SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1999

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
              For the transition period from _________ to ________.

                           COPLEY PHARMACEUTICAL, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                             04-2514637
(State or other jurisdiction of      (IRS Employer Identification No.)
 incorporation or organization)

         25 John Road                              02021
     Canton, Massachusetts                      (Zip Code)
      (Address of principal executive offices)

                         Commission file number: 0-20126

       Registrant's telephone number, including area code: (781) 821-6111


     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_______

The number of shares  outstanding of the registrant's only class of common stock
as of August 2, 1999 was 19,343,766 shares.


<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
                                      INDEX
                     For the Six Months Ended June 30, 1999

                                                                      PAGE NO.
PART I.                                     FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets as of June 30,
           1999 and December 31, 1998                                     3

         Condensed Consolidated Statements of Operations
           for the three and six months ended June 30, 1999 and 1998      4

         Condensed Consolidated Statements of Cash Flows
           for the six months ended June 30, 1999 and 1998                5

         Notes to Condensed Consolidated Financial Statements          6 - 10

Item 2.  Management's Discussion and Analysis of Results of
           Operations and Changes in Financial Condition              11 - 16

Item 3.  Quantitative and Qualitative Disclosures about Market Risk      17

PART II.                             OTHER INFORMATION

Item 1.  Legal Proceedings                                               18

Item 4.  Submission of Matters to a Vote of Security Holders             18

Item 6.  Exhibits and Reports on Form 8-K                                18

         Signature                                                       19


                                       2
<PAGE>


                          PART 1. FINANCIAL INFORMATION

               Item 1. Condensed Consolidated Financial Statements

                           COPLEY PHARMACEUTICAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                                    <C>                 <C>
                                                                            June 30,        December 31,
 (In thousands, except share data)                                            1999              1998
 ----------------------------------------------------------------------------------------------------------
 ASSETS                                                                  (Unaudited)
 Current assets:
     Cash and cash equivalents                                         $        1,846      $     13,016
     Available-for-sale securities                                             30,758            30,206
     Accounts receivable, trade, net                                           26,137            33,945
     Inventories:
         Raw materials                                                         14,164            10,771
         Work in process                                                        3,996             3,207
         Finished goods                                                         8,519             8,463
                                                                       ---------------     -------------
     Total inventories                                                         26,679            22,441
     Current deferred tax assets                                                5,363             5,528
     Other current assets                                                       2,442             3,161
                                                                       ---------------     -------------
         Total current assets                                                  93,225           108,297

 Property, plant and equipment, net                                            41,483            42,800
 Due from related party                                                         2,107             2,107
 Other assets                                                                   3,200             2,161
                                                                       ---------------     -------------
 Total assets                                                          $      140,015  $        155,365
                                                                       ---------------     -------------

 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
     Accounts payable, trade                                           $        3,583  $          3,703
     Accounts payable, related party                                            4,224            12,382
     Current portion of long-term debt                                            300               300
     Accrued compensation and benefits                                          1,902             2,175
     Accrued rebates                                                            6,495             8,037
     Accrued income taxes                                                         810             3,527
     Accrued recall related and litigation expenses                             4,352             8,010
     Accrued expenses                                                             320               618
                                                                       ---------------     -------------
         Total current liabilities                                             21,986            38,752

 Accrued compensation and benefits                                                103                98
 Deferred tax liabilities                                                       3,519             3,711
 Long-term debt                                                                 4,500             4,500
 Commitments and contingencies (Note C)
                                                                       ---------------     -------------
  Total liabilities                                                             30,108            47,061

 Shareholders' equity:
     Preferred stock, $.01 par value; authorized 3,000,000 shares;
         none issued                                                              ---               ---
     Common stock, $.01 par value; authorized 60,000,000 shares;
         issued 25,370,745 shares                                                 254               254
     Additional paid-in capital                                                78,501            78,340
     Accumulated other comprehensive income                                       (37)               35
     Retained earnings                                                         43,700            42,201
     Treasury stock, at cost, 6,146,467 and 6,178,168 shares
         outstanding, respectively                                            (12,511)          (12,526)
                                                                       ---------------     -------------
         Total shareholders' equity                                           109,907           108,304
                                                                       ---------------     -------------
 Total liabilities and shareholders' equity                            $      140,015   $       155,365
                                                                       ---------------     -------------
</TABLE>
         The   accompanying   notes  are  an  integral  part  of  the  Condensed
Consolidated Financial Statements.
                                       3
<PAGE>




                           COPLEY PHARMACEUTICAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
 <C>                      <C>                      <S>                                   <C>                    <C>
                 (Unaudited)                                                                               (Unaudited)
          For the three months ended                                                                For the six months ended
                   June 30,                                                                                 June 30,
         1999                   1998               (In thousands, except per share data)        1999                  1998
     --------------         --------------                                                 ---------------        --------------
                                                   Net sales:
 $          20,049        $        18,924             Manufactured products              $         39,333       $        35,118
             4,475                 15,803             Distributed products                         11,481                27,817
     --------------         --------------                                                 ---------------        --------------
            24,524                 34,727                  Net sales                               50,814                62,935

                                                   Cost of goods sold:
            11,732                 13,693             Manufactured products                        25,450                26,721
             3,622                 12,349             Distributed products                          9,220                21,788
     --------------         --------------                                                 ---------------        --------------
            15,354                 26,042                  Cost of goods sold                      34,670                48,509

             9,170                  8,685                      Gross profit                        16,144                14,426

                                                   Operating expenses:
             4,210                  2,228             Research and development                      7,091                 4,850
             1,091                  1,164             Selling, marketing and distribution           2,091                 2,425
             2,379                  1,496             General and administrative                    4,789                 2,779
               (28)                    15             Recall related and litigation, net               64                   194
     --------------         --------------                                                 ---------------        --------------
             1,518                  3,782                  Income from operations                   2,109                 4,178

               464                    476          Interest and other investment income               886                   906
               (82)                  (157)         Interest expense                                  (188)                 (319)
              (318)                    15          Other income (expense), net                       (338)                  (76)
     --------------         --------------                                                 ---------------        --------------
             1,582                  4,116               Income before income taxes                  2,469                 4,689

