its Vice President and Treasurer from 1985 to June 1994.
NORWICK B.H. GOODSPEED. Mr. Goodspeed, age 47, has been President and
Chief Executive Officer of McGaw, Inc., IVAX' intravenous products subsidiary,
since December 1993. From May 1991 until December 1993, Mr. Goodspeed was Senior
Vice President, Sales and Marketing of McGaw, Inc. From September 1988 to May
1991, he was the President and Chief Executive Officer of Vical, Inc. (gene
therapy).
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires IVAX' directors, executive officers and 10% shareholders to file
initial reports of ownership and reports of changes in ownership of IVAX' common
stock and other equity securities with the Securities and Exchange Commission
and the American Stock Exchange. Directors, executive officers and 10%
shareholders are required to furnish IVAX with copies of all Section 16(a) forms
they file. Based on a review of the copies of such reports furnished to IVAX and
written representations from IVAX' directors and executive officers that no
other reports were required, IVAX believes that during 1996 IVAX' directors,
executive officers and 10% shareholders complied with all Section 16(a) filing
requirements applicable to them.
ITEM 11. EXECUTIVE COMPENSATION
The following table contains certain information regarding aggregate
compensation paid or accrued by IVAX during 1996 to the Chief Executive Officer
and to each of the four highest paid executive officers other than the Chief
Executive Officer.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION(1)
----------------------------------------------------- ------------ ------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK OPTIONS
------------------ ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
($) ($) (#) ($)
Phillip Frost, M.D. 1996 579,246 0 0 75,000 4,500
CHIEF EXECUTIVE OFFICER 1995 550,000 0 0 75,000 4,500
1994 425,000 50,000 0 50,000 4,400
Isaac Kaye (2) 1996 525,000 0 0 75,000 63,167
DEPUTY CHIEF EXECUTIVE 1995 500,000 0 0 75,000 48,600
OFFICER 1994 332,150 0 0 50,000 49,484
Richard C. Pfenniger, Jr.(3) 1996 375,820 0 0 75,000 4,500
1995 328,333 0 0 75,000 4,500
1994 258,720 50,000 0 100,000 4,400
Samuel Broder, M.D.(4) 1996 371,101 0 0 75,000 4,500
SENIOR VICE PRESIDENT- 1995 239,393 0 0 150,000 57,300
RESEARCH AND DEVELOPMENT 1994 -- -- -- -- --
AND CHIEF SCIENTIFIC OFFICER
Jane Hsiao, Ph.D. 1996 276,235 75,000 12,722 75,000 4,500
VICE CHAIRMAN-TECHNICAL 1995 264,447 0 0 50,000 4,500
AFFAIRS 1994 200,000 0 0 25,000 4,400
<FN>
- ----------
(1) Except for Mr. Kaye and Dr. Broder, the amounts included in the
"All Other Compensation" column represent matching contributions made by IVAX
under the IVAX Corporation Employee Savings Plan, an employee retirement plan
maintained under Section 401(k) of the Internal Revenue Code. For Mr. Kaye, such
amounts consist of the use of an automobile and reimbursement for a chauffeur,
parking and other automobile related expenses. For Dr. Broder, such amount
includes matching contributions under the IVAX Corporation Employee Savings Plan
and, for 1995, taxable relocation expenses totaling $52,800.
(2) Mr. Kaye's salary and other compensation is paid in British pounds,
and the information in the table is based on the average exchange rate during
the applicable year.
(3) Mr. Pfenniger served as Chief Operating Officer of IVAX until his
resignation, effective March 5, 1997.
(4) Dr. Broder's employment with IVAX commenced in March 1995.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
The following table sets forth information concerning stock option
grants made during 1996 to the executive officers named in the "Summary
Compensation Table."
STOCK OPTION GRANTS IN FISCAL YEAR 1996
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES OF
TOTAL STOCK PRICE APPRECIATION FOR
OPTIONS OPTION TERM
NAME AND OPTIONS GRANTED TO EXERCISE EXPIRATION ----------------------------
PRINCIPAL POSITION GRANTED(1) EMPLOYEES PRICE DATE 5% 10%
--------------------- ------- ----------- --------- ----------
(#) (%) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Phillip Frost, M.D.
CHIEF EXECUTIVE OFFICER 75,000 2.9 $26.75 2/20/2003 1,263,750 3,189,938
Isaac Kaye
DEPUTY CHIEF EXECUTIVE OFFICER 75,000 2.9 $26.75 2/20/2003 1,263,750 3,189,938
Richard C. Pfenniger, Jr. (2) 75,000 2.9 $26.75 2/20/2003 1,263,750 3,189,938
Samuel Broder, M.D.
SENIOR VICE PRESIDENT-
RESEARCH AND DEVELOPMENT AND
CHIEF SCIENTIFIC OFFICER 75,000 2.9 $26.75 2/20/2003 1,263,750 3,189,938
Jane Hsiao, Ph.D.
VICE CHAIRMAN-TECHNICAL AFFAIRS 75,000 2.9 $26.75 2/20/2003 1,263,750 3,189,938
<FN>
- --------------------
(1) All options are nonqualified options and vest in equal portions
over four years.
(2) Mr. Pfenniger served as Chief Operating Officer of IVAX until his
resignation, effective March 5, 1997.
</FN>
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth information concerning stock option
exercises during 1996 by each of the executive officers named in the "Summary
Compensation Table" and the year-end value of unexercised options held by such
officers.
STOCK OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NAME AND ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
PRINCIPAL POSITION EXERCISE REALIZED END AT FISCAL YEAR-END
------------------ ----------- -------- ---------------------------- --------------------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Phillip Frost, M.D. 0 0 193,750 206,250 0 0
CHIEF EXECUTIVE OFFICER
Isaac Kaye 0 0 193,750 206,250 0 0
DEPUTY CHIEF EXECUTIVE
OFFICER
Richard C. Pfenniger, Jr.(1) 0 0 101,250 208,750 0 0
Samuel Broder, M.D.
SENIOR VICE PRESIDENT
RESEARCH AND DEVELOPMENT
AND 10,000 $78,750 27,500 187,500 0 0
CHIEF SCIENTIFIC OFFICER
Jane Hsiao, Ph.D.
VICE CHAIRMAN-TECHNICAL 0 0 137,500 87,500 0 0
AFFAIRS
<FN>
- --------------------
(1) Mr. Pfenniger served as Chief Operating Officer of IVAX until his
resignation, effective March 5, 1997.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Each director who is not employed by IVAX receives $10,000 per year for
his service as a director and is reimbursed for expenses incurred in attending
board and committee meetings. Pursuant to IVAX' 1994 Stock Option Plan,
non-employee directors automatically are granted each year, on the first
business day following IVAX' annual meeting of shareholders, non-qualified
options to purchase 5,000 shares of IVAX' common stock at an exercise price
equal to the fair market value of the common stock on the date of the grant, and
having a term of ten years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the following directors served on the Compensation and
Stock Option Committee of the Board of Directors: John H. Moxley III, M.D., M.
Lee Pearce, M.D. and Michael Weintraub. None of such persons are or have been
executive officers of IVAX, and no interlocking relationships exists between
such persons and the directors or executive officers of IVAX. Dr. Pearce
resigned as a director of IVAX, effective February 7, 1997.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information with respect to the
only persons known by IVAX to own beneficially in excess of five percent of the
outstanding shares of IVAX' common stock as of March 20, 1997.
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS
------------------------------------ --------- --------
Phillip Frost, M.D. 15,484,385 (1) 12.7%
4400 Biscayne Boulevard
Miami, Florida 33137
Azure Limited 7,958,492 (2) 6.6%
c/o Charter Management, Ltd.
Town Mills
Trinity Square
St. Peter Port
Guernsey, Channel Islands
BASFIN Corporation 6,284,700(3) 5.2%
3000 Continental Drive - North
Mount Olive, New Jersey 07828
(1) Includes 2,450,475 shares held directly, 717 shares held for Dr.
Frost's benefit under the IVAX Corporation Employee Savings Plan, 293,750 shares
which may be acquired pursuant to stock options exercisable within 60 days of
March 20, 1997, 12,723,695 shares held by Frost-Nevada Limited Partnership
("FNLP"), and 15,748 shares which may be acquired by FNLP upon conversion of
$500,000 in principal amount of IVAX' 6 1/2% Convertible Subordinated Notes Due
2001. Dr. Frost is the sole limited partner of FNLP and the sole shareholder, an
officer and a director of Frost-Nevada Corporation, the general partner of FNLP.
Dr. Frost disclaims beneficial ownership of an additional 163,034 shares held of
record by his wife. Dr. Frost is a director and executive officer of IVAX.
(2) Azure Limited holds the shares as trustee for Charter Trust
Company, the trustee of the I. Kaye Family Trust, created by Mr. Isaac Kaye in
1988. The beneficiaries of the I. Kaye Family Trust may include, among others,
Mr. Kaye's children. Mr. Kaye is neither a beneficiary nor a trustee of such
trust, and he disclaims beneficial ownership of all of the shares owned by Azure
Limited. Mr. Kaye is a director and executive officer of IVAX.
(3) Based on information contained in a Schedule 13D filed by BASFIN
Corporation on September 24, 1996.
On November 20, 1996, Bergen Brunswig Corporation, a New Jersey
corporation ("Bergen"), filed a Schedule 13D with the Securities and Exchange
Commission which reported that, in connection with the execution of an Agreement
and Plan of Merger, dated as of November 10, 1996, between, among others, IVAX
and Bergen (the "Merger Agreement"), IVAX had granted Bergen an option to
purchase up to 30,177,342 shares of IVAX common stock under certain
circumstances (the "Option") and Dr. Frost and Frost Nevada, Limited Partnership
had each entered into a Voting Agreement with Bergen (the "Voting Agreement").
The Schedule 13D, as amended on March 21, 1997, states that Bergen may be the
beneficial owner of 45,311,726 shares (or approximately 29.9%) of the IVAX
common stock by virtue of the Option and the Voting Agreement. Bergen
unilaterally terminated the Merger Agreement on March 20, 1997, and filed a
lawsuit against IVAX in federal court alleging, among other things, various
breaches
-39-
<PAGE>
of the Merger Agreement. IVAX believes that Bergen's unilateral termination of
the Merger Agreement caused both the Option and the Voting Agreement to
terminate, in accordance with their respective terms, and that Bergen should no
longer be deemed the beneficial owner of such shares of IVAX common stock.
See "Item 3 - Legal Proceedings."
STOCK OWNERSHIP OF MANAGEMENT
The following table indicates, as of March 20, 1997, the number of
shares of IVAX' common stock beneficially owned by each director, each executive
officer named in the "Summary Compensation Table," and by all directors and
executive officers as a group, and the percentage such shares represent of the
total outstanding shares of IVAX' common stock. All shares were owned directly
with sole voting and investment power unless otherwise indicated.
SHARES
NAME OR IDENTITY BENEFICIALLY PERCENT OF
0F GROUP OWNED (1) CLASS
---------------- ------------ ----------
Mark Andrews 25,000 (2) *
Lloyd Bentsen 54,000 (2) *
Ernst Biekert, Ph.D. 25,000 (2) *
Dante B. Fascell 25,000 (2) *
Jack Fishman, Ph.D. 2,072,753 (3) 1.7%
Phillip Frost, M.D. 15,484,385 (4) 12.7%
Harold S. Geneen 35,500 (2) *
Jane Hsiao, Ph.D. 3,133,469 (5) 2.6%
Lyle Kasprick 212,751 (2) *
Isaac Kaye 323,750 (2) *
Harvey M. Krueger 26,500 (2) *
John H. Moxley III, M.D. 34,750 (2) *
Robert C. Strauss 100,000 (2) *
Michael Weintraub 65,000 (6) *
Samuel Broder, M.D. 84,110 (7) *
Richard C. Pfenniger, Jr. 305,960 (8) *
All directors and executive 22,177,760 (9) 18.2%
officers as a group (18 persons)
- --------------------
* Represents beneficial ownership of less than 1%.
(1) For purposes of this table, beneficial ownership is computed
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934; the inclusion
of shares as beneficially owned should not be construed as an admission that
such shares are beneficially owned for purposes of Section 16 of the Securities
Exchange Act of 1934.
(2) Includes shares which may be acquired pursuant to stock options
exercisable within 60 days of March 20, 1997 as follows: Mr. Andrews (25,000),
Mr. Bentsen (50,000), Dr. Biekert (25,000), Mr. Fascell (23,750), Mr. Geneen
(30,000), Mr. Kasprick (25,000), Mr. Kaye (293,750), Mr. Krueger (25,000), Dr.
Moxley (25,000) and Mr. Strauss (100,000).
(3) Includes 10,468 shares held by children. Dr. Fishman disclaims
beneficial ownership of an additional 60,000 shares held as co-trustee of
certain trusts for the benefit of certain family members.
-40-
<PAGE>
(4) Includes 2,450,475 shares held directly, 717 shares held on Dr.
Frost's behalf under the IVAX Corporation Employee Savings Plan, 293,750 shares
which may be acquired pursuant to stock options exercisable within 60 days of
March 20, 1997, 12,723,695 shares held by Frost-Nevada Limited Partnership
("FNLP"), and 15,748 shares which may be acquired by FNLP upon conversion of
$500,000 in principal amount of IVAX' 6 1/2% Convertible Subordinated Notes Due
2001. Dr. Frost is the sole limited partner of FNLP and the sole shareholder, an
officer and a director of Frost-Nevada Corporation, the general partner of
FNLP. Dr. Frost disclaims beneficial ownership of an additional 163,034 shares
held of record by his wife.
(5) Includes 984,285 shares held as trustee for the benefit of certain
family members, 137,500 shares which may be acquired pursuant to stock options
exercisable within 60 days of March 20, 1997, 2,100 shares held by her children
and 645 shares held on Dr. Hsiao's behalf under the IVAX Corporation Employee
Savings Plan.
(6) Includes 25,000 shares which may be acquired pursuant to currently
exercisable options. Mr. Weintraub disclaims beneficial ownership of (i) an
additional 311,649 shares held by Gibson Security Corp., of which Mr. Weintraub
is Chairman, President, and co-trustee of a trust which owns 97.6% of the shares
of Gibson Security Corp., (ii) an additional 5,000 shares held by Bankers Asset
Management Company, of which Mr. Weintraub is the Chairman, President and a 50%
stockholder and (iii) an additional 94,063 shares held by the estate of a
deceased family member of Mr. Weintraub for whom Mr. Weintraub has been
designated a co-personal representative.
