<PAGE> 1
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 SEPTEMBER 30, 1999
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.
105,520,912 SHARES OF COMMON STOCK, $.10 PAR VALUE,
OUTSTANDING AS OF OCTOBER 30, 1999.
<PAGE> 2
IVAX CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 2
Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 21
Item 6 - Exhibits and Reports on Form 8-K 22
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 68,003 $ 208,593
Accounts receivable, net of allowances for doubtful
accounts of $22,752 in 1999 and $22,834 in 1998 100,843 109,732
Inventories 145,051 135,324
Other current assets 24,982 33,143
------------- -------------
Total current assets 338,879 486,792
Property, plant and equipment, net 210,546 210,228
Intangible assets, net 52,213 56,150
Other assets 28,735 24,845
------------- -------------
Total assets $ 630,373 $ 778,015
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 703 $ 1,229
Current portion of long-term debt 758 890
Accounts payable 36,916 48,614
Accrued income taxes payable 7,932 5,082
Accrued expenses and other current liabilities 159,887 161,466
------------- -------------
Total current liabilities 206,196 217,281
Long-term debt, net of current portion 45,713 77,776
Other long-term liabilities 11,287 12,617
Minority interest 9,965 17,133
Put options 20,188 -
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 105,492 shares (114,835 in 1998) 10,549 11,484
Capital in excess of par value 305,007 453,293
Retained earnings (accumulated deficit) 41,912 (700)
Accumulated other comprehensive loss (20,444) (10,869)
------------- -------------
Total shareholders' equity 337,024 453,208
------------- -------------
Total liabilities and shareholders' equity $ 630,373 $ 778,015
============= =============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
2
<PAGE> 4
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, THREE MONTHS NINE MONTHS
(In thousands, except per share data) 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $ 168,874 $ 158,757 $ 472,831 $ 459,651
COST OF SALES 90,512 97,626 263,012 288,517
---------- ---------- ---------- ----------
Gross profit 78,362 61,131 209,819 171,134
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling 19,280 19,606 55,551 59,236
General and administrative 22,963 22,544 65,439 63,449
Research and development 13,351 12,786 38,129 39,882
Amortization of intangible assets 973 980 2,122 2,554
Restructuring costs 586 12,865 586 13,561
---------- ---------- ---------- ----------
Total operating expenses 57,153 68,781 161,827 178,682
---------- ---------- ---------- ----------
Income (loss) from operations 21,209 (7,650) 47,992 (7,548)
OTHER INCOME (EXPENSE):
Interest income 1,214 3,590 5,381 8,575
Interest expense (1,024) (1,808) (3,711) (5,347)
Other income, net 40 13,414 2,605 17,689
---------- ---------- ---------- ----------
Total other income, net 230 15,196 4,275 20,917
---------- ---------- ---------- ----------
Income from continuing operations before
income taxes and minority interest 21,439 7,546 52,267 13,369
PROVISION FOR INCOME TAXES 4,119 604 10,604 5,631
---------- ---------- ---------- ----------
Income from continuing operations
before minority interest 17,320 6,942 41,663 7,738
MINORITY INTEREST (391) 546 (1,897) (334)
---------- ---------- ---------- ----------
Income from continuing operations 16,929 7,488 39,766 7,404
INCOME FROM DISCONTINUED OPERATIONS 5 40,733 585 40,733
---------- ---------- ---------- ----------
Income before extraordinary item and cumulative
effect of a change in accounting principle 16,934 48,221 40,351 48,137
EXTRAORDINARY ITEM - gains on
extinguishment of debt, net of taxes 475 315 593 315
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, net of tax -- -- -- (3,048)
---------- ---------- ---------- ----------
NET INCOME $ 17,409 $ 48,536 $ 40,944 $ 45,404
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS
PER COMMON SHARE:
Continuing operations $ .16 $ .06 $ .36 $ .06
Discontinued operations -- .35 .01 .35
Cumulative effect of a change in
accounting principle -- -- -- (.03)
---------- ---------- ---------- ---------
Net earnings $ .16 $ .41 $ .37 $ .38
========== ========== ========== =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 106,149 118,974 109,071 119,923
========== ========== ========== ==========
Diluted 108,176 119,254 110,806 120,039
========== ========== ========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE> 5
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
(In thousands) ------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 40,944 $ 45,404
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring costs 586 13,561
Depreciation and amortization 19,627 23,575
Deferred tax (benefit) provision (2,227) 1,731
Provision for allowances for doubtful accounts 3,850 5,669
Gain on the sale of product rights -- (15,000)
Losses on disposal of assets 762 1,368
Gains on extinguishment of debt (912) (315)
Cumulative effect of a change in accounting principle -- 3,048
Minority interest 1,897 334
Equity in earnings of affiliates (225) (1,249)
Income from discontinued operations (585) (40,733)
Changes in assets and liabilities:
Decrease in accounts receivable 2,691 16,522
(Increase) decrease in inventories (12,709) 4,602
Decrease (increase) in other current assets 7,072 (13,440)
(Increase) decrease in other assets (678) 3,874
Decrease in accounts payable, accrued expenses
and other current liabilities (11,269) (24,364)
(Decrease) increase in other long-term liabilities (1,199) 819
Other, net -- 818
Net cash provided by discontinued operations 585 5,580
------------- -------------
Net cash provided by operating activities 48,210 31,804
------------- -------------
Cash flows from investing activities:
Proceeds from divestitures -- 87,885
Capital expenditures (23,710) (35,138)
Proceeds from sale of assets 907 17,086
Acquisitions of patents, trademarks, licenses
and other intangibles (344) (19,524)
Acquisitions of businesses and other (5,277) --
Other 787 --
Net investing activities of discontinued operations -- (202)
------------- -------------
Net cash (used for) provided by investing activities (27,637) 50,107
------------- -------------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 2,554 761
Payments on long-term debt and loans payable (33,835) (14,243)
Issuance of common stock 8,320 1,491
Repurchase of common stock (137,352) (34,501)
------------- -------------
Net cash used for financing activities (160,313) (46,492)
------------- -------------
Effect of exchange rate changes on cash (850) 325
------------- -------------
Net (decrease) increase in cash and cash equivalents (140,590) 35,744
Cash and cash equivalents at the beginning of the year 208,593 199,235
------------- -------------
Cash and cash equivalents at the end of the period $ 68,003 $ 234,979
============= =============
Supplemental disclosures:
Interest payments $ 3,069 $ 3,592
============= =============
Income tax payments $ 6,777 $ 14,793
============= =============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE> 6
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
(1) GENERAL:
The accompanying unaudited, condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and, therefore, do not include all
information normally included in audited financial statements. However, in the
opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the results of operations, financial
position and cash flows have been made. The results of operations and cash
flows for the nine months ended September 30, 1999 are not necessarily
indicative of the results of operations or cash flows which may be reported for
the remainder of 1999. 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's Annual Report on Form
10-K for the year ended December 31, 1998.
