FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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.
114,684,270 SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING
AS OF APRIL 28, 1995.
<PAGE>
IVAX CORPORATION
I N D E X
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Condensed Consolidated Balance Sheets as of March 31, 1995
and December 31, 1994. 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1995 and 1994. 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1995 and 1994. 5
Notes to Condensed Consolidated Financial Statements. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II - OTHER INFORMATION 13
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
(unaudited) (audited)
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including interest bearing deposits of
$11,922 and $34,440 at March 31, 1995
and December 31, 1994, respectively $ 11,922 $ 37,045
Accounts receivable, net of allowances for doubtful
accounts of $12,461 and $10,940 at March 31, 1995
and December 31, 1994, respectively 228,391 219,717
Inventories 235,518 221,520
Other current assets 50,999 46,060
---------- ----------
Total current assets 526,830 524,342
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 339,451 319,872
---------- ----------
OTHER ASSETS:
Cost in excess of net assets of acquired companies, net 139,043 138,433
Patents, trademarks, licenses and other intangibles, net 55,417 53,446
Investments in and advances to affiliated companies 10,400 8,631
Other 62,118 61,980
---------- ----------
266,978 262,490
---------- ----------
$1,133,259 $1,106,704
========== ==========
</TABLE>
(Continued)
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<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
----------- ------------
(unaudited) (audited)
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Loans payable $ 12,624 $ 5,006
Current portion of long-term debt 4,444 5,454
Accounts payable 63,518 91,704
Accrued income taxes payable 13,031 8,308
Accrued expenses and other current liabilities 89,111 81,052
---------- ----------
Total current liabilities 182,728 191,524
---------- ----------
LONG-TERM DEBT, net of current portion 248,679 253,839
---------- ----------
OTHER LONG-TERM LIABILITIES 16,597 16,502
---------- ----------
MINORITY INTEREST 14,807 10,383
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value:
Authorized--250,000 shares
Issued and outstanding--
March 31, 1995 114,581
December 31, 1994 114,046 11,458 11,405
Capital in excess of par value 420,918 417,734
Retained earnings 239,513 216,156
Interest in Company's stock held by affiliate (145) (272)
Cumulative translation adjustment (1,296) (10,567)
---------- ----------
Total shareholders' equity 670,448 634,456
---------- ----------
$1,133,259 $1,106,704
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
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<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995 1994
--------- ---------
(In thousands, except per share data)
<S> <C> <C>
NET REVENUES $ 281,080 $ 259,474
COST OF SALES 161,362 141,638
--------- ---------
Gross profit 119,718 117,836
--------- ---------
OPERATING EXPENSES:
Selling 43,233 38,905
General and administrative 24,789 24,152
Research and development 15,185 11,310
Amortization of intangible assets 2,383 3,538
Merger expenses - 476
--------- ---------
Total operating expenses 85,590 78,381
--------- ---------
Income from operations 34,128 39,455
OTHER INCOME (EXPENSE):
Interest income 561 347
Interest expense (5,401) (5,556)
Other income, net 3,211 532
--------- ---------
(1,629) (4,677)
--------- ---------
Income before income taxes, minority interest and extraordinary items 32,499 34,778
PROVISION FOR INCOME TAXES 7,860 9,810
--------- ---------
Income before minority interest and extraordinary items 24,639 24,968
MINORITY INTEREST (1,336) -
--------- ---------
Income before extraordinary items 23,303 24,968
Extraordinary items - Gain (loss) on extinguishment of debt,
net of a tax provision of $43 in 1995 and benefits realized
of $535 in 1994 54 (1,648)
--------- ---------
NET INCOME $ 23,357 $ 23,320
========= =========
EARNINGS PER COMMON SHARE:
Primary:
Earnings before extraordinary items $ .20 $ .21
Extraordinary items - (.01)
--------- ---------
Net earnings $ .20 $ .20
========= =========
Fully Diluted:
Earnings before extraordinary items $ .20 $ .21
Extraordinary items - (.01)
--------- ---------
Net earnings $ .20 $ .20
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Primary 117,564 117,057
========= =========
Fully Diluted 118,690 117,347
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,357 $ 23,320
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 13,232 11,830
Provision (credit) for deferred taxes 87 (1,599)
Provision for allowances for doubtful accounts 1,847 1,716
Gains on sale of long-term assets (2,921) -
(Gains) losses on extinguishment of debt (97) 2,183
Minority interest 1,336 -
Changes in assets and liabilities:
Increase in accounts receivable (8,013) (12,704)
Increase in inventories (13,028) (24,679)
Increase in other current assets (2,780) (4,415)
Decrease in other assets 61 984
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities (17,793) 4,173
Decrease in other long-term liabilities (46) (132)
Other, net 182 356
-------- --------
Net cash provided by (used for) operating activities (4,576) 1,033
-------- --------
Cash flows from investing activities:
Capital expenditures, net of proceeds from sales (25,604) (16,513)
Net proceeds from sale/(acquisitions) of patents, trademarks,
licenses and other intangibles 2,002 (1,094)
Other, net (594) (354)
-------- --------
Net cash used for investing activities (24,196) (17,961)
-------- --------
Cash flows from financing activities:
Payments on long-term debt and loans payable (19,947) (67,874)
Borrowings on long-term debt and loans payable 20,205 30,000
Issuance of common stock 2,457 4,929
Issuance of stock by pooled companies - 2,593
-------- --------
Net cash provided by (used for) financing activities 2,715 (30,352)
-------- --------
Effect of exchange rate changes on cash 934 (369)
-------- --------
Net decrease in cash and cash equivalents (25,123) (47,649)
Cash and cash equivalents at the beginning of the year 37,045 91,481
-------- --------
Cash and cash equivalents at the end of the period $ 11,922 $ 43,832
======== ========
Supplemental disclosures:
Interest paid $ 1,304 $ 1,854
======== ========
Income tax payments $ 1,843 $ 18,013
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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<PAGE>
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 (the "Company") contain all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly the financial position of the Company as of March 31, 1995, and the
results of operations for the three months ended March 31, 1995 and 1994.