               620                  1,360          Provision for income taxes                         970                 1,530
     --------------         --------------                                                 ---------------        --------------
 $             962        $         2,756          Net income                            $          1,499       $         3,159
     --------------         --------------                                                 ---------------        --------------
                                                   Other comprehensive income, net of taxes
               (59)                     5             Unrealized gains (loss) on securities           (72)                   11
                                                      Less: reclassification adjustment
               ---                    ---                   for gains included in net inc             ---                    (2)
     --------------         --------------                                                 ---------------        --------------
 $             903        $         2,761          Comprehensive income                  $          1,427       $         3,168
     --------------         --------------                                                 ---------------        --------------

                                                   Weighted    average    common
                                                       shares outstanding:
            19,219                 19,154                Basic                                     19,217                19,153
            19,459                 19,243                Diluted                                   19,469                19,246

                                                   Earnings per share:
             $0.05                  $0.14                Basic                                      $0.08                 $0.16
             $0.05                  $0.14                Diluted                                    $0.08                 $0.16
</TABLE>
        The   accompanying   notes  are  an  integral   part  of  the  Condensed
Consolidated Financial Statements.
                                       4
<PAGE>



                           COPLEY PHARMACEUTICAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
 <S>                                                                     <C>                  <C>
                                                                                     (Unaudited)
                                                                               For the six months ended
                                                                                       June 30,
  (In thousands)                                                               1999                1998
                                                                           --------------      -------------

 Cash flows from operating activities:
     Net income                                                          $        1,499       $       3,159
     Adjustments to reconcile net income to net cash provided by
         (used in) operating activities:
         Depreciation and amortization                                            3,121               3,521
         Realized losses (gains) on sales of assets                                 (20)                  4
         Change in deferred taxes                                                   (27)               (602)
     Changes in operating assets and liabilities:
        Decreases (increases) in assets:
           Accounts receivable                                                    7,808              (4,015)
           Inventories                                                           (4,238)             (5,220)
           Other current assets                                                     719              (1,905)
           Other assets, net of amortization                                     (1,109)                (20)
        Increases (decreases) in liabilities:
           Accounts payable                                                      (8,278)              6,887
           Accrued income taxes                                                  (2,717)              3,832
           Accrued expenses                                                      (5,766)             (5,000)
                                                                            ------------        ------------
              Net cash provided by (used in) operating activities                (9,008)                641
                                                                            ------------        ------------

 Cash flows from investing activities:
     Capital expenditures                                                        (1,609)             (1,664)
     Purchases of available-for-sale securities                                  (7,860)             (9,790)
     Proceeds from sales of available-for-sale securities                           ---               2,410
     Proceeds from maturities of available-for-sale securities                    7,111               7,440
     Proceeds from sales of property, plant and equipment                            20                 ---
                                                                            ------------        ------------
              Net cash provided by (used in) investing activities                (2,338)             (1,604)
                                                                            ------------        ------------

 Cash flows from financing activities:
     Proceeds from stock option exercises                                            65                 ---
     Issuance of common stock to Employee Stock Purchase Plan                       111                  90
                                                                            ------------        ------------
             Net cash provided by (used in) financing activities                    176                  90
                                                                            ------------        ------------

 Net increase (decrease) in cash and cash equivalents                           (11,170)               (873)
 Cash and cash equivalents at beginning of period                                13,016              13,847
                                                                            ------------        ------------
 Cash and cash equivalents at end of period                              $        1,846       $      12,974
                                                                            ------------        ------------
</TABLE>
         The   accompanying   notes  are  an  integral  part  of  the  Condensed
Consolidated Financial Statements.
                                       5
<PAGE>


                           COPLEY PHARMACEUTICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                     For the six months ended June 30, 1999

Note A-General

The accompanying  condensed  consolidated financial statements are unaudited but
contain all normal and  recurring  adjustments  necessary to present  fairly the
financial  position of the Company as of June 30, 1999 and December 31, 1998 and
the  results of its  operations  and its cash flows for the three and six months
ended June 30, 1999 and 1998.  The  year-end  condensed  balance  sheet data was
derived from audited  financial  statememts but does not include all disclosures
required  by  generally  accepted  accounting  principles.   These  consolidated
financial  statements  should be read in conjunction  with the Notes included in
the Company's  Form 10-K for the year ended  December 31, 1998.  The results for
the  three-month  and six-month  period ended June 30, 1999 are not  necessarily
indicative of the results that may be expected for any future period.

There were 509,729 and 507,588  options  outstanding  at June 30, 1999 and 1998,
respectively,  that were not included in the computation of diluted earnings per
share the options' exercise prices were greater than the average market price of
the common shares and their inclusion would be antidilutive.

Note B - Related Party Transactions

On July 18, 1995,  Hoechst  Corporation  ("HC"), the Company's 51% fully diluted
shareholder,  completed  its purchase of Marion  Merrell Dow,  Inc.  ("MMD") and
changed MMD's name to Hoechst Marion Roussel, Inc. ("HMRI").

In connection with HC's acquisition of its majority interest in the Company, the
Company is a party to a Product  Agreement with HC pursuant to which the Company
is afforded the opportunity under specified  conditions to distribute and market
the generic  version of products sold by  Hoechst-Roussel  Pharmaceuticals  Inc.
("HRPI"),  which was an indirect  majority-owned  subsidiary of HC. This Product
Agreement  expired June 1, 1999. On January 1, 1996,  HRPI was merged into HMRI.
HMRI  agreed to be bound by the  Product  Agreement  to the extent that HRPI was
bound;  that is, the Product  Agreement  continues  to be in effect for products
manufactured by the former HRPI but not for products  manufactured by HMRI prior
to the merger  with HRPI nor for  products  developed  by HMRI after  January 1,
1996. In furtherance of the Product Agreement, the Company and HMRI entered into
separate  contracts  relating to  specific  products  as these  products  became
available for generic  distribution and these separate contracts now continue in
effect beyond the expiration of the Product Agreement.  For the six months ended
June  30,  1999  and  1998,   approximately  $9.2  million  and  $21.6  million,
respectively,  of generic  versions of products were  purchased  from HMRI under
this Product Agreement.