Certain amounts presented in the condensed consolidated financial
statements for prior periods have been reclassified to conform to the current
period's presentation.
(2) INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 61,285 $ 47,528
Work in process 26,375 27,878
Finished goods 57,391 59,918
-------------- -------------
$ 145,051 $ 135,324
============== =============
</TABLE>
(3) EARNINGS PER SHARE:
A reconciliation of the shares used in calculating basic and diluted
earnings per share is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, THREE MONTHS NINE MONTHS
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic 106,149 118,974 109,071 119,923
Effect of dilutive securities - stock options 2,027 280 1,735 116
------- ------- ------- -------
Diluted 108,176 119,254 110,806 120,039
======= ======= ======= =======
Not included in the calculation of diluted earnings
per share because their impact is antidilutive:
Stock options 2,121 4,665 2,245 7,096
Convertible debentures 1,375 2,719 1,375 2,719
Put options written 1,500 -- 1,500 --
</TABLE>
5
<PAGE> 7
(4) REVENUES:
Net revenues are comprised of gross revenues less provisions for
expected customer returns, inventory credits, discounts, promotional
allowances, volume rebates, chargebacks and other allowances. These sales
provisions totaled $93,349 and $105,130 for the nine months ended September 30,
1999 and 1998, respectively, and $34,735 and $34,703 for the three months ended
September 30, 1999 and 1998, respectively. The reserve balances related to
these provisions are included in "Accounts receivable, net of allowances for
doubtful accounts" and "Accrued expenses and other current liabilities" in the
accompanying condensed consolidated balance sheets in the amounts of $42,551
and $66,279, respectively, at September 30, 1999, and $44,997 and $73,343,
respectively, at December 31, 1998.
(5) ACQUISITIONS:
During the first nine months of 1999, IVAX, through its Netherlands
subsidiary IVAX International B.V., purchased 345 additional shares of Galena,
a.s., its majority-owned subsidiary in the Czech Republic. The total cost of
the shares acquired through open market transactions and a tender offer
(between May 19 and July 19) during the first nine months of 1999 was $4,978.
The net book value underlying the shares purchased was $7,046 resulting in
negative goodwill of $2,068 being recorded in the accompanying condensed
consolidated balance sheet at September 30, 1999. Prior to these purchases,
IVAX owned 74% of the outstanding shares of Galena, a.s. At September 30, 1999,
IVAX owned 86% of the outstanding shares of Galena, a.s.
On August 9, 1999, IVAX acquired a 30% interest in Indiana Protein
Technologies (IPT), a U.S. biotechnology research company, in exchange for a
development agreement in which IVAX, through its U.S. subsidiary, Baker Norton
Pharmaceuticals, will fund research and development of certain peptide-based
biotech pharmaceutical products. As of September 30, 1999, $500,000 has been
provided to IPT for research and development costs. In the event that these
projects are successful, IVAX will receive an exclusive worldwide license to
market the products, with a royalty payable to IPT on profits from the sale of
the products.
(6) RESTRUCTURING COSTS:
The components of restructuring costs, spending and other activity, as
well as the remaining reserve balances at September 30, 1999, which are
included in "Accrued expenses and other current liabilities" in the
accompanying condensed consolidated balance sheets, are as follows:
<TABLE>
<CAPTION>
EMPLOYEE
TERMINATION PLANT
BENEFITS CLOSURES TOTAL
----------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1998 $5,774 $ 8,260 $14,034
1999 Restructuring costs 586 -- 586
Cash payments during 1999 (2,951) (2,545) (5,496)
Non-cash activity 139 (326) (187)
------ ------- -------
Balance at September 30, 1999 $3,548 $ 5,389 $ 8,937
====== ======= =======
</TABLE>
6
<PAGE> 8
(7) DISCONTINUED OPERATIONS:
Results of discontinued operations included in the accompanying
condensed consolidated statements of operations, were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, THREE MONTHS NINE MONTHS
(In thousands) ------------------------------- -------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Personal Care Products
Net revenues $ -- $ 3,657 $ -- $ 42,583
============= ============== ============= ==============
Divestitures (1)
Pre-tax gain on divestitures $ 5 $ 40,733 $ 585 $ 40,733
Income tax provision -- -- -- --
------------- -------------- ------------- --------------
Net gain on divestitures 5 40,733 585 40,733
------------- -------------- ------------- --------------
Total income from discontinued operations $ 5 $ 40,733 $ 585 $ 40,733
============= ============== ============= ==============
</TABLE>
(1) Amounts in 1999 represent principal and interest on a note receivable
from the 1998 sale of one of the personal care products subsidiaries.
(8) DEBT:
On August 11, 1999, IVAX's Board of Directors approved an increase of
$15,000, in addition to previous authorizations, of 6 1/2% Convertible
Subordinated Notes that may be repurchased. During the first nine months of
1999, IVAX repurchased a total of $31,405 face value of 6 1/2% Convertible
Subordinated Notes that were scheduled to mature in November 2001. An
extraordinary gain of $593, net of taxes of $319, was recorded in connection
with these repurchases. The outstanding face value of Convertible Subordinated
Notes was $43,661 and $75,066 at September 30, 1999 and December 31, 1998,
respectively.