(7) Includes 83,750 shares which may be acquired pursuant to stock
options exercisable within 60 days of March 20, 1997, and 330 shares held on his
behalf under the IVAX Corporation Employee Savings Plan.
(8) Includes 183,750 shares which may be acquired pursuant to stock
options exercisable within 60 days of March 20, 1997, 745 shares held on his
behalf under the IVAX Corporation Employee Savings Plan, and 30 shares held by
Mr. Pfenniger's wife under the IVAX Corporation Employee Savings Plan. Mr.
Pfenniger resigned as Chief Operating Officer of IVAX Corporation, effective
March 5, 1997.
(9) Includes shares noted in footnotes (2) through (8) as beneficially
owned and an additional 23,619 shares of common stock and 146,213 additional
shares of common stock which may be acquired pursuant to stock options
exercisable within 60 days of March 20, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Fishman, a director of IVAX, is entitled to receive $87,500 upon
the first commercial sale of a product covered by the patents relating to
nalmefene, a compound under development by IVAX. The payment was authorized in
connection with the purchase of certain patents relating to nalmefene, as
partial consideration to Dr. Fishman for the waiver of certain rights as the
inventor under such patents.
IVAX owns common stock constituting an aggregate of approximately 13%
of the outstanding common stock of NaPro BioTherapeutics, Inc. ("NaPro"), and is
a party to an exclusive agreement with NaPro to develop and market in certain
territories paclitaxel supplied by NaPro. Certain executive officers and
directors of IVAX are directors of NaPro. See "Item 10 - Directors and Executive
Officers of the Registrant."
IVAX is a party to a consulting agreement with Mr. Bentsen, a director
of IVAX, pursuant to which he receives each year (1) $25,000, less any fees paid
for his service as a director of IVAX, and (2) options to purchase 25,000 shares
of IVAX common stock, less any options received for his service as a director of
IVAX. The agreement has a term of one year, and automatically renews for
successive one year terms unless terminated by either party.
Effective January 17, 1996, Mr. Klein, the former President of IVAX'
North American Multi-Source Pharmaceutical Group, and Zenith agreed to terminate
Mr. Klein's employment agreement. As part of the agreement's termination, the
vesting period of certain options granted to Mr. Klein pursuant to the
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<PAGE>
agreement were accelerated, and Mr. Klein agreed to continue to serve as a
non-executive employee of Zenith until December 31, 1996 and as a consultant to
Zenith from January 1, 1997 to December 31, 1998. Mr. Klein has received an
annual salary of $400,000 through December 31, 1996 and will receive an annual
consulting fee of $400,000 through December 31, 1998. Mr. Klein also agreed to
refrain from competing with Zenith through January 1, 1999.
Whitman Education Group, Inc. ("Whitman") has leased from IVAX
approximately 6,825 square feet of office space in Miami, Florida, at an annual
rental of $140,783. The lease extends through March 31, 2001 and, at the option
of Whitman, may be extended for an additional five years. Certain executive
officers and directors of IVAX serve as directors of Whitman. See "Item 10 -
Directors and Executive Officers of the Registrant." In addition, Dr. Frost is a
principal shareholder of Whitman and Richard C. Pfenniger, Jr., the Former
Chief Operating Officer of IVAX, is currently the Chief Executive Officer and
Vice-Chairman of the Board of Whitman.
Effective March 5, 1997, Mr. Strauss and IVAX entered into an
employment agreement, pursuant to which Mr. Strauss serves as President and
Chief Operating Officer and a director of IVAX. Mr. Strauss will receive an
annual salary of $475,000 and certain employee benefits. As part of the
agreement, IVAX granted Mr. Strauss options to purchase 350,000 shares of common
stock and agreed to grant him options to purchase an additional 350,000 shares
of common stock prior to April 4, 1997. The agreement provides for certain
severance benefits if Mr. Strauss' employment is terminated under certain
circumstances. The term of the agreement extends until March 31, 2000, and
automatically renews for successive one year terms thereafter unless terminated
by either party. During the term of the agreement, IVAX agreed to nominate Mr.
Strauss as a director at each meeting of shareholders at which the election of
directors is to be considered.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial statements are filed as a part of
this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the three years
ended December 31, 1996 Consolidated Statements of
Shareholders' Equity for the three years ended December
31, 1996
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996
Notes to Consolidated Financial Statements
(a) (2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of IVAX is filed as a part
of this report:
Schedule II Valuation and Qualifying Accounts for the
three years ended December 31, 1996
All other schedules have been omitted because the required information
is not applicable or the information is included in the consolidated financial
statements or notes thereto.
<TABLE>
<CAPTION>
(a) (3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
3.1 Articles of Incorporation. Incorporated by reference to
IVAX' Form 8-B dated July 28, 1993.
3.2 Bylaws. Incorporated by reference to
IVAX' Form 8-B dated July 28,
1993.
4.1 Indenture dated November 26, 1991, between IVAX Incorporated by reference to
Corporation and First Trust National Association, as IVAX' Form 10-K for the year
Trustee, with respect to IVAX Corporation's 6 1/2% ended December 31, 1991.
Convertible Subordinated Notes due November 15, 2001.
4.2 Form of 6 1/2% Convertible Subordinated Notes due Incorporated by reference to
November 15, 2001 in Global Form. IVAX' Form 10-K for the year
ended December 31, 1991.
10.1 IVAX Corporation 1985 Stock Option Plan, as amended. Incorporated by reference to
IVAX' Form 8-B dated July 28,
1993.
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<PAGE>
10.2 IVAX Corporation 1994 Stock Option Plan. Incorporated by reference to
IVAX' Form 10-Q for the
quarterly period ended June 30,
1994.
10.3 McGaw, Inc. 1991 Stock Option Plan. Incorporated by reference to
IVAX' Form 10-K for the year
ended December 31, 1994.
10.4 McGaw, Inc. Amended and Restated Special Stock Option Incorporated by reference to
Incentive Program. McGaw, Inc.'s Registration
Statement on Form S-8,
Registration Statement No. 33-
67608.
10.5 Zenith Laboratories, Inc. 1992 Employee Stock Option Incorporated by reference to
Plan, as amended. IVAX' Form 10-K for the year
ended December 31, 1994.
10.6 Employment Agreement, dated November 24, 1993, Incorporated by reference to
between Zenith Laboratories, Inc. and John H. Klein. IVAX' Form 10-K for the year
ended December 31, 1994.
10.7 Termination and Consulting Agreement, dated as of January Incorporated by reference to
10, 1996, between Zenith Laboratories, Inc. and John H. IVAX' Form 10-K for the year
Klein. ended December 31, 1995.
10.8 IVAX Corporation U.S. Incentive Bonus Plan. Incorporated by reference to
IVAX' Form 10-K for the year
ended December 31, 1995.
10.9 Form of Indemnification Agreement for Directors. Incorporated by reference to
IVAX' Form 8-B dated July 28,
1993.
10.10 Form of Indemnification Agreement for Officers. Incorporated by reference to
IVAX' Form 8-B dated July 28,
1993.
10.11 Employment Agreement, dated March 4, 1997, between Filed herewith.
IVAX Corporation and Robert C. Strauss.*
10.12 Non-Competition Agreement, dated December 28, 1990, Incorporated by reference to
between IVAX Corporation and Isaac Kaye. IVAX' Form 10-K for the year
ended December 31, 1990.
10.13 Agreement Containing Consent Order, dated December 6, Incorporated by reference to
1994, between IVAX Corporation and the United States IVAX' Form 10-K for the year
Federal Trade Commission. ended December 31, 1994.
-44-
<PAGE>
10.14 Revolving Credit and Reimbursement Agreement by and Incorporated by reference to
among IVAX Corporation, as Borrower, Norton IVAX' Form 10-Q for the
Healthcare, Limited, as Co-Borrower, and the Lenders quarterly period ended June 30,
party thereto or referenced therein, and NationsBank, 1996.
National Association, as Administrative and Documentation
Agent and Lender and BA Securities, Inc. as Syndication
Agent, dated as of May 14, 1996.*
10.15 Amendment No. 1 to Revolving Credit and Reimbursement Incorporated by reference to
Agreement by and among IVAX Corporation, as Borrower, IVAX' Form 10-Q for the
Norton Healthcare, Limited, as Co-Borrower, and the quarterly period ended September
Lenders party thereto or referenced therein, and 30, 1996.
NationsBank, National Association, as Administrative and
Documentation Agent and Lender, and BA Securities, Inc., as
Syndication Agent, dated as of November 14, 1996.*
10.16 Agreement and Plan of Merger among BBI Healthcare Incorporated by reference to
Corporation, IVAX Corporation, Bergen Brunswig IVAX' Form 10-Q for the
Corporation, BBI-I Sub, Inc. and BBI-B Sub, Inc., dated as quarterly period ended September
of November 10, 1996.* 30, 1996.
10.17 Stock Option Agreement between Bergen Brunswig Incorporated by reference to
Corporation and IVAX Corporation dated November 10, IVAX' Form 8-K dated
1996. November 10, 1996.
11.1 Computation of earnings per share. Filed herewith.
21.1 Subsidiaries of IVAX Corporation. Filed herewith.
23.1 Consent of Arthur Andersen LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
<FN>
- ----------------------
* CERTAIN EXHIBITS AND SCHEDULES TO THIS DOCUMENT HAVE NOT BEEN FILED. THE
REGISTRANT AGREES TO FURNISH A COPY OF ANY OMITTED SCHEDULE OR EXHIBIT TO THE
SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.
</FN>
</TABLE>
(b) REPORTS ON FORM 8-K.
IVAX filed a Current Report on Form 8-K dated September 30, 1996
relating to its September 30, 1996 press release announcing IVAX' restructuring
plans and offering its outlook for the 1996 third quarter results.
IVAX filed a Current Report on Form 8-K dated November 10, 1996
reporting the execution of a merger agreement with Bergen Brunswig Corporation
and a Current Report on Form 8-K dated March 20, 1997, reporting the termination
of such merger agreement.
-45-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IVAX CORPORATION
Dated: March 31, 1997 By: /S/ PHILLIP FROST, M.D.
------------------------
Phillip Frost, M.D.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
NAME CAPACITY DATE
- ---- -------- ----
/S/ PHILLIP FROST, M.D. Chairman of the Board and March 31, 1997
- ------------------------ Chief Executive Officer
Phillip Frost, M.D (Principal Executive Officer)
/S/ MICHAEL W. FIPPS Chief Financial Officer March 31, 1997
- -------------------- (Principal Financial Officer)
Michael W. Fipps
/S/ MICHAEL METZKES Vice President - Accounting March 31, 1997
- ------------------- (Principal Accounting Officer)
Michael Metzkes
/S/ MARK ANDREWS Director March 31, 1997
- ----------------
Mark Andrews
- ------------------- Director March 31, 1997
Lloyd Bentsen
/S/ ERNST BIEKERT, PH.D. Director March 31, 1997
- ------------------------
Ernst Biekert, Ph.D.
<PAGE>
/S/ DANTE B. FASCELL Director March 31, 1997
- ----------------------------
Dante B. Fascell
/S/ JACK FISHMAN, PH.D. Director and Vice Chairman March 31, 1997
- ---------------------------- of the Board
Jack Fishman, Ph.D.
/S/ HAROLD S. GENEEN Director March 31, 1997
- ----------------------------
Harold S. Geneen
/S/ JANE HSIAO, PH.D. Director and Vice Chairman - March 31, 1997
- ---------------------------- Technical Affairs
Jane Hsiao, Ph.D.
/S/ LYLE KASPRICK Director March 31, 1997
- -----------------
Lyle Kasprick
/S/ ISAAC KAYE Director and Deputy Chief March 31, 1997
- ---------------------------- Executive Officer
Isaac Kaye
- ---------------------------- Director March 31, 1997
Harvey M. Krueger
/S/ JOHN H. MOXLEY III, M.D. Director March 31, 1997
- ----------------------------
John H. Moxley III, M.D.
/S/ MICHAEL WEINTRAUB Director March 31, 1997
- ----------------------------
Michael Weintraub
/S/ ROBERT C. STRAUSS Director, President and Chief March 31, 1997
- ---------------------------- Operating Officer
Robert C. Strauss
<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the
Three Years Ended December 31, 1996 F-4
Consolidated Statements of Shareholders' Equity for the
Three Years Ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts for the
Three Years Ended December 31, 1996 F-29
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF IVAX CORPORATION:
We have audited the accompanying consolidated balance sheets of IVAX Corporation
(a Florida corporation) and subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IVAX Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 28, 1997 (except with respect to the matters discussed in
Notes 4 and 14, as to which the date is March 21, 1997).
F-2
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 80,806 $ 14,720
Accounts receivable, net of allowances for doubtful
accounts of $36,358 ($14,260 in 1995) 264,508 359,165
Inventories 288,987 242,260
Other current assets 132,320 60,673
---------- ----------
Total current assets 766,621 676,818
Property, plant and equipment, net 414,711 385,419
Cost in excess of net assets of acquired companies, net 51,502 138,423
Patents, trademarks, licenses and other intangibles, net 48,091 50,859
Other 120,975 83,791
---------- ----------
Total assets $1,401,900 $1,335,310
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Loans payable $ 5,027 $ 4,807
Current portion of long-term debt 5,860 3,521
Accounts payable 84,282 92,343
Accrued income taxes payable 16,393 8,632
Accrued expenses and other current liabilities 119,786 96,610
---------- ----------
Total current liabilities 231,348 205,913
Long-term debt, net of current portion 443,424 298,857
Other long-term liabilities 17,432 26,314
Minority interest 14,568 15,054
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 121,476 shares (118,026 in 1995) 12,148 11,803
Capital in excess of par value 515,070 461,603
Retained earnings 160,960 322,117
Cumulative translation adjustment and other 6,950 (6,351)
---------- ----------
Total shareholders' equity 695,128 789,172
---------- ----------
Total liabilities and shareholders' equity $1,401,900 $1,335,310
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE BALANCE SHEETS.