The Company obtains its  comprehensive  general  liability,  product  liability,
excess liability and all risks property  insurance coverage through an insurance
and risk-sharing arrangement with HC and its parent, Hoechst  Aktiengesellschaft
("Hoechst AG"), and its various subsidiaries.  Insurance coverage is provided by
HC  through  its  wholly-owned  insurance  subsidiary,  as well  as by  external
parties.  The Company's total insurance expense for these insurance policies was
approximately  $2.3  million,  for each of the six month  periods ended June 30,
1999 and 1998.
                                       6
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                     For the six months ended June 30, 1999

Note C - Litigation and Contingencies

Albuterol Class Action Lawsuits
In connection  with the Company's  December 1993 and January 1994 product recall
of albuterol sulfate inhalation  solution,  0.5% ("albuterol"),  the Company has
been served with  complaints  in numerous  lawsuits in federal and state  court,
some of which are on behalf of numerous  claimants.  The plaintiffs  principally
seek  compensatory and punitive damages and allege that injuries and deaths were
caused  by  inhalation  of  allegedly   contaminated  product  manufactured  and
distributed by the Company.

The federal court lawsuits were consolidated in the United States District Court
for the  District  of  Wyoming  as a  multi-district  litigation  for  pre-trial
purposes  under the  caption  In Re:  Copley  Pharmaceutical,  Inc.  "Albuterol"
Products  Liability  Litigation.  The District  Court  certified a partial class
action for  determination  of liability  only and commenced a jury trial in June
1995. In August 1995,  prior to the  conclusion  of the jury trial,  the Company
entered into a settlement  agreement with the  representative  plaintiffs in the
class action lawsuit.  The settlement calls for the Company to receive a general
release of all non-death  claims in return for  contributions by the Company and
its insurers of a minimum of $65 million and a maximum of $130 million to settle
all non-death claims relating to the Company's  manufacture,  sale and recall of
albuterol.  An  additional  $20  million  is  allocated  under  the terms of the
settlement  as an estimate of the cost of  settling  claims by persons  alleging
wrongful  death,  which  claims are limited by the  settlement  to  compensatory
damages only and are subject to non-binding negotiation and arbitration.  Within
the Company's  minimum and maximum  contributions,  the amount to be paid by the
Company is subject to the number and seriousness of individual claims eventually
filed.  On November 15, 1995,  the District Court entered its Order giving final
approval of the settlement. This Order has become final and nonappealable.

The settlement  agreement  requires the $150 million maximum  contribution to be
funded by a  non-refundable  $65 million cash deposit and issuance of letters of
credit for the remaining balance,  to be held by the Albuterol  Settlement Trust
Fund  as  security  for  potential  future  payments.   The  Company  negotiated
agreements with its insurers pursuant to which the Company and its insurers have
agreed to pay defined  percentages of required  settlement  payments and related
expenses. The minimum contribution of $65 million to the class action settlement
has been funded by cash  contributions  from the Company ($7.35 million) and its
insurers  ($57.65  million).  Most of the remaining  balance of the $150 million
maximum  contribution  was secured  either by a $21 million  cash  deposit  made
pursuant to court order by the Company  ($3.15  million) and one of its insurers
($17.85  million) in a separate  account  (which also is  available to pay other
litigation expenses, judgments and settlements) or by letters of credit or other
security  totaling  $64 million,  $11.7  million of which has been posted by the
Company and $52.3 million of which has been provided by the Company's insurers.

Approximately  6,650  proofs of claim have been filed  with the  Special  Master
appointed  by the Court to oversee the  Albuterol  Settlement  Trust  Fund.  The
Special  Master has approved  approximately  5,240 class action claims  totaling
approximately  $75  million.  No awards  have been made to  approximately  1,000
rejected  class  action  claims.  Appeals  from some of these  decisions  of the
Special  Master are being  taken to the  Court.  The Court has  ordered  that no
further  claims may be  submitted.  (These  figures  include  approximately  850
clients of Jacoby & Meyers,  representing  nearly all of that firm's clients who
are not  alleging a death  caused by  albuterol,  who agreed to be treated as if
they were class members and class counsel have agreed that these  claimants will
be paid out of the Albuterol  Settlement  Trust Fund.) In addition,  the Company
has reached settlement  agreements with approximately 200 class members alleging
wrongful death; approximately 30 claims of class members alleging wrongful death
remain unresolved.
                                       7
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                     For the six months ended June 30, 1999


The settlement also is subject to certain other contingencies and does not cover
certain  individuals who previously opted out of the class action,  including 40
people who opted out and never  filed  suit,  some of whom now are  barred  from
bringing  suit by the  statute of  limitations.  The Company  continues  to be a
defendant in lawsuits that were brought by or on behalf of  approximately  three
people who properly  opted out of the class action while the Company has settled
with 81 litigants who had opted out. There also are two active lawsuits  brought
by class members alleging  wrongful death who are pursuing  litigation under the
terms of the class action settlement agreement.

Grand Jury Investigation

On May 28, 1997, the Company announced that it had entered into a plea agreement
pursuant to which it agreed to waive  indictment and plead guilty to a one count
Information charging a violation of Title 18, United States Code, Section 371, a
conspiracy to defraud the United  States and one of its  agencies,  the Food and
Drug Administration ("FDA"). The Information alleged that Copley made changes in
the manufacturing processes for four drugs (only two of which,  procainamide 500
mg tablets and potassium  chloride tablets,  currently are being manufactured by
the  Company)  without  proper  notification  to the FDA and signed  false batch
records with respect to two of these drugs. As part of the plea  agreement,  the
Company agreed to pay a fine of $10.65 million, which has been paid in full. The
plea was  accepted  by the United  States  District  Court for the  District  of
Massachusetts on June 19, 1997.

The plea agreement  followed a nearly  three-year  investigation  and grand jury
subpoenas  from  the  United  States  Attorney's  Office  in  Massachusetts  for
documents focusing particularly on albuterol and Brompheril(R)  products,  which
were recalled by the Company in December 1993 and September 1994,  respectively,
but extending beyond these products. The Company complied with the subpoenas and
cooperated  with  federal   authorities   throughout  the   investigation.   The
investigation   continues  with  respect  to  individuals,   some  of  whom  are
indemnified by the Company for legal fees and related expenses.

