FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Commission File Number 1-09623
IVAX CORPORATION
FLORIDA 16-1003559
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 575-6000
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
121,485,701 SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING
AS OF APRIL 30, 1997
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 74,812 $ 80,806
Accounts receivable, net 207,912 257,922
Inventories 271,124 288,987
Other current assets 136,579 132,320
------------- -------------
Total current assets 690,427 760,035
Property, plant and equipment, net 423,538 414,711
Cost in excess of net assets of acquired companies, net 50,642 51,502
Patents, trademarks, licenses and other intangibles, net 47,881 48,091
Other 125,945 120,975
------------- -------------
Total assets $ 1,338,433 $ 1,395,314
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 6,445 $ 5,027
Current portion of long-term debt 5,741 5,860
Accounts payable 77,556 84,282
Accrued income taxes payable 18,934 16,393
Accrued expenses and other current liabilities 108,501 113,200
------------- -------------
Total current liabilities 217,177 224,762
Long-term debt, net of current portion 411,982 443,424
Other long-term liabilities 17,073 17,432
Minority interest 14,971 14,568
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 121,483 shares (121,476 in 1996) 12,148 12,148
Capital in excess of par value 515,080 515,070
Retained earnings 153,021 160,960
Cumulative translation adjustment and other (3,019) 6,950
------------- -------------
Total shareholders' equity 677,230 695,128
------------ -------------
Total liabilities and shareholders' equity $ 1,338,433 $ 1,395,314
============= =============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these balance sheets.
2
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
(In thousands, except per share data) 1997 1996
------------- -------------
<S> <C> <C>
NET REVENUES $ 284,550 $ 334,045
COST OF SALES 182,985 189,570
------------- -------------
Gross Profit 101,565 144,475
------------- -------------
OPERATING EXPENSES:
Selling 53,080 50,965
General and administrative 36,854 28,498
Research and development 16,873 16,522
Amortization of intangible assets 2,006 2,563
Merger expenses 2,095 184
------------- -------------
Total operating expenses 110,908 98,732
------------- -------------
Income (loss) from operations (9,343) 45,743
OTHER INCOME (EXPENSE):
Interest income 668 321
Interest expense (7,819) (5,691)
Other income, net 6,806 3,840
------------- -------------
(345) (1,530)
------------- -------------
Income (loss) before income taxes, minority
interest and extraordinary item (9,688) 44,213
PROVISION (BENEFIT) FOR INCOME TAXES (3,221) 6,133
------------- -------------
Income (loss) before minority interest and
extraordinary item (6,467) 38,080
MINORITY INTEREST (1,472) (2,184)
------------- -------------
Income (loss) before extraordinary item (7,939) 35,896
Extraordinary item, net of taxes - (1)
------------- -------------
NET INCOME (LOSS) $ (7,939) $ 35,895
============= =============
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary item $ (.07) $ .30
Extraordinary item - -
------------- -------------
Net earnings (loss) $ (.07) $ .30
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 121,479 121,379
============= =============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 1996
(In thousands) ------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,939) $ 35,895
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 13,631 13,669
(Benefit) provision for deferred taxes (6,852) 5
Provision for allowances for doubtful accounts 3,234 762
Losses (gains) on sale of long-term assets 558 (105)
Minority interest 1,472 2,184
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 41,653 (45,550)
Decrease (increase) in inventories 13,125 (21,621)
Increase in other current assets (5,442) (4,100)
Decrease in other assets 3,328 189
(Decrease) increase in accounts payable, accrued expenses
and other current liabilities (4,635) 2,741
Decrease in other long-term liabilities (249) (2,826)
Other, net (264) (950)
------------- -------------
Net cash provided by (used for) operating activities 51,620 (19,707)
------------- -------------
Cash flows from investing activities:
Capital expenditures, net of sales proceeds (15,283) (20,179)
Acquisitions of patents, trademarks, licenses,
and other intangibles, net of sales proceeds (1,601) (758)
Acquisition of manufacturing facility and other (10,627) -
Other, net (25) (2,006)
------------- -------------
Net cash used for investing activities (27,536) (22,943)
------------- -------------
Cash flows from financing activities:
Payments on long-term debt and loans payable (54,740) (37,552)
Borrowings on long-term debt and loans payable 26,992 60,708
Issuance of common stock 10 10,509
------------- -------------
Net cash (used for) provided by financing activities (27,738) 33,665
------------- -------------
Effect of exchange rate changes on cash (2,340) 2,190
------------- -------------
Net decrease in cash and cash equivalents (5,994) (6,795)
Cash and cash equivalents at the beginning of the year 80,806 14,720
------------- -------------
Cash and cash equivalents at the end of the period $ 74,812 $ 7,925
============= =============
Supplemental disclosures:
Interest paid $ 6,868 $ 2,384
============= =============
Income tax payments $ 1,003 $ 3,539
============= =============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
(1) GENERAL:
In management's opinion, the accompanying unaudited condensed
consolidated financial statements of IVAX Corporation and subsidiaries ("IVAX")
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of IVAX as of March 31, 1997,
and the results of its operations for the three months ended March 31, 1997 and
1996. The results of operations and cash flows for the three months ended March
31, 1997 are not necessarily indicative of the results of operations or cash
flows which may be reported for the remainder of 1997.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
in IVAX' Annual Report on Form 10-K for the year ended December 31, 1996.
The accounting policies followed for interim financial reporting are
the same as those disclosed in Note 2 of the Notes to Consolidated Financial
Statements included in IVAX' Annual Report on Form 10-K for the year ended
December 31, 1996.
Certain amounts presented in the condensed consolidated financial
statements for prior periods have been reclassified for comparative purposes.
(2) EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share is computed by dividing net income (loss) by
the weighted average number of common and dilutive common equivalent shares
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method.
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS
PER SHARE, requires the disclosure of "basic" and "diluted" earnings per share
for periods ending after December 15, 1997. The computation under SFAS No. 128
differs from the computation of primary and fully diluted earnings per share
under Accounting Principles Board ("APB") Opinion No. 15 primarily in the manner
in which potential common stock (that is, securities such as options, warrants,
convertible securities, or contingent stock agreements) is treated. Basic
earnings per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the period. In the
computation of diluted earnings per share, the weighted-average number of common
shares outstanding is adjusted for the effect of all dilutive potential common
stock.
Basic and diluted earnings per share computed in accordance with SFAS
No. 128 for the quarters ended March 31, 1997 and 1996 do not differ from the
primary earnings per share reported
5
<PAGE>
in the accompanying consolidated statements of operations. Both diluted earnings
per share computed in accordance with SFAS No. 128 and fully diluted earnings
per share computed under APB Opinion No. 15 are not dilutive for periods
presented.
(3) 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.