F-3
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES $1,151,307 $1,259,766 $1,134,806
COST OF SALES 774,368 736,036 653,361
---------- ---------- ----------
Gross Profit 376,939 523,730 481,445
---------- ---------- ----------
OPERATING EXPENSES:
Selling 220,536 181,427 167,782
General and administrative 151,056 117,384 99,242
Research and development 73,353 64,602 48,661
Amortization of intangible assets 10,116 9,498 11,885
Restructuring costs and asset write-downs 117,983 -- --
Merger expenses 557 3,392 13,049
---------- ---------- ----------
Total operating expenses 573,601 376,303 340,619
---------- ---------- ----------
Income (loss) from operations (196,662) 147,427 140,826
OTHER INCOME (EXPENSE):
Interest income 1,216 1,909 2,056
Interest expense (25,667) (19,289) (21,481)
Other income, net 5,564 18,394 948
---------- ---------- ----------
(18,887) 1,014 (18,477)
---------- ---------- ----------
Income (loss) before income taxes, minority
interest and extraordinary items (215,549) 148,441 122,349
PROVISION (BENEFIT) FOR INCOME TAXES (62,224) 28,338 30,322
---------- ---------- ----------
Income (loss) before minority interest and
extraordinary items (153,325) 120,103 92,027
MINORITY INTEREST (5,354) (5,302) (2,155)
---------- ---------- ----------
Income (loss) before extraordinary items (158,679) 114,801 89,872
EXTRAORDINARY ITEMS:
Gains (losses) on extinguishment of debt, net of a
tax provision (benefit) of $(1,382) in 1996, $29
in 1995 and $114 in 1994 (2,073) 34 (823)
---------- ---------- ----------
NET INCOME (LOSS) $ (160,752) $ 114,835 $ 89,049
========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary items $ (1.31) $ .96 $ .77
Extraordinary items (.02) -- (.01)
---------- ---------- ----------
Net earnings (loss) $ (1.33) $ .96 $ .76
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 120,949 119,253 116,339
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
PREFERRED COMMON STOCK CUMULATIVE
STOCK ------------------- CAPITAL IN TRANSLATION
OF POOLED NUMBER EXCESS OF RETAINED ADJUSTMENT
COMPANY OF SHARES AMOUNT PAR VALUE EARNINGS AND OTHER TOTAL
--------- ---------- -------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $ 5,950 105,390 $ 10,539 $398,447 $134,833 $(21,997) $527,772
Issuances of common stock:
Exercise of stock options -- 581 58 5,970 -- -- 6,028
Contribution to 401(k) plan -- 25 3 892 -- -- 895
Effect of tax deductions received
from the exercise of stock options -- -- -- 3,915 -- -- 3,915
Transaction by pooled companies:
Conversion of preferred stock (5,950) 8,050 805 5,145 -- -- --
Issuance of common stock -- -- -- 3,365 -- -- 3,365
Distribution to shareholders -- -- -- -- (2,082) -- (2,082)
Minimum pension liability
adjustment -- -- -- -- (471) -- (471)
Cash dividends paid -- -- -- -- (5,173) -- (5,173)
Translation adjustment -- -- -- -- -- 11,158 11,158
Net income -- -- -- -- 89,049 -- 89,049
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1994 -- 114,046 11,405 417,734 216,156 (10,839) 634,456
Issuances of common stock:
Exercise of stock options
and warrants -- 3,313 331 24,237 -- -- 24,568
Conversion of 9.00% Convertible
Subordinated Debentures -- 286 29 1,471 -- -- 1,500
Contribution to 401(k) plan -- 31 3 778 -- -- 781
Acquisition accounted for under the
pooling of interests method of
accounting -- 350 35 (35) 68 -- 68
Effect of tax deductions received from
the exercise of stock options -- -- -- 17,418 -- -- 17,418
Unrealized net gain on available-for-
sale equity securities -- -- -- -- -- 4,805 4,805
Distribution to shareholders by
pooled company -- -- -- -- (66) -- (66)
Minimum pension liability adjustment -- -- -- -- 471 -- 471
Sale of investment in affiliate which
held interest in IVAX' stock -- -- -- -- -- 272 272
Cash dividends paid -- -- -- -- (9,347) -- (9,347)
Translation adjustment -- -- -- -- -- (589) (589)
Net income -- -- -- -- 114,835 -- 114,835
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1995 -- 118,026 11,803 461,603 322,117 (6,351) 789,172
Issuances of common stock:
Exercise of stock options -- 1,881 188 31,651 -- -- 31,839
Contribution to 401(k) plan -- 78 8 2,078 -- -- 2,086
Acquisition accounted for under
the pooling of interests method
of accounting -- 1,491 149 (46) 5,652 -- 5,755
Effect of tax deductions received
from the exercise of stock options -- -- -- 19,784 -- -- 19,784
Unrealized net gain on available-for-
sale equity securities -- -- -- -- -- 461 461
Cash dividends paid -- -- -- -- (6,057) -- (6,057)
Translation adjustment -- -- -- -- -- 12,840 12,840
Net loss -- -- -- -- (160,752) -- (160,752)
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1996 $ -- 121,476 $ 12,148 $515,070 $160,960 $ 6,950 $695,128
======== ======== ======== ======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(160,752) $ 114,835 $ 89,049
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Non-cash charges relating to restructuring costs and
asset write-downs 117,983 -- --
Depreciation and amortization 55,842 47,319 45,499
Benefit for deferred taxes (63,414) (5,248) (9,098)
Provision for allowances for doubtful accounts 42,638 5,848 4,671
(Gains) losses on disposal of assets, net (2,718) (12,637) 764
(Gains) losses on extinguishment of debt 1,640 (63) 709
Minority interest 5,354 5,302 2,155
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 66,782 (144,452) (14,905)
Increase in inventories (36,263) (21,736) (41,828)
(Increase) decrease in other current assets (23,383) 2,158 (10,288)
Increase in other assets (14,358) (6,159) (4,750)
(Decrease) increase in accounts payable, accrued expenses
and other current liabilities (3,010) 35,267 27,727
Increase (decrease) in other long-term liabilities 1,604 (4,116) 4,180
Other, net (1,146) 71 211
--------- --------- ---------
Net cash (used for) provided by operating activities (13,201) 16,389 94,096
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (82,856) (103,449) (93,905)
Proceeds from sale of property, plant and equipment 10,386 559 1,262
Proceeds from sale of investments in affiliated companies -- 16,553 --
Acquisitions of patents, trademarks, licenses,
and other intangibles, net of sales proceeds (2,131) (5,727) (6,677)
Acquisitions of businesses, net of cash acquired (12,110) (4,832) (11,799)
Other, net (234) (422) --
--------- --------- ---------
Net cash used for investing activities (86,945) (97,318) (111,119)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 600,816 111,145 126,915
Payments on long-term debt and loans payable (461,211) (67,800) (169,397)
Issuance of common stock 31,839 24,568 6,028
Issuance of stock by pooled companies -- -- 3,365
Cash dividends paid (6,057) (9,347) (5,173)
Distributions to shareholders by pooled companies -- (66) (2,082)
--------- --------- ---------
Net cash provided by (used for) financing activities 165,387 58,500 (40,344)
--------- --------- ---------
Effect of exchange rate changes on cash 845 104 2,931
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 66,086 (22,325) (54,436)
Cash and cash equivalents at the beginning of the year 14,720 37,045 91,481
--------- --------- ---------
Cash and cash equivalents at the end of the period $ 80,806 $ 14,720 $ 37,045
========= ========= =========
</TABLE>
(Continued)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Supplemental disclosures:
Interest paid $ 27,922 $ 21,012 $ 21,884
============== ============= ==============
Income tax payments $ 14,806 $ 12,270 $ 47,037
============== ============= ==============
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Information with respect to IVAX' acquisitions which were accounted for
under the purchase method of accounting are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Fair value of assets acquired $ - $ 718 $ 75,414
Liabilities assumed - 181 19,122
-------------- ------------- --------------
- 537 56,292
Establishment (reduction) of minority interest (5,219) (813) 8,646
-------------- ------------- --------------
5,219 1,350 47,646
============== ============= ==============
Purchase price:
Cash (including related acquisition costs) 12,362 4,935 15,549
Fair market value of equipment contributed - - 6,600
-------------- ------------- --------------
12,362 4,935 22,149
-------------- ------------- --------------
Cost in excess of net assets of acquired companies $ 7,143 $ 3,585 $ (25,497)
============== ============= ==============
</TABLE>
The excess of the fair value of assets acquired from Galena a.s. in 1994
over the purchase price was used to first reduce long-term assets and the
remainder used to reduce cost in excess of net assets of acquired companies,
net.
During the year ended December 31, 1995, common stock was issued upon the
conversion of $1,500 in debentures.
Contributions to the 401(k) retirement plan resulted in the issuance of
common stock totaling $2,086, $781 and $895 in the years ended December 31,
1996, 1995 and 1994, respectively.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
F-7
<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Financial amounts in thousands, except share data)
(1) ORGANIZATION:
IVAX Corporation is a holding company with subsidiaries engaged
primarily in the research, development, manufacture, marketing and distribution
of health care products, including generic and branded pharmaceuticals,
intravenous solutions and related products, and IN VITRO diagnostics. These
health care products are sold primarily to customers within the United States
and the United Kingdom. IVAX Corporation also has subsidiaries which
manufacture, market and distribute personal care products and specialty
chemicals. All references to "IVAX" or the "Company" mean IVAX Corporation and
its subsidiaries unless otherwise required by the context.
IVAX' future revenues and profitability are largely dependent upon its
ability to continue to develop, manufacture and market pharmaceutical and
intravenous products. Revenues and profits derived from generic pharmaceuticals,
which presently constitute IVAX' principal business, can be significantly
affected by a variety of factors, including, among other things, the timing of
new generic drug approvals received by IVAX, the number and timing of generic
drug approvals for competing products, the timing of IVAX' initial shipments of
newly approved generic drugs, strategies adopted by brand name companies to
maintain market share, and the effects of sales promotion programs. Certain raw
materials and components used in the manufacture of IVAX' products are available
from limited sources, and in some cases, a single source. In addition, because
raw material sources for pharmaceutical and intravenous products must generally
be approved by regulatory authorities, changes in raw material suppliers could
result in delays in production and higher raw material costs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations - Overview" for additional discussion of IVAX' business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IVAX Corporation and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investments in affiliates representing 20% to 50% ownership interests are
recorded under the equity method of accounting. Investments in affiliates
representing less than 20% ownership interests are recorded at cost. The
minority interest held by third parties in the majority owned subsidiary is
separately stated. Certain amounts presented in the consolidated financial
statements for prior periods have been reclassified for comparative purposes.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. IVAX' actual results in subsequent periods may
differ from the estimates and assumptions used in the preparation of the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS - IVAX considers all investments with a
maturity of three months or less as of the date of purchase to be cash
equivalents.
F-8
<PAGE>
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market. Components of inventory cost include materials, labor and
manufacturing overhead. In evaluating whether inventory is stated at the lower
of cost or market, management considers such factors as inventory on hand,
estimated time to sell such inventory, remaining shelf life and current market
conditions. Reserves are provided as appropriate.
Inventories consist of the following:
DECEMBER 31,
---------------------------------
1996 1995
------------- --------------
Raw materials $ 100,210 $ 86,155
Work-in-process 28,429 29,660
Finished goods 160,348 126,445
------------- --------------
$ 288,987 $ 242,260
============= ==============
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
carried at cost less accumulated depreciation and amortization and consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Land $ 43,001 $ 45,635
Buildings and improvements 193,106 178,575
Machinery and equipment 331,822 285,728
Furniture and equipment 27,036 24,990
------------- --------------
594,965 534,928
Less: Accumulated depreciation and amortization 180,254 149,509
------------- --------------
$ 414,711 $ 385,419
============= ==============
</TABLE>
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows: buildings and improvements
(2-45 years), machinery and equipment (2-20 years) and furniture and fixtures
(3-15 years). Leasehold improvements are amortized on a straight-line basis over
the shorter of the term of the lease or their estimated useful lives. Costs of
major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the life of the assets are expensed.
Upon sale or disposition of property, plant and equipment, the cost and related
accumulated depreciation or amortization are eliminated from the accounts and
any resultant gain or loss is credited or charged to operations.
OTHER ASSETS - Cost in excess of net assets of acquired companies is
amortized utilizing the straight-line method over periods not exceeding 40
years. Following any acquisition, IVAX continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of intangible assets may warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that the
assets acquired in a purchase business combination and related goodwill may be
impaired, IVAX uses various methods to estimate the asset's future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, an impairment loss is recognized based on the excess of the
carrying amount over the fair value of the asset. Any impairment amount is
charged to operations (See Note 3). Amortization of the cost in excess of net
assets of acquired companies during the years ended December 31, 1996, 1995 and
1994 was $2,447,
F-9
<PAGE>
$2,305 and $3,673, respectively. Accumulated amortization of cost in excess of
net assets of acquired companies was $4,088 and $15,106 at December 31, 1996 and
1995, respectively.
Patents, trademarks, licenses and other intangibles are amortized on
the straight-line method over the estimated lives of the respective patents,
trademarks, licenses and other intangibles (ranging from 1-25 years). The
related accumulated amortization was $49,108 and $41,120 at December 31, 1996
and 1995, respectively.
LONG-LIVED ASSETS - On January 1, 1996, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Adoption did not have a material effect on the consolidated financial statements
(See Note 3).
MINORITY INTEREST - Minority interest represents the minority
shareholders' proportional share of the equity in the income and the net assets
of Galena a.s. ("Galena") (See Note 4).
FOREIGN CURRENCIES - IVAX' operations include subsidiaries which are
located outside of the United States. Assets and liabilities as stated in the
local reporting currency are translated at the rate of exchange prevailing at
the balance sheet date. The gains or losses that result from this process are
shown in the "cumulative translation adjustment and other" caption in the
shareholders' equity section of the accompanying consolidated balance sheets.
Statement of operations amounts are translated at the average rates for the
period.
FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, accounts receivable, investment in sales-type leases, loans payable
and accounts payable approximate fair value due to the short maturity of the
instruments and reserves for potential losses, as applicable. The disclosed fair
value of other assets and long-term debt is estimated using quoted market
prices, whenever available, or an appropriate valuation method (See Note 7).