Also on May 28, 1997 the Company announced that it had entered into an agreement
with the FDA providing for an  independent  audit of 20 of Copley's  ANDAs.  The
Company is  cooperating  fully with the FDA,  and the  independent  audit  which
commenced in July,  1997 has been  substantially  completed.  The FDA has agreed
that during this audit it will continue to review the Company's  pending  ANDAs,
accept new ANDAs from the  Company  and,  where  appropriate,  approve  Copley's
ANDAs.

SmithKline Beecham Lawsuit

In August 1997,  the Company filed an ANDA for nabumetone  which  certified that
SmithKline  Beecham  Corporation's  ("SB")  patent  relating to  nabumetone  was
invalid and  unenforceable  and that the Company was entitled to manufacture and
sell  nabumetone  prior to the December 13, 2002  expiration of SB's  nabumetone
patent.  As a result,  on October 31, 1997 the Company was served with a summons
and  complaint  in a patent  infringement  action  entitled  SmithKline  Beecham
Corporation  and Beecham  Group  p.l.c.  v. Copley  Pharmaceutical,  Inc. in the
United States District Court for the District of Massachusetts. In their action,
plaintiffs  allege that because the Company seeks approval of its ANDA to engage
in the  commercial  manufacture,  use and sale of nabumetone as claimed in their
patent  before  the  patent's  expiration,   the  Company  has  infringed  their
nabumetone patent. Plaintiffs seek damages and an injunction against approval of
the Company's  nabumetone ANDA and its sale of nabumetone  prior to December 13,
2002.  A trial  tentatively  has been  scheduled to begin in October  1999.  The
manufacturer  and supplier of the nabumetone that the Company has designated for
use in its ANDA has agreed to defend the Company in this action and to indemnify
the Company for any damages that might be assessed as a result of the  Company's
sale of nabumetone obtained from the manufacturer. Although the Company believes
that this complaint is without merit and the Company has meritorious defenses to
this  action,  there  can be no  assurance  that the  Company  will  prevail.  A
substantial  damages award in this suit could have a material  adverse effect on
the Company.
                                       8
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                     For the six months ended June 30, 1999


Shareholder Derivative Actions

On  September  2,  1998,  the  Company  was served as a nominal  defendant  in a
shareholder  derivative  action against six of its nine current  Directors.  The
lawsuit,  which  was  brought  by Great  Neck  Capital  Appreciation  Investment
Partnership,  the alleged owner of an unspecified  number of Company shares,  is
pending in Norfolk  County,  Massachusetts  Superior  Court. On October 2, 1998,
plaintiff filed a First Amended Shareholder Derivative Complaint that named HCCP
Acquisition Corporation,  Hoechst Corporation and Hoechst  Aktiengesellschaft as
additional  defendants.  The amended  complaint's  allegations include claims of
alleged breach of fiduciary duty and alleged waste of corporate assets and seeks
unspecified  money  damages  and  injunctive  relief.  According  to the amended
complaint,  "Copley  is named  as a  defendant  herein  solely  in a  derivative
capacity.  This  action is brought  on its  behalf,  and no claims are  asserted
against  it." The Company is  obligated  to defend and  indemnify  the  Director
defendants and has put its directors and officers insurance carrier on notice of
this claim.  The  Company  has been  served with  motions to dismiss the amended
complaint filed by the other defendants;  these motions remain pending as of the
date of this report.

On May 21,  1999,  the  Company was served  with a  complaint  in a  shareholder
derivative  action pending in the New Castle County,  Delaware Court of Chancery
entitled  Parnes v. Hoechst Corp.  The Company is named as a nominal  defendant;
amongst the other  defendants  are five current  directors  of the Company.  The
Complaint  alleges  various  breaches  of duty by  Hoechst  Corp.  and the named
individual  director  defendants  and  seeks a  number  of  equitable  remedies,
including  an  accounting  from  Hoechst and the  appointment  of a custodian or
receiver. No monetary damages are sought.

Schering Corporation Lawsuit

In December 1998, the Company filed an ANDA for loratadine syrup which certified
that two of Schering  Corporation's  patents  relating to loratadine  syrup were
invalid, unenforceable and/or not infringed and that the Company was entitled to
manufacture and sell loratadine  syrup in 2002,  following the expiration of one
patent  but  prior  to the  expiration  of two  other of  Schering's  loratadine
patents.  As a result, on March 19, 1999,  Schering filed a patent  infringement
action  entitled  Schering  Corporation  v. Copley  Pharmaceutical,  Inc. in the
United  States  District  Court for the  District  of  Delaware.  In its action,
Schering  alleges that because the Company seeks  approval of its ANDA to engage
in the  commercial  manufacture,  use and sale of loratadine  syrup prior to the
expiration of two patents  allegedly  relating to loratadine  syrup, the Company
has  infringed  at least  one of these  patents.  Schering  seeks an  injunction
against  approval  of the  Company's  loratadine  syrup  ANDA  and  its  sale of
loratadine syrup prior to at least April 21, 2004. Although the Company believes
that this complaint is without merit and the Company has meritorious defenses to
this  action,  there  can be no  assurance  that the  Company  will  prevail.  A
substantial  damages award in this suit could have a material  adverse effect on
the Company.

K-V Pharmaceutical Company Lawsuit

In January 1999 the Company was named as a defendant  in a lawsuit  entitled K-V
Pharmaceutical  Company  v.  Johnson  H. Lim,  Hoechst  Corporation,  and Copley
Pharmaceutical, Inc. pending in the St. Louis, Missouri Circuit Court. Plaintiff
alleges that the Company hired one of its former  employees in  contravention of
an employment  agreement  between  plaintiff and the individual and seeks actual
damages  in  excess  of $1  million  as well as  punitive  damages  and fees and
expenses  based on a variety of legal  theories.  Although the Company  believes
that this suit is without merit and the Company has meritorious defenses to this
action,  there can be no assurance that the Company will prevail.  A substantial
damages award in this suit could have a material adverse effect on the Company.
                                       9
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                     For the six months ended June 30, 1999

Other Legal Proceedings

The Company has $4.4 million of estimated  recall related and legal  contingency
reserves accrued at June 30, 1999. These reserves reflect the Company's estimate
of its  exposure  at June 30, 1999 in its various  legal  proceedings  described
above. Actual settlement amounts may differ from amounts estimated. In addition,
the  Company  from time to time is  subject to claims  arising  in the  ordinary
course of business.  While the outcome of the claims  cannot be  predicted  with
certainty,  management does not expect these matters to have a material  adverse
effect on the results of operations and financial condition of the Company.