The provision (benefit) for income taxes consists of the following:
Three Months Ended March 31, 1997 1996
-------------- -------------
Current:
United States $ - $ (6,413)
Foreign, including Puerto Rico
and U.S. Virgin Islands 3,631 12,541
Deferred (6,852) 5
-------------- -------------
Provision (benefit) for income taxes $ (3,221) $ 6,133
============== =============
As of March 31, 1997, a net deferred tax asset aggregating $107,838
($90,417 and $17,421 domestic and foreign, respectively) is included in other
current assets and liabilities and other assets and other long-term liabilities
in the accompanying condensed consolidated balance sheet. Realization of the
net deferred tax asset is dependent upon generating sufficient future taxable
income. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized based upon
estimated future taxable income and, accordingly, no valuation allowances in
addition to those existing at December 31, 1996 were deemed necessary at March
31, 1997. 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 further
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in IVAX' Annual Report on Form 10-K for the year
ended December 31, 1996.
At March 31, 1997, an estimated refund of federal income taxes paid in
prior years and available in the carry-back period of $52,495 is included in
other current assets in the accompanying condensed consolidated balance sheet.
(4) MERGERS:
On March 20, 1997, IVAX announced that Bergen Brunswig Corporation
("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 contractual right to terminate the merger
agreement, intends to defend the suit vigorously, and has filed a counterclaim
for breach of the merger agreement by Bergen. Included in the accompanying
condensed consolidated statement of operations for the quarter ended March 31,
1997 are $2,095 of merger expenses related to the terminated merger.
6
<PAGE>
(5) OTHER INCOME, NET:
In January 1997, IVAX announced the recall in the United States of the
generic pharmaceutical product cefaclor as a result of the recall by the raw
material supplier of the raw material used to manufacture the product. The
Company is presently seeking approval for an alternate source of raw material,
but can not predict when, if ever, it will be in position to re-commence the
manufacture and sale of cefaclor. The Company does not believe that the recall
will have a material impact on its future results of operations due to
cefaclor's limited contribution to gross profit. In March 1997, the Company
received a payment as settlement from the raw material supplier relating to the
recall. Management evaluated its existing reserves for returns of cefaclor from
its customers at March 31, 1997, and, as a result, $4,000 of the settlement
payment was recognized in income and is included in other income, net in the
accompanying condensed consolidated statement of operations for the quarter
ended March 31, 1997.
7
<PAGE>
ITEM 2--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, the related Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in IVAX' Annual Report on Form 10-K
for the year ended December 31, 1996 and the Condensed Consolidated Financial
Statements and the related Notes to Condensed Consolidated Financial Statements
included in Item 1 of this Quarterly Report on Form 10-Q. 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 ("SEC").
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
IVAX reported a net loss of $7.9 million for the quarter ended March
31, 1997, compared to net income of $35.9 million for the quarter ended March
31, 1996. Net loss per common share was $.07 for the first quarter of 1997
compared to $.30 in net earnings per common share reported for the first quarter
of 1996.
<TABLE>
<CAPTION>
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
Three Months Ended March 31, 1997 1996
------------------------------- -------------------------------
NET GROSS NET GROSS
REVENUES PROFIT REVENUES PROFIT
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Pharmaceuticals $ 163,672 $ 55,172 $ 212,130 $ 99,384
Intravenous products 82,593 28,968 83,203 26,828
Other operations 39,107 17,425 39,244 18,263
Intersegment eliminations (822) - (532) -
------------- -------------- ------------- --------------
Total $ 284,550 $ 101,565 $ 334,045 $ 144,475
============= ============== ============= ==============
</TABLE>
Net revenues for the first quarter of 1997 totaled $284.6 million, a
decrease of $49.6 million, or 14.8%, compared to the same period of the prior
year. Gross profit in the first quarter of 1997 decreased $42.9 million, or
29.7%, from the same period of the prior year. Gross profit was $101.6 million
(35.7% of net revenues) for the first quarter of 1997, compared to $144.5
million (43.3% of net revenues) for the first quarter of 1996.
Net revenues of IVAX' pharmaceutical operations decreased $48.5
million, or 22.8%, in comparison to the first quarter of 1996. An increase of
$9.5 million in net revenues of IVAX' international pharmaceutical operations
was more than offset by a decrease of $58.0 million in net revenues of IVAX'
domestic pharmaceutical operations.
Domestic pharmaceutical net revenues totaled $76.2 million for the
first quarter of 1997, compared to $134.2 million for the same period of the
prior year. The $58.0 million, or 43.2%,
8
<PAGE>
decrease in net revenues of the domestic pharmaceutical operations was primarily
due to lower sales volumes, and, to a lesser extent, decreased prices of certain
generic products and higher sales returns and allowances, partially offset by an
increase in net revenues generated by certain new generic and proprietary
products manufactured by IVAX and introduced into the market over the past
twelve months. The lower sales volume and decreased prices primarily related to
IVAX' albuterol metered dose inhaler approved for marketing and launched during
the fourth quarter of 1995 and first quarter of 1996.
During the first quarter of 1997 and 1996, the Company's domestic
generic pharmaceutical business provided reserves which reduced gross sales by
$36.2 million and $29.7 million, respectively (which includes reserves for
expected inventory credits and returns of $16.0 million and $7.7 million,
respectively). At March 31, 1997 and December 31, 1996, these reserves totaled
$90.2 million and $98.2 million, respectively (which includes reserves for
expected inventory credits and returns of $45.7 million and $65.9 million,
respectively).
IVAX' international pharmaceutical operations generated net revenues of
$87.4 million in the first quarter of 1997, compared to $77.9 million for the
same quarter of the prior year. The $9.5 million, or 12.2%, increase in
international pharmaceutical net revenues was primarily due to increased volume
for both generic and branded products.
The gross profit percentage of IVAX' pharmaceutical operations
decreased from 46.9% in the first quarter of 1996 to 33.7% in the first quarter
of 1997. The decline in gross profit percentage of IVAX' pharmaceutical
operations is primarily due to price declines for United States generic drugs
and the higher levels of customer inventory credits and reserves for expected
returns relating to the United States generic pharmaceutical operations.
Significantly lower prices in the United States of the generic pharmaceutical
product albuterol metered dose inhaler also contributed to the reduction in
gross profit percentage.
The intravenous products division generated net revenues of $82.6
million during the first quarter of 1997, a decrease of $.6 million from the
same quarter of 1996. The decrease in net revenues was primarily due to
decreased sales volume and pricing of biomedical and pharmacy equipment, lower
sales volume of specialty nutrition solutions, and lower licensing fees
partially offset by increased sales volume and pricing for basic nutrition sets
and solutions. The gross profit percentage of the intravenous products division
increased from 32.2% for the first quarter of 1996 to 35.1% for the same period
in 1997. The $2.1 million increase in gross profit and the increase in the gross
profit percentage were primarily due to licensing income and more efficient
utilization of production facilities.
Net revenues and gross profit of IVAX' personal care products,
diagnostics and specialty chemicals operations, excluding intersegment
eliminations, collectively represent 13.7% and 17.2%, respectively, of
consolidated net revenues and consolidated gross profit for the first quarter of
1997. Combined net revenues decreased $.1 million compared with the first
quarter of 1996, primarily due to the lower net revenues of the personal care
products and diagnostics operations, partially offset by higher net revenues in
the specialty chemicals operations. Combined gross profit decreased $.8 million
primarily due to lower gross profit in the personal care products and
diagnostics operations partially offset by higher gross profit in the specialty
chemicals operations.