IVAX does not speculate in the foreign exchange market. However, the
Company from time to time may manage exposures that arise in the normal course
of business related to fluctuations in foreign currency rates by entering into
foreign exchange forward contracts. The Company enters into these contracts with
counterparties that it believes to be creditworthy and does not enter into any
leveraged derivative transactions. Gains and losses on these contracts are
included in the consolidated statement of operations as they arise. Costs
associated with entering into these contracts are amortized over the contracts'
lives which typically mature within one year. The Company held purchased foreign
exchange forward contracts with notional principal amounts of $3,018 and $5,232
at December 31, 1996 and 1995, respectively.
In addition, the Company has intercompany balances that are denominated
in foreign currency. A portion of these balances are hedged using foreign
exchange forward contracts, and gains and losses on these contracts are included
in the consolidated statement of operations as they arise. IVAX Corporation (the
"Parent Company") held foreign exchange forward contracts with notional
principal amounts of $4,908 at December 31, 1996, which matured in January 1997,
and $45,805 at December 31, 1995, which matured in March 1995.
REVENUE RECOGNITION - Revenue and the related cost of sales are
recognized at the time product is shipped or when services are provided. Net
revenues is comprised of gross revenues less provisions for expected customer
returns, inventory credits, discounts, promotional allowances, volume rebates
and
F-10
<PAGE>
chargebacks. Royalty and licensing fee income are recognized when
obligations associated with earning the royalty or licensing fee have been
satisfied and are included in net revenues in the consolidated statements of
operations.
The custom in the pharmaceutical industry is to generally grant
customers the right to return purchased goods. In the generic pharmaceutical
industry, this custom has resulted in a practice of suppliers issuing
shelf-stock adjustments (also known as inventory credits) to customers based on
the customer's existing inventory following decreases in the price of the
supplier's generic pharmaceutical products. The determination to grant a credit
to a customer following a price decrease is generally at the discretion of IVAX,
and generally not pursuant to contractual arrangements with customers.
Reserves for estimated returns and inventory credits are established by
IVAX concurrently with the recognition of revenue. The amount of reserves are
established in accordance with generally accepted accounting principles based
upon consideration of a variety of factors, including actual return and
inventory credit experience for products during the past several years by
product type, the number and timing of regulatory approvals for the product by
competitors of IVAX, both historical and projected, the market for the product,
and projected economic conditions. Actual product returns and inventory credits
incurred are, however, dependent upon future events, including, price
competition and the level of customer inventories at the time of any price
declines. IVAX continually monitors the factors that influence the pricing of
its products and customer inventory levels and makes adjustments to these
reserves when management believes that actual product returns and inventory
credits may differ from established estimates.
RESEARCH AND DEVELOPMENT COSTS - IVAX-sponsored research and
development costs related to future products are expensed currently.
INCOME TAXES - The provision (benefit) for income taxes is based on the
consolidated United States entities' and individual foreign companies' estimated
tax rates for the applicable year. IVAX utilizes the asset and liability method,
and deferred taxes are determined based on the estimated future tax effects of
differences between the financial accounting and tax bases of assets and
liabilities using the applicable tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax liability
from period to period.
STOCK-BASED COMPENSATION PLANS - In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
SFAS No. 123 allows either adoption of a fair value method of accounting for
stock-based compensation plans or continuation of accounting under Accounting
Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations with supplemental disclosures.
The Company has chosen to account for all stock-based compensation
arrangements under which employees receive shares of IVAX' stock under APB
Opinion No. 25 with related disclosures under SFAS No. 123. Pro forma net
earnings (loss) per common share amounts as if the fair value method had been
adopted are presented in Note 10. The adoption of SFAS No. 123 did not have a
material impact on the Company's results of operations, financial position or
cash flows.
EARNINGS (LOSS) PER COMMON SHARE - Earnings (loss) per common share is
computed by dividing net income (loss) by the weighted average number of common
and dilutive common equivalent shares
F-11
<PAGE>
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method. As described in Note 4, the acquisition of Zenith Laboratories, Inc.
("Zenith") was accounted for as a pooling of interests. The conversion
equivalent of Zenith's outstanding cumulative convertible preferred stock is
included in the calculation of weighted average shares.
(3) RESTRUCTURING COSTS AND ASSET WRITE-DOWNS:
RESTRUCTURING COSTS - During the third and fourth quarters of 1996,
IVAX instituted a restructuring program aimed at identifying and implementing
strategies to reduce costs and improve efficiencies in both the United States
generic pharmaceutical operations and intravenous products operations by
consolidating facilities and reducing workforce. As a result, during the third
quarter of 1996, the Company recorded a pre-tax charge of $13,974 associated
with the United States generic pharmaceutical operations comprised of $2,324 for
severance and other employee termination benefits; $3,000 for plant closure and
related costs; and $8,650 for the estimated loss on sales of closed facilities.
In the fourth quarter of 1996, the charge for loss on sales of facilities was
adjusted by $800 as certain assets will be transferred to the Company's
Kirkland, Canada facility, acquired in January 1997, for use in operations.
During the fourth quarter of 1996, the Company recorded a pre-tax charge of $468
associated with its intravenous products operations primarily related to
severance and other employee termination benefits. The employee termination
benefits during the third and fourth quarter of 1996 primarily represent
severance pay and other benefits associated with the elimination of
approximately 530 employee positions in the manufacturing, sales and marketing
and research and development areas of the United States generic pharmaceutical
and intravenous products operations.Pursuant to the restructuring program, IVAX
closed its Shreveport, Louisiana pharmaceutical manufacturing facility in the
fourth quarter of 1996 and expects to close its Syosset, New York pharmaceutical
manufacturing facility during the second quarter of 1997. Production from these
facilities has been or will be transferred to the Kirkland, Canada facility.
During 1996, payments approximating $960 were made and charged against
established reserves. Remaining reserves were $12,682 at December 31, 1996.
ASSET WRITE-DOWNS - Prior to third quarter 1996 reporting, IVAX
management reevaluated the carrying value of certain long-lived assets and
goodwill related to those assets to be held and used in IVAX' United States
generic pharmaceutical and specialty chemical operations. This reevaluation was
required by management's determination that, based on recent results of
operations and conditions and trends within the generic pharmaceutical industry,
the expected future cash flows derived from the assets and related goodwill
would be substantially lower than had been previously expected. As a result,
management reduced the carrying value of goodwill related to the United States
generic pharmaceutical operations by a pre-tax charge of $55,899 and the
carrying value of certain long-lived assets and goodwill of the specialty
chemical operations by a pre-tax charge of $9,753 and $38,689, respectively.
Management determined the amount of the charges based on various valuation
techniques, including discounted cash flow analysis and net realizable value for
assets to be held and used. The restructuring costs and impairment losses have
been recorded as "Restructuring costs and asset write-downs" in the accompanying
consolidated statements of operations.
(4) MERGERS AND ACQUISITIONS:
On November 10, 1996, IVAX entered into a definitive merger agreement
with Bergen Brunswig Corporation ("Bergen"), a nationwide distributor of
pharmaceuticals and medical-surgical supplies. This agreement was unilaterally
terminated by Bergen on March 20, 1997 (See Note 14).
F-12
<PAGE>
On March 1, 1996, IVAX acquired Elvetium S.A. (Argentina), Alet
Laboratorios S.A.E.C.I. y E. and Elvetium S.A. (Uruguay), three affiliated
companies engaged in the manufacture and marketing of pharmaceuticals in
Argentina and Uruguay, in exchange for 1,490,909 shares of IVAX' common stock.
Although the acquisition was accounted for using the pooling of interests method
of accounting, the acquisition was recorded as of January 1, 1996 and the
accompanying consolidated financial statements have not been restated to give
retroactive effect to the acquisition due to the immateriality of the related
amounts.
On September 30, 1995, IVAX acquired Pharmatop Limited, a company
engaged exclusively in the distribution and marketing of Norton Healthcare's
products in Poland, in consideration for 350,000 shares of IVAX' common stock.
Although the acquisition was accounted for using the pooling of interests method
of accounting, the accompanying consolidated financial statements have not been
restated to give retroactive effect to the acquisition due to the immateriality
of the related amounts.
On July 17, 1995, IVAX paid approximately $2,783 in cash to acquire
ImmunoVision, Inc. ("ImmunoVision"), a company engaged in the manufacture and
sale of certain diagnostic products. The acquisition was accounted for using the
purchase method of accounting. The historical operations of ImmunoVision, when
compared to the historical operations of IVAX, were not significant.
In December 1994, IVAX acquired Zenith in consideration for 27,173,140
shares of IVAX' common stock. The acquisition was accounted for using the
pooling of interests method of accounting. Net revenues and net income generated
by Zenith prior to the date of acquisition and included in the accompanying
consolidated statement of operations for the year ended December 31, 1994 were
approximately $122,000 and $1,100, respectively. Zenith's 1994 net revenues
included intercompany sales of approximately $6,000 to another subsidiary of
IVAX and were eliminated in consolidation.
In July 1994, IVAX completed the acquisition of 60% of the shares of
Galena, a pharmaceutical company based in the Czech Republic. Pursuant to the
acquisition agreement, IVAX paid $12,950 in cash to The National Property Fund
of the Czech Republic, and contributed approximately $2,050 in cash and $6,600
in equipment directly to Galena. In addition, IVAX granted to Galena licenses to
manufacture and distribute in certain territories certain of IVAX'
pharmaceutical products and products under development. In June 1995, IVAX
increased its ownership interest to 62%. In the first and second quarters of
1996, IVAX increased its ownership interest to 74% with additional cash
investments of $2,229 and $10,133, respectively. The 1994 acquisition was
accounted for as a purchase and the consolidated financial statements of IVAX
reflect the full consolidation of the accounts of Galena since the acquisition
date. The minority shareholders' interest in Galena's net assets and net
earnings since the acquisition date are reflected as minority interest in the
accompanying consolidated financial statements. The historical operations of
Galena, when compared to the historical operations of IVAX, were not
significant.
In March 1994, IVAX acquired McGaw, Inc. ("McGaw") in consideration for
13,985,854 shares of IVAX' common stock. The acquisition was accounted for using
the pooling of interests method of accounting. Net revenues and net income
generated by McGaw prior to the date of merger and included in the accompanying
consolidated statement of operations for the year ended December 31, 1994
totaled approximately $82,600 and $4,000, respectively.
F-13
<PAGE>
(5) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
In November 1995, IVAX sold its investment in 1,000,000 shares of North
American Vaccine, Inc. ("NAVA") Series A Convertible Preferred Stock at fair
value to a limited partnership beneficially owned by the chairman and chief
executive officer of IVAX for $16,250 in cash. IVAX considered a variety of
factors in determining the fair value of the Preferred Stock, including, among
other things, the market price of the common stock and an opinion from an
independent valuation firm. The investment had been recorded at $3,415, the
historical cost of the preferred shares, less $272 which represented IVAX'
interest in shares of IVAX' common stock held by NAVA. The pre-tax gain of
$12,835 resulting from the sale of the preferred shares is included in other
income, net, in the accompanying consolidated statement of operations for the
year ended December 31, 1995.
In March 1995, IVAX and Knoll AG ("Knoll"), a wholly-owned subsidiary
of BASF Aktiengesellschaft, established a joint venture for the marketing of
generic pharmaceutical products in Europe. In December 1996, IVAX sold its share
of the joint venture to Knoll and is no longer subject to the joint venture
agreement. The results of the joint venture, IVAX' equity in its earnings, and
the sale of IVAX' interest were not significant to IVAX.
IVAX has ownership interests of 50% in various other unconsolidated
affiliates. Undistributed earnings of these affiliates, as well as IVAX' equity
in their earnings, were not significant in each of the periods presented in the
accompanying consolidated financial statements.
At December 31, 1996 and 1995, IVAX held marketable equity securities
which it classified as available for sale. Based on quoted market prices, the
securities are stated at fair value of $12,094 and $11,508, respectively, and
are included in other assets in the accompanying consolidated balance sheets. At
December 31, 1996 and 1995, net unrealized gains of $5,267 and $4,805,
respectively, are included in "cumulative translation adjustment and other" in
the accompanying consolidated financial statements.
(6) INVESTMENT IN SALES-TYPE LEASES:
McGaw leases biomedical equipment under sales-type lease arrangements
with terms generally ranging from one to five years at rates of interest ranging
from 11% to 17%. McGaw generally does not require collateral, but it retains an
interest in the leased equipment. Interest income on sales-type leases is
included in net revenues in the consolidated statements of operations and
totaled $2,116, $1,621 and $1,916 for the years ended December 31, 1996, 1995
and 1994, respectively. The following is a summary of the net investment in
sales-type leases:
Total minimum lease payments to be received during the
year ending December 31, 1997 $ 9,280
1998 6,985
1999 5,544
2000 3,711
2001 and thereafter 3,333
-------------
Total minimum lease payments receivable 28,853
Less amount representing warranties (1,476)
Less allowance for doubtful accounts (291)
Less unearned interest income (5,885)
Current portion of net investment in
sales-type leases (5,719)
-------------
Net investment in sales-type leases,
included in other assets $ 15,482
=============
F-14
<PAGE>
(7) DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Borrowings under revolving line of credit due November 14, 1999
at LIBOR plus 2% (7.51% - 8.19% at December 31, 1996),
secured by various corporate assets described below. $ 337,150 $ -
6-1/2% Convertible Subordinated Notes due 2001. Interest payable
semi-annually. Convertible at the option of the holders into 2,866,929
shares of common stock at a conversion rate of $31.75 per share. 91,025 91,025
Borrowings under revolving line of credit due May 24, 1997 at LIBOR
plus 1/2% (6.25% - 6.48% at December 31, 1995) secured by a pledge
of the stock of McGaw. - 99,000
10-3/8% Senior Notes due 1999 issued by McGaw. Interest payable
semi-annually. Unsecured - 87,620
Industrial revenue bonds due 2008. Collateralized by mortgages on real
property and equipment and a standby letter of credit. Interest payable
semi-annually at adjustable rates (4.4% at December 31, 1996). 6,700 6,700
Industrial revenue bonds due 2006. Collateralized by a standby letter of
credit in the amount of $3,782. Interest at adjustable rates
(3.85% at December 31, 1996). 3,680 4,105
Mortgage loans, secured by real property, payable through 1997 at
adjustable rates (6.25% - 9.0% at December 31, 1996). 3,978 4,167
International subsidiaries' debt 4,858 7,555
Other 1,893 2,206
--------- ---------
449,284 302,378
Current portion of long-term debt 5,860 3,521
--------- ---------
$ 443,424 $ 298,857
========= =========
</TABLE>
On May 14, 1996, IVAX entered into a revolving line of credit agreement
with a bank syndicate which permitted borrowings of up to $425,000. This line of
credit replaced a previous $130,000 revolving line of credit. On November 14,
1996, IVAX entered into an amendment to the May 14, 1996 line of credit
agreement which, among other things, reduced permitted borrowings to $375,000
and shortened the maturity of the line of credit from May 2001 to November 1999.