Note D - Debt

On June 7, 1999 the Company amended its working capital line of credit agreement
to decrease its maximum borrowing  capacity from $30 million to $25 million.  At
June 30,  1999,  the  Company had $11.7  million in  stand-by  letters of credit
related to the Albuterol  Settlement Trust Fund  outstanding  under this working
capital  line of credit  agreement.  The $11.7  million in  stand-by  letters of
credit will be reduced by $3.06 million to reflect the  additional  cash deposit
made on August 4, 1999.  Refer to Note C of the Notes to Consolidated  Financial
statements for further discussion of the Settlement Agreement.


                                       10
<PAGE>


                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                         CHANGES IN FINANCIAL CONDITION


Item 2.  Management's Discussion and Analysis of Results of Operations and
         Changes in Financial Condition

   Results of Operations

       Net Sales
<TABLE>
  <C>           <C>           <C>             <S>                            <C>             <C>           <C>
---------------------------------------------------------------------------------------------------------------------
 For the quarter ended                            (In thousands)              For the six months ended
       June 30,                                                                       June 30,
  1999           1998         Change               (Unaudited)                  1999           1998        Change
--------------------------------------------------------------------------------------------------------------------

  $20,049       $18,924         5.9 %         Manufactured products          $39,333         $35,118        12.0%
    4,475        15,803       (71.7)%         Distributed products            11,481          27,817       (58.7)%
----------      --------                                                   ----------       ---------
  $24,524       $34,727       (29.4)%            Net sales                   $50,814         $62,935       (19.3)%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Manufactured  products  net  sales for the  second  quarter  of 1999 were  $20.0
million,  an increase of $1.1  million,  or 5.9%,  from the same period in 1998.
Sales  from new  product  introductions  more than  offset  lower unit sales and
eroding  prices.  Distributed  products  net  sales  were $4.5  million  for the
quarter,  a decrease of $11.3 million,  or 71.7%.  This decrease resulted mainly
from continued erosion of selling prices across the distributed  product line as
well as a $3.5 million  customer  pricing  allowance  for the market  decline in
price on Pentoxifylline. The Company's manufactured net sales were $39.3 million
for the  six-month  period ended June 30,  1999,  an increase of $4.2 million or
12.0%  from the  same  period  in 1998.  This  increase  was due to new  product
introductions  which  more than  offset  lower unit  sales and  eroding  prices.
Distributed  product net sales were $11.5 million for the six-months  ended June
30,  1999 as compared  to $27.8  million  for the same  period in 1998,  a 58.7%
decrease.  This $16.3 million decrease resulted mainly from continued erosion of
selling prices across the distributed product line The Company expects continued
pricing pressure on both its distributed and manufactured product lines.

   Gross Profit
<TABLE>
   <C>             <C>          <C>           <S>                                  <C>             <C>           <C>
------------------------------------------------------------------------------------------------------------------------
  For the quarter ended                            (In thousands)                For the six months ended
        June 30,                                                                         June 30,
  1999             1998         Change               (Unaudited)                   1999             1998         Change
------------------------------------------------------------------------------------------------------------------------
   $8,317          $5,231         59.0%       Manufactured products                $13,883         $ 8,397        65.3%
                                                  As a % of manufactured
     41.5%           27.6%                           products net sales               35.3%           23.9%

     $853          $3,454       (75.3)%       Distributed products                 $ 2,261         $ 6,029       (62.5)%
                                                  As a % of distributed
     19.1%           21.9%                           products net sales               19.7%          21.7%

   $9,170          $8,685          5.6%       Gross profit                         $16,144         $14,426        11.9%
     37.4%           25.0%                        As a % of net sales                 31.8%           22.9%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The  Company's  gross profit was $9.2  million,  or 37.4% of net sales,  for the
second quarter of 1999 as compared to $8.7 million,  or 25.0% of net sales,  for
the same period in 1998.  For the  six-month  period  ended June 30,  1999,  the
Company's gross profit was $16.1 million,  or 31.8% of net sales, as compared to
$14.4  million or 22.9% of net sales a year earlier.  Increased  margins for the
three and six months ended June 30, 1999 were due  primarily  to higher  margins
realized on new  manufactured  products,  a more favorable  manufacturing  plant
utilization and a favorable mix of higher margin manufactured products.
                                       11
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)
<TABLE>
     <C>             <C>        <C>          <S>                                         <C>              <C>         <C>
     Operating Expenses
     -------------------------------------------------------------------------------------------------------------------------
     For the quarter ended                            (In thousands)                  For the six months ended
            June 30,                                                                          June 30,
      1999           1998        Change                  (Unaudited)                     1999            1998         Change
     ---------------------------------------------------------------------------------------------------------------------------

      $4,210         $2,228       89.0%      Research and development                    $7,091           $4,850       46.2%
        21.0%          11.8%                    As a % of net manufactured sales           18.0%            13.8%

      $1,091         $1,164       (6.3)%     Selling, marketing and distribution         $2,091           $2,425      (13.8)%
         4.4%           3.3%                    As a % of net sales                         4.1%             3.9%

      $2,379         $1,496       59.0%      General and administrative                  $4,789           $2,779       72.3%
         9.7%           4.3%                    As a % of net sales                         9.4%             4.4%

      $ (28)            $15     (286.7)%     Recall related and litigation, net            $ 64             $194      (67.0)%
         0.0%           0.0%                    As a % of net sales                         0.1%             0.3%

     ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Research  and  development  expenses  increased  to $4.2  million for the second
quarter of 1999 as compared to $2.2 million for the same period of 1998. For the
six-month  period,  research  and  development  expenses  were $7.1  million  as
compared to $4.9 million reported in the prior year. These significant increases
were associated  with the Company's  progress toward its goal of filing eight to
twelve Abbreviated New Drug Application filings targeted for this year.