(9) INCOME TAXES:
The provision for income taxes is based on the consolidated United
States entities' and individual foreign companies' estimated tax rates for the
applicable year. IVAX utilizes the asset and liability method, and deferred
taxes are determined based on the estimated future tax effects of differences
between the financial accounting and tax bases of assets and liabilities under
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.
7
<PAGE> 9
The provision for income taxes from continuing operations consists of
the following:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, THREE MONTHS NINE MONTHS
(In thousands) ------------------------------- -------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Current:
United States $ -- $ -- $ 1,869 $ --
Foreign, including Puerto Rico
and U.S. Virgin Islands 3,322 (179) 10,962 3,900
Deferred 797 783 (2,227) 1,731
------------- -------------- ------------- --------------
Provision for income taxes $ 4,119 $ 604 $ 10,604 $ 5,631
============= ============== ============= ==============
</TABLE>
IVAX recognized a $10,604 tax provision for the nine months ended
September 30, 1999, of which $14,295 relates to foreign operations and includes
a valuation allowance of $4,056 recorded in the second quarter against the UK
deferred tax asset due to continuing losses within the taxing jurisdiction.
Offsetting the impact of the foreign provision was a net credit for domestic
taxes of $3,691 resulting primarily from the reversal, in the second quarter,
of $5,500 of valuation allowances previously recorded against the domestic net
deferred tax asset due to management's determination that the realizability of
approximately $6,000 in domestic deferred tax assets was more likely than not.
At September 30, 1999, the domestic net deferred tax asset includes a valuation
allowance of $85,129 or 93% of the deferred tax asset balance.
As of September 30, 1999, a domestic net deferred tax asset of $6,050
and a foreign net deferred tax asset of $14,723 are included in "Other current
assets" and "Other assets" in the accompanying condensed consolidated balance
sheet. Realization of the net deferred tax assets is dependent upon generating
sufficient future domestic and foreign taxable income. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets will be realized.
(10) SHAREHOLDERS' EQUITY:
IVAX's Board of Directors approved increases of 5,000 and 1,500 shares
on April 13, 1999 and June 17, 1999, respectively, in the share repurchase
program authorizing IVAX to repurchase up to a total of 19,000 shares of IVAX
common stock. From January 1, 1999 through September 30, 1999, IVAX repurchased
10,296 shares of common stock at a total cost, including commissions, of
$139,406. Cumulatively through September 30, 1999, IVAX repurchased 17,376
shares of common stock at a total cost, including commissions, of $205,337.
During the second quarter of 1999, IVAX issued 1,500 free-standing put
options for IVAX common stock in connection with its Share Repurchase Program,
as approved by the Board of Directors. These put options bear strike prices
ranging from $13.44 to $13.50, will mature between March 2000 and June 2000,
and generated premiums totaling $2,079 which were credited to Capital in excess
of par value in the accompanying condensed consolidated balance sheet at
September 30, 1999. In the event the put options are exercised, IVAX may elect
to settle by one of three methods: physical settlement by payment in exchange
for IVAX shares, net cash settlement or net share settlement. The maximum
potential repurchase obligation of $20,188 for physical settlement has been
reclassified from Capital in excess of par value into a temporary equity
account - "Put options" in the accompanying condensed consolidated balance
sheet at September 30, 1999. In the event the put options expire unexercised,
the obligation associated with these instruments will be extinguished. At
September 30, 1999, the market value of IVAX's common stock exceeded the strike
prices of the put options.
8
<PAGE> 10
On February 26, 1999, IVAX's Board of Directors approved an increase
to 8,000 shares of IVAX common stock that may be issued under the 1997 Employee
Stock Option Plan.
On June 17, 1999, the 1999 Employee Stock Purchase Plan was approved
at the Annual Meeting of Shareholders. The Board of Directors also approved the
purchase of common stock in the open market as needed, for the 1999 Employee
Stock Purchase Plan.
Effective June 29, 1999, the Board of Directors of IVAX Diagnostics,
Inc., a wholly-owned subsidiary of IVAX, approved the IVAX Diagnostics, Inc.
1999 Stock Option Plan. The plan permits the issuance of options to employees,
non-employee directors and consultants of IVAX Diagnostics to purchase up to
1,460 shares of the 14,600 authorized shares of IVAX Diagnostics, Inc. Under
the plan, "Value per share" prior to an Initial Public Offering ("IPO") means
net book value per share adjusted for any capital contributions by IVAX and
assuming full dilution by options granted, and after an IPO, fair market value.
Options cannot be exercised within the first four years of the plan unless an
IPO has been consummated, except on termination of employment other than for
cause. If employment terminates other than for cause after June 28, 2001 but
before June 29, 2003, the options convert to the right to receive cash equal to
the excess of Value per share over the exercise price per share. If an IPO has
not been consummated by June 29, 2003, the options convert to the right to
receive cash equal to the excess of Value per share over the exercise price per
share. If, prior to the consummation of an IPO, there is a change in control,
as defined in the plan, options granted become fully vested and exercisable
prior to the change in control and, to the extent not exercised, terminate on
consummation of the transaction. On June 29, 1999, non-qualified options for
796 shares of common stock were granted with an exercise price of $1 per share,
a vesting schedule of 50% at the end of year 2 and 25% at the end of years 3
and 4 and an expiration date of June 28, 2006. Options granted under the plan
will be recorded using variable plan accounting.
