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 JUNE 30, 1995
Commission File Number 1-09623
IVAX CORPORATION
FLORIDA 16-1003559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8800 N.W. 36TH STREET, MIAMI, FLORIDA 33178
(Address of principal executive offices) (Zip Code)
(305) 590-2200
(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.
115,371,683 SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING AS OF
AUGUST 4, 1995.
IVAX CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Condensed Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994. 2
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1995 and 1994. 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1995 and 1994. 5
Notes to Condensed Consolidated Financial Statements. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II - OTHER INFORMATION 18
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(unaudited) (audited)
(In thousands)
CURRENT ASSETS:
Cash and cash equivalents, including interest bearing
deposits of $15,799 and $34,440 at June 30, 1995
and December 31, 1994, respectively $ 15,799 $ 37,045
Accounts receivable, net of allowances for doubtful
accounts of $11,182 and $10,940 at June 30, 1995
and December 31, 1994, respectively 247,128 219,717
Inventories 243,556 221,520
Other current assets 52,839 46,060
---------- ----------
Total current assets 559,322 524,342
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 351,829 319,872
---------- ----------
OTHER ASSETS:
Cost in excess of net assets of acquired companies, net 139,457 138,433
Patents, trademarks, licenses and other intangibles, net 53,730 53,446
Investments in and advances to affiliated companies 10,435 8,631
Other 60,250 61,980
---------- ----------
263,872 262,490
---------- ----------
$1,175,023 $1,106,704
========== ==========
(Continued)
- 2 -
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(unaudited) (audited)
(In thousands)
CURRENT LIABILITIES:
Loans payable $ 3,868 $ 5,006
Current portion of long-term debt 4,343 5,454
Accounts payable 67,629 91,704
Accrued income taxes payable 12,899 8,308
Accrued expenses and other current liabilities 77,783 81,052
---------- ----------
Total current liabilities 166,522 191,524
---------- ----------
LONG-TERM DEBT, net of current portion 281,468 253,839
---------- ----------
OTHER LONG-TERM LIABILITIES 16,013 16,502
---------- ----------
MINORITY INTEREST 14,421 10,383
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value:
Authorized--250,000 shares
Issued and outstanding--
June 30, 1995 115,079 shares
December 31, 1994 114,046 shares 11,508 11,405
Capital in excess of par value 426,656 417,734
Retained earnings 262,986 216,156
Interest in Company's stock held by affiliate (145) (272)
Cumulative translation adjustment (4,406) (10,567)
---------- ----------
Total shareholders' equity 696,599 634,456
---------- ----------
$1,175,023 $1,106,704
========== ==========
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
- 3 -
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS SIX MONTHS
PERIOD ENDED JUNE 30, 1995 1994 1995 1994
(In thousands, except per share data) -------- -------- -------- --------
NET REVENUES $306,684 $282,687 $587,764 $542,161
COST OF SALES 176,849 163,695 338,211 305,333
-------- -------- -------- --------
Gross profit 129,835 118,992 249,553 236,828
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 44,412 40,703 87,645 79,608
General and administrative 24,876 23,031 49,665 47,183
Research and development 16,479 10,500 31,664 21,810
Amortization of intangible assets 2,559 3,253 4,942 6,791
Merger expenses - 44 - 520
-------- -------- -------- --------
Total operating expenses 88,326 77,531 173,916 155,912
-------- -------- -------- --------
Income from operations 41,509 41,461 75,637 80,916
OTHER INCOME (EXPENSE):
Interest income 385 494 946 841
Interest expense (5,190) (5,143) (10,591) (10,699)
Other income, net 1,069 (257) 4,280 275
-------- -------- -------- --------
(3,736) (4,906) (5,365) (9,583)
-------- -------- -------- --------
Income before income taxes, minority interest
and extraordinary items 37,773 36,555 70,272 71,333
PROVISION FOR INCOME TAXES 8,793 9,920 16,653 19,730
-------- -------- -------- --------
Income before minority interest and extraordinary items 28,980 26,635 53,619 51,603
MINORITY INTEREST (855) - (2,191) -
-------- -------- -------- --------
Income before extraordinary items 28,125 26,635 51,428 51,603
Extraordinary items-Gains (losses) on extinguishment
of debt, net of taxes (20) 296 34 (1,352)
-------- -------- -------- --------
NET INCOME $ 28,105 $ 26,931 $ 51,462 $ 50,251
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Primary:
Earnings before extraordinary items $ .24 $ .23 $ .44 $ .44
Extraordinary items - - - (.01)
-------- -------- -------- --------
Net earnings $ .24 $ .23 $ .44 $ .43
======== ======== ======== ========
Fully Diluted:
Earnings before extraordinary items $ .24 $ .23 $ .43 $ .44
Extraordinary items - - - (.01)
-------- -------- -------- --------
Net earnings $ .24 $ .23 $ .43 $ .43
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Primary 118,741 116,206 118,061 116,263
======== ======== ======== ========
Fully Diluted 119,030 116,492 118,586 116,549
======== ======== ======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
- 4 -
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1995 1994
(In thousands) ---------- ----------
Cash flows from operating activities:
Net income $ 51,462 $ 50,251
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,063 22,306
Provision (credit) for deferred taxes 777 (1,395)
Provision for allowances for doubtful accounts 1,646 3,241
Gains on sale of long-term assets (2,921) -
(Gains) losses on extinguishment of debt (63) 1,676
Minority interest 2,191 -
Changes in assets and liabilities:
Increase in accounts receivable (27,048) (10,020)
Increase in inventories (21,794) (35,500)
Increase in other current assets (3,613) (5,402)
(Increase) decrease in other assets (1,168) 3,040
Decrease in accounts payable, accrued expenses
and other current liabilities (22,066) (4,758)
Increase (decrease) in other long-term liabilities (629) 2,555
Other, net 677 556
-------- --------
Net cash provided by operating activities 4,514 26,550
-------- --------
Cash flows from investing activities:
Capital expenditures, net of proceeds from sales (49,733) (38,100)
Acquisitions of patents, trademarks, licenses
and other intangibles, net of sales proceeds (401) (5,497)
Acquisitions of businesses, net of cash acquired (2,106) (958)
Other, net (303) 292
-------- --------
Net cash used for investing activities (52,543) (44,263)
-------- --------
Cash flows from financing activities:
Payments on long-term debt and loans payable (32,134) (74,263)
Borrowings on long-term debt and loans payable 56,027 40,194
Issuance of common stock 8,244 5,745
Issuance of stock of pooled companies - 2,980
Cash dividends paid (4,632) (2,566)
-------- --------
Net cash provided by (used for) financing activities 27,505 (27,910)
-------- --------
Effect of exchange rate changes on cash (722) 931
-------- --------
Net decrease in cash and cash equivalents (21,246) (44,692)
Cash and cash equivalents at the beginning of the year 37,045 91,481
-------- --------
Cash and cash equivalents at the end of the period $ 15,799 $ 46,789
======== ========
Supplemental disclosures:
Interest paid $ 11,255 $ 11,164
======== ========
Income tax payments $ 9,799 $ 41,389
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
- 5 -
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
In the opinion of the management of IVAX Corporation, the accompanying
unaudited condensed consolidated financial statements of IVAX Corporation and
subsidiaries ("IVAX") contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
IVAX as of June 30, 1995, and the results of operations for the three and six
months ended June 30, 1995 and 1994. The results of operations and cash flows
for the six months ended June 30, 1995 are not necessarily indicative of the
results of operations or cash flows which may be reported for the remainder of
1995.
The condensed consolidated financial statements have been restated to
include the accounts of Zenith Laboratories, Inc. ("Zenith"), acquired by IVAX
on December 30, 1994 in a transaction accounted for as a pooling of interests.
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Pursuant to such rules and regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes included in IVAX' Annual Report on Form 10-K for the year ended December
31, 1994.
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 of the Notes to Consolidated Financial
Statements included in IVAX' Annual Report on Form 10-K for the year ended
December 31, 1994.
(2) EARNINGS PER SHARE:
Primary earnings per share is computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method. Fully diluted earnings per share assumes the maximum dilutive effect
from stock options and warrants, and if applicable, the conversion equivalents
of the 6-1/2% Convertible Subordinated Notes due 2001 and the 9.00% Convertible
Subordinated Debentures due 1995. The conversion equivalent of Zenith's
outstanding cumulative convertible preferred stock was included in the
calculation of weighted average shares for the periods prior to the acquisition
if dilutive; otherwise, net income was reduced by the applicable amount of
preferred dividends.
(3) 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 liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial
- 6 -
statement and tax basis of assets and liabilities using the enacted tax laws.
Deferred income tax provisions and benefits are based on the changes in the
deferred tax asset or tax liability from period to period.
The provision for income taxes consists of the following (in thousands):
THREE MONTHS SIX MONTHS
Period Ended June 30, 1995 1994 1995 1994
------- ------- -------- --------
Current:
United States $ 5,802 $ 7,134 $ 11,332 $ 17,944
Foreign, including Puerto Rico
and U.S. Virgin Islands 2,301 2,582 4,544 3,181
Deferred 690 204 777 (1,395)
------- ------- -------- --------
Provision for Income Taxes $ 8,793 $ 9,920 $ 16,653 $ 19,730
======= ======= ======== ========
(4) BUSINESS COMBINATIONS:
On December 30, 1994, IVAX acquired Zenith in consideration for
27,173,140 shares of IVAX' common stock. The acquisition was accounted for using
the pooling of interests method of accounting. Accordingly, the condensed
consolidated financial statements included herein give retroactive effect to the
acquisition.
The following table summarizes the impact of the Zenith acquisition on
IVAX' previously reported results of operations (in thousands):
INCOME BEFORE
NET EXTRAORDINARY NET
REVENUES ITEMS INCOME
--------- ------------- --------
Three Months ended June 30, 1994
IVAX, as previously reported $ 249,391 $ 23,467 $ 23,763
Zenith 34,777 3,228 3,228
Intercompany eliminations (1,481) (60) (60)
--------- -------- --------
IVAX, as restated $ 282,687 $ 26,635 $ 26,931
========= ======== ========
Six Months ended June 30, 1994
IVAX, as previously reported $ 485,891 $ 45,399 $ 44,047
Zenith 59,058 5,958 5,958
Intercompany eliminations (2,788) 246 246
--------- -------- --------
IVAX, as restated $ 542,161 $ 51,603 $ 50,251
========= ======== ========
(5) DEBT:
At June 30, 1995, $80,000,000 was outstanding under IVAX' revolving
credit facility which permits borrowings of up to $100,000,000. As of December
31, 1994, $45,000,000 was outstanding under this facility. The revolving credit
facility providing for borrowings of up to $10,000,000 previously maintained by
Zenith expired in June 1995.