9
<PAGE>
<TABLE>
<CAPTION>
OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
GENERAL RESEARCH AMORTIZATION
AND AND OF MERGER
SELLING ADMINISTRATIVE DEVELOPMENT INTANGIBLES EXPENSES TOTAL
----------- -------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997 FIRST QUARTER
Pharmaceuticals $ 28,773 $ 19,658 $ 11,537 $ 905 $ - $ 60,873
Intravenous products 12,842 6,479 4,357 663 - 24,341
Other operations 11,465 3,748 979 425 - 16,617
Corporate and other - 6,969 - 13 2,095 9,077
----------- -------------- ------------- ------------ ----------- -----------
Total $ 53,080 $ 36,854 $ 16,873 $ 2,006 $ 2,095 $ 110,908
=========== ============== ============= ============ =========== ===========
1996 FIRST QUARTER
Pharmaceuticals $ 25,765 $ 14,682 $ 11,146 $ 750 $ 71 $ 52,414
Intravenous products 13,845 5,168 4,308 993 - 24,314
Other operations 11,355 3,743 1,068 820 - 16,986
Corporate and other - 4,905 - - 113 5,018
----------- -------------- ------------- ------------ ----------- -----------
Total $ 50,965 $ 28,498 $ 16,522 $ 2,563 $ 184 $ 98,732
=========== ============== ============= ============ =========== ===========
</TABLE>
Selling expenses totaled $53.1 million (18.7% of net revenues) for the
first quarter of 1997, compared to $51.0 million (15.3% of net revenues) for the
first quarter of 1996. The $2.1 million increase was primarily due to increased
sales and marketing expenses associated with the marketing of IVAX' branded
products, partially offset by lower sales and marketing expenses for the
intravenous division.
General and administrative expenses totaled $36.9 million (13.0% of net
revenues) for the first quarter of 1997, compared to $28.5 million (8.5% of net
revenues) for the first quarter of 1996. The $8.4 million increase was primarily
attributable to higher occupancy expenses in the international pharmaceutical
operations, higher bad debt expense in the domestic pharmaceutical operations,
and increases in insurance, legal and salary costs at corporate and other.
Higher salary and benefit costs at the intravenous division in the first quarter
of 1997 as compared to the same period in 1996, also contributed to the
increase.
Research and development expenses for the first quarter of 1997
increased $.4 million, or 2.1%, compared to the first quarter of 1996, to a
total of $16.9 million. Expenditures by IVAX' pharmaceutical operations
represented 68.4% of the total research and development expenses for the first
quarter of 1997. 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.
Merger expenses increased $1.9 million in the first quarter of 1997 as
compared to the same period in the prior year as a result of higher merger costs
relating to the terminated proposed merger with Bergen Brunswig Corporation.
Other income, net increased $3.0 million from the first quarter of
1996, primarily due to the recognition of $4.0 million in income in the first
quarter of 1997 resulting from management's evaluation of its existing reserves
at March 31, 1997 for returns of the generic pharmaceutical product cefaclor
from its customers. The increase in interest expense is associated with higher
debt levels.
10
<PAGE>
In January 1997, IVAX announced the recall in the United States of the
generic pharmaceutical product cefaclor as a result of the recall by the raw
material supplier of the raw material used to manufacture the generic drug. The
Company is presently seeking approval for an alternate source of raw material,
but can not predict when, if ever, it will be in position to re-commence the
manufacture and sale of cefaclor. The Company does not believe that the recall
will have a material impact on its results of operations due to cefaclor's
limited contribution to gross profit.
CURRENCY FLUCTUATIONS
For the quarters ended March 31, 1997 and 1996, approximately 34% and
25%, 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. As a result of exchange rate differences, net
revenues increased by approximately $2.5 million for the quarter ended March 31,
1997, as compared to the quarter ended March 31, 1996.
INCOME TAXES
IVAX recognized a $3.2 million tax benefit for the quarter ended March
31, 1997. The tax benefit resulted from domestic losses benefited at the
prevailing federal and state statutory rates which exceeded foreign income taxed
at the prevailing generally lower foreign rates.
At March 31, 1997, IVAX has recorded a net deferred tax asset
aggregating $107.8 million. Realization of this asset is dependent upon
generating sufficient future taxable income. Although realization is not
assured, management believes it is more likely than not that the deferred tax
asset will be realized based upon estimated future taxable income and,
accordingly, no valuation allowances in addition to those existing at December
31, 1996 were deemed necessary at March 31, 1997. 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 further discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in IVAX'
Annual Report on Form 10-K for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, IVAX' working capital was approximately $473.3
million, compared to $535.3 million at December 31, 1996. Cash and cash
equivalents totaled $80.8 million at December 31, 1996, as compared to $74.8
million at March 31, 1997 and $7.9 million at March 31, 1996.
Net cash of $51.6 million was provided by operating activities during
the first quarter of 1997, compared to $19.7 million in cash used for operating
activities during the first quarter of 1996. The increase in cash provided by
operating activities, as compared to the first quarter of 1996, was primarily
the result of increased cash collections in the first quarter of 1997 as
compared to the first quarter of 1996 on receivables in the domestic generic
pharmaceutical operations.
11
<PAGE>
Net cash of $27.5 million was used for investing activities during the
first quarter of 1997 as compared to $22.9 million for the same period of the
prior year. The $4.9 million decrease in capital expenditures was primarily
attributable to management focusing on reducing capital expenditures in the
first quarter of 1997 due to spending constraints imposed by the revolving
credit facility. During the first quarter of 1997, IVAX purchased a
pharmaceutical manufacturing facility in Kirkland, Canada for $10.5 million.
Net cash of $27.7 million was used for financing activities during the
first quarter of 1997, compared to $33.7 million provided by financing
activities in the same period of the prior year, primarily reflecting a net
reduction in amounts outstanding under the revolving credit facility.
To date, IVAX has incurred approximately $26.7 million in capital
expenditures in developing its Duplex(TM) drug delivery system, a proprietary
system for medications administered intravenously, and expects to commit
approximately $24.2 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 May
1997, IVAX expects to receive an approximate $52.5 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 discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in IVAX' Annual Report on Form 10-K for the year ended December 31,
1996. If IVAX does not satisfy 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. Such
capital may be obtained, in part, from the disposition of certain non-strategic
assets.
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On April 21, 1997, individuals purporting to be shareholders of IVAX
filed a class action complaint styled FAUSTO POMBAR 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
August 2, 1996 through November 11, 1996, inclusive. The complaint alleges
claims for violation of Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 and for negligent misrepresentation. The complaint alleges, among
other things, that during the class period defendants made untrue statements of
material fact and omitted to state material facts necessary to make statements
made not misleading in its statements to the public, including in a September
30, 1996 press release regarding IVAX's forecasted earnings for the third
quarter of 1996. The complaint seeks unspecified compensatory damages, interest,
attorneys' fees, costs of suit and unspecified other and further relief from the
court.