(11) COMPREHENSIVE INCOME:
The components of IVAX's comprehensive income are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, THREE MONTHS NINE MONTHS
(In thousands) ------------------------------- -------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 17,409 $ 48,536 $ 40,944 $ 45,404
Unrealized gains (losses) on marketable
securities, net of taxes (51) 72 (26) 49
Foreign currency translation adjustments 12,580 9,438 (9,548) 14,676
------------- -------------- ------------- --------------
Comprehensive income $ 29,938 $ 58,046 $ 31,370 $ 60,129
============= ============== ============= ==============
</TABLE>
(12) BUSINESS SEGMENT INFORMATION:
Other revenues included in "Net revenues" in the accompanying
condensed consolidated statements of operations consist of license fees and
royalties totaling $40,565 and $35,584 for the nine months ended September 30,
1999 and 1998, respectively. Settlement proceeds from patent litigation with
Abbott Laboratories in the amount of $16,387 and $12,000 are included in other
revenues during the first nine months of 1999 and 1998, respectively. See Note
14, Commitments and Contingencies in IVAX's Annual Report on Form 10-K for the
year ended December 31, 1998.
9
<PAGE> 11
(13) LEGAL PROCEEDINGS:
During the second quarter of 1999, IVAX received $3.2 million in
settlement of a patent infringement lawsuit, which is included as a reduction
of "General and administrative expenses" in the accompanying condensed
consolidated statement of operations.
On July 9, 1999, the United States District Court for the Southern
District of Florida dismissed with prejudice the securities class action
lawsuit originally filed in November 1996 against IVAX and certain of its
current and former officers and directors. Plaintiffs have filed an appeal,
which remains pending.
On July 13, 1999, Walgreen Co. filed an action in the United States
District Court for the Southern District of Florida against Abbott
Laboratories, Geneva Pharmaceuticals and Zenith Goldline Pharmaceuticals,
IVAX's domestic pharmaceutical subsidiary, alleging a violation of Section 1 of
the Sherman Antitrust Act. Plaintiff alleges that, by settling patent-related
litigation against Abbott in exchange for quarterly payments, the defendants
engaged in an unlawful restraint of trade. The complaint seeks unspecified
treble damages and injunctive relief. This case has been consolidated with
Louisiana Wholesale Drug Co. v. Abbott Laboratories, Geneva Pharmaceuticals
and Zenith Goldline Pharmaceuticals. See Item 3, Legal Proceedings, and Note
14, Commitments and Contingencies, in IVAX'S Annual Report on Form 10-K for the
year ended December 31, 1998. Two additional class action lawsuits containing
allegations similar to those in the Walgreen suit were filed on August 30, 1999
and October 26, 1999 by Drug Mart Pharma and Char-Mar Pharmacy, respectively.
On July 27, 1999, the United States District Court of Appeals for the
Eleventh Circuit affirmed the dismissal of a securities class action lawsuit
originally filed in 1997 against IVAX, its chairman and its former chief
financial officer. Plaintiffs have filed a motion for re-hearing, which remains
pending.
Zenith Goldline Pharmaceuticals, Inc. ("Zenith"), a wholly-owned
subsidiary of IVAX, has been named in a number of individual and class action
lawsuits in both state and federal courts involving the diet drug combination
of fenfluramine and phentermine, commonly known as "fen-phen". Generally, these
lawsuits seek damages for personal injury, wrongful death and loss of
consortium, as well as punitive damages, under a variety of liability theories
including strict products liability, breach of warranty and negligence. Zenith
did not manufacture either fenfluramine or phentermine, but did distribute the
generic version of phentermine manufactured by Eon Labs Manufacturing, Inc.
("Eon") and Camall Company. Although Zenith had a very small market share, to
date Zenith has been named in approximately 3,655 cases and has been dismissed
from approximately 291 cases, with an additional 1,600 dismissals pending.
Zenith intends to vigorously defend all of the lawsuits, and while management
believes that its defense will succeed, as with any litigation, there can be no
assurance of this. Currently Zenith is being defended and indemnified by Eon.
In the event that Eon discontinues providing this defense and indemnity, Zenith
has its own product liability insurance. While Zenith's insurance carriers
have issued reservations of rights, Zenith believes that it has adequate
coverage. Although it is impossible to predict with certainty the outcome of
litigation, in the opinion of management, this litigation will not have a
material adverse impact on the financial condition or results of operation of
IVAX.
10
<PAGE> 12
(14) RECENTLY ISSUED ACCOUNTING STANDARDS:
IVAX is required to adopt SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, amends the effective date of SFAS No. 133 to all fiscal
quarters beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity shall recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
Management believes that the adoption of SFAS No. 133 will not have a material
impact on IVAX's consolidated financial statements.
(15) SUBSEQUENT EVENT:
On October 12, 1999, IVAX, through its Netherlands subsidiary IVAX
International B.V., acquired 100% ownership of the Institute for Drug Research,
Ltd., a pharmaceutical research and development company in Budapest, Hungary,
for $6,607 in cash.
11
<PAGE> 13
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's Annual Report on Form
10-K for the year ended December 31, 1998 and the condensed consolidated
financial statements and the related notes to condensed consolidated financial
statements included in Item 1 of this Quarterly Report. Except for historical
information contained herein, the matters discussed below are forward-looking
statements made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such statements involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting IVAX's operations, markets, products and
prices, and other factors discussed elsewhere in this report and the documents
filed by IVAX with the Securities and Exchange Commission ("SEC"). These
factors may cause IVAX's results to differ materially from the forward looking
statements made in this report or otherwise made by or on behalf of IVAX.
Certain prior period amounts presented herein have been reclassified
to conform to the current period's presentation.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net income was $40.9 million for the nine months ended September 30,
1999, compared to $45.4 million for the nine months ended September 30, 1998.
Income from continuing operations for the nine months ended September 30, 1999
was $39.8 million, compared to $7.4 million for the same period of the prior
year. Results for the nine months ended September 30, 1998 included $40.7
million of income from discontinued operations and a $3.0 million charge
resulting from the write-off of start-up costs previously capitalized which was
reflected as a cumulative effect of a change in accounting principle.
Earnings per common share were $.37 for the nine months ended
September 30, 1999 compared to $.38 for the same period of the prior year.