Borrowings under the amended line of credit agreement generally accrue interest
at the London Interbank Offer Rate (LIBOR) plus 2% through December 31, 1996,
and thereafter at LIBOR plus between .88% and 2%, depending on certain financial
ratios. At December 31, 1996, $37,850 was available for additional borrowings
under the revolving line of credit agreement. Pursuant to the terms of the
amended credit facility, IVAX pledged to the lenders stock of certain
subsidiaries and certain accounts receivable, inventory, intangible assets, and
property, plant and equipment; agreed to not dispose of any of its assets
without lender approval other than in the ordinary course of business; agreed to
not consummate any acquisitions without lender approval; agreed to not pay cash
dividends; and agreed to limit capital expenditures and indebtedness. The
amended credit facility contains various financial covenants, including required
minimum levels of tangible net worth and earnings before interest expense,
income taxes, and depreciation and amortization. Proceeds from the credit
facility were used to refinance previously existing credit facilities, and will
be used for working capital and general corporate purposes.
F-15
<PAGE>
On June 17, 1996, IVAX made an investment in and advances to McGaw in
the aggregate amount of $91,150 using proceeds from the credit facility. McGaw
used the proceeds to redeem the remaining outstanding face value of its 103/8%
Senior Notes due April 1, 1999 at a purchase price of approximately 102% of
their outstanding principal of $87,420, plus accrued interest. The redemption
resulted in a pre-tax extraordinary loss of $3,455. During 1995, McGaw
repurchased $3,355 face value of its 10 3/8% Senior Notes at a purchase price of
101% of the outstanding principal amount plus accrued and unpaid interest.
During 1995, IVAX redeemed a total of $1,000 face value of its 6 1/2%
Convertible Subordinated Notes due 2001.
Certain of IVAX' international subsidiaries maintain relationships with
foreign banks providing uncommitted borrowings in the aggregate amounts of
approximately $6,273 and $14,000 at December 31, 1996 and 1995, respectively.
Outstanding borrowings under these lines of credit totaled $5,027 and $4,279 at
December 31, 1996 and 1995, respectively, and are included as loans payable in
the accompanying consolidated balance sheets. Loans payable at December 31, 1995
also includes $528 of amounts advanced under a domestic floating rate overdraft
facility due on demand which provides for advances of up to $10,000 to fund
working capital requirements.
The estimated fair values of IVAX' long-term debt are as follows:
DECEMBER 31,
---------------------------------
1996 1995
------------- --------------
6-1/2% Convertible Subordinated
Notes due 2001 $85,108 $ 97,283
10-3/8% Senior Notes due 1999 - 90,249
Other 358,259 123,733
------------- --------------
$ 443,367 $ 311,265
============= ==============
Fair value of the 6 1/2% Convertible Subordinated Notes due 2001 and
the 10 3/8% Senior Notes due 1999 are based on available quoted market prices.
Management believes that the carrying amounts of other debt approximate the fair
value.
The stated future maturities of all long-term debt for the next five
years and thereafter are approximately $5,860, $1,860, $338,500, $1,250, $92,190
and $9,624, respectively.
(8) INCOME TAXES:
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Current
U.S. Federal $ (23,199) $ 16,561 $ 28,248
State (5,198) 2,861 2,175
Puerto Rico and the U.S.
Virgin Islands 5,752 4,216 3,028
Foreign 23,835 9,948 5,969
Deferred (63,414) (5,248) (9,098)
-------------- ------------- --------------
$ (62,224) $ 28,338 $ 30,322
============== ============= ==============
</TABLE>
F-16
<PAGE>
The components of income (loss) before income taxes, minority interest
and extraordinary items are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
United States $ (324,074) $ 45,130 $ 65,497
Puerto Rico and the U.S.
Virgin Islands 35,563 49,455 23,223
Foreign 72,962 53,856 33,629
-------------- ------------- --------------
$ (215,549) $ 148,441 $ 122,349
============== ============= ==============
</TABLE>
A reconciliation of the difference between the expected provision
(benefit) for income taxes using the statutory Federal tax rate and IVAX' actual
provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Tax using statutory Federal tax rate $ (75,442) $ 51,954 $ 42,822
Effect of state income taxes (4,879) 1,633 1,125
Write-down of cost in excess of net assets of
acquired companies 32,649 - -
Effect of nondeductible merger expenses 170 153 4,072
Reversal of valuation allowance on deferred tax
assets (7,107) (6,452) (6,763)
Foreign tax rate differential (6,277) (6,772) (5,436)
Effect of Puerto Rico taxes and tollgate 5,711 5,611 2,633
Puerto Rico and U.S. possessions tax incentives (11,397) (17,309) (8,389)
Other, net 4,348 (480) 258
-------------- ------------- --------------
$ (62,224) $ 28,338 $ 30,322
============== ============= ==============
</TABLE>
During 1996, IVAX recognized a deferred tax benefit of $7,100,
following an Internal Revenue Service adjustment to the tax basis amortization
of certain intangible assets owned by McGaw. The adjustments reduced McGaw's net
operating loss carryforwards in prior years, for which the tax benefit
associated with these carry forwards had been fully reserved, and increased
future amortization deductions.
During 1995, IVAX released $6,938 of valuation allowance which had been
recorded to fully reserve the deferred tax asset related to the future benefit
of McGaw's net operating loss carryforwards.
Deferred taxes arise due to timing differences in reporting of certain
income and expense items for book purposes and income tax purposes. A detail of
the significant components of deferred tax balances included in other current
assets, other assets and other long-term liabilities is as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Accounts receivable allowances $ 42,672 $ 8,808
Reserves and accruals 7,402 14,297
Differences in capitalization of inventory costs 3,702 2,644
Other 2,223 2,442
Valuation allowance - (944)
------------- --------------
Amount included in other current assets 55,999 27,247
------------- --------------
Book/tax differences on fixed assets 11,678 24,547
Book/tax basis depreciation differences on fixed assets (5,482) (20,511)
Book/tax differences on the recognition of revenue 987 7,187
Book/tax basis differences on the carrying value of long-term
assets 26,602 11,393
Research and development expenditures capitalized 3,905 4,167
Net operating losses 60,957 43,493
Other 2,187 (272)
Valuation allowance (34,662) (44,315)
------------- --------------
Amount included in other assets 66,172 25,689
------------- --------------
Book/tax basis differences on carrying value of long-term
assets (2,410) (1,245)
Other (4,577) (3,106)
------------- --------------
Amount included in other long-term liabilities (6,987) (4,351)
------------- --------------
Net deferred tax asset $ 115,184 $ 48,585
============= ==============
</TABLE>
Income from McGaw's Puerto Rico manufacturing operations is subject to
certain tax exemptions under the terms of a grant from the Puerto Rico
government which expires in 2002. The grant reduced tax expense by approximately
$7,521, $7,500 and $8,500 for the years ended December 31, 1996, 1995 and 1994,
respectively. Under the terms of the grant, McGaw is required to maintain
certain employment levels; endeavor to purchase raw materials, machinery and
equipment from local suppliers; and notify local authorities of changes in
products or manufacturing processes.
Income from Zenith's Puerto Rico manufacturing operations is subject to
certain tax exemptions under the terms of a grant from the Puerto Rico
government which expires in 1999. The grant reduced tax expense by approximately
$1,837, $11,171 and $4,300 for the years ended December 31, 1996, 1995 and 1994,
respectively. Under the terms of the grant, Zenith is required to maintain
certain employment levels.
IVAX has historically received a United States tax credit under Section
936 of the Internal Revenue Code for certain income generated by its Puerto Rico
and Virgin Islands operations. For 1996 and 1995, this credit was approximately
$12,447 and $17,309, respectively, and completely offset the entire United
States tax liability of such operations. In 1996, Congress repealed the Section
936 tax credit and it will be phased out over 5 years beginning in 2001.
At December 31, 1996, McGaw had $48,993 of net operating loss
carryforwards which will begin to expire in 2002. The utilization of these net
operating loss carryforwards is subject to limitations of $21,000 per year which
are cumulative to the extent not utilized by IVAX. The remaining deferred tax
F-18
<PAGE>
asset related to the benefit of these net operating loss carryforwards has been
reduced to zero by a valuation allowance. Approximately $37,910 of McGaw's net
operating loss carryforwards relate to McGaw's predecessor and are subject to a
further annual limitation of $3,000 which is cumulative to the extent not
utilized by IVAX. Any future benefits recognized from the reduction of the
valuation allowances related to McGaw's predecessor's losses will first reduce
McGaw's acquired noncurrent assets and then reduce income tax expense.
At December 31, 1996, Zenith had net operating loss carryforwards of
$16,530 which will begin to expire in 2004. The deferred tax asset related to
the future benefit of these net operating loss carryforwards has been reduced to
zero through a valuation allowance. Approximately $3,132 of the net operating
loss carryforwards relate to Zenith's predecessor and are subject to an annual
limitation of $1,700 which is cumulative to the extent not utilized by IVAX.
Approximately $16,530 of the net operating loss carryforwards relate to the
exercise of certain stock options. Any future benefits recognized from the
reduction of the valuation allowances related to these net operating loss
carryforwards will increase paid in capital by approximately $6,281.
At December 31, 1996, IVAX had a consolidated net operating loss
carryforward of $69,795 which will expire in 2012. The deferred tax asset
related to the future benefit of this net operating loss carryforward has been
fully recognized at December 31, 1996.
Realization of the net deferred tax asset of $115,184 ($97,014 and
$18,170 domestic and foreign, respectively) is dependent upon generating
sufficient future taxable income. Although realization is not assured,
management believes it is more likely than not that the remaining deferred tax
asset will be realized based upon estimated future taxable income and,
accordingly, no valuation allowances were deemed necessary at December 31, 1996.
Management's estimates of future taxable income are subject to revision due to,
among other things, regulatory and competitive factors affecting the generic
pharmaceutical industry.
At December 31, 1996, an estimated refund of federal income taxes paid
in prior years and available in the carry-back period of $39,062 is included in
other current assets in the accompanying consolidated balance sheets.
United States. taxes have not been provided on undistributed earnings
of foreign subsidiaries, as such earnings are being retained indefinitely by
such subsidiaries for reinvestment. The distribution of these earnings would
result in additional United States taxes of approximately $16,000 net of
available foreign tax credits.
Minority interest included in the accompanying consolidated statements
of operations is net of a provision for income taxes of $3,116, $3,044 and
$1,132 for the years ended December 31, 1996, 1995 and 1994, respectively.
(9) BENEFIT PLANS:
401(K) PLANS - IVAX' employees within the United States and the United
States Virgin Islands and certain of its employees in Puerto Rico are eligible
to participate in 401(k) retirement plans, which permit pre-tax employee payroll
contributions (subject to certain limitations) and discretionary employer
matching contributions. Total matching contributions for the years ended
December 31, 1996, 1995 and 1994 were $3,272, $3,125 and $2,771, respectively, a
portion of which was made in IVAX' common stock.
F-19
<PAGE>
DEFINED BENEFIT PLANS - McGaw maintains a noncontributory defined
benefit pension plan covering substantially all employees of its Puerto Rico
subsidiary and a frozen defined benefit pension plan covering its United States
employees in which benefits no longer accrue. Under the Puerto Rico plan, a
participating employee's annual post-retirement pension benefit is determined
based on years of credited service and compensation, averaged either over the
participant's employment or the final years before retirement. McGaw's funding
policy under both plans is to make the minimum annual contributions required by
applicable regulations.
In accordance with the provisions of SFAS No. 87, EMPLOYERS' ACCOUNTING
FOR PENSIONS, McGaw recognized a minimum liability totaling $1,040 in 1992 which
represented the excess of the unfunded accumulated benefit obligation over
previously accrued pension cost related to the frozen defined benefit pension
plan. This additional minimum liability was offset by an intangible asset.
During 1994, IVAX recorded an additional minimum liability in excess of
previously unrecognized prior service cost which was recorded as a $471
reduction of shareholders' equity, net of income tax benefits of $312. During
1995, the fair market value of the plan's assets exceeded the accumulated
benefit obligation resulting in the write-off of the intangible asset and the
reversal of the minimum liability.
The following table sets forth the funded status and amount recognized
for these plans:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $10,853 in 1996 and
$8,193 in 1995 $ (11,180) $ (8,457)
============= ==============
Actuarial present value of projected benefit obligation for
services rendered to date $ (12,726) $ (9,685)
Plan assets at fair value, primarily listed stocks and U.S. bonds 11,187 9,529
------------- --------------
Projected benefit obligation in excess of plan assets (1,539) (156)
Unrecognized prior service cost and other obligation 1,616 1,234
Unrecognized net loss (gain) 563 (476)
------------- --------------
Prepaid pension cost $ 640 $ 602
============= ==============
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Service cost during the period $ 328 $ 298 $ 298
Interest cost on projected benefit obligation 907 793 770
Actual return on plan assets (1,143) (1,317) (191)
Net amortization and deferral 357 695 (377)
-------------- ------------- --------------
Net pension cost $ 449 $ 469 $ 500
============== ============= ==============
</TABLE>
F-20
<PAGE>
Significant actuarial assumptions used include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 8.5%
Rate of compensation level increase 0%-5.0% 0%-6.0% 0%-6.0%
Long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
(10) SHAREHOLDERS' EQUITY:
STOCK OPTION PLANS - IVAX administers and has stock options outstanding
under IVAX' 1994 Stock Option Plan ("1994 Plan"), IVAX' 1985 Stock Option Plan
("1985 Plan"), and certain stock option plans assumed in the acquisitions of
Zenith and McGaw. The options outstanding under the plans assumed in the Zenith
and McGaw acquisitions were converted into options to acquire IVAX' common stock
using the applicable exchange ratios. No additional stock options may be issued
under the 1985 Plan or the plans assumed in the Zenith and McGaw acquisitions.