- 7 -
On April 11, 1995, McGaw, Inc. ("McGaw") purchased $3,355,000 face value
of its 10-3/8% Senior Notes due April 1, 1999 at a purchase price of 101% of
their outstanding principal amount plus accrued interest. The repurchase was
made pursuant to the indenture governing the Notes. The repurchase resulted in a
pre-tax extraordinary loss of approximately $34,000.
In January 1995, IVAX purchased $1,000,000 face value of its 6-1/2%
Convertible Subordinated Notes due 2001, resulting in a $54,000 net
extraordinary gain, after provision for income taxes of $43,000.
(6) DIVIDENDS ON COMMON STOCK:
On June 1, 1995, IVAX paid a semi-annual $.04 per share cash dividend to
holders of record of IVAX' common stock as of May 12, 1995. In each of June and
December 1994, IVAX paid cash dividends of $.03 per share.
- 8 -
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On December 30, 1994, IVAX consummated the acquisition of Zenith
Laboratories, Inc. ("Zenith"), which develops, manufactures and sells generic
pharmaceutical products in the United States. The financial information for
prior periods has been restated to include the results of Zenith, the
acquisition of which was accounted for as a pooling of interests.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1994
IVAX reported net income of $51.5 million for the six months ended June
30, 1995, an increase of $1.2 million from the $50.3 million in net income
reported for the six months ended June 30, 1994. Income before extraordinary
items was $51.4 million for the six months ended June 30, 1995, compared to
$51.6 million for the same period of the prior year. Results for the first half
of 1995 included a $34,000 net extraordinary gain from the early extinguishment
of debt, while the results for the first half of 1994 included $1.4 million of
extraordinary losses from the early extinguishment of debt.
Primary earnings before extraordinary items per common share were $.44
for both the first six months of 1995 and 1994. Net earnings per primary common
share of $.44 for the first half of 1995 increased $.01 from the $.43 reported
for the same period of the prior year. In the first half of 1994, IVAX recorded
net extraordinary losses related to the early extinguishment of debt.
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
1995 1994
SIX MONTHS --------------------- ---------------------
---------- NET GROSS NET GROSS
REVENUES PROFIT REVENUES PROFIT
--------- --------- --------- ---------
Pharmaceuticals $ 340,496 $ 147,246 $ 297,492 $ 131,031
Intravenous products 170,839 68,989 165,715 69,112
Personal care products 33,814 17,983 31,917 19,160
Diagnostics 7,792 4,653 8,952 5,342
Specialty chemicals 35,265 10,682 38,085 12,183
Intersegment eliminations (442) - - -
--------- --------- --------- ---------
Total $ 587,764 $ 249,553 $ 542,161 $ 236,828
========= ========= ========= =========
Net revenues for the first half of 1995 totalled $587.8 million compared
to $542.2 million for the first half of 1994, an increase of $45.6 million, or
8%. Consolidated gross profit for the six months ended June 30, 1995 increased
$12.7 million, or 5%, from the same period of the prior year. Gross profit was
$249.6 million (42.5% of net revenues) for the first half of 1995, compared to
$236.8 million (43.7% of net revenues) for the first half of 1994.
Net revenues of IVAX' pharmaceutical operations increased $43.0 million
in comparison to the first six months of 1994. The increase of $45.5 million in
net revenues of IVAX' international
- 9 -
pharmaceutical operations was partially offset by a decline of $2.5 million in
domestic pharmaceutical net revenues.
IVAX' international pharmaceutical operations generated net revenues of
$128.4 million for the first six months of 1995. The $45.5 million increase in
international pharmaceutical net revenues included $31.1 million of net revenues
resulting from the July 1994 acquisition of a majority interest in Galena a.s.
("Galena"). The acquisition was accounted for as a purchase and Galena's results
of operations are included in IVAX' condensed consolidated financial statements
only since the acquisition date. The remaining $14.4 million increase in net
revenues of IVAX' international pharmaceutical operations was primarily due to
higher sales of both branded and generic products in the United Kingdom and
Ireland accompanied by the favorable impact of exchange rate differences in
comparison to the prior year period.
Domestic pharmaceutical net revenues totalled $212.1 million for the
first six months of 1995, compared to $214.6 million for the same period of
1994. The decrease in net revenues was primarily the result of a reduction in
revenues attributable to verapamil HCl ER tablets manufactured by IVAX
("manufactured verapamil"), partially offset by increased net revenues from
other generic products manufactured by IVAX. In addition, domestic
pharmaceutical net revenues for the first six months of 1994 included $17.0
million of sales by Zenith of verapamil manufactured by Zenith's former
verapamil supplier. During the first quarter and part of the second quarter of
1994, the domestic pharmaceutical operations were adversely impacted by delays
in processing and shipment of customer orders and the loss of customer orders
resulting from the conversion to a new integrated sales order entry, inventory
control and product delivery computer software system.