Earnings per common share from continuing operations were $.36 for the nine
months ended September 30, 1999 compared to $.06 for the same period in the
prior year. For the nine months ended September 30, 1998, discontinued
operations resulted in $.35 earnings per share and a cumulative effect of a
change in accounting principle resulted in a $.03 loss per share.
NET REVENUES AND GROSS PROFIT
Net revenues for the first nine months of 1999 totaled $472.8 million,
an increase of $13.1 million, or 2.9%, from the $459.7 million reported in the
same period of the prior year. Net revenues from IVAX's domestic operations
increased by $8.9 million while revenues from international operations
increased by $4.2 million.
Domestic net revenues totaled $221.0 million for the first nine months
of 1999, compared to $212.1 million for the same period of 1998. The $8.9
million, or 4.2%, increase in domestic net revenues was primarily attributable
to increased sales volume and lower sales returns and allowances offset by
12
<PAGE> 14
lower sales prices of certain generic pharmaceutical products. IVAX's domestic
operations recorded provisions for sales returns and allowances which reduced
gross sales by $69.0 million and $90.7 million during the first nine months of
1999 and 1998, respectively. In addition, IVAX received $16.4 million and $12.0
million in the first nine months of 1999 and 1998, respectively, from the
settlement of litigation with Abbott Laboratories ("Abbott") concerning patents
for terazosin hydrochloride, the generic equivalent of Abbott's Hytrin(R).
During the third quarter of 1999 a generic version of terazosin hydrochloride
was introduced into the market by a competitor reducing quarterly payments IVAX
receives under the settlement from $6 million to $3 million.
IVAX's international operations generated net revenues of $251.8
million in the first nine months of 1999, compared to $247.6 million for the
same period of the prior year. The $4.2 million, or 1.7%, increase in
international net revenues was primarily due to increased net sales in Europe
and the Middle East from IVAX's Czech Republic subsidiary offset by decreased
net sales at IVAX's United Kingdom subsidiary. IVAX's international operations
recorded provisions for sales returns and allowances which reduced gross sales
by $24.4 million and $14.4 million during the first nine months of 1999 and
1998, respectively.
Gross profit for the first nine months of 1999 increased $38.7
million, or 22.6%, from the same period of the prior year. Gross profit was
$209.8 million (44.4% of net revenues) for the first nine months of 1999,
compared to $171.1 million (37.2% of net revenues) for the first nine months of
1998. The increase in gross profit percentage is primarily attributable to
product mix, lower cost of sales due to reduced raw material costs and
operating costs due to plant consolidation, lower sales returns and allowances,
and increased revenues associated with the Abbott settlement at IVAX's United
States generic pharmaceutical operations.
OPERATING EXPENSES
Selling expenses totaled $55.6 million (11.7% of net revenues) for the
first nine months of 1999, compared to $59.2 million (12.9% of net revenues)
for the first nine months of 1998. The decrease of $3.7 million was primarily
attributable to reduced sales force and promotional costs at IVAX's
international operations.
General and administrative expenses totaled $65.4 million (13.8% of
net revenues) for the first nine months of 1999, compared to $63.4 million
(13.8% of net revenues) for the first nine months of 1998, an increase of $2.0
million. The increase is primarily attributable to higher legal fees at
domestic operations, higher bad debt provisions at IVAX's Asian operations and
increased accruals for incentive compensation partially offset by lower
executive severance payments at Corporate headquarters and $3.2 million
received in settlement of a patent infringement lawsuit.
Research and development expenses totaled $38.1 million (8.1% of net
revenues) for the first nine months of 1999 compared to $39.9 million (8.7% of
net revenues) the first nine months of 1998, a decrease of $1.8 million. The
future level of research and development expenditures will depend on, among
other things, the outcome of clinical testing of products under development,
delays or changes in government required testing and approval procedures,
technological and competitive developments, strategic marketing decisions and
liquidity.
13
<PAGE> 15
OTHER INCOME (EXPENSE)
Interest income decreased $3.2 million for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998.
Lower levels of cash on hand due primarily to the repurchase of common stock
outstanding accounted for the decrease in interest income.
Interest expense decreased $1.6 million for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998,
primarily due to the retirement of IVAX's 6 1/2% Convertible Subordinated Notes
in the amount of $11.3 million during the fourth quarter of 1998 and $31.4
million during the first nine months of 1999.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net income for the three months ended September 30, 1999 was $17.4
million compared to $48.5 million for the same period in 1998. Income from
continuing operations was $16.9 million for the three months ended September
30, 1999, compared to $7.5 million for the same period in 1998.
Earnings per common share were $.16 for the three months ended
September 30, 1999 compared to $.41 for the same period of the prior year.
Earnings per common share from continuing operations were $.16 for the three
months ended September 30, 1999 compared to $.06 for the same period in the
prior year. For the three months ended September 30, 1998, discontinued
operations resulted in $.35 earnings per share.
NET REVENUES AND GROSS PROFIT
Net revenues for the three months ended September 30, 1999, totaled
$168.9 million, an increase of $10.1 million, or 6.4%, from the $158.8 million
reported in the same period of the prior year. This increase consists of an
increase of $2.2 million in net revenues from IVAX's domestic operations and
$7.9 million in net revenues from international operations.
Domestic net revenues totaled $75.2 million for the three months ended
September 30, 1999, compared to $73.0 million for the same period of the prior
year. The $2.2 million, or 3.0%, increase was primarily attributable to
increased sales volume and lower sales returns and allowances offset by reduced
other revenues recognized from the settlement of litigation with Abbott and
lower sales prices of certain generic pharmaceutical products. IVAX's domestic
operations recorded provisions for sales returns and allowances which reduced
gross sales by $25.4 million and $30.0 million during the three months ended
September 30, 1999 and 1998, respectively.
IVAX's international operations generated net revenues of $93.7
million for the three months ended September 30, 1999, compared to $85.8
million for the same period of the prior year. The $7.9 million, or 9.2%,
increase in international net revenues was primarily due to increased net sales
from IVAX's Czech Republic and United Kingdom subsidiaries. IVAX's international
operations recorded provisions for sales returns and allowances which reduced
gross sales by $9.3 million and $4.7 million during the three months ended
September 30, 1999 and 1998, respectively.