Selling,  marketing and distribution expenses decreased 6.3% to $1.1 million for
the second  quarter of 1999 as compared  to $1.2  million for the same period of
1998. For the six-month  period,  selling,  marketing and distribution  expenses
decreased  13.8%  to $2.1  million  compared  to $2.4  million  reported  a year
earlier.  The decrease in selling,  marketing and distribution  expenses for the
quarter and six months ended June 30, 1999 resulted from lower  personnel  costs
associated  with the  transition  of new  personnel  into the sales  department.
General and administrative  expenses were $2.4 million for the second quarter of
1999 as compared to $1.5 million for the same period in 1998.  For the six-month
period ended June 30, 1999,  general and  administrative  expenses  totaled $4.8
million  compared  to $2.8  million  a year  earlier.  This  increase,  for both
periods,  was  primarily  attributable  to the  Company's  Year  2000  readiness
program, higher personnel costs and legal and professional fees, including those
associated with new patent litigation. Refer to Note C of the Notes to Condensed
Consolidated Financial Statements for further discussion of these items.

Recall related and  litigation  expenses for both the second quarter of 1999 and
1998 and the six months ended June 30, 1999 and 1998 were primarily comprised of
uninsured  legal  expenses  incurred by the Company  for  representation  in its
various legal proceedings.

   Interest and Other Income (Expense)
<TABLE>
    <C>            <C>         <C>         <S>                                      <C>             <C>         <C>
-----------------------------------------------------------------------------------------------------------------------
 For the quarter ended                           (In thousands)                For the six months ended
       June 30,                                                                        June 30,
   1999            1998       Change               (Unaudited)                      1999                         Change
                                                                                                  1998
-------------------------------------------------------------------------------------------------------------------------
                                           Interest and other
    $ 464          $ 476        (2.5)%        investment income                     $ 886           $ 906        (2.2)%

      (82)          (157)        47.8%     Interest expense                          (188)           (319)      (41.1)%

     (318)            15       (2220)%     Other income (expense)                    (338)            (76)       344.7%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       12
<PAGE>


                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)


Interest  and other  investment  income  decreased  to  $464,000  for the second
quarter of 1999 as  compared to  $476,000  for the same period of 1998.  For the
six-month period,  interest and other investment income decreased to $886,000 as
compared to $906,000 reported a year earlier. In both cases the decrease was due
to decreased average investment holdings.

Interest  expense  decreased  47.8% to $82,000 for the second quarter of 1999 as
compared  to  $157,000  for the same period of 1998.  For the  six-month  period
interest  expense  decreased 41.1% to $188,000 as compared to $319,000 for 1998.
The decrease for both the quarter and the  six-months  were due primarily to the
decrease  of  accrued  interest  relating  to  installments  payable  under  the
Company's plea agreement. Refer to Note C of the Notes to Condensed Consolidated
Financial  Statements for further discussion of the plea agreement with the U.S.
Attorney.

The Company  incurred  other expenses of $318,000 for the second quarter of 1999
as  compared to other  income of $15,000  for the same  period of 1998.  For the
six-month  period ending June 30, 1999,  other expense  increased to $338,000 as
compared  to $76,000 for the same  period in 1998.  In both  periods the Company
incurred  increased  expenses,  primarily  relating to costs associated with the
development of strategic alliances with other companies.
<TABLE>
    <C>            <C>          <C>         <S>                                  <C>               <C>          <C>
   Taxes and Net Income (Loss)
---------------------------------------------------------------------------------------------------------------------
 For the quarter ended                         (In thousands)               For the six months ended
       June 30,                                                                     June 30,
  1999            1998         Change              (Unaudited)                   1999            1998         Change
------------------------------------------------------------------------------------------------------------------------
    $ 620          $1,360       (54.4)%     Income tax expense                     $ 970           $1,530       (36.6)%

     39.2 %          33.0 %                 Effective tax rate                      39.3 %           32.6 %

    $ 962          $2,756       (65.1)%     Net income                           $ 1,499           $3,159       (52.5)%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

Net income for the  second  quarter of 1999 was $1.0  million or $0.05 per share
compared  to a net  income of $2.8  million  or $0.14  per share for the  second
quarter of 1998.  For the  six-month  period  ended June 30,  1999,  the Company
reported net income of $1.5 million or $0.08 per share as compared to net income
of $3.2 million or $0.16 per share for the same period in 1998.  The decrease in
net income related  primarily to higher  research and  development  spending and
general and administrative costs.

Changes in Financial Condition

Capital Resources and Liquidity
----------------------------------------------------------
                               June 30,      December 31,
In thousands                       1999              1998
----------------------------------------------------------
                            (Unaudited)
Cash and short-term
   investments                  $32,604           $43,222
Working capital                  71,239            69,545
Long-term debt                    4,800             4,800
Shareholders' equity            109,907           108,304
----------------------------------------------------------

Working  capital  increased $1.7 million from December 31, 1998 to $71.2 million
at June 30, 1999 primarily due to working capital generated from operations.

The Company  has a working  capital  line of credit  agreement  that  provides a
maximum borrowing  capacity of $25.0 million.  At June 30, 1999, the Company had
$11.7  million of stand-by  letters of credit  issued under this line of credit.
The $11.7 million in stand-by letters of credit will be reduced by $3.06 million
to reflect the  additional  cash deposit made on August 4, 1999.  These stand-by
letters of credit were obtained by the Company  pursuant to the  requirements of
the Albuterol Settlement Trust Fund to cover its uninsured obligation.  Recourse
to the letters of credit are  contingent  on the number of claims  filed  within
certain  categories  and will not  occur  until all  claims  are  processed  and
settlement amounts are recommended by the Special Master. Refer to Note C of the
Notes to Condensed  Consolidated  Financial Statements for further discussion of
the Albuterol Class Action Lawsuits.
                                       13
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)


Year 2000 Readiness
The Company has a Year 2000  Compliance  Program,  the  purposes of which are to
identify  important  systems  that are not yet Year 2000 ("Y2K")  compliant;  to
initiate replacement or remedial action to assure that key systems will continue
to  operate  in the Y2K and to test  the  replaced  or  remediated  systems;  to
identify and contact key suppliers,  vendors, customers and business partners to
evaluate their ability to maintain normal  operations in the Y2K; and to develop
appropriate  contingency  plans for dealing with foreseeable Y2K  complications.
The Company  has  appointed a Y2K  Project  Manager who is  responsible  for the
Company's  Y2K  Compliance  Program and who reports  directly to a member of the
Company's executive committee.