Net revenues attributable to sales of manufactured verapamil totalled
$42.4 million during the first six months of 1995, compared to $59.3 million for
the first six months of the prior year. The decrease in net revenues in the
first half of 1995 compared to the first half of 1994 was due primarily to a
reduction in the net selling price of verapamil caused by competition, offset in
part by increased volume caused by an increase in the substitution rate of
generic verapamil for brand name verapamil. IVAX had been the sole United States
supplier of generic verapamil until March 1994, when Zenith began distribution
of generic verapamil supplied by a company marketing brand name verapamil.
Notwithstanding IVAX' acquisition of Zenith, competition in the generic
verapamil market has continued because Zenith's former verapamil supplier
commenced distribution of generic verapamil through another generic
pharmaceutical company. Moreover, other manufacturers may obtain regulatory
approvals or otherwise determine to market generic verapamil during the
remainder of 1995 and thereafter. As additional competitors enter the generic
verapamil market, the resulting competition is likely to further reduce IVAX'
verapamil net revenues and gross profit.
The increase in sales of generic products manufactured by IVAX,
exclusive of manufactured verapamil, was largely attributable to $22.0 million
in net sales of cefaclor, the generic equivalent of Eli Lilly and Company's
Ceclor/registered trademark/, an antibiotic indicated for the treatment of a
variety of infections. IVAX received FDA approval to market cefaclor and
commenced selling cefaclor in late April 1995. Although cefaclor contributed
significantly to the 1995 second quarter, the levels of revenues generated
during the introduction period of a new generic drug are often higher than the
levels experienced for routine inventory replenishment by customers in the
months following the drug's introduction. Moreover, other companies offer
cefaclor in the generic market, and accordingly, competition in the generic
cefaclor market may result in lower cefaclor net revenues for IVAX in future
periods. In addition, the principal raw material used in the manufacture of
cefaclor is presently available to IVAX from only one source. Changes in the
availability of or the price charged for the raw material may
- 10 -
affect IVAX' future net revenues or gross profit attributable to cefaclor. In
addition, IVAX' sale of cefaclor is the subject of a patent infringement action
brought by Eli Lilly and Company, as discussed in Part II of this Form 10-Q.
The gross profit percentage of IVAX' pharmaceutical operations was 43.2%
in the first six months of 1995 and 44.0% in the first six months of 1994. The
decline in the gross profit percentage was primarily attributable to the
reduction of verapamil unit sales prices, in combination with competition in the
domestic generic pharmaceutical distribution business. These factors were
partially offset by a shift in sales mix to higher margin generic products
manufactured by IVAX' domestic pharmaceutical operations and higher margin
branded products manufactured by IVAX' international pharmaceutical operations
combined with the favorable impact of the reversal of $2.7 million of reserves
deemed excessive at June 30, 1995 for inventories, customer rebates, sales
returns and allowances.
Net revenues of the intravenous products division totalled $170.8
million in the six months ended June 30, 1995, an increase of $5.1 million from
the $165.7 million in the same period of 1994. The increase in net revenues
resulted primarily from higher sales of specialty biomedical infusion devices
and basic intravenous sets combined with the favorable impact of the reversal of
$2.6 million of reserves deemed excessive at June 30, 1995 for warranties,
customer rebates and chargebacks, partially offset by lower net revenues
attributable to specialty nutrition solutions and Hespan/registered trademark/,
McGaw's brand name blood plasma expansion product. Gross profit was $69.0
million for the first half of 1995 compared to $69.1 million for the same period
of the prior year. The gross profit percentage of the intravenous products
division decreased from 41.7% for the first six months of 1994 to 40.4% for the
same period of 1995. The decrease was primarily due to the reduction in the net
selling price of Hespan/registered trademark/ caused by new competition, in
combination with decreases in selling prices of other products in response to
the intravenous products division's customers' focus on containment of health
care costs. Hespan/registered trademark/ accounted for net revenues of $7.8
million in the first half of 1995 compared to $11.0 million in the same period
of the prior year. In February 1995, another pharmaceutical company introduced
a generic version of Hespan/registered trademark/ in the United States and,
accordingly, the intravenous products division's share of the market has been
reduced, and Hespan/registered trademark/ net revenues and gross profit are
expected to decrease compared to 1994.
Net revenues of IVAX' other operations, which represented approximately
13% and 15% of consolidated net revenues in the first six months of 1995 and
1994, respectively, decreased $2.5 million from the first half of the prior
year. Higher sales volumes of the lower margin hair care product line, resulting
in the $1.9 million increase in net revenues of the personal care products
group, were more than offset by declines in net revenues of the specialty
chemicals and diagnostic businesses. Combined gross profit of IVAX' other
operations decreased $3.4 million, primarily due to the reduction in net
revenues of the specialty chemicals and diagnostics businesses as compared to
the first half of 1994 and the write-off of obsolete inventory by the personal
care products group during the second quarter of 1995, in combination with a
shift in sales mix of the specialty chemicals group to lower margin products.