On April 18, 1997, Eli Lilly & Company ("Lilly") filed a complaint in
the United States District Court for the District of New Jersey styled ELI LILLY
AND COMPANY V. ROUSSEL CORP., ET AL against various defendants, including Zenith
Goldline Pharmaceuticals, Inc. and Zenith Laboratories, Inc. (collectively
"Zenith"). With respect to Zenith, the complaint asserts claims for violation of
the Lanham Act, unfair competition under New Jersey state law, common law unfair
competition and unjust enrichment. Also named as defendants are Roussel
Corporation, Roussel UCLAF Holdings Corporation, Roussel UCLAF S.A., Hoechst
Marion Roussel North America, and Biochimica Opos S.p.A. (collectively, the
"Roussel Defendants"), The Rugby Group, Inc., and Rugby Laboratories, Inc.
(collectively, "Rugby"), and American Home Products Corporation and American
Cyanamid Company (collectively, the "American Home Defendants"). The claims
asserted against the American Home Defendants and Rugby are essentially the same
as those asserted against Zenith. Additional claims are asserted against the
Roussel Defendants, including fraud, negligent misrepresentation, common law
conspiracy, tortuous interference with business relations, and violations of
both the federal and state Racketeer Influenced And Corrupt Organizations Acts.
All of the asserted claims arise out of what Lilly contends were
fraudulent misrepresentations to Lilly and the Food and Drug Administration
("FDA") by Biochimica Opos S.p.A. ("Opos"), Zenith's supplier of cefaclor raw
material, regarding the methods utilized by Opos to manufacture bulk cefaclor
and the location of the manufacturing facility of such cefaclor. According to
Lilly, through these alleged misrepresentations, Opos fraudulently obtained
approval from FDA to market bulk cefaclor in the United States. The claims
asserted against Zenith are predicated on Zenith's sale in the United States of
retail dosage units of cefaclor manufactured using Opos' bulk cefaclor. Lilly
alleges that Zenith, in marketing and selling retail dosage units of cefaclor
manufactured from Opus' bulk cefaclor, allegedly used false and misleading
descriptions and representations regarding Zenith's cefaclor product. The relief
sought by Lilly against Zenith, jointly and severally with the American Home
Defendants and Rugby, is an accounting to Lilly for any and all profits derived
by Zenith from the sale of cefaclor and an award of damages to Lilly, in an
unspecified amount, allegedly sustained by Lilly as a result of Zenith's alleged
acts of misrepresentation and unfair competition. Lilly further seeks an award
of treble damages and litigation costs, including attorneys' fees and interest.
Under its unjust enrichment claim, Lilly seeks restitution in an unspecified
amount against Zenith, jointly and severally with the other defendants.
With respect to the case styled HARVEY M. JASPER RETIREMENT TRUST AND
HARVEY M. JASPER INDIVIDUAL RETIREMENT ACCOUNT ET AL. VS. IVAX CORPORATION AND
PHILLIP FROST ET AL., previously reported in IVAX'
13
<PAGE>
Form 10-K for the year ended December 31, 1996, on April 28, 1997, the parties
executed a definitive Stipulation of Settlement pursuant to which they agreed to
settle the action in its entirety in exchange for the payment by defendants and
their insurers of $7.5 million. The settlement is contingent upon, among other
things, court approval after all class members have been given notice of the
proposed settlement and an opportunity to be heard. On May 7, 1997, the court
entered an order preliminarily approving the settlement and, among other things,
establishing procedures for giving notice to the class, filing of objections to
the settlement or requests for exclusion from the class, and establishing a
hearing date for final approval of the settlement.
With respect to the case styled BERGEN BRUNSWIG CORPORATION VS. IVAX
CORPORATION, previously reported in IVAX' Annual Report on Form 10-K for the
year ended December 31, 1996, on May 5, 1997, IVAX filed a counterclaim against
Bergen Brunswig for breach of the merger agreement seeking damages, attorney's
fees and litigation costs.
IVAX intends to defend the Pombar, Bergen, and Lilly lawsuits
vigorously, 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 these lawsuits is not presently determinable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 IVAX Corporation 1997 Executive Retention Plan
10.2 Supplement to IVAX Corporation 1997 Executive Retention Plan
for Robert C. Strauss
10.3 Form of Supplement to IVAX Corporation 1997 Executive
Retention Plan for Samuel Broder, Michael Fipps, Jane Hsiao,
and Norwick B.H. Goodspeed.
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
99.1 Press release dated May 6, 1997 announcing 1997 first quarter
earnings.
(b) REPORTS OF FORM 8-K
On March 27, 1997, IVAX filed a Current Report of Form 8-K
relating to its March 20, 1997 announcement that Bergen Brunswig
Corporation unilaterally terminated the merger agreement between the
parties and filed a lawsuit against IVAX.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVAX CORPORATION
Date: May 14, 1997 By: /S/ MICHAEL W. FIPPS
--------------------
Michael W. Fipps
Senior Vice President-Finance
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 IVAX Corporation 1997 Executive Retention Plan
10.2 Supplement to IVAX Corporation 1997 Executive Retention Plan
for Robert C. Strauss
10.3 Supplement to IVAX Corporation 1997 Executive Retention Plan for
Samuel Broder, Michael Fipps, Jane Hsiao, and Norwick B.H.
Goodspeed
11 Computation of Earnings (Loss) per Share
27 Financial Data Schedule
99.1 Press release dated May 6, 1997 announcing 1997 first quarter
earnings.
EXHIBIT 10.1
IVAX CORPORATION
1997 EXECUTIVE RETENTION PLAN
1. PURPOSE OF PLAN. The purpose of the 1997 Executive Retention Plan
(the "PLAN") is to promote the continuity of the business and operations of the
Corporation and its Subsidiaries during the implementation of a strategic plan
which may involve the disposition of certain Subsidiaries or other transactions
involving the Corporation. The Plan seeks to achieve this purpose by offering
enhanced separation pay to employees under certain circumstances.
2. DEFINITIONS. In addition to terms defined elsewhere in this Plan,
the following terms shall have the meanings indicated for purposes of the Plan.
"BENEFITS PERIOD" means the period specified by Corporate Management in
a Supplement for each Eligible Participant.