Gross profit for the three months ended September 30, 1999 increased
$17.2 million, or 28.2%, compared to the same period in 1998. Gross profit was
$78.4 million (46.4% of net revenues) for the 1999 period, compared to $61.1
million (38.5% of net revenues) for the 1998 period. The improvement in gross
14
<PAGE> 16
profit percentage was primarily the result of product mix, lower cost of sales
due to reduced raw material costs and operating costs due to plant
consolidation, and lower sales returns and allowances offset by reduced
revenues associated with the Abbott settlement at IVAX's United States generic
pharmaceutical operations.
OPERATING EXPENSES
Selling expenses totaled $19.3 million (11.4% of net revenues) for the
three months ended September 30, 1999, a decrease of $.3 million, from $19.6
million (12.3% of net revenues) for the same period of 1998. The decrease was
primarily attributable to reduced sales force and promotional costs at IVAX's
international operations.
General and administrative expenses totaled $23.0 million (13.6% of
net revenues) for the three months ended September 30, 1999, compared to $22.5
million (14.2% of net revenues) for the same period of 1998, an increase of $.4
million, or 1.9%. The increase is due primarily to higher legal fees at domestic
operations, higher bad debt provisions at IVAX's Asian operations and increased
accruals for incentive compensation offset by lower executive severance payments
at Corporate headquarters and $3.2 million received in settlement of a patent
infringement lawsuit.
Research and development expenses totaled $13.4 million (7.9% of net
revenues) for the three months ended September 30, 1999 compared to $12.8
million (8.1% of net revenues) for the same period of the prior year, an
increase of $.6 million, or 4.4%.
OTHER INCOME (EXPENSE)
Interest income decreased $2.4 million for the three months ended
September 30, 1999, as compared to the three months ended September 30, 1998,
due to lower levels of cash on hand. Interest expense decreased $.8 million for
the three months ended September 30, 1999, compared to the same period of the
prior year, primarily due to the retirement of IVAX's 6 1/2% Convertible
Subordinated Notes in the amount of $11.3 million during the fourth quarter of
1998 and $31.4 million during the first nine months of 1999.
DISCONTINUED OPERATIONS
Income from discontinued operations for the nine months ended
September 30, 1999 represents collection of principal and interest on a note
receivable from the 1998 sale of one of the personal care products
subsidiaries. Results of operations for the nine months ended September 30,
1998 includes the personal care products business and the vacuum pump fluids
segment of the specialty chemicals business through its sale in February 1998.
See Note 5, Divestitures, in IVAX's Annual Report on Form 10-K for the year
ended December 31, 1998.
CURRENCY FLUCTUATIONS
For the three and nine months ended September 30, 1999, approximately
55.5% and 53.3%, respectively, of IVAX's net revenues were attributable to
operations which principally generated revenues in currencies other than the
United States dollar, compared to approximately 54% for the three and nine
months ended September 30, 1998. Fluctuations in the value of foreign
currencies relative to the United States dollar affect the reported results of
15
<PAGE> 17
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 for the three and nine months
ended September 30, 1999 decreased by approximately $3.9 million and $3.4
million, respectively, as compared to the same periods of the prior year.
INCOME TAXES
IVAX recognized a $10.6 million tax provision for the nine months
ended September 30, 1999, of which $14.3 million relates to foreign operations
and includes a valuation allowance of $4.1 million recorded in the second
quarter against the UK deferred tax asset due to continuing losses within the
taxing jurisdiction. Offsetting the impact of the foreign provision was a net
credit for domestic taxes of $3.7 million resulting primarily from the
reversal, in the second quarter, of $5.5 million of valuation allowances
previously recorded against the domestic net deferred tax asset. As of
September 30, 1999, the domestic net deferred tax asset includes a valuation
allowance of $85.1 million, or 93%, of the deferred tax asset balance.
As of September 30, 1999, IVAX had domestic and foreign net deferred
tax assets of $6.1 million and $14.7 million, respectively. Realization of the
net deferred tax assets is dependent upon generating sufficient future domestic
and foreign taxable income. Although realization is not assured, management
believes it is more likely than not that the net deferred tax assets will be
realized. Management's estimates of future taxable income are subject to
revision due to, among other things, regulatory and competitive factors
affecting the pharmaceutical industry. Such factors are further discussed in
management's discussion and analysis of financial condition and results of
operations included in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1998.
YEAR 2000 UPDATE
IVAX believes that its global Year 2000 project is proceeding on
schedule. The project is addressing the issue of certain computer programs and
embedded chips being unable to distinguish between the years 1900 and 2000. The
project addresses risks related to information technology ("IT") systems, such
as computer equipment and software, as well as non-IT systems, such as
communication systems, alarm and security systems, manufacturing and
distribution equipment and control systems, and laboratory testing and
environmental control equipment and systems.
STATUS
IVAX initiated its Year 2000 project in 1997 and engaged an
independent consulting company to assist in coordinating its Year 2000 project.
The initial inventory, assessment and prioritization and planning phases were
completed by January 1998 and remediation and testing phases for both IT and
non-IT systems are nearly complete. IVAX determined that a portion of its
operating systems and equipment required modification or replacement to ensure
that they will be Year 2000 compliant and accelerated the implementation of new
IT systems at two subsidiaries due to the Year 2000 issue. Implementation of
the new IT systems is expected to mediate the majority of the internal Year
2000 IT issues at these subsidiaries. None of IVAX's other IT projects have
been materially delayed or impacted due to the implementation of the Year 2000
Project.
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<PAGE> 18
IVAX initiated efforts in 1998 to determine the extent to which it may
be impacted by Year 2000 issues of third parties, including suppliers,
customers, service providers and certain agencies and regulatory organizations.
Substantially all major third parties have been contacted and follow-up
activities are expected to continue throughout 1999. However, IVAX can provide
no assurance that these third parties will not experience business disruption.