- 11 -
OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
RESEARCH AMORTIZATION
GENERAL AND AND OF MERGER
1995 SIX MONTHS SELLING ADMINISTRATIVE DEVELOPMENT INTANGIBLES EXPENSES TOTAL
--------------- ------- -------------- ----------- ------------ -------- -----
Pharmaceuticals $38,910 $23,887 $22,196 $1,402 $ - $ 86,395
Intravenous products 27,587 12,157 7,427 2,345 - 49,516
Personal care products 12,786 3,017 471 397 - 16,671
Diagnostics 1,727 1,349 512 99 - 3,687
Specialty chemicals 6,635 2,269 1,058 699 - 10,661
Corporate and other - 6,986 - - - 6,986
------- ------- ------- ------ ------- --------
Total $87,645 $49,665 $31,664 $4,942 $ - $173,916
======= ======= ======= ====== ======= ========
1994 SIX MONTHS
---------------
Pharmaceuticals $33,037 $23,423 $13,753 $2,377 $ - $ 72,590
Intravenous products 27,780 11,584 6,123 3,165 - 48,652
Personal care products 9,268 3,285 259 457 - 13,269
Diagnostics 2,018 1,482 629 99 - 4,228
Specialty chemicals 7,505 1,932 1,046 693 - 11,176
Corporate and other - 5,477 - - 520 5,997
------- ------- ------- ------ ------- --------
Total $79,608 $47,183 $21,810 $6,791 $ 520 $155,912
======= ======= ======= ====== ======= ========
Selling expenses totalled $87.6 million (14.9% of net revenues) for the
first six months of 1995, compared to $79.6 million (14.7% of net revenues) for
the first six months of 1994. A $6.0 million increase in selling expenses of
IVAX' international pharmaceutical operations, due primarily to the 55% rise in
its net revenues, accounted for approximately 75% of the $8.0 million increase
in total selling expenses as compared to the first half of 1994. Selling
expenses of the personal care products group were $3.5 million higher than the
first half of 1994 principally due to increased marketing and promotional
activity for the hair care and cosmetics product lines.
General and administrative expenses totalled $49.7 million (8.4% of net
revenues) for the first half of 1995, compared to $47.2 million (8.7% of net
revenues) for the first half of 1994, an increase of $2.5 million. Increased
facilities and personnel expenditures of IVAX' international pharmaceutical
operations, and the inclusion of $1.8 million of general and administrative
expenses of Galena, were partially offset by the domestic pharmaceutical
operations' reduction of $3.5 million in this expense category as compared to
the first half of 1994. Approximately $1.4 million of reserves deemed excessive
at June 30, 1995 were reversed by the domestic pharmaceutical operations.
Corporate general and administrative expenses increased $1.5 million in
comparison to the first six months of 1994 due primarily to increases in
personnel costs, travel expenses and business insurance costs, partially offset
by the impact of a receivable recorded during the first quarter of 1995 related
to lower than anticipated workers' compensation incidence rates.
Research and development expenses rose $9.9 million in comparison to the
first six months of 1994 to a total of $31.7 million. Expenditures by IVAX'
pharmaceutical operations and intravenous products division, in combination,
represented approximately 94% of the total research and development expenses
for the first half of 1995. Management intends to continue to increase the level
- 12 -
of its research and development efforts. 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 development, and strategic marketing
decisions.
Amortization expense decreased $1.8 million compared to the first six
months of 1994 as a result of the write-off of deferred financing costs
associated with the March 1994 retirement of debt by McGaw, in combination with
the effect of the amortization of the excess of the fair value of assets
acquired from Galena over the purchase price paid.
Other income, net, increased $4.0 million from the first half of the
prior year, primarily due to gains recorded in the 1995 first quarter on the
sale of certain trademarks by the personal care products group and on the sale
of an investment in equity securities of an affiliated company. In addition,
higher licensing and grant revenues of IVAX' international pharmaceutical
operations also contributed to the increase in other income, net, as compared to
the first six months of 1994.
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1994
IVAX reported net income of $28.1 million for the three months ended
June 30, 1995, compared to $26.9 million for the second quarter of 1994. Income
before extraordinary items was $28.1 million for the 1995 second quarter,
compared to $26.6 million for the same period in 1994, an increase of $1.5
million. Results for the 1995 second quarter included a $20,000 extraordinary
loss from the extinguishment of debt, while the 1994 second quarter results
included a $296,000 net extraordinary gain from the extinguishment of debt.
Net earnings per primary and fully diluted common share were $.24 for
the second quarter of 1995. This reflected a $.01 increase from the $.23 in net
earnings on both a primary and fully diluted common share basis reported for the
second quarter of 1994.
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
1995 1994
SECOND QUARTER --------------------- ---------------------
-------------- NET GROSS NET GROSS
REVENUES PROFIT REVENUES PROFIT
--------- --------- --------- ---------
Pharmaceuticals $ 181,764 $ 77,478 $ 159,117 $ 65,494
Intravenous products 87,592 36,498 83,099 34,928
Personal care products 16,892 8,553 16,262 9,531
Diagnostics 3,613 2,040 4,622 2,751
Specialty chemicals 17,185 5,266 19,474 6,316
Intersegment eliminations (362) - 113 (28)
--------- --------- --------- ---------
Total $ 306,684 $ 129,835 $ 282,687 $ 118,992
========= ========= ========= =========
Net revenues for the three months ended June 30, 1995 totalled $306.7
million, compared to $282.7 million for the three months ended June 30, 1994, an
increase of $24.0 million, or 8%. Consolidated gross profit in the second
quarter of 1995 increased $10.8 million, or 9%, from the second quarter of 1994.
Gross profit was $129.8 million (42.3% of net revenues) for the 1995 second
quarter, compared to $119.0 million (42.1% of net revenues) for the 1994 second
quarter.