"CHANGE IN CONTROL" means:
(1) with respect to the Corporation, the occurrence of one of the
following events:
(A) any person (as such term is defined in Sections 13(d)(3)
and 14(d)(2) of the Securities Exchange Act of 1934) acquires direct or indirect
beneficial ownership (as defined in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of 30% or more of the then outstanding securities of the
Corporation eligible to vote for the election of directors ("VOTING
SECURITIES");
(B) the board of directors of the Corporation approves:
(i) any consolidation, merger, share exchange, or similar
reorganization of the Corporation that requires shareholder approval unless (i)
immediately following such transaction the holders of voting securities of the
Corporation have the same proportionate ownership of the surviving corporation
as such holders had immediately prior to the transaction, or (ii) at the time
that the board of directors of the Corporation approves the transaction, the
board of directors of the Corporation simultaneously approves a resolution
expressly providing that such transaction does not constitute a Change in
Control under the Plan;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of more than 50% of the assets
of the Corporation to one or more entities which are not direct or indirect
wholly-owned subsidiaries of the Corporation; or
<PAGE>
(iii) any liquidation or dissolution of the Corporation;
or
(C) individuals who, as of the Effective Date, constitute the
board of directors of the Corporation (the "INCUMBENT BOARD") cease for any
reason to constitute at least a majority of the board of directors of the
Corporation; provided that any person becoming a director subsequent to the
Effective Date whose nomination or election was approved by a vote of at least a
majority of the directors then comprising the incumbent board shall be
considered as though such person was a member of the incumbent board; and
provided further, that no individual initially nominated or elected as a
director of the Corporation as a result of an actual or threatened election
contest with respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the incumbent
board shall be deemed to be a member of the incumbent board.
Notwithstanding the foregoing, a Change in Control of the Corporation shall not
be deemed to have occurred solely because any person acquires beneficial
ownership of more than 30% of the voting securities of the Corporation as a
result of the acquisition of voting securities by the Corporation which, by
reducing the number of voting securities outstanding, increases the percentage
of shares beneficially owned by such person, unless the percentage then owned by
such person exceeds 50%.
(2) with respect to a Subsidiary, the occurrence of one of the
following events:
(A) any disposition by the Corporation or a Subsidiary of more
than 50% of the outstanding voting securities of the Subsidiary; or
(B) the Corporation approves:
(i) any consolidation, merger, share exchange, or similar
reorganization of the Subsidiary that requires shareholder approval unless
immediately following such transaction the Corporation continues to hold,
directly or indirectly, all of the voting securities of the Subsidiary;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of more than 50% of the assets
of the Subsidiary to one or more entities which are not direct or indirect
wholly-owned subsidiaries of the Corporation; or
(iii) any liquidation or dissolution of the Subsidiary.
Notwithstanding the foregoing, (x) none of the foregoing events shall be deemed
to be a Change in Control of a Subsidiary if at the time that the board of
directors of the Corporation approves the transaction, the board of directors of
the Corporation
2
<PAGE>
simultaneously approves a resolution expressly providing that such transaction
does not constitute a Change in Control under the Plan, and (y) a Change in
Control of the Corporation shall be deemed to also be a Change in Control of all
Subsidiaries then owned directly or indirectly by the Corporation.
"COMMITTEE" means the Compensation and Stock Option Committee of the
Board of Directors of the Corporation.
"CORPORATE MANAGEMENT" means the officer or officers of the Corporation
selected by the Committee to make determinations under the Plan, and, with
respect to any Subsidiary which ceases to be controlled by the Corporation, the
officer or officers of the Subsidiary or its successor designated by the
Subsidiary or its successor as responsible for making determinations under the
Plan.
"CORPORATION" means IVAX Corporation and any successor corporation.
"DIRECT EMPLOYER" means the corporate entity that is primarily
responsible for the payment of an Eligible Participant's compensation.
"EFFECTIVE DATE" means the date that the Plan becomes effective.
"ELIGIBLE PARTICIPANT" means each employee of the Corporation or a
Subsidiary who is designated on the records of the Corporation or the Subsidiary
as a full-time, regular employee and who is designated by Corporate Management
as eligible to participate in the Plan.
"RETENTION PERIOD" means the period commencing on the Effective Date
specified by Corporate Management in a Supplement for each Eligible Participant.
"SEPARATION BENEFITS" means the continued provision of health and
dental benefits for the period of time equal to the Benefit Period; provided
that the participant continues to make monthly contributions to health and
dental premiums during the Benefit Period in an amount equal to the amount of
such contributions as of the termination date.
"SEPARATION COMPENSATION" means the Separation Benefits and the
Separation Pay.
"SEPARATION PAY" means the amount specified by Corporate Management in
a Supplement for each Eligible Participant.
"SUBSIDIARY" means each direct or indirect subsidiary of the
Corporation which Corporate Management has determined is eligible to participate
in the Plan and which agrees to participate in the Plan and any successor to
such subsidiary.
3
<PAGE>
"SUPPLEMENT" means a written document executed by Corporate Management
which identifies, for each Eligible Participant, the Benefit Period, Retention
Period, Separation Pay and any other supplemental or different terms and
provisions applicable to the Eligible Participant.
3. EFFECTIVE DATE. The Plan shall be effective as of March 31, 1997.
4. SEPARATION PAY.
(a) TRIGGER EVENT. Subject to Section 4(c), an Eligible
Participant shall be entitled to receive applicable Separation Compensation if
during the Retention Period a Change in Control occurs with respect to the
Eligible Participant's Direct Employer and within one year following such Change
in Control, (1) the Eligible Participant's employment is terminated by the
Corporation or a Subsidiary, as the case may be, as a result of the elimination
of the employee's position due to a restructuring or reduction in work-force, or
(2) the Eligible Participant terminates his or her employment with the
Corporation or a Subsidiary, as the case may be, as a result of (i) a
significant reduction in position, authority or responsibility compared to the
Eligible Participant's position, authority and responsibility as of the
Effective Date, (ii) a requirement of the Corporation or a Subsidiary, as the
case may be, that the Eligible Participant work in a location more than 60 miles
from the Eligible Participant's workplace as of the date of termination, or
(iii) a reduction in base salary. An employee who terminates his employment
under clause (2)(i) above shall not be entitled to Separation Pay unless he
provides the Corporation with at least 30 days written notice of termination
specifying in detail the reasons for the termination.
(b) PAYMENT OF SEPARATION PAY. The Separation Pay shall be
paid in a lump sum within 15 days after the date of termination.
(c) RELEASE OF CLAIMS. The Separation Pay shall be made in
full satisfaction of any claims the Eligible Participant may have against the
Corporation or any Subsidiary in connection with the Eligible Participant's
termination, and an Eligible Participant entitled to Separation Pay shall be
required to execute a release of claims in favor of the Corporation and the
Subsidiary in a form acceptable to the Corporation and the Subsidiary as a
condition to the receipt of any payments under the Plan. Notwithstanding any
other provision of the Plan, no payments shall be made under the Plan to an
Eligible Participant until the expiration of any waiting period imposed by
applicable law for the effectiveness of the release of claims described in this
section.
(d) CERTAIN CLARIFICATIONS. For purposes of Section 4(a)(2)(i)
above, the fact that the Corporation or any Subsidiary may have divested all or
substantially all of its assets shall not, by itself, be deemed a significant
reduction in position, authority or responsibility. No Eligible Participant is
entitled to any payments under the Plan if
4
<PAGE>
such person is terminated by the Corporation or a Subsidiary for any reason
other than the reason identified in Section 4(a)(1) above, and no Eligible
Participant is entitled to any payments under the Plan if such person terminates
his employment for any reason other than the reasons identified in Section
4(a)(2) above. No Eligible Participant shall be entitled to any payments under
the Plan unless such person was employed by the Corporation or a Subsidiary at
the time of the applicable Change in Control.