Information Technology Systems
The Company's critical internal information technology ("IT") systems consist of
its Prism  manufacturing and JD Edwards  financial  accounting and Harbinger EDI
400 software  packages.  The Company has  contacted the vendors of these systems
and  obtained  written  certification  that these IT systems  are  currently  in
material  Year 2000  compliance.  The  Company  also has  completed a pilot room
testing of these systems. In addition,  the Company has nearly completed all Y2K
testing of its other IT applications.  The Company, using an outside consultant,
also  successfully  completed  an  audit  on  selected  aspects  of  the  Y2K IT
compliance testing program.

Embedded Systems
The Company has  completed  its  assessment  of its  mission  critical  embedded
systems such as production  equipment,  facility  control  systems,  and quality
control and research and development instrumentation. Specifically, working with
an outside  consultant  in the first  quarter,  the  Company  completed  a pilot
program in which two products were selected for  evaluation of the equipment and
instruments  used in their  processes.  These  pilot  tests  included  inventory
assessment,  compliance  testing and, where indicated,  remediation  planning on
selected  mission  critical  embedded  systems.  The Company  utilized the pilot
design  methodology to complete its Y2K  compliance  program on the remainder of
the Company's mission critical embedded systems.  The Company is now focusing on
remediation steps arising from the Y2K readiness  testing program,  the majority
of which are in place. The Company's strategy is to continue to focus on mission
critical systems remediation first. Beyond the embedded system Y2K testing pilot
program and the testing program modeled after these pilots, the Company has sent
Y2K compliance  inquiries to the vendors of these embedded systems,  is tracking
responses  to its  inquiries  and,  depending  on vendor  response,  is securing
compliance  information  through direct contact with the manufacturer or through
research on the  manufacturer's  web page. The Company has completed its efforts
to secure documented compliance information on mission critical systems. Now the
Company plans to expand its inventory  assessment and compliance testing to less
critical systems as appropriate.
                                       14
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)

As a  pharmaceutical  manufacturer,  the Company's  research and development and
manufacturing  operations are subject to government  regulation.  Replacement of
equipment  for  products  subject to FDA approval  and  manufacturing  standards
cannot be accomplished  without filings and review by FDA. While the Company has
made significant  progress in remediation of its mission critical  systems,  the
failure of the  Company to properly  and timely  identify  non-mission  critical
equipment  that may not  function  properly  as a result of the Y2K Issue  could
result  in the  Company's  inability  to repair or  remediate  that  non-mission
critical equipment before December 31, 1999. In addition, equipment failures due
to the Y2K issue could result not only in  replacement  costs to the Company but
also in  delays  in  product  shipments  while  the  Company  seeks to  validate
replacement equipment: while not impacting critical business, these delays could
have an adverse effect on the Company.

Third-Party Suppliers, Vendors and Customers
The Company's Y2K Compliance  Program also includes an  investigation of the Y2K
compliance of its major suppliers, vendors, customers and business partners. For
example,  third parties  handle the payroll  function for the Company,  the vast
majority of the  Company's  product  orders are  received  by computer  over the
telecommunications  systems,  and the  Company  also  relies on the  services of
banks, utilities,  and commercial airlines,  among others. The Company continues
to seek and obtain  assurances from key service  providers that there will be no
interruption  of service as a result of Y2K. While the Company has contacted its
supply  chain  business  partners,  not all third- party  suppliers,  vendors or
customers  have  responded.  The Company will continue to make efforts to secure
Y2K  compliance  status from its supply  chain,  and is  addressing  contingency
planning in lieu of third party claimed  compliance.  There can be no assurances
that the contingency plans will adequately prevent a service interruption by one
or more of the Company's  third-party  suppliers from having a material  adverse
effect on the Company.

The Company  continues to contact its key bulk chemical and packaging  suppliers
to determine their Y2K compliance status. As with certain of its equipment,  the
Company  cannot  change  suppliers  of  bulk  active   ingredients   unless  the
alternative supplier has been approved through the FDA regulatory process. Where
possible,  the Company tries to qualify two or more sources of supply.  However,
certain of the  Company's  current  and future  products  will  depend on a sole
source of raw material supply. Should one or more of these sole source suppliers
become unable to deliver  product in a timely  manner due to the Y2K Issue,  the
Company would need to identify and qualify a new source of supply.  This process
would  likely  involve  significant  delays  and cost and could  have a material
adverse  effect on the Company.  In addition,  the Company  continues to contact
significant  customers to determine their progress towards Y2K compliance and to
identify issues, if any, which might develop because of customers' failure to be
prepared for Y2K. In the event issues are identified, the Company expects to try
to develop  procedures  to permit the Company to continue to supply the customer
despite Y2K. The Company has been assured by its key financial institutions that
they are currently Y2K compliant.