COSTS
The estimated total cost of the Year 2000 project, excluding the
direct costs of internal employees working on the project, is $12.6 million. As
of September 30, 1999, IVAX had incurred costs of approximately $11.8 million
related to this project, including the cost to implement the new IT systems.
These costs are being expensed as incurred except for the costs of new IT
systems, which are being capitalized. The internal direct costs associated with
IVAX employees working on the Year 2000 project cannot be quantified. The
project is being funded by cash on hand and from internally generated funds,
which IVAX expects to be adequate to complete the project.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect IVAX's results
of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, IVAX is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on IVAX's results of operations, liquidity or financial
condition. The Year 2000 project is expected to significantly reduce IVAX's
level of uncertainty about Year 2000 problems, including the Year 2000
compliance and readiness of its material third parties. IVAX believes that
completion of the project as scheduled will reduce the possibility of
significant interruptions of normal operations.
In the first quarter of 1999, IVAX started the process of identifying
the most reasonably likely worst-case scenario associated with each of its
mission-critical processes, and developing a contingency plan for dealing with
each such scenario. IVAX completed the identification of such processes and
scenarios as of June 30, 1999, and plans to develop preliminary contingency
plans and review and test the preliminary plans throughout the remainder of
1999. IVAX anticipates that any necessary contingency plans will be finalized
by December 31, 1999. Contingency planning will include increasing inventory
levels and maintaining backup lines of communications with our customers. Such
plans, however, will not guarantee that no material adverse effects will occur.
IVAX currently believes that the most reasonably likely worst-case
scenario concerning the Year 2000 involves potential business disruption among
the third parties with whom it conducts significant business. If a number of
these third parties (including, in particular, wholesalers, managed care
organizations and clinical researchers) experience business disruption due to a
Year 2000 computer problem, IVAX's results of operations and cash flows could
be materially adversely affected.
The costs of IVAX's Year 2000 project and the dates on which IVAX
believes it will complete the various phases of this project are based upon
management's best estimates, which were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
17
<PAGE> 19
availability and cost of personnel trained in Year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer code and embedded
technology, the performance of new systems and equipment, the reduction of
productivity pending completion of employee training and similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, IVAX's working capital was $132.7 million
compared to $269.5 million at December 31, 1998. Cash and cash equivalents
totaled $68.0 million at September 30, 1999, as compared to $208.6 million at
December 31, 1998.
Net cash of $48.2 million was provided by operating activities during
the first nine months of 1999, compared to $31.8 million during the same period
of the prior year. The increase in cash provided by operating activities, as
compared to the first nine months of 1998, was primarily the result of improved
operating earnings, collection of royalty and milestone payments related to
sales of Elmiron and reductions in accounts payable payments.
Net cash of $27.6 million was used for investing activities during the
first nine months of 1999, as compared to $50.1 million provided during the
same period of the prior year. The decrease was primarily attributable to the
sale in 1998 of IVAX's personal care products business for net proceeds of
$83.5 million, the sale of two manufacturing facilities for $13.3 million, and
the sale of the vacuum pump fluids business for $3.9 million and to $5.0
million paid in 1999 for the acquisition of additional common stock of the
Czech Republic subsidiary increasing IVAX's ownership from 74% to 86%. These
shares were purchased primarily under a tender offer for all outstanding shares
of the Czech Republic subsidiary initiated May 19, 1999, which expired July 19,
1999. IVAX may purchase additional shares of the Czech Republic subsidiary as
they become available. Offsetting these impacts were $11.4 million of reduced
capital expenditures and $19.2 million of reduced spending for acquisition of
patents, trademarks, licenses and other intangibles.
Net cash of $160.3 million was used for financing activities during
the first nine months of 1999, compared to $46.5 million during the same period
of the prior year, primarily reflecting increased repurchases of common stock
during the first nine months of 1999 compared to 1998. On April 13, 1999 and
June 17, 1999, IVAX's Board of Directors approved increases in the share
repurchase program authorizing IVAX to repurchase an additional 5.0 million and
1.5 million shares, respectively, of IVAX's common stock to supplement the 12.5
million shares authorized in prior years. As of September 30, 1999,
approximately 17.4 million shares have been repurchased and 1.6 million shares
remained authorized for repurchase. In connection with the share repurchase
program, in the second quarter of 1999, IVAX received $2.1 million in premiums
on the issuance of 1.5 million free-standing put options for IVAX common stock.
In the event that the put options are exercised, the maximum repurchase
obligation would be $20.2 million. See Note 10, Shareholders' Equity in the
notes to condensed consolidated financial statements included in Item 1 of this
Quarterly Report. Proceeds from the exercise of stock options totaled $8.3
million and $1.5 million during the first nine months of 1999 and 1998,
respectively. During the first nine months of 1999, IVAX also repurchased $31.4
million face value of 6 1/2% Convertible Subordinated Notes due November 2001.
Approximately $3.6 million of 6 1/2% Convertible Subordinated Notes remained
authorized for repurchase. During the first quarter of 1998, IVAX retired $6.7
million of industrial revenue bonds that were due in 2008.
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<PAGE> 20
IVAX plans to spend substantial amounts of capital in 1999 to continue
the research and development of pharmaceutical products. Although research and
development expenditures are expected to be between $55 million and $65 million
during 1999, actual expenditures will depend on, among other things, the
outcome of clinical testing of products under development, delays or changes in
government required testing and approval procedures, technological and
competitive developments, strategic marketing decisions and liquidity. In
addition, IVAX plans to spend between $40 million and $45 million in 1999 to
improve and expand its pharmaceutical and other related facilities, of which
$23.7 million has been spent during the first nine months of the year.