5. NO OTHER PAYMENTS. The Plan supersedes and replaces any other plans
or arrangements of the Corporation or any Subsidiary currently in effect
providing for separation pay or benefits to any Eligible Participant in
connection with any restructuring or work-force reductions or terminations for
the reasons identified in Section 4(a)(2), and the Separation Pay payable under
the Plan is paid in lieu of and replaces any and all other such payments or
benefits payable by the Corporation or any Subsidiary under any other such plan
or arrangement, unless such other plan or arrangement provides for greater
aggregate payments and benefits to the Eligible Participant in connection with
any restructuring or work-force reductions or terminations for the reasons
identified in Section 4(a)(2), in which case the Eligible Participant shall be
entitled to receive the payments and benefits provided for in such other plan or
arrangement and shall not be entitled to any payments or benefits under this
Plan.
6. NO RIGHT TO EMPLOYMENT. Participation in the Plan does not confer
upon any Eligible Participant any right with respect to continuation of
employment by the Corporation or any Subsidiary, nor interfere with the right of
the Corporation or any Subsidiary to terminate the employee at any time.
7. ADMINISTRATIVE MATTERS. Corporate Management has the authority to
interpret and construe all provisions of the Plan and to make all determinations
deemed necessary or advisable with respect to the Plan and its administration,
including to determine an employee's eligibility to receive Separation Pay.
Participation in the Plan does not confer a right to participation in any
similar plan adopted in the future. The Plan is unfunded, and no amount will be
set aside for Separation Pay unless otherwise determined by Corporate
Management.
8. AMENDMENT. Corporate Management may amend the Plan or any Supplement
in its discretion at any time; provided that no amendment may reduce the level
or timing of benefits payable to any Eligible Participant without the
participant's consent.
9. BINDING EFFECT; OBLIGATIONS OF SUBSIDIARIES. All payments to be made
under the Plan to employees of a particular Subsidiary shall be the sole
obligation of the applicable Subsidiary, and neither the Corporation nor any
other Subsidiary shall have any obligation to make payments under the Plan to
any employee of the Subsidiary. The Plan shall not be terminated by any merger,
consolidation, share
5
<PAGE>
exchange, sale of assets or other reorganization of the Corporation or any
Subsidiary, and shall be binding upon the respective successors and assigns of
the Corporation and the Subsidiaries and their respective businesses.
10. GOVERNING LAW AND VENUE. This Plan shall be governed by and
construed in accordance with the laws of the State of Florida, without regards
to the conflict of law principles thereof. Any legal proceeding against the
Corporation relating to the Plan shall be brought in the state courts of the
State of Florida for Dade County, Florida or in the United States District Court
for the Southern District of Florida, and any legal proceeding against a
Subsidiary relating to this Plan shall be brought in the state or federal court,
as the case may be, which is closest to, and in the same state as, the principle
place of business of the Subsidiary, and the Corporation, each Subsidiary and
each Eligible Participant accepts the exclusive jurisdiction of those courts for
the purpose of any such legal proceeding. In addition, the Corporation, each
Subsidiary and each Eligible Participant irrevocably waive, to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any legal proceeding arising out of or relating to this
Plan brought in such jurisdiction, and further irrevocably waive any claim that
any legal proceeding brought in such jurisdiction was brought in an inconvenient
forum.
11. TERMINATION. This Plan shall terminate on the later of (1)
expiration of the Retention Period, with respect to the Corporation and any
Subsidiary which has not been the subject of a Change in Control, and (2) one
year following the date of any Change in Control with respect to the Corporation
or any Subsidiary which has been the subject of a Change in Control.
12. NOTICES. All notices required to be sent to the Corporation or any
Subsidiary pursuant to this Plan shall be sent to (1) in the case of the
Corporation, the Vice President of Human Resources of the Corporation, and (2)
in the case of a Subsidiary, the person responsible for the human resource
function at the Subsidiary.
13. GROSS-UP PAYMENT.
(a) GROSS-UP PAYMENT. In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by the Corporation or
a Subsidiary (the "PAYER") to or for the benefit of the Eligible Participant
(whether paid or payable or distributed or distributable pursuant to the terms
of this Plan or under the terms of any other plan, program, agreement or
arrangement) (a "PAYMENT") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "CODE") or any
interest or penalties are incurred by the Eligible Participant with respect to
such excise tax (such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the "EXCISE TAX"), the Eligible
Participant shall be entitled to receive an additional payment (a "GROSS-UP
PAYMENT") in an amount such that after payment by the Eligible Participant of
all taxes,
6
<PAGE>
including, without limitation, any income or employment taxes (including any
interest or penalties imposed with respect to all such taxes except those
imposed by reason of the Eligible Participant's failure to file timely a tax
return or to pay taxes shown due on the return) and the Excise Tax imposed upon
the Gross-Up Payment, the Eligible Participant retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) DETERMINATION OF GROSS-UP PAYMENT. An initial determination as
to whether a Gross-Up Payment is required pursuant to this Plan and the amount
of such Gross-Up Payment shall be made at the Payer's expense by an accounting
firm selected by the Payer that is one of the five largest accounting firms in
the United States (the "ACCOUNTING FIRM"). The Accounting Firm shall provide its
determination (the "DETERMINATION"), together with detailed supporting
calculations and documentation, to the Payer and the Eligible Participant within
twenty days of the date of the Eligible Participant's termination of employment
or such other time as requested by the Corporation, a Subsidiary or by the
Eligible Participant (provided the Eligible Participant reasonably believes that
any of the Payments may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by the Eligible Participant with
respect to a Payment, it shall furnish the Eligible Participant with an opinion
that no Excise Tax will be imposed with respect to any such Payment. The
Gross-Up Payment, if any, as determined pursuant to this section shall be paid
by the Payer within five days of the receipt of the Determination. The
Determination shall be binding, final and conclusive upon the Payer and the
Eligible Participant, subject to the application of subsection (c).
(c) ADJUSTMENT IN PAYMENT. As a result of uncertainty in the
application of Section 280G and Section 4999 of the Code at the time of the
Determination hereunder, it is possible that the Payer may make Gross-Up
Payments that should not have been made (an "OVERPAYMENT") or that additional
Gross-Up Payments are due (an "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 Eligible Participant or the Payer, as the case may be, which the
Accounting Firm believes has a high probability of success, determines that an
Overpayment or Underpayment has been made, adjustment shall be made as provided
herein. Any Overpayment by the Payer to or for the benefit of the Eligible
Participant shall be treated for all purposes as a loan to the Eligible
Participant that the Eligible Participant shall repay to the Payer 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 Eligible Participant to the Payer if and
to the extent such deemed loan and payment would not either reduce the amount on
which the Eligible Participant 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 promptly be paid by the Payer to or for the
7
<PAGE>
benefit of the Eligible Participant together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
Dated: March 31, 1997
8
EXHIBIT 10.2
IVAX CORPORATION
1997 EXECUTIVE RETENTION PLAN
SUPPLEMENT
The following Supplement to the Corporation's 1997 Executive Retention
Plan is applicable to the employee designated below and (i) sets forth the
definitions of Benefit Period, Retention Period and Separation Pay under the
Plan with respect to such employee, and (ii) supplements and amends the Plan
with respect to such employee to the extent set forth below. Capitalized terms
used but not defined in this Supplement have the meanings given to them in the
Plan. This Supplement is not valid unless executed by the Corporation's
President or Vice President, Human Resources.