The 1994 Plan permits the issuance of options to employees,
non-employee directors and consultants to purchase up to 7,000,000 shares of
IVAX' common stock, with an exercise price no less than the fair market value of
the common stock on the date of grant and an option term not to exceed ten
years.
The following table presents additional information concerning the
activity in the stock option plans (number of shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 10,198 $ 20.51 12,307 $ 17.37 11,031 $ 14.15
Granted 2,621 26.07 2,247 22.56 4,764 18.75
Exercised (1,881) 16.93 (2,975) 7.86 (1,413) 7.00
Terminated (836) 21.90 (1,381) 24.03 (2,075) 10.76
---------- ---------- ----------
Balance at end of year 10,102 22.50 10,198 20.51 12,307 17.37
========== ========== ==========
Exercisable at December 31, 4,454 $ 21.51 4,012 $ 19.83 4,759 $ 14.26
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ---------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------ ------------- ------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ .48 - 9.99 127 4.4 $ 3.22 127 $ 3.22
10.00 - 19.99 1,407 5.7 16.70 779 16.97
20.00 - 29.99 7,991 6.3 23.04 3,191 21.94
30.00 - 36.38 577 6.0 33.39 357 34.14
------------- -------------
.48 - 36.38 10,102 6.2 22.50 4,454 21.51
============= =============
</TABLE>
F-21
<PAGE>
Had the Company adopted the fair value method of accounting for all
stock-based compensation arrangements consistent with the provisions of SFAS No.
123, using the Black-Scholes option pricing model for all options granted after
January 1, 1995, IVAX' pro forma net income (loss), pro forma net earnings
(loss) per common share and pro forma weighted average fair value of options
granted, with related assumptions, are indicated below. Dividend yield for
purposes of the pro forma assumptions below is assumed to be zero pursuant to
the terms of the amended line of credit facility.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Pro forma net income (loss) $ (167,993) $ 111,795
Pro forma earnings (loss) per common share $ (1.39) $ .94
Pro forma weighted average fair value of options granted $ 10.04 $ 9.11
Expected life (years) 5.5 5.5
Risk-free interest rate 5.41%-6.79% 5.83%-7.48%
Expected volatility 28% 28%
</TABLE>
As SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
WARRANTS - At December 31, 1994, IVAX had warrants outstanding for the
purchase of up to 337,500 shares of common stock at an exercise price of $5.00
per share. These warrants were exercised in January 1995 resulting in proceeds
of $1,688. No warrants were issued or exercised during the year ended December
31, 1996.
CONVERTIBLE DEBT - At December 31, 1996 and 1995, IVAX had outstanding
$91,025 of 6 1/2% Convertible Subordinated Notes due 2001 (See Note 7). The
notes are convertible at the option of the holders into 2,866,929, shares of
IVAX' common stock at a conversion rate of $31.75 per share. During 1995, the
$1,500 of 9.00% Convertible Subordinated Debentures due 1995 were converted by
the debenture holders into a total of 286,371 shares of IVAX common stock at
conversion rates ranging from $5.20 to $5.31 per share.
PREFERRED STOCK - Immediately prior to the December 1994 acquisition of
Zenith, all outstanding shares of Zenith's 10.00% cumulative convertible
preferred stock were converted into Zenith's common stock, which were exchanged
in the merger into 8,049,749 shares of IVAX common stock. Prior to the
conversion, Zenith's Board of Directors declared and paid a dividend on its
preferred stock equal to the amount of all accrued and unpaid dividends, which
totaled $2,082.
DIVIDENDS - During the years ended December 31, 1996, 1995 and 1994,
IVAX paid cash dividends of $.05, $.08 and $.06 per share with respect to its
common stock, totaling approximately $6,057, $9,347 and $5,173, respectively.
Pursuant to the terms of the amended revolving credit facility, IVAX is
prohibited from paying cash dividends (See Note 7).
(11) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
IVAX has two principal business segments, pharmaceuticals and
intravenous products. IVAX also operates in three other business segments, IN
VITRO diagnostics, personal care products and specialty chemicals, which are
included below under "Other operations." No single customer accounted for 10%
F-22
<PAGE>
or more of IVAX' consolidated net revenues for any of the three years ended
December 31, 1996. Identifiable assets by segment include assets directly
identified with those operations. Corporate assets consist primarily of cash and
cash equivalents, property, equipment and investments in affiliated companies.
Information about each of IVAX' principal business segments and domestic and
foreign operations as of and for the three years ended December 31, 1996
follows:
<TABLE>
<CAPTION>
INCOME DEPRECIATION
NET (LOSS) FROM AND CAPITAL IDENTIFIABLE
BUSINESS SEGMENTS: REVENUES OPERATIONS (1) AMORTIZATION EXPENDITURES ASSETS
--------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceuticals 1996 $ 648,674 $(151,707) $29,381 $ 45,165 $ 784,258
1995 774,240 136,095 19,359 62,460 793,540
1994 643,496 107,654 19,981 60,695 594,143
Intravenous products 1996 343,028 22,960 18,743 29,139 349,984
1995 339,978 27,509 21,035 29,298 318,475
1994 337,884 42,127 18,263 20,901 292,821
Other operations 1996 161,828 (45,411) 5,900 4,231 139,776
1995 147,045 2,637 6,172 2,820 172,436
1994 153,641 6,141 6,728 7,561 164,032
Corporate 1996 -- (22,504) 1,818 4,321 127,882
1995 -- (18,814) 753 8,871 51,034
1994 -- (15,096) 527 4,748 55,900
Intersegment eliminations 1996 (2,223) -- -- -- --
1995 (1,497) -- -- -- (175)
1994 (215) -- -- -- (192)
Total 1996 1,151,307 (196,662) 55,842 82,856 1,401,900
1995 1,259,766 147,427 47,319 103,449 1,335,310
1994 1,134,806 140,826 45,499 93,905 1,106,704
<FN>
- ------------------
(1) 1996 Income (loss) from operations includes restructuring costs and asset
write-downs associated with the United States generic pharmaceutical and
specialty chemical operations of $69,073 and $48,442, respectively (See Note 3).
</FN>
</TABLE>
<TABLE>
<CAPTION>
UNITED UNITED CZECH
GEOGRAPHIC AREAS: STATES KINGDOM REPUBLIC OTHER TOTAL
---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 1996 $ 751,913 $236,109 $27,343 $135,942 $1,151,307
1995 976,356 178,415 26,901 78,094 1,259,766
1994 916,884 150,794 11,295 55,833 1,134,806
Income (loss) from
operations 1996 (279,823) 62,777 27,834 (7,450) (196,662)
1995 91,368 32,853 21,955 1,251 147,427
1994 102,816 28,384 8,878 748 140,826
Identifiable assets 1996 942,652 300,458 86,203 72,587 1,401,900
1995 1,020,178 220,938 61,655 32,539 1,335,310
1994 828,713 208,525 47,950 21,516 1,106,704
</TABLE>
F-23
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES:
LEASES - IVAX leases office, plant and warehouse facilities and
automobiles under noncancellable operating leases. Motor vehicles, production
equipment and certain manufacturing facilities are also leased under capital
leases. Rent expense for the three years ended December 31, 1996 totaled
approximately $7,877, $11,991 and $10,028, respectively. The future minimum
lease payments under noncancellable leases with initial or remaining terms of
one year or more at December 31, 1996, were as follows:
OPERATING CAPITAL
LEASES LEASES
--------- -------
1997 $ 9,720 $ 955
1998 7,171 822
1999 6,039 274
2000 4,773 157
2001 4,066 49
Thereafter 10,775 -
-------- -------
Total minimum lease payments $ 42,544 2,257
========
Less amount representing interest 364
-------
Present value of minimum lease payments $ 1,893
=======
Assets recorded under capital leases consists of:
DECEMBER 31,
---------------------
1996 1995
-------- -------
Buildings and improvements $ 1,800 $ 1,800
Machinery and equipment 3,513 2,993
Less: accumulated amortization (3,539) (2,877)
-------- -------
$ 1,774 $ 1,916
======== =======
LEGAL PROCEEDINGS - In late April 1995, Zenith received approvals from
the FDA to manufacture and market the antibiotic cefaclor in capsule and oral
suspension formulations. Cefaclor is the generic equivalent of Ceclor(R), a
product of Eli Lilly and Company ("Lilly"). On April 27, 1995, Lilly filed a
lawsuit against Zenith and others in federal court alleging that Zenith's
cefaclor raw material supplier, a third party unaffiliated with IVAX,
manufactures cefaclor raw material in a manner which infringes two process
patents owned by Lilly, and that Zenith and the other defendants have knowingly
and willfully infringed and induced the supplier to infringe the patents by
importing the raw material into the United States. The lawsuit seeks to enjoin
Zenith and the other defendants from infringing or inducing the infringement of
the patents and from making, using or selling any product incorporating the raw
material provided by such supplier, and seeks an unspecified amount of monetary
damages and the destruction of all cefaclor raw material manufactured by the
supplier and imported into the United States. In August 1995, the Court denied
Lilly's motion for preliminary injunction which sought to prevent Zenith from
selling cefaclor until the merits of Lilly's allegations could be determined at
trial. On May 10, 1996, the United States Court of Appeals for the Federal
Circuit affirmed the district court's denial of Lilly's motion for preliminary
injunction. On February 28, 1997, Lilly filed an amended complaint which alleges
the infringement of an additional patent.
F-24
<PAGE>
In September 1994, individuals purporting to be shareholders of IVAX
filed a class action complaint against IVAX and all but one of its directors as
of that date and certain of its officers in federal court which consolidates,
amends and supplements a number of similar complaints filed earlier in 1994. The
plaintiffs seek to act as representatives of a class consisting of all
purchasers of IVAX' common stock between January 14 and May 2, 1994, including
as a subclass parties who exchanged their shares of common stock of McGaw, Inc.
("McGaw") for IVAX' common stock in connection with IVAX' acquisition of McGaw
in March 1994. In general, the complaint alleges violation of federal securities
laws and also asserts claim for negligent misrepresentation. The complaint
asserts that IVAX made untrue statements of material fact and omitted to state
material facts necessary to make statements made not misleading in its public
disclosure documents, in communications to securities analysts and the public,
and in IVAX' registration statement and proxy statement-prospectus distributed
in connection with the acquisition of McGaw, relating primarily to net revenues
and earnings, verapamil sales, and the effects of competition in the verapamil
market on IVAX' net revenues and earnings. The complaint seeks an unspecified
amount of compensatory and rescissionary damages, equitable and/or injunctive
relief, interest, litigation costs and attorneys' fees. The non-management
directors initially named as defendants in the suit were dismissed without
prejudice from the consolidated actions pursuant to a stipulation filed in
January 1995. In November 1995, the defendants' motion to dismiss the
consolidated amended complaint was denied. In January 1997, the parties entered
into a memorandum of understanding ("MOU") pursuant to which the parties agreed
to settle the action in its entirety in exchange for the payment by defendants
and their insurers of $7,500. IVAX' portion of the settlement obligation, which
is not significant, was appropriately accrued at December 31, 1996. The
agreement reflected in the MOU is contingent upon the execution by the parties
of a mutually acceptable settlement agreement, and is ultimately contingent upon
court approval after all class members have been given notice of the proposed
settlement and an opportunity to be heard thereon.
In June 1994, the former chairman and chief executive officer of McGaw
individually filed a similar complaint against IVAX and Dr. Frost, alleging
essentially the same securities laws violations as alleged in the consolidated
class action suit described above, as well as certain additional state law
claims. The complaint seeks up to $21,000 in compensatory damages (and up to
$48,000 in rescissionary damages upon tender of IVAX shares held by plaintiff),
as well as punitive damages, litigation costs and attorneys' fees. Although the
lawsuit was initially consolidated for all purposes with the class action suit
described above, in August 1995, the Court entered an order allowing the former
McGaw chairman to opt out of the class action and to proceed under his separate
complaint.
In April 1995, an action was filed in federal court against IVAX and
certain of its officers alleging essentially the same securities laws and other
violations as alleged in the consolidated class action suit described above. The
complaint seeks in excess of $21,000 in compensatory, consequential,
rescissionary and punitive damages, as well as litigation costs. This action was
consolidated with the class action suit described above.
In July 1994, an action was filed in federal court against IVAX in
which plaintiffs, shareholders of McGaw at the time of its acquisition by IVAX,
alleged that IVAX violated Sections 11 and 12(2) of the Securities Act, as well
as certain state securities laws, and that it breached certain provisions of the
merger agreement and IVAX' bylaws, by issuing to plaintiffs shares of IVAX'
common stock subject to the restrictions imposed by Rule 145 promulgated under
the Securities Act and Accounting Series Release 135. The plaintiffs claim that,
as a result of the restrictions imposed on the certificates issued to them, they
suffered damages from the loss of value of their shares, and seek damages of
$11,000, plus expenses and attorneys' fees. In June 1995, the Court entered an
order denying plaintiffs' motion for summary judgment with respect to the claims
alleging that IVAX breached certain provisions of the merger
F-25
<PAGE>
agreement and IVAX' bylaws and granted IVAX' motion to dismiss such counts. The
Court denied IVAX' motion to dismiss the counts relating to alleged violation of
the Securities laws, as well as its motion to transfer venue. In October 1995,
the Court entered an order granting the plaintiffs' motion to amend their
complaint to assert new causes of action under the Uniform Commercial Code and
granting the plaintiffs' motion for reconsideration of the dismissal of the
claims alleging breach of IVAX' bylaws, and ordered that such counts be
reinstated.
In November 1996, individuals purporting to be shareholders of IVAX
filed a class action complaint against IVAX and certain of its current or former
officers or directors in federal court which consolidates, amends and
supplements a number of similar complaints filed earlier in 1996. The plaintiffs
seek to act as representatives of a class consisting of all purchasers of IVAX'
common stock between July 31, 1995 and June 27, 1996. The consolidated amended
complaint alleges violations of federal securities law and also asserts a claim
for negligent misrepresentation. The complaint generally asserts that IVAX made
untrue statements of material fact and omitted to state material facts necessary
to make statements made not misleading in its public disclosure documents and in
communications to the public regarding its operations and financial results and
that its financial statements were not prepared in accordance with generally
accepted accounting principles. These allegations are centered around claims
that IVAX failed to disclose that it offered its customers shelf stock
adjustments and failed to establish reserves for such credits. In general, the
complaints seek an unspecified amount of compensatory damages, pre-judgment
interest, litigation costs and attorney's fees.