- 13 -
Compared to the 1994 second quarter, net revenues of IVAX'
pharmaceuticals operations increased $22.6 million, which included increases of
$19.3 million in net revenues of IVAX' international pharmaceutical operations
and $3.3 million in domestic net sales of pharmaceutical products.
The international pharmaceuticals operations generated net revenues of
$63.2 million in the second quarter of 1995, compared to $43.9 million for the
same quarter of the prior year. The $19.3 million increase in international
pharmaceutical net revenues included $15.8 million of net revenues attributable
to Galena. As discussed in the comparison of the six months ended June 30, 1995
versus the same period in the prior year, the July 1994 acquisition of Galena
was accounted for as a purchase, and accordingly, the results of its operations
are included in IVAX' results of operations only since the date of acquisition.
The remaining $3.5 million increase in net revenues of the international
pharmaceutical operations was principally attributable to the favorable impact
of exchange rate differences on IVAX' operations in the United Kingdom and
Ireland.
Domestic pharmaceutical net revenues totalled $118.6 million for the
second quarter of 1995, compared to $115.2 million for the same period of the
prior year. A reduction in net revenues attributable to manufactured verapamil
caused by competition was more than offset by an increase in net revenues from
other generic products manufactured by IVAX. As mentioned in the discussion of
the six months ended June 30, 1995 compared to the six months ended June 30,
1994, IVAX began distribution of a new generic product, cefaclor, in the second
quarter of 1995 which contributed $22.0 million of net revenues to the 1995
second quarter. Domestic pharmaceutical net revenues for the second quarter of
1994 included $12.7 million of sales by Zenith of verapamil manufactured by
Zenith's former verapamil supplier.
Net revenues attributable to sales of manufactured verapamil totalled
$20.6 million in the second quarter of 1995, compared to $23.4 million in the
second quarter of the prior year. The decline in net revenues in the 1995 second
quarter compared to the same period in the prior year was due primarily to the
reduction in the net selling price of verapamil caused by competition, offset in
part by increased volume caused by an increase in the substitution rate of
generic verapamil for brand name verapamil.
The gross profit percentage of IVAX' pharmaceutical operations increased
from 41.2% in the second quarter of 1994 to 42.6% in the second quarter of 1995.
The improvement was primarily the result of the shift in sales mix to higher
margin generic products manufactured by IVAX, including cefaclor, and higher
margin branded products manufactured by IVAX' international pharmaceutical
operations, in combination with the impact of the reversal of $2.7 million of
reserves deemed excessive at June 30, 1995 for inventories, customer rebates,
sales returns and allowances, partially offset by the reduction in verapamil
unit sales prices and competition in the domestic generic pharmaceutical
distribution business.
The intravenous products division generated net revenues of $87.6
million during the second quarter of 1995, an increase of $4.5 million from the
same quarter of 1994. The increase in net revenues resulted primarily from sales
of specialty biomedical infusion devices and basic intravenous sets and the
favorable impact of the reversal of $2.6 million of reserves deemed excessive at
June 30, 1995 for warranties, customer rebates and chargebacks, partially offset
by lower net revenues attributable to Hespan/registered trademark/ and specialty
nutrition solutions. Sales of Hespan/registered trademark/ accounted for $3.7
million of net revenues during the 1995 second quarter compared to $4.9 million
during the 1994 second quarter. Gross profit of the intravenous products
division increased $1.6 million as compared to the
- 14 -
second quarter of 1994, to a total of $36.5 million for the 1995 second quarter.
However, the gross profit percentage of the intravenous products division
decreased to 41.7% for the second quarter of 1995 from 42.0% for the same
quarter of 1994, primarily due to the reduction in the net selling price of
Hespan/registered trademark/ resulting from competition.
Net revenues of IVAX' other operations totalled $37.3 million, or 12% of
consolidated net revenues, in the second quarter of 1995 as compared to $40.5
million, or 14% of consolidated net revenues, in the second quarter of 1994. The
$3.1 million decrease in net revenues was principally the result of the decline
in net revenues reported by the specialty chemicals group, due mainly to lower
sales of industrial cleaning and textile products. Combined gross profit of
IVAX' other operations totalled $15.9 million for the 1995 second quarter, a
decrease of $2.7 million from the same quarter of the prior year. The decrease
in the combined gross profit of IVAX' other operations in comparison to the
second quarter of 1994 was principally the result of sales declines in the
specialty chemicals and diagnostics groups and the personal care products
group's write-off of obsolete inventory, accompanied by a shift in sales mix to
lower margin products.
OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
RESEARCH AMORTIZATION
GENERAL AND AND OF MERGER
1995 SECOND QUARTER SELLING ADMINISTRATIVE DEVELOPMENT INTANGIBLES EXPENSES TOTAL
------------------- ------- -------------- ----------- ------------ -------- -----
Pharmaceuticals $20,048 $10,869 $11,523 $ 812 $ - $ 43,252
Intravenous products 13,719 6,030 3,880 1,173 - 24,802
Personal care products 6,507 1,256 244 175 - 8,182
Diagnostics 849 668 277 49 - 1,843
Specialty chemicals 3,289 1,116 555 350 - 5,310
Corporate and other - 4,937 - - - 4,937
------- ------- ------- ------ ------- --------
Total $44,412 $24,876 $16,479 $2,559 $ - $ 88,326
======= ======= ======= ====== ======= ========
1994 SECOND QUARTER
-------------------
Pharmaceuticals $17,403 $12,185 $ 6,532 $1,269 $ - $ 37,389
Intravenous products 13,675 5,525 2,980 1,423 - 23,603
Personal care products 4,733 1,341 161 165 - 6,400
Diagnostics 1,043 794 308 50 - 2,195
Specialty chemicals 3,849 1,000 519 346 - 5,714
Corporate and other - 2,186 - - 44 2,230
------- ------- ------- ------ ------- --------
Total $40,703 $23,031 $10,500 $3,253 $ 44 $ 77,531
======= ======= ======= ====== ======= ========
Selling expenses totalled $44.4 million (14.5% of net revenues) for the
second quarter of 1995, an increase of $3.7 million from $40.7 million (14.4% of
net revenues) for the second quarter of 1994. Increases of $2.6 million and $1.8
million in selling expenses of IVAX' pharmaceutical operations and the personal
care products group, respectively, were partially offset by a $560,000 decrease
in selling expenses of the specialty chemicals group. A 44% increase in net
revenues of the international pharmaceutical operations in comparison to the
1994 second quarter, in combination with expenses related to the introduction of
new products overseas during the 1995 second quarter, were the principal factors
resulting in the increase in selling expenses of the pharmaceutical operations.
The
- 15 -
implementation of a new media advertising campaign, increased marketing and
promotional activity and the relaunch of a cosmetic product line during the
second quarter of 1995 resulted in the rise in selling expenses of the personal
care products group as compared to the same quarter of the prior year.
General and administrative expenses totalled $24.9 million (8.1% of net
revenues) for the 1995 second quarter, compared to $23.0 million (8.1% of net
revenues) for the 1994 second quarter, an increase of $1.8 million. The
inclusion of $1.1 million of general and administrative expenses of Galena, was
more than offset by a $3.1 million reduction in this expense category by IVAX'
domestic pharmaceutical operations including the reversal of approximately $1.4
million of reserves deemed excessive at June 30, 1995. Corporate general and
administrative expenses, however, increased $2.8 million as compared to the 1994
second quarter due primarily to higher personnel expenses, including employee
benefits costs.
Research and development expenses in the 1995 second quarter increased
57% from the same period of the prior year to a total of $16.5 million. This
increase reflects IVAX' continuing focus on the development of new and improved
products.
The $694,000 decline in amortization expenses in the second quarter of
1995 as compared to the second quarter of 1994 was principally the result of the
effect of the amortization of the excess of the fair value of assets acquired
from Galena over the purchase price paid.
CURRENCY FLUCTUATIONS
For the three and six months ended June 30, 1995, approximately 22% and
23%, respectively, of IVAX' net revenues were attributable to operations which
principally generated revenues in currencies other than the United States
dollar, compared to approximately 17% for the three and six months ended June
30, 1994. Fluctuations in the value of foreign currencies relative to the United
States dollar impact the reported results of operations for IVAX. If the United
States dollar weakens relative to the foreign currency, the earnings generated
in the foreign currency will, in effect, increase when converted into United
States dollars and vice versa. As a result of exchange rate differences, net
revenues increased by approximately $2.4 million and $4.9 million for the three
and six months ended June 30, 1995, respectively, as compared to the same
periods of the prior year.
INCOME TAXES
IVAX' effective tax rate was 23% and 27% for the three months ended June
30, 1995 and 1994, respectively. For the six months ended June 30, 1995, IVAX'
effective tax rate was 24% as compared to 28% for the same period of the prior
year. IVAX' consolidated effective tax rate decreased because of a higher
proportion of income generated by IVAX' operations in Ireland, Puerto Rico and
the U.S. Virgin Islands, which are taxed at lower statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, IVAX' working capital was approximately $392.8
million, compared to $332.8 million at December 31, 1994. Cash and cash
equivalents totalled $15.8 million at June 30, 1995, as compared to $37.0
million at year-end 1994 and $46.8 million as of June 30, 1994.
IVAX generated $4.5 million in cash from operating activities during the
first six months of 1995 compared to $26.6 million during the first six months
of 1994. The $22.0 million decline in cash
- 16 -
generated from operating activities as compared to the first half of 1994 was
primarily the result of a higher rate of growth in accounts receivable and
increased reductions in current liabilities, partially offset by a lower rate of
inventory growth.
Net cash of $52.5 million was utilized for investing activities during
the first half of 1995 as compared to $44.3 million for the same period of the
prior year. The $8.3 million increase was principally the result of a higher
level of capital expenditures.
Net cash of $27.5 million was provided by financing activities during
the first six months of 1995, in comparison to net cash of $27.9 million used
for financing activities in the same period of the prior year. During the first
half of 1994, IVAX borrowed $30.0 million under its revolving credit facility
and utilized approximately $22.5 million of cash to repay $52.5 million of
McGaw's term (floating rate) notes. In addition, during the first half of 1994,
McGaw repaid the amounts borrowed under its revolving credit facility which
totalled $11.1 million as of December 31, 1993. McGaw's revolving credit
facility was terminated in June 1994. As of the end of the second quarter of
1995, IVAX had $80.0 million in borrowings outstanding under its $100 million
revolving credit facility, an increase of $35.0 million from 1994 year-end.