The results of operations and cash flows for the three months ended March
31, 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 for the first
quarter of 1994 have been restated to include the accounts of Zenith
Laboratories, Inc. ("Zenith"), acquired by the Company 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 financial
statements should be read in conjunction with the consolidated financial
statements and the notes included in the Company's 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 the Company's 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 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. The Company utilizes the liability method and deferred
taxes are determined based on the estimated future tax effects of
differences between the financial 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.
-6-
<PAGE>
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995 1994
-------- --------
<S> <C> <C>
Current:
United States $5,530 $10,810
Foreign, including Puerto Rico and U.S. Virgin Islands 2,243 599
Deferred 87 (1,599)
------ -------
$7,860 $ 9,810
====== =======
</TABLE>
(4) BUSINESS COMBINATIONS:
On March 21, 1995, the Company and Knoll AG, a wholly-owned
subsidiary of BASF Aktiengesellschaft, established a joint venture for the
marketing of generic pharmaceutical products in Europe. Additional
information relating to the joint venture appears in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
On December 30, 1994, the Company acquired Zenith in consideration
for 27,173,140 shares of the Company's common stock. The acquisition was
accounted for using the pooling of interests method of accounting.
Accordingly, the condensed consolidated financial statements for the first
quarter of 1994 included herein give retroactive effect to the acquisition.
The following table summarizes the impact of the Zenith acquisition
on the Company's previously reported results of operations (in thousands):
<TABLE>
<CAPTION>
Income Before
Net Extraordinary Net
Three Months Ended March 31, 1994 Revenues Items Income
-------- ------------- --------
<S> <C> <C> <C>
IVAX, as previously reported $236,500 $ 21,932 $ 20,284
Zenith 24,281 2,730 2,730
Intercompany eliminations (1,307) 306 306
-------- -------- --------
IVAX, as restated $259,474 $ 24,968 $ 23,320
======== ======== ========
</TABLE>
(5) SUBSEQUENT EVENTS:
On April 28, 1995, the Company's Board of Directors declared a
semi-annual $.04 per share cash dividend. This dividend is payable on June
1, 1995 to holders of record of the Company's common stock on May 12, 1995.
In each of June and December 1994, the Company paid cash dividends of $.03
per share.
On April 11, 1995, McGaw, Inc. repurchased $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 which
will be recorded during the 1995 second quarter.
-7-
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On December 30, 1994, the Company 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
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1994
The Company reported net income of $23.4 million for the three
months ended March 31, 1995, compared to $23.3 million for the first
quarter of 1994. Income before extraordinary items was $23.3 million for
the 1995 first quarter compared to $25.0 million for the same period in
1994, a decrease of $1.7 million. Results for the 1995 first quarter
included an extraordinary gain from the extinguishment of debt of $54,000,
while the 1994 first quarter results included a $1.6 million extraordinary
loss from the extinguishment of debt.
Net earnings per primary and fully diluted common share were $.20
for both the first quarters of 1995 and 1994. Primary and fully diluted
earnings before extraordinary items for the 1995 first quarter were $.20, a
decrease of $.01 compared to the first quarter of 1994.
NET REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT:
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
First Quarter Net Gross Net Gross
Revenues Profit Revenues Profit
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Pharmaceuticals $158,732 $ 69,768 $138,375 $ 65,537
Intravenous products 83,247 32,491 82,616 34,184
Personal care products 16,922 9,430 15,655 9,629
Diagnostics 4,179 2,613 4,330 2,591
Specialty chemicals 18,080 5,416 18,611 5,867
Intersegment eliminations (80) - (113) 28
-------- -------- -------- --------
Total $281,080 $119,718 $259,474 $117,836
======== ======== ======== ========
</TABLE>
Net revenues for the three months ended March 31, 1995 totalled
$281.1 million, compared to $259.5 million for the three months ended March
31, 1994, an increase of $21.6 million. Consolidated gross profit in the
first quarter of 1995 increased $1.9 million from the first quarter of
1994. Gross profit was $119.7 million (43% of net revenues) for the 1995
first quarter, compared to $117.8 million (45% of net revenues) for the
1994 first quarter.