Eligible Participant Robert C. Strauss
Position President and Chief Operating Officer
Benefit Period Three years
Retention Period Three years
Separation Pay 3.00 times the higher of (i) the Eligible
Participant's base annual salary at the time of
termination, or (ii) the highest annual
compensation in the form of base salary plus
bonus paid to the Eligible Participant by the
Corporation or a Subsidiary during any of the
three calendar years preceding the date of
termination.
Section 4(a) of the Plan is amended in its entirety to read as follows
with respect to the Eligible Participant identified above:
(a) TRIGGER EVENT. Subject to Section 4(c), the Eligible
Participant shall be entitled to receive applicable Separation Compensation if
during the Retention Period a Change in Control occurs with respect to the
Corporation and within one year following such Change in Control, (1) the
Eligible Participant's employment is terminated by the Corporation, or (2) the
Eligible Participant terminates his employment with the Corporation for any
reason, provided that the Eligible Participant shall not be entitled to
Separation Compensation under this clause (2) if he terminates his employment
within 90 days after the Change in Control, and provided further, that
<PAGE>
the Eligible Participant shall not be entitled to Separation Compensation under
this clause (2) unless he has provided the Corporation with at least 30 days
written notice of termination.
The following Section 14 is added to the Plan with respect to the
Eligible Participant identified above:
14. ATTORNEYS FEES. The Corporation shall reimburse the Eligible
Participant for all legal fees and expenses, if any, incurred by the Eligible
Participant in connection with any contest or dispute arising under the Plan
involving termination of the Eligible Participant's employment with the
Corporation or involving the failure or refusal of the Corporation to perform
fully in accordance with the term of the Plan if the Eligible Participant is the
prevailing party in such contest or dispute.
Authorized: /S/ EDWARD J. O'BRIEN Date: March 31, 1997
---------------------
Edward J. O'Brien
Vice President, Human Resources
IVAX Corporation
EXHIBIT 10.3
IVAX CORPORATION
1997 EXECUTIVE RETENTION PLAN
SUPPLEMENT
The following Supplement to the Corporation's 1997 Executive Retention
Plan is applicable to the employee designated below and sets forth the
definitions of Benefit Period, Retention Period and Separation Pay under the
Plan with respect to such employee. Capitalized terms used but not defined in
this Supplement have the meanings given to them in the Plan. This Supplement is
not valid unless executed by the Corporation's President or Vice President,
Human Resources.
Eligible Participant
Position
Benefit Period Three years
Retention Period Three years
Separation Pay 3.00 times the higher of (i) the Eligible
Participant's base annual salary at the time of
termination, or (ii) the highest annual
compensation in the form of base salary plus
bonus paid to the Eligible Participant by the
Corporation or a Subsidiary during any of the
three calendar years preceding the date of
termination.
Authorized: Date: March 31, 1997
---------------------------------
Edward J. O'Brien
Vice President, Human Resources
IVAX Corporation
<TABLE>
<CAPTION>
EXHIBIT 11
IVAX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In thousands, except per share data)
PERIOD ENDED MARCH 31, THREE MONTHS
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item $ (7,939) $ 35,896
Extraordinary item net of tax - (1)
------------ ------------
Net income (loss) for primary computation $ (7,939) $ 35,895
============ ============
Average number of common and dilutive
common equivalent shares-primary 121,479 121,379
============ ============
Earnings (loss) before extraordinary item $ (.07) $ .30
=========== ============
Net earnings (loss) $ (.07) $ .30
=========== ============
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item $ (7,939) $ 35,896
Adjustment for interest expense on 9.00%
Convertible Subordinated Debentures,
net of tax - -
------------ ------------
Adjusted income (loss) before extraordinary
item for fully diluted calculation (7,939) 35,896
Extraordinary item, net of tax - (1)
------------ ------------
Net income (loss) for fully diluted computation $ (7,939) $ 35,895
============ ============
Average number of common and dilutive
common equivalent shares-fully diluted 121,479 121,384
============ ============
Earnings (loss) before extraordinary item $ (.07) $ .30
=========== ============
Net earnings (loss) $ (.07) $ .30
=========== ============
AVERAGE NUMBER OF COMMON SHARES AND
DILUTIVE COMMON SHARES EQUIVALENTS
Primary shares:
Average number of common shares outstanding 121,479 119,831
Incremental shares for options and warrants - 1,548
------------ ------------
121,479 121,379
============ ============
Fully diluted shares:
Average number of common shares outstanding 121,479 119,831
Incremental shares for options and warrants - 1,553
Conversion equivalent of 9.00% Convertible
Subordinated Debentures - -
------------ ------------
121,479 121,384
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 74,812
<SECURITIES> 0
<RECEIVABLES> 207,912<F1>
<ALLOWANCES> 0
<INVENTORY> 271,124
<CURRENT-ASSETS> 690,427
<PP&E> 423,538<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,338,433
<CURRENT-LIABILITIES> 217,177
<BONDS> 411,982
0
0
<COMMON> 12,148
<OTHER-SE> 665,082
<TOTAL-LIABILITY-AND-EQUITY> 1,338,433
<SALES> 284,550
<TOTAL-REVENUES> 284,550
<CGS> 182,985
<TOTAL-COSTS> 182,985
<OTHER-EXPENSES> 110,908
<LOSS-PROVISION> 3,234
<INTEREST-EXPENSE> 7,819
<INCOME-PRETAX> (9,688)
<INCOME-TAX> (3,221)
<INCOME-CONTINUING> (7,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,939)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0<F3>
<FN>
<F1> AMOUNT SHOWN IS NET OF ALLOWANCES.
<F2> AMOUNT SHOWN IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F3> AMOUNT IS ANTIDILUTIVE.
</FN>
</TABLE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
IVAX ANNOUNCES 1997 FIRST QUARTER RESULTS
STRATEGIC DISPOSITIONS MOVING FORWARD
FROST TO NAME STRAUSS AS CEO LATER THIS YEAR
Miami, Florida -- May 6, 1997 -- IVAX Corporation (AMEX:IVX) today
reported financial results for the quarter ended March 31, 1997.
Net loss per share for the 1997 first quarter was $.07, compared to a
net loss per share of $.02 in the 1996 fourth quarter and net earnings per share
of $.30 in the 1996 first quarter. Net loss for the 1997 first quarter was $7.9
million, compared to a net loss of $2.0 million in the 1996 fourth quarter and
net income of $35.9 million in the 1996 first quarter. Net revenues for the 1997
first quarter were $284.6 million, compared to $320.7 million in the 1996 fourth
quarter and $334.0 million in the 1996 first quarter. Gross profit for the 1997
first quarter was $101.6 million, compared to $118.7 million in the 1996 fourth
quarter and $144.5 million in the 1996 first quarter.