Prior to the end of the 1995 second quarter, the revolving credit facility
providing for borrowings of up to $10.0 million previously maintained by Zenith
expired. During the first half of 1995, McGaw purchased approximately $3.4
million face value of its 10-3/8% Senior Notes due April 1, 1999 at a purchase
price of 101% of their outstanding amount plus accrued interest. The purchase
was made pursuant to the indenture governing the notes. In addition, in January
1995, IVAX purchased $1.0 million of its 6-1/2% Convertible Subordinated Notes
at a purchase price of 89% of their outstanding amount plus accrued interest.
On June 1, 1995, IVAX paid a semi-annual cash dividend of $.04 per share
to holders of record of IVAX' common stock as of May 12, 1995. In each of June
and December 1994, IVAX paid cash dividends of $.03 per share.
- 17 -
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On April 28, 1995, an action styled VENTANA PARTNERSHIP III, L.P. AND
VENTANA EQUITY EXPANSION PARTNERSHIP IV, L.P. VS. IVAX CORPORATION, PHILLIP
FROST, M.D., ISAAC KAYE AND ANDREW ZINZI was filed in the United States District
Court for the Southern District of California. The complaint alleges essentially
the same securities laws violations as well as negligent misrepresentation claim
as alleged in the consolidated class action suit styled HARVEY M. JASPER
RETIREMENT TRUST AND HARVEY M. JASPER INDIVIDUAL RETIREMENT ACCOUNT ET. AL. VS.
IVAX CORPORATION AND PHILLIP FROST ET. AL. previously reported in IVAX' Annual
Report on Form 10-K for the year ended December 31, 1994. The complaint seeks in
excess of $21 million in compensatory, consequential, rescissionary and punitive
damages, as well as litigation costs. It is expected that this action will be
transferred to the Southern District of Florida and consolidated with the class
action suit referred to above.
In connection with the action styled ABS MB INVESTMENT LIMITED
PARTNERSHIP AND ABS MB LTD. VS. IVAX CORPORATION previously reported in IVAX'
Annual Report on Form 10-K for the year ended December 31, 1994, the Court
entered an order on June 26, 1995 denying plaintiffs' motion for summary
judgment with respect to the claims alleging that IVAX breached certain
provisions of the merger agreement and IVAX' bylaws and granted IVAX' motion to
dismiss such counts. The Court denied IVAX' motion to dismiss the counts
relating to alleged violation of Sections 11 and 12(2) of the Securities Act of
1933 and alleged violations of certain state securities laws, as well as its
motion to transfer venue. On July 11, 1995, the plaintiffs filed a motion to
reconsider the dismissal of the claims alleging breach of IVAX' bylaws, or, in
the alternative, to certify an appeal of the dismissal of such counts. Such
motion remains pending.
On August 4, 1995, the U.S. District Court for the Southern District of
Indiana denied Eli Lilly and Company's ("Lilly") motion for preliminary
injunction in the patent lawsuit styled ELI LILLY AND COMPANY VS. AMERICAN
CYANAMID COMPANY, BIOCRAFT LABORATORIES, INC., ZENITH LABORATORIES, INC. AND
BIOCHIMICA OPOS S.P.A. previously reported in IVAX' Quarterly Report on Form
10-Q for the quarter ended March 31, 1995. Lilly's preliminary injunction motion
sought to prevent Zenith from selling cefaclor until the merits of Lilly's
allegations could be determined at trial. On August 11, 1995, Lilly filed a
notice of appeal of the District Court's August 4th order.
- 18 -
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At IVAX' annual meeting of shareholders held on July 28, 1995, IVAX'
shareholders elected sixteen directors. The number of votes cast for and
withheld for each nominee for directors were as follows:
DIRECTOR FOR WITHHELD
-------- --- --------
Mark Andrews 100,531,260 280,034
Lloyd Bentsen 100,382,214 429,080
Ernst Biekert, Ph.D. 100,521,033 290,261
Leslie B. Daniels 100,547,825 263,469
Dante B. Fascell 100,470,046 341,248
Jack Fishman, Ph.D. 100,540,130 271,164
Phillip Frost, M.D. 100,543,852 267,442
Harold S. Geneen 100,444,753 366,541
Peter M. Gottsegen 100,541,245 270,049
Jane Hsiao, Ph.D. 100,543,269 268,025
Lyle Kasprick 100,548,056 263,238
Isaac Kaye 100,536,036 275,258
Harvey M. Krueger 100,530,283 281,011
John H. Moxley, III, M.D. 100,542,284 269,010
M. Lee Pearce, M.D. 100,527,358 283,936
Michael Weintraub 100,542,301 268,993
There were no broker non-votes with respect to the foregoing matter.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10 Amendment No. 3, dated June 30, 1995, to Revolving Credit and
Reimbursement Agreement among IVAX, NationsBank of Florida,
National Association and Bank of America Illinois (formerly
Continental Bank, N.A.)*
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) CURRENT REPORT ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1995.
__________
*Certain exhibits to this document have not been filed. The registrant agrees to
furnish a copy of any omitted exhibit to the Securities and Exchange Commission
upon request.
- 19 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVAX CORPORATION
Date: August 14, 1995 By: /s/ MICHAEL W. FIPPS
-----------------------------
Michael W. Fipps
Senior Vice President-Finance
Chief Financial Officer