IVAX intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to IVAX, could have a material adverse effect on IVAX'
financial position and results of operations. IVAX' ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
IVAX is involved in various other legal proceedings arising in the
ordinary course of business, some of which involve substantial amounts. While it
is not feasible to predict or determine the outcome of these proceedings, in the
opinion of management, based on a review with legal counsel, any losses
resulting from such legal proceedings will not have a material adverse impact on
the financial position or results of operations of IVAX.
F-26
<PAGE>
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following tables summarize selected quarterly data of IVAX for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER(1) QUARTER YEAR
-------- -------- ---------- -------- ----------
1996
- ----
<S> <C> <C> <C> <C> <C>
Net revenues $334,045 $273,883 $ 222,720 $320,659 $1,151,307
Gross profit 144,475 82,805 31,007 118,652 376,939
Income (loss) before extraordinary items 35,896 (13,931) (178,669) (1,975) (158,679)
Net income (loss) 35,895 (16,003) (178,669) (1,975) (160,752)
Earnings (loss) per common share:
Earnings (loss) before
extraordinary items .30 (.11) (1.47) (.02) (1.31)
Net earnings (loss) .30 (.13) (1.47) (.02) (1.33)
Cash dividends per share -- .05 -- -- .05
1995
- ----
Net revenues $281,080 $306,684 $ 310,212 $361,790 $1,259,766
Gross profit 119,718 129,835 126,743 147,434 523,730
Income before extraordinary items 23,303 28,125 27,582 35,791 114,801
Net income 23,357 28,105 27,582 35,791 114,835
Earnings per common share:
Earnings before extraordinary
items .20 .24 .23 .30 .96
Net earnings (loss) .20 .24 .23 .30 .96
Cash dividends per share -- .04 -- .04 .08
<FN>
- ---------------------
(1) The third quarter of 1996 includes restructuring costs and asset write-downs of $13,642 and $104,341,
respectively.
</FN>
</TABLE>
(14) SUBSEQUENT EVENTS:
In January 1997, IVAX announced the recall in the United States of the
generic pharmaceutical cefaclor as a result of the recall of the raw material
used to manufacture the generic drug by the raw material supplier. The Company
is presently seeking approval for an alternate source of raw material, but can
not predict when it will be in a position to re-commence the manufacture and
sale of cefaclor. The Company does not believe the recall will have a material
impact on its results of operations due to cefaclor's limited contribution to
gross profit. The Company received a cash settlement from the raw material
supplier which the Company believes approximates its liability relating to the
recall.
On March 5, 1997, individuals purporting to be shareholders of IVAX
filed a class action complaint in federal court against IVAX and certain
officers. The plaintiffs seek to act as representatives of a class consisting of
all persons who purchased IVAX common stock or call options during the period
from September 30, 1996 through November 11, 1996. The complaint alleges a claim
for violation of federal securities law and for negligent misrepresentation. The
complaint alleges that defendants made untrue statements of material fact and
omitted to state material facts necessary to make statements made not misleading
in a September 30, 1996 press release regarding IVAX' earnings outlook for the
third
F-27
<PAGE>
quarter of 1996. The complaint seeks unspecified compensatory damages,
pre-judgment interest, attorneys' fees and litigation costs. IVAX intends to
vigorously defend the lawsuit. The outcome of the lawsuit cannot be predicted
but, if determined adversely to IVAX, would likely have a material adverse
effect on IVAX' financial position and results of operations.
On March 20, 1997, IVAX announced that Bergen unilaterally terminated
the proposed merger between IVAX and Bergen. On March 21, 1997, Bergen filed a
lawsuit against IVAX in federal court alleging, among other things, various
breaches of the merger agreement. IVAX does not believe that Bergen had a legal
right to terminate the merger agreement and intends to defend the suit
vigorously and pursue a counterclaim for breach of the merger agreement by
Bergen.
F-28
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
(In thousands)
BALANCE AT CHARGED TO
BEGINNING COST AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES OTHER DEDUCTIONS END OF YEAR
------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCES FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1996 $ 14,260 $ 42,638 $ 1,062 (A) $ 21,602 $ 36,358
============= ========= ========= ======== =========
Year ended December 31, 1995 $ 10,940 $ 5,848 $ 28 (B) $ 2,556 $ 14,260
============= ========= ========= ======== =========
Year ended December 31, 1994 $ 7,803 $ 4,671 $ 4,681 (C) $ 6,215 $ 10,940
============= ========= ========= ======== =========
<FN>
- -----------------------
(A) Includes additions to the accounts receivable allowances as a result of the
acquisition of Elvetium.
(B) Includes additions to the accounts receivable allowances as a result of the
acquisition of ImmunoVision, Inc.
(C) Includes additions to the accounts receivable allowances as a result of the
acquisition of Galena a.s.
</FN>
</TABLE>
F-29
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
10.11 Employment Agreement, dated March 4, 1997,
between IVAX Corporation and Robert C. Strauss
11.1 Computation of earnings per share.
21.1 Subsidiaries of IVAX Corporation.
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
4th day of March, 1997 by and between IVAX CORPORATION, a Florida corporation
(hereinafter called the "Company"), and ROBERT C. STRAUSS (hereinafter called
the "Executive").
RECITALS
A. The Board of Directors of the Company (the "Board") recognizes and
desires to assure the Company of the Executive's continued employment in an
executive capacity and to compensate him therefor.
B. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
C. The Executive is willing to make his services available to the Company
on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company, on the terms and
conditions set forth herein, for the period commencing on the date hereof and
expiring on March 31, 2000 (the "Initial Term") unless sooner terminated as
hereinafter set forth; provided, however, that commencing on April 1, 2000 and
each April 1 thereafter, the Initial Term of this Agreement shall automatically
be extended for one additional year unless at least ninety (90) days prior to
such April 1 date, the Company shall have delivered to the Executive or the
Executive shall have delivered to the Company written notice that the term of
the Executive's employment hereunder will not be extended.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the President
and Chief Operating Officer of the Company and shall have powers and authority
superior to any other officer or employee of the Company or of any subsidiary of
the Company other than the Company's Chief Executive Officer (the "CEO").
Subject to the preceding sentence, during the term of Employment, the Executive
shall diligently perform all services as may be reasonably assigned to him by
the Board or CEO, and shall exercise such power and authority as may from time
to time be delegated to him by the Board or CEO. The Executive shall be required
to report solely to, and shall be subject solely to the supervision and
direction of either (x) the CEO, or (y) the Board at duly called meetings
thereof, and no other person or group shall be given authority to supervise or
direct Executive in the performance of his duties. The Executive shall devote
substantially all his working time and attention to the business and affairs of
the Company (excluding any vacation and sick leave to which the Executive is
entitled), render such services to the best of his ability, and use his
reasonable best efforts to promote the interests of the Company. It shall not be
a violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions, and (C) manage personal
investments, so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
<PAGE>
with this Agreement. For purposes of this Section 1.2, references to the "Board"
includes any authorized committee of the Board.
1.3 PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices except for travel reasonably necessary in connection with the Company's
business.
2. COMPENSATION.
2.1 BASE SALARY. Commencing on the effective date of this Agreement,
the Executive shall receive a base salary at the annual rate of not less than
$475,000 (the "Base Salary") during the term of this Agreement, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board (or any authorized committee thereof), be
increased at any time or from time to time. The Base Salary, if increased, shall
not thereafter be decreased for any reason.
2.2 INCENTIVE COMPENSATION. The Executive shall be entitled to receive
such bonus payments or incentive compensation as may be determined at any time
or from time to time by the Board (or any authorized committee hereof) in its
discretion. Such potential bonus payments and/or incentive compensation shall be
considered at least annually by the Board (or any authorized committee thereof).
2.3 STOCK OPTIONS.
(a) In connection with the Executive's agreement to serve as the
Company's President pursuant to the terms hereof, the Company agrees to grant to
the Executive a non-qualified stock option (the "Initial Option") to purchase
350,000 shares of the Company's common stock, par value $.10 per share ("Common
Stock"), at a per share exercise price equal to the closing price of the Common
Stock, as reported in the Wall Street Journal, on the effective date of this
agreement. A copy of the form of agreement evidencing the Initial Option is
attached hereto as EXHIBIT A.
(b) Not later than April 4, 1997, the Company shall grant to the
Executive a non-qualified option (the "Second Option") to purchase 350,000
shares of Common Stock at a per share exercise price equal to the fair market
value of the Common Stock on the date of grant. The Second Option shall vest 25%
per year until fully exercisable on the fourth anniversary of the date of grant,
have a term of ten years and otherwise be in the form of the Initial Option.
(c) The Initial Option and the Second Option (collectively the
"Options") shall be subject to the terms and conditions of the Company's 1994
Stock Option Plan (the "Plan"); provided, however, that notwithstanding anything
in the Plan or the forms of agreements evidencing the Options to the contrary:
(i) The vesting of the Options shall not automatically
accelerate upon consumption of the "BBI Merger" (as hereinafter defined);
(ii) The Options shall become immediately and fully
exercisable upon any termination of Executive's employment pursuant to Section
4.4 hereof (except for a termination by Executive (A) pursuant to clause (f) of
the definition of "Good Reason" therein), or (B) in the event the BBI Merger is
consummated, as a result of the position, authority, duties or responsibilities
initially assigned to him by the Board of Directors of BBI Healthcare
Corporation;
<PAGE>
(iii) The Company shall take all action reasonably requested
by the Executive to permit the "cashless" exercise procedure contemplated by
Section 9(d) of the Plan or any reasonable alternative;
(iv) Upon proper exercise of an Option, the Executive shall
be deemed for all purposes the owner of the shares of Common Stock that are
purchasable upon such exercise;
(v) The Company agrees to keep in effect a Registration
Statement on Form S-8 or take any other action necessary to ensure that the
issuance of Common Stock pursuant to the Options is registered under the
Securities Act of 1933, as amended;
(vi) In case at any time or from time to time on or after the
date hereof holders of the Company's Common Stock become entitled to receive,
without payment therefor, other or additional stock or other securities or
property of the Company by way of a "spin-off," special dividend and/or
liquidation distribution (other than a regular cash dividend), then the Board
shall consider in good faith a fair and equitable adjustment of the exercise
price and/or other terms of the Options; and
(vii) The provisions of Section 13(b) of the Plan shall not
be adversely modified as to the Executive without the Executive's prior written
consent.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the term of Executive's employment
hereunder, the Company, in accordance with its expense policy in effect for
senior executives from time to time, shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company, including expenses for travel and
entertainment.
3.2 INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Initial Term,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs generally applicable to other
key executives of the Company and its subsidiaries, in each case comparable to
those currently in effect or as subsequently amended. Such plans, practices,
policies and programs, in the aggregate, shall provide the Executive with
compensation, benefits and reward opportunities at least as favorable as the
most favorable of such compensation, benefits and reward opportunities provided
at any time hereafter with respect to other key executives based in the United
States, other than the CEO.
3.3 WELFARE BENEFIT PLANS. During the Initial Term, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its subsidiaries at
least as favorable as the most favorable of such plans, practices, policies and
programs in effect at any time hereafter with respect to other key executives
based in the United States, other than the CEO.
3.4 WORKING FACILITIES. During the term of Executive's employment
hereunder, the Company shall furnish the Executive with an office, a secretary
and such other facilities and services suitable to his position and adequate for
the performance of his duties hereunder.
3.5 VACATION. During the Initial Term, the Executive shall be entitled
to paid vacation in accordance with the most favorable plans, policies, programs
and practices of the Company and its subsidiaries as generally applicable to
other key executives of the Company and its subsidiaries based in
<PAGE>
the United States, other than the CEO, but in no event shall the Executive be
entitled to fewer than four weeks paid vacation per year.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained to the
contrary in this Agreement, this Agreement may be terminated by the Company for
Cause. As used in this Agreement, "Cause" shall only mean (i) an act or acts
of personal dishonesty taken by the Executive and intended to result in the
direct or indirect personal enrichment of the Executive at the expense of the
Company (it being agreed that disputes regarding expense reimbursements shall
not be subject to this clause (i) and shall instead be resolved in good faith by
the Board and the Executive), (ii) subject to the following sentences,
violation by the Executive of the Executive's material obligations under this
Agreement which are demonstrably willful and deliberate on the Executive's part
and which are not remedied in a reasonable period of time after receipt of
written notice from the Company, or (iii) the conviction of the Executive
for any criminal act which is a felony. Upon any determination by the Company's
Board of Directors that Cause exists under clause (ii) of the preceding
sentence, the Company shall cause a special meeting of the Board to be called
and held at a time mutually convenient to the Board and Executive, but in no
event later than ten (10) business days after Executive's receipt of the notice
contemplated by clause (ii). Executive shall have the right to appear before
such special meeting of the Board with legal counsel of his choosing to refute
any determination of Cause specified in such notice, and any termination of
Executive's employment by reason of such Cause determination shall not be
effective until Executive is afforded such opportunity to appear. Any
termination for Cause pursuant to clause (i) or (iii) of the first sentence of
this Section 4.1 shall be made in writing to Executive, which notice shall set
forth in detail all acts or omissions upon which the Company is relying for such
termination. Upon any termination pursuant to this Section 4.1, the Executive
shall be entitled to be paid his Base Salary to the date of termination and the
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination).
4.2 DISABILITY. Notwithstanding anything contained in this Agreement
to the contrary, the Company, by written notice to the Executive, shall at all
times have the right to terminate this Agreement, and the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than one hundred
twenty (120) consecutive days in any 12-month period. Upon any termination
pursuant to this Section 4.2, the Executive shall be entitled to be paid his
Base Salary to the date of termination and the Company shall have no further
liability hereunder (other than for reimbursement for reasonable business
expenses incurred prior to the date of termination).
4.3 DEATH. In the event of the death of the Executive during the term
of his employment hereunder, the Company shall pay to the estate of the deceased
Executive an amount equal to the sum of (x) any unpaid amounts of his Base
Salary to the date of his death, plus (y) six months of Base Salary, and the
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of the Executive's
death).