IVAX's principal sources of short term liquidity are existing cash and
internally generated funds, which IVAX believes will be sufficient to meet its
operating needs and anticipated capital expenditures over the short term. For
the long term, IVAX intends to utilize internally generated funds, which are
anticipated to be derived primarily from the sale of existing pharmaceutical
products and pharmaceutical products currently under development. There can be
no assurance that IVAX will successfully complete the development of products
under development, that IVAX will be able to obtain regulatory approval for any
such product, or that any approved product may be produced in commercial
quantities, at reasonable costs, and be successfully marketed. In addition, the
remaining balance of 6 1/2% Convertible Subordinated Notes are scheduled to
mature in November 2001. To the extent that capital requirements exceed
available capital or that IVAX is required to refinance these Notes, IVAX will
need to seek alternative sources of financing to fund its operations. IVAX has
no existing credit facility and no assurance can be given that alternative
financing will be available, if at all, in a timely manner, on favorable terms.
If IVAX is unable to obtain satisfactory alternative financing, IVAX may be
required to delay or reduce its proposed expenditures, including expenditures
for research and development, or sell additional assets in order to meet its
future obligations.
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<PAGE> 21
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IVAX does not believe that it has material exposure to market rate
risk. IVAX's only material debt obligation relates to the 6 1/2% Convertible
Subordinated Notes, which bear a fixed rate of interest. As noted above, IVAX
may, however, require additional financing to fund future obligations and no
assurance can be given that the terms of future sources of financing will not
expose IVAX to material market rate risk. IVAX does from time to time manage
exposures that arise in the normal course of business related to fluctuations
in foreign currency rates by entering into foreign exchange contracts. IVAX
enters into these contracts with counterparties that it believes to be
creditworthy and does not enter into any leveraged derivative transactions.
IVAX does not believe that it has material market rate risk associated with its
foreign exchange forward contracts due to the short term nature of the
contracts and the notional amounts outstanding. Information about IVAX's market
sensitive instruments constitutes a "forward looking statement".
20
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
With respect to the case styled David Malin, et al. v. IVAX
Corporation, Phillip Frost, Jack Fishman, Michael W. Fipps, and John H. Klein,
previously reported in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1998, the United States District Court for the Southern District
of Florida granted the defendants' motion to dismiss the amended complaint and
dismissed the amended complaint with prejudice on July 9, 1999.
Plaintiffs have filed an appeal, which remains pending.
With respect to the case styled Alan M. Harris, Yitzchok Wolpin and
Fausto Pombar v. IVAX Corporation, Phillip Frost and Michael W. Fipps,
previously reported in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1998, the United States District Court of Appeals for the Eleventh
Circuit affirmed the dismissal of the action on July 27, 1999. Plaintiffs have
filed a motion for re-hearing, which remains pending.
On July 13, 1999, an action styled Walgreen Co., et al. v. Abbott
Laboratories, Geneva Pharmaceuticals, Inc. and Zenith Goldline Pharmaceuticals,
Inc. was filed in the United States District Court for the Southern District of
Florida, alleging a violation of Section 1 of the Sherman Antitrust Act.
Plaintiffs allege that, by settling patent-related litigation against Abbott in
exchange for quarterly payments, the defendants engaged in an unlawful
restraint of trade. The complaint seeks unspecified treble damages and
injunctive relief. This case has been consolidated with Louisiana Wholesale
Drug Co. v. Abbott Laboratories, Geneva Pharmaceuticals and Zenith Goldline
Pharmaceuticals, which was previously reported in IVAX's Annual Report on Form
10-K for the year ended December 31, 1998.
Two additional class action lawsuits containing allegations similar to
those in the Walgreen case were filed in the United States District Court for
New York on August 30, 1999 and October 26, 1999. The actions, which are styled,
respectively, Drug Mart Pharma v. Abbott Laboratories, et al. and Char-Mar
Pharmacy v. Abbott Laboratories, et al. are in the early stages, and IVAX
intends to contest them vigorously. Management does not believe that these
actions are likely to have a material adverse impact on the financial condition
or results of operations of IVAX.
Zenith Goldline Pharmaceuticals, Inc. ("Zenith"), a wholly-owned
subsidiary of IVAX has been named in a number of individual and class action
lawsuits in both state and federal courts involving the diet drug combination
of fenfluramine and phentermine, commonly known as "fen-phen". Generally, these
lawsuits seek damages for personal injury, wrongful death and loss of
consortium, as well as punitive damages, under a variety of liability theories
including strict products liability, breach of warranty and negligence. Zenith
did not manufacture either fenfluramine or phentermine, but did distribute the
generic version of phentermine manufactured by Eon Labs Manufacturing, Inc.
("Eon") and Camall Company. Although Zenith had a very small market share, to
date Zenith has been named in approximately 3,655 cases and has been dismissed
from approximately 291 cases, with an additional 1,600 dismissals pending.
Zenith intends to vigorously defend all of the lawsuits, and while management
believes that its defense will succeed, as with any litigation, there can be no
assurance of this. Currently Zenith is being defended and indemnified by Eon.
In the event that Eon discontinues providing this defense and indemnity, Zenith
has its own product liability insurance. While Zenith's insurance carriers
have issued reservations of rights, Zenith believes that it has adequate
coverage. Although it is impossible to predict with certainty the outcome of
litigation, in the opinion of management, this litigation will not have a
material adverse impact on the financial condition or results of operation of
IVAX.
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<PAGE> 23
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description Method of Filing
------- ------------ ----------------
27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by IVAX during the three months ended
September 30, 1999.
22
<PAGE> 24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, IVAX has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
IVAX CORPORATION
Date: November 9, 1999 By: /s/ Thomas Beier
----------------- ------------------------------
Thomas Beier
Senior Vice President-Finance
Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
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<CASH> 68,003
<SECURITIES> 0
<RECEIVABLES> 123,595
<ALLOWANCES> 22,752
<INVENTORY> 145,051
<CURRENT-ASSETS> 338,879
<PP&E> 372,604
<DEPRECIATION> 162,058
<TOTAL-ASSETS> 630,373
<CURRENT-LIABILITIES> 206,196
<BONDS> 43,661
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<OTHER-SE> 326,475
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<SALES> 472,831
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<CGS> 263,012
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