Year 2000 Costs and Expenses
The Company's policy  continues to be to expense  currently all costs related to
Y2K compliance unless the useful life of the technological  asset is extended or
increased,  in which case the Company will  capitalize  that cost.  For 1999 the
Company  anticipates  expenses  relating to Y2K to include key personnel  costs,
consultant  engagements,  software and hardware  accommodations,  data entry and
business partner communications.  Based on currently available information,  the
Company believes that these expenses will not exceed $500,000 and will be funded
through  operations.  Until all  remediation  is completed  on mission  critical
systems in the Company's IT and Embedded Systems operations, the potential costs
for any associated  remediation  cannot be calculated and is not included in the
$500,000. If unforeseen compliance efforts are required or if present compliance
efforts are not  completed  on time,  or if the cost of any  required  updating,
modification  or replacement of the Company's  systems or equipment  exceeds the
Company's  estimates,  Y2K could  result in  material  costs and have a material
adverse  effect  on the  Company.  From  inception,  the  Company  has  incurred
approximately  $333,000  of  expense  related to Y2K which  consisted  mainly of
consulting fees and internal payroll costs.
                                       15
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)

Contingency Plans and Worst Case Scenario
At the present  time,  the  Company  has  formulated  a draft  contingency  plan
addressing system failures in its business processes due to Y2K. The Company has
received written certifications confirming that its critical internal IT systems
are compliant,  and the Company's Y2K IT system audit  supported these findings.
As the  Company  continues  its  IT  and  Embedded  Systems  compliance  program
additionally, it is formulating appropriate contingency planning. The integrated
draft  contingency  plan  encompasses  all functional  areas within the Company,
their  business  processes  and the  tasks  associated  with  each  process.  It
addresses  alternate  strategies  to  support  critical  business  functions  to
prevent,  wherever possible,  business  interruptions.  It is expected that this
draft  contingency  plan will be  revised  as the  Company's  readiness  program
concludes and remediation initiatives are completed. Moreover, it is anticipated
that as the Company receives more complete compliance information from its major
suppliers,  vendors,  customers and business  partners,  that additional efforts
regarding  business  interruption  prevention and  contingency  planning will be
undertaken.
The  Company  has  also  commenced  certain  business  interruption   prevention
initiatives.

One possible  worst case  scenario for the Company  resulting  from Y2K would be
that one or more of the  Company's  sole source bulk  chemical  suppliers  would
become temporarily unable to deliver raw materials to the Company as a result of
a system failure.  If this were to happen, the Company would not be permitted to
substitute  another  manufacturer's  raw  material  for that of its sole  source
supplier.  The Company would not be able  immediately to continue to manufacture
product  using that raw material once its  inventories  of the raw material were
expended.  The  Company's  contingency  planning  with  respect to an  important
product may include  building up key sole  source raw  material  inventories  in
advance of December 31, 1999.

Various  statements  in this  discussion of Y2K are  forward-looking  statements
(statements  which are not historical in fact) within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements include statements of
the Company's expectations, anticipated schedules and expected completion dates,
estimated  costs  and  statements  regarding  expected  Y2K  compliance.   These
forward-looking  statements  are subject to various  risks which may  materially
affect the Company's  efforts to achieve Y2K  compliance to accomplish its goals
and to meet its expectations with respect to Y2K issues. These risks include the
possibility  that  the  Company  will  not be able to  complete  the  plans  and
modifications  that  it has  identified,  on a  timely  basis,  if at  all,  the
availability  of skilled  consultants,  the difficulty of evaluating and testing
the wide  variety of  information  systems and  components,  both  hardware  and
software,  that  must be  evaluated,  the  variety,  number  and  complexity  of
equipment  used in the Company's  operations and the large number of vendors and
customers  with which the Company  interacts.  The  Company's  assessment of the
effects of Y2K on the Company are based, in part, upon information received from
third  parties  and the  Company's  reasonable  reliance  on  that  information.
Therefore,  the risk that  inaccurate  information  is supplied by third parties
upon which the Company  reasonably  relied must be  considered  as a risk factor
that might affect the  Company's Y2K efforts.  Further,  the delay or failure of
third  parties to respond to  inquiries  will  hinder the  Company's  ability to
evaluate and  remediate  the Year 2000 issue.  The Company has not yet completed
evaluating  certain  aspects of Y2K and expects that its  assessment of Y2K will
continue to evolve as its Y2K  compliance  program  progresses and the evolution
and testing process continues.
                                       16
<PAGE>
                           COPLEY PHARMACEUTICAL, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                   CHANGES IN FINANCIAL CONDITION (continued)


       ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company  has three  forms of debt which are  subject to interest  rate risk.
They are the industrial  revenue bonds,  the working  capital line of credit and
the  outstanding  letters  of  credit.  The rates on all three  instruments  are
variable and fluctuate with the prime rate of interest charged by the respective
bank.  Carrying value of these instruments which approximates fair value is $4.8
million and principal is payable as follows;  $300,000 for each of the next five
years and $3.3  million  thereafter.  Interest is payable  monthly and  interest
expense  could be  substantially  higher if the prime  rate was to  increase  in
future periods. The bank's prime rate was 7.75% at June 30, 1999.
                                       17
<PAGE>
                           PART II. OTHER INFORMATION


Item 1.       Legal Proceedings

See  descriptions  of legal  proceedings  in Note C of the  Notes  to  Condensed
Consolidated  Financial Statements in Part I of this Form 10-Q, which are hereby
incorporated by reference herein.

Item 4.       Submission of Matters to a Vote of Security Holders

     (a) The Annual Meeting of  Shareholders  of the Company was held on May 27,
1999.

     (b)            (1) The following  individuals were elected or re-elected to
                    the Board of Directors. The number of votes cast for each of
                    the above directors was as follows:

          Director                         For            Withheld

         William K. Hoskins             17,435,170         122,412
         Daniel L. Korpolinski          17,437,642         119,940
         Charles T. Lay                 17,502,718          54,864

     (c)             (3) The selection of the firm of PricewaterhouseCoopers LLP
                     as auditors  for the fiscal year ending  December  31, 1999
                     was ratified by the following vote:

                                       Number of
                                        Shares

         For                            17,484,182
         Against                            68,941
         Abstained                           4,459


Item 6.       Exhibits and Reports on Form 8-K

                  (a) Exhibits
                              10.1 Sixth  Amendment to Amended and Restated Loan
                        Agreement  dated June 7, 1999  between  the  Company and
                        BankBoston.
                              10.2  Fourth  Amendment  to Amended  and  Restated
                        Promissory  Note dated June 7, 1999  between the Company
                        and BankBoston.

                   (b) Reports on Form 8-K
                      No reports on Form 8-K were filed  during the three months
                      ended June 30, 1999.

                                       18
<PAGE>

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


          Signature                         Title                      Date


/s/  Daniel M. P. Caron         Vice President-Finance, Chief     August 9, 1999
-----------------------
     Daniel M. P. Caron       Financial Officer and Treasurer
                              (principal financial and principal
                                   accounting officer)


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