4.4 TERMINATION WITHOUT CAUSE. At any time the Company shall have the
right to terminate Executive's employment hereunder by written notice to
Executive; provided, however, that the Company shall (i) pay to Executive any
unpaid Base Salary accrued through the effective date of termination specified
in such notice, and (ii) pay to the Executive in a lump sum, in cash within 30
days after the date of employment termination, an amount equal to the product of
(x) the Executive's then Base Salary, multiplied times (y) two. The Company
shall be deemed to have terminated the Executive's employment pursuant to this
Section 4.4 if such employment is terminated (i) by the Company without Cause,
or (ii) by the Executive voluntarily for "Good Reason." For purposes of this
Agreement, "Good Reason" means
<PAGE>
(a) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
in each case if not remedied within 30 days after receipt of written notice
thereof from the Executive;
(b) any failure by the Company to comply with any of the
provisions of Section 2, Section 3 or Section 7 of this Agreement which is not
remedied within 30 days after receipt of written notice thereof from the
Executive;
(c) the Company's requiring the Executive to be based at any
office or location other than Dade County, Florida, except for travel reasonably
required in the performance of the Executive's responsibilities;
(d) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(e) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement;
(f) any termination by the Executive for any reason during the
three-month period following the effective date of any "Change in Control"; or
(g) any failure of the Executive be elected a director of the
Company, or the removal of the Executive as a director, during the term hereof.
For purposes of this Section 4.4, any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
5. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean:
(a) The acquisition (other than by or from the Company), at any
time after the date hereof, by any person, entity or "group", within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) All or any of the thirteen (13) individuals who, as of the
date hereof, constitute the Board (as of the date hereof the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered as though such person were
a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (A) a
reorganization, merger or consolidation with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated company's then outstanding voting
securities, (B) a liquidation or dissolution of
<PAGE>
the Company, or (C) the sale of all or substantially all of the assets of the
Company, unless the approved reorganization, merger, consolidation, liquidation,
dissolution or sale is subsequently abandoned.
(d) The approval by the Board of the sale, distribution and/or
other transfer or action (and/or series of sales, distributions and/or other
transfers or actions from time to time or over a period of time), that results
in the Company's ownership of less than 75% of the Company's current assets.
Without limiting the generality of the foregoing, a "Change in Control" shall be
deemed to include consummation of the merger transactions (the "BBI Merger")
contemplated by that certain Agreement and Plan of Merger, dated as of November
10, 1996, as amended, among BBI Healthcare Corporation, the Company, Bergen
Brunswig Corporation, BBI-I Sub, Inc. and BBI-B Sub, Inc.
6. RESTRICTIVE COVENANTS.
6.1 NONDISCLOSURE. Contemporaneous herewith, the Executive is
executing the Company's standard form of Confidentiality Agreement, a copy of
which is attached hereto as EXHIBIT B.
6.2 NONSOLICITATION OF EMPLOYEES. While employed by the Company and
for a period of twenty-four (24) months thereafter, Executive shall not directly
or indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of twelve (12) months.
6.3 INJUNCTION. It is recognized and hereby acknowledged by the
parties hereto that a breach by the Executive of any of the covenants contained
in Section 6.1 or 6.2 of this Agreement will cause irreparable harm and damage
to the Company, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
the Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Section 5 of this Agreement by the Executive or any of
his affiliates, associates, partners or agents, either directly or indirectly,
and that such right to injunction shall be cumulative and in addition to
whatever other remedies the Company may possess.
7. CONFLICTS WITH CERTAIN EXISTING ARRANGEMENTS. The Company acknowledges
that it has received and reviewed Executive's non-competition covenants with his
prior employer, a copy of which is attached hereto as EXHIBIT C. The Company
agrees that it shall indemnify and hold harmless the Executive from any and all
damages that Executive may hereafter suffer or incur by reason of any Company
acquisition of a "Conflicting Organization" or other expansion of business after
the date hereof which results in a violation by the Executive of such
non-competition covenant. Executive represents that such covenant expires
on or before March 1, 1999.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
<PAGE>
9. NOTICES: Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: IVAX Corporation
4400 Biscayne Boulevard
Miami, Florida 33137
Attention: General Counsel
If to the Executive: Robert C. Strauss
760 San Bruno Avenue
Coral Gables, Florida 33143
WITH A COPY TO:
---------------
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Cesar L. Alvarez, Esq.
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law or otherwise.
11. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
<PAGE>
12. WAIVERS. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
13. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement, except that the payment required to be made by
the Company to the Executive pursuant to Section 4.4 shall be the Executive's
exclusive remedy for any termination of this Agreement pursuant to such
section.
14. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement.
15. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to Section 16
of this Agreement), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code.
16. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Code, then the aggregate present value
of amounts payable or distributable to or for the benefit of the Executive
pursuant to this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments") shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of Agreement Payments
without causing any Payment to be nondeductible by the Company because of
Section 280G of the Code. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any Payment which is
not an Agreement Payment would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not Agreement Payments shall also
be reduced (but not below zero) to an amount expressed in present value which
maximizes the aggregate present value of Payments without causing any Payment to
be nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section 16, present value shall be determined in accordance
with Section 280G(d)(4) of the Code. Any amount which is not paid in the taxable
year in which it was originally scheduled to be paid as a result of the
postponement thereof pursuant hereto shall be payable in the next succeeding
taxable year in which such payment will not result in the disallowance of a
deduction pursuant to either Section 162(m) or 280G of the Code; provided,
however, that all postponed payments shall be placed in a Rabbi trust or similar
vehicle for the benefit of the Executive in such a way that the amounts so
transferred are not taxable to such person or deductible by the Company until
payment from such vehicle to the Executive is made. In the event a payment has
been made to the Executive, but then disallowed as a
<PAGE>
deduction by the Internal Revenue Service and return of the payment is required
into the trust, said payment to the Executive shall be treated as a loan and
said payment to the trust shall be treated as repayment of said loan. The
Company shall not pledge, hypothecate or otherwise encumber any amounts held in
the trust or other similar vehicle for the benefit of the Executive hereunder.
(b) All determinations required to be made under this Section 16
shall be made by the Company's independent public accountants (the "Accounting
Firm"), which shall provide (i) detailed supporting calculations both to the
Company and the Executive within twenty (20) business days of the termination of
Executive's employment or such earlier time as is requested by the Company, and
(ii) an opinion to the Executive that he has substantial authority not to
report any excise tax on his Federal income tax return with respect to any
Payments. Any such determination by the Accounting Firm shall be binding upon
the Company and the Executive. The Executive shall determine which and how much
of the Payments shall be eliminated or reduced consistent with the requirements
of this Section 16, provided that, if the Executive does not make such
determination within ten business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which and how much of the
Payments shall be eliminated or reduced consistent with the requirements of this
Section 16 and shall notify the Executive promptly of such election. Within five
business days thereafter, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the Executive under
this Agreement. All fees and expenses of the Accounting Firm incurred in
connection with the determinations contemplated by this Section 16 shall be
borne by the Company.
(c) As a result of the uncertainty in the application of Section
280G of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Payments will have been made by the Company which
should not have been made ("Overpayment") or that additional Payments which will
not have been made by the Company could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made hereunder. In the
event that the Accounting Firm, based upon the assertion of a deficiency by the
Internal Revenue Service against the Executive which the Accounting Firm
believes has a high probability of success, determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Company to or for the
benefit of the Executive shall be treated for all purposes as a loan ab initio
to the Executive which the Executive shall repay to the Company together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been made
and no amount shall be payable by the Employee to the Company if and to the
extent such deemed loan and payment would not either reduce the amount on which
the Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code.
17. ELECTION OF EXECUTIVE AS DIRECTOR. Management of the Company agrees to
nominate the Executive for election to the Board at the next meeting of the
Board. For so long as the Executive continues to serve as the Company's
President, the Company shall cause the nomination of the Executive as a director
of the Company at each shareholder meeting at which election of directors is
considered.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
COMPANY:
IVAX CORPORATION
By: /s/ Phillip Frost, M.D.
---------------------------------
Phillip Frost, M.D.,
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Robert C. Strauss
--------------------------------------
ROBERT C. STRAUSS
EXHIBIT 11.1
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS(LOSS) PER SHARE
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items $(158,679) $114,801 $ 89,872
Extraordinary items, net of tax (2,073) 34 (823)
--------- -------- --------
Net income (loss) for primary computation $(160,752) $114,835 $ 89,049
========= ======== ========
Average number of common and dilutive
common equivalent shares-primary 120,949 119,253 116,339
========= ======== ========
Earnings (loss) before extraordinary items $ (1.31) $ .96 $ .77
========= ======== ========
Net earnings (loss) $ (1.33) $ .96 $ .76
========= ======== ========
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items $(158,679) $114,801 $ 89,872
Adjustment for interest expense on 9.00%
Convertible Subordinated Debentures,
net of tax -- 62 76
--------- -------- --------
Adjusted income (loss) before extraordinary
items for fully diluted calculation (158,679) 114,863 89,948
Extraordinary items, net of tax (2,073) 34 (823)
--------- -------- --------
Net income (loss) for fully diluted computation $(160,752) $114,897 $ 89,125
========= ======== ========
Average number of common and dilutive
common equivalent shares-fully diluted 120,949 120,365 116,792
========= ======== ========
Earnings (loss) before extraordinary items $ (1.31) $ .95 $ .77
========= ======== ========
Net earnings (loss) $ (1.33) $ .95 $ .76
========= ======== ========
AVERAGE NUMBER OF COMMON SHARES AND
DILUTIVE COMMON SHARES EQUIVALENTS:
Primary shares:
Average number of common shares outstanding 120,949 116,065 105,515
Incremental shares for options and warrants -- 3,188 2,774
Conversion of pooled company's convertible
preferred stock -- -- 8,050
--------- -------- --------
120,949 119,253 116,339
========= ======== ========
Fully diluted shares:
Average number of common shares outstanding 120,949 116,065 105,515
Incremental shares for options and warrants -- 4,064 2,941
Conversion of pooled company's convertible
preferred stock -- -- 8,050
Conversion equivalent of 9.00% Convertible
Subordinated Debentures -- 236 286
--------- -------- --------
120,949 120,365 116,792
========= ======== ========
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF IVAX CORPORATION(1)
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
DOMESTIC
BBI Healthcare Corporation(2) Delaware
Baker Norton Pharmaceuticals, Inc. Florida
Baker Norton U.S., Inc. Florida
Central Admixture Pharmacy Services, Inc. Delaware
Cummins Properties, Inc. Florida
D & N Holding Company Delaware
Diamedix Corporation Florida
DVM Pharmaceuticals, Inc. Florida
Flori Roberts, Inc. New Jersey
Goldcaps, Inc. Florida
Goldline Laboratories, Inc. Florida
Goldline Properties Florida, Inc. Florida
Goldline Properties New York, Inc. Florida
Goldline Properties Ohio, Inc. Florida
ImmunoVision, Inc. Florida
IVAX Diagnostics, Inc. Florida
IVAX Industries, Inc. Delaware
IVAX Personal Care Products P.R., Inc. Puerto Rico
Johnson Products Co., Inc. Florida
Johnson Products Export Sales, Inc. Illinois
MBA Industries, Inc. Florida
McGaw, Inc. Delaware
McGaw of Puerto Rico, Inc. Delaware
N Holding Company Delaware
Pet Technology Corp. Florida
PharmAir Corporation Florida
Pralex Corporation Delaware
Searoads, Inc. New Jersey
Zenith Goldline Dermatologicals, Inc. Florida
Zenith Goldline Golden Glades, Inc. Florida
Zenith Goldline Pharmaceuticals, Inc. Florida
Zenith Goldline Shreveport, Inc. Florida
Zenith Laboratories, Inc. Florida
Zenith Laboratories Caribe, Inc. Delaware
Zenith Parenterals, Inc. New Jersey
<PAGE>
SUBSIDIARIES OF IVAX CORPORATION(1)
(Continued)
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
INTERNATIONAL
Alet Laboratorios S.A.E.C.I. y E. Argentina
Baker Cummins Inc. Canada
Baker Norton Asia, Ltd. Hong Kong
Becpharm Limited England
Beijing JiAi Pharmaceuticals Limited
Liability Company(2) China
Delta Biologicals S.r.l. Italy
Delta Diagnostics S.r.l. Italy
Elvetium S.A. Argentina
Elvetium S.A. Uruguay
Galena a.s.(3) Czech Republic
H.N. Norton & Co Limited England
IVAX Industries Canada, Inc. Canada
IVAX Industries UK, Ltd. England
IVAX International, B.V. Netherlands
Johnson Products Co. (UK) Limited England
Kunming Baker Norton Pharmaceutical
Co. Ltd.(2) China
Norton (Antibiotics) Limited England
Norton Gelkaps Gelatine Kapsel
Produktion GmbH Germany
Norton Healthcare Limited England
Norton (Waterford) Limited Ireland
Norton (Manufacturing) Limited England
Norton Poland Sp. z. o. o. Poland
Pharmatop Limited England
Steripak Limited England
Waverley Pharmaceutical, Limited England
- ---------------
(1) As of March 25, 1997. All subsidiaries are wholly-owned
(directly or indirectly) unless otherwise indicated.
(2) Owned 50% by the Company.
(3) Owned 74% by the Company.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed registration statements on Form S-8 Nos. 333-07811, 33-82756,
33-67090, 33-39186, 33-44042, 33-53944, 33-88914, 33-88912 and 33-65133, Form
S-3 No. 33-46173, and Form S-4 Nos. 33-44116 and 33-60847.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 28, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 80,806
<SECURITIES> 0
<RECEIVABLES> 300,866
<ALLOWANCES> 36,358
<INVENTORY> 288,987
<CURRENT-ASSETS> 766,621
<PP&E> 594,965
<DEPRECIATION> 180,254
<TOTAL-ASSETS> 1,401,900
<CURRENT-LIABILITIES> 231,348
<BONDS> 443,424
0
0
<COMMON> 12,148
<OTHER-SE> 682,980
<TOTAL-LIABILITY-AND-EQUITY> 1,401,900
<SALES> 1,151,307
<TOTAL-REVENUES> 1,151,307
<CGS> 774,368
<TOTAL-COSTS> 774,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42,638
<INTEREST-EXPENSE> 25,667
<INCOME-PRETAX> (215,549)
<INCOME-TAX> (62,224)
<INCOME-CONTINUING> (158,679)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,073)
<CHANGES> 0
<NET-INCOME> (160,752)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> 0<F1>
<FN>
<F1>AMOUNT IS ANTI-DILUTIVE.
</FN>
</TABLE>