The 1996 fourth quarter results included the recognition of $26.5
million in income under a license agreement relating to IVAX' Easi-Breathe(TM)
inhaler.
"Although we continue to face challenges in the U.S. generic drug
industry, in the first quarter we saw two encouraging trends continue from the
1996 fourth quarter," said Michael W. Fipps, IVAX' Chief Financial Officer.
"First, although prices for our products declined, we did not experience the
extreme declines that we saw in mid-1996. This is due in part to the fact that
we deliberately cut back our price discounts and buy-in incentives. Second, and
as a result of these cut backs, our customer inventories have continued to
decline. They now stand at levels that we are comfortable with under the present
circumstances in our competitive industry. While the reduction of discounts and
incentives did restrain sales in the quarter, we believe this pricing discipline
was vital to improving our business."
Robert C. Strauss, IVAX' President and Chief Operating Officer added:
"Our U.S. generic drug business has improved from mid-1996 but, like all generic
drug companies, profitability ultimately will be driven in part by something not
entirely within IVAX' control -- the timely receipt of new generic drug
approvals. Something that IS within IVAX' control, however, is the recognition
of shareholder value through the sale of non-strategic businesses. I have the
direction and support of our Board and our Chairman to take all appropriate
action to recognize this value quickly as we
<PAGE>
IVAX Corporation Press Release
April 6, 1997
Page 2
narrow and define IVAX' strategic focus. This is our top priority, and the
entire IVAX management team is driving hard to accomplish this goal."
"We are undergoing many important transitions at IVAX," said Phillip
Frost, M.D., IVAX' Chairman and Chief Executive Officer. "Existing operations
are in transition as we work to return our U.S. generics business to its
leadership position in the industry. Our revenue base is in transition as we
gradually move towards the more dependable profitability of proprietary drugs.
Most fundamentally, our strategic vision is in transition as we constructively
challenge every assumption upon which we built this company. In his two months
as President, Bob Strauss has made great strides in furthering this process. In
that short time, my high regard for his leadership has been further elevated,
and he has earned the trust and respect of our management team through his hard
work, good ideas and common sense style. I have determined that, ten years after
founding IVAX, it is time to initiate yet another transition. In this regard, I
will be recommending that Bob be appointed to the office of CEO, effective later
this year at IVAX' annual shareholders' meeting. I will continue to serve as
IVAX' Chairman, and in that role will maintain active involvement in the
direction and future success of IVAX."
IVAX Corporation, headquartered in Miami Florida, is a holding company
with subsidiaries engaged primarily in the research, development, manufacture
and marketing of health care products, including generic and branded
pharmaceuticals, intravenous solutions and related products, and IN VITRO
diagnostics.
EXCEPT FOR THE HISTORICAL MATTERS CONTAINED HEREIN, STATEMENTS IN THIS
PRESS RELEASE ARE FORWARD LOOKING AND ARE MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995. INVESTORS ARE
CAUTIONED THAT FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH
MAY AFFECT THE COMPANY'S BUSINESS AND PROSPECTS, INCLUDING ECONOMIC,
COMPETITIVE, GOVERNMENTAL, TECHNOLOGICAL AND OTHER FACTORS DISCUSSED IN IVAX'
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONTACTS:
Michael W. Fipps - or - Joseph C. Jones
Senior Vice President - Finance Vice President -
and Chief Financial Officer Corporate Communications
305-575-6123 305-575-6042
<PAGE>
IVAX CORPORATION PRESS RELEASE
MAY 6, 1997
PAGE 3 OF 4
RESULTS OF OPERATIONS THREE MONTHS
PERIOD ENDED MARCH 31, 1997 1996
-------- --------
(In thousands, except per share data)
Net revenues $284,550 $334,045
Cost of sales 182,985 189,570
-------- --------
Gross profit 101,565 144,475
Selling, general and administrative 89,934 79,463
Research and development 16,873 16,522
Amortization 2,006 2,563
Merger expenses 2,095 184
-------- --------
Total operating expenses 110,908 98,732
-------- --------
Income (loss) from operations (9,343) 45,743
Total other income (expense), net (345) (1,530)
-------- --------
Income (loss) before income taxes,
minority interest and
extraordinary items (9,688) 44,213
Provision (benefit) for income taxes (3,221) 6,133
-------- --------
Income (loss) before minority interest and
extraordinary items (6,467) 38,080
Minority interest (1,472) (2,184)
-------- --------
Income (loss) before extraordinary items (7,939) 35,896
Extraordinary items - Gains (losses) on
extinguishment of debt, net of tax - (1)
-------- --------
NET INCOME (LOSS) $ (7,939) $ 35,895
======== ========
EARNINGS (LOSS) PER SHARE:
Earnings (loss) before
extraordinary items $ (0.07) $ 0.30
Extraordinary items - -
-------- --------
Net earnings (loss) $ (0.07) $ 0.30
======== ========
AVERAGE SHARES OUTSTANDING: 121,479 121,379
======== ========
<PAGE>
IVAX CORPORATION PRESS RELEASE
MAY 6, 1997
PAGE 4 OF 4
CONDENSED BALANCE SHEETS MARCH 31, DECEMBER 31,
(In thousands) 1997 1996
---------- ----------
ASSETS
Current assets $ 690,427 $ 766,621
Property, plant and equipment, net 423,538 414,711
Other assets 224,468 220,568
---------- ----------
Total assets $1,338,433 $1,401,900
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 5,741 $ 5,860
Other current liabilities 211,436 225,488
Long-term debt 411,982 443,424
Other long-term liabilities 17,073 17,432
Minority interest 14,971 14,568
Shareholders' equity 677,230 695,128
---------- ----------
Total liabilities and
shareholders' equity $1,338,433 $1,401,900
========== ==========
BUSINESS SEGMENT FINANCIAL HIGHLIGHTS
PERIOD ENDED MARCH 31, THREE MONTHS
(In thousands) 1997 1996
---------- ----------
NET REVENUES:
Pharmaceuticals $ 163,672 $ 212,130
Intravenous products 82,593 83,203
Other operations 39,107 39,244
Intersegment eliminations (822) (532)
---------- ----------
Total $ 284,550 $ 334,045
========== ==========
GROSS PROFIT:
Pharmaceuticals $ 55,172 $ 99,384
Intravenous products 28,968 26,828
Other operations 17,425 18,263
---------- ----------
Total $ 101,565 $ 144,475
========== ==========
INCOME (LOSS) FROM OPERATIONS:
Pharmaceuticals $ (5,701) $ 46,970
Intravenous products 4,627 2,514
Other operations 808 1,277
Corporate expenses and other (9,077) (5,018)
---------- ----------
Total $ (9,343) $ 45,743
========== ==========