Net revenues of the Company's pharmaceutical operations increased
$20.4 million in comparison to the first quarter of 1994. Increases of
$26.2 million in net revenues of the Company's international pharmaceutical
operations and $8.3 million in domestic net sales of pharmaceutical
products, exclusive of verapamil HCl ER tablets manufactured by the Company
("manufactured verapamil"), were partially offset by a decline of $14.1
million in domestic net revenues attributable to manufactured verapamil.
-8-
<PAGE>
The Company's international pharmaceutical operations generated net
revenues of $65.1 million in the first quarter of 1995. The $26.2 million
increase in total international pharmaceutical net revenues included $15.3
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 the results of operations of Galena are included in
the Company's condensed consolidated financial statements only since the
acquisition date. The remaining $10.9 million increase in net revenues of
the Company's international pharmaceutical operations was primarily due to
higher sales of both branded and generic products in the United Kingdom and
Ireland.
Domestic pharmaceutical net revenues, exclusive of manufactured
verapamil, totalled approximately $71.8 million for the first quarter of
1995 compared to $63.5 million for the first quarter of 1994. The increase
in net revenues, exclusive of manufactured verapamil, as compared to the
first quarter of 1994 was primarily the result of increased sales of
generic products manufactured by the Company. In addition, 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.
During 1994 and the 1995 first quarter, the results of the domestic
generic pharmaceutical operations were also affected by competition
in the United States generic pharmaceutical market. Competition continues
to intensify, and will continue to affect the Company's domestic generic
pharmaceutical business, particularly its distribution operations.
Net revenues attributable to sales of manufactured verapamil
totalled $21.8 million during the first quarter of 1995 compared to $35.9
million for the same quarter of 1994. The decrease in net revenues in the
1995 first quarter compared to the 1994 first quarter 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. The
Company 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 the Company's
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 the Company's
verapamil net revenues and gross profit.
The gross profit percentage of the Company's pharmaceutical
operations was 47.4% in the first quarter of 1994 and 44.0% in the first
quarter of 1995. The decline in gross profit was primarily attributable to
the reduction of verapamil unit sales prices, in combination with
competition in the domestic generic pharmaceutical distribution business,
partially offset by a shift in sales mix to higher margin generic products
manufactured by the Company's domestic pharmaceutical operations and higher
margin branded products manufactured by the Company's international
pharmaceutical operations.
Net revenues of the intravenous products division totalled $83.2
million in the 1995 first quarter, an increase of $631,000 from the first
quarter of 1994. Gross profit was $32.5 million for the 1995 first quarter
compared to $34.2 million for the same quarter of the prior year. The
increase in net revenues resulted from higher sales of specialty biomedical
infusion devices and basic intravenous sets partially offset by lower net
revenues attributable to Hespan(Registered Trademark), McGaw's brand name
blood plasma expansion product. The $1.7 million decrease in gross profit
was primarily due to a reduction in the net selling price of
Hespan(Registered Trademark). Hespan(Registered Trademark) accounted for
net revenues of $4.1 million in the 1995 first quarter and $6.1 million in
the 1994 first quarter. In February 1995, another pharmaceutical company
introduced a
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<PAGE>
generic version of Hespan(Registered Trademark) in the United States and,
accordingly, McGaw's share of the market will be reduced, and
Hespan(Registered Trademark) net revenues and gross profit will decrease
compared to 1994.
Net revenues of the Company's other operations, which represented
approximately 14% and 15% of consolidated net revenues in the first
quarters of 1995 and 1994, respectively, rose $618,000 from the first
quarter of the prior year. Higher sales volumes of trade show and
promotional products resulting in the $1.3 million increase in net revenues
of the personal care products group were partially offset by declines in
net revenues of the diagnostic and specialty chemicals businesses. Combined
gross profit decreased $656,000, primarily due to the shift in sales mix of
the specialty chemicals group to lower margin products, in combination with
the specialty chemicals group's reduction in net revenues as compared to
the first quarter of 1994.
OPERATING EXPENSES BY BUSINESS SEGMENT:
(In thousands)
<TABLE>
<CAPTION>
Research Amortization
General and and of Merger
Selling Administrative Development Intangibles Expenses Total
-------- -------------- ----------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
1995 First Quarter
- ------------------
Pharmaceuticals $ 18,862 $ 13,018 $ 10,673 $ 590 $ - $ 43,143
Intravenous products 13,868 6,127 3,547 1,172 - 24,714
Personal care products 6,279 1,761 227 222 - 8,489
Diagnostics 878 681 235 50 - 1,844
Specialty chemicals 3,346 1,153 503 349 - 5,351
Corporate and other - 2,049 - - - 2,049
-------- -------- -------- -------- -------- --------
Total $ 43,233 $ 24,789 $ 15,185 $ 2,383 $ - $ 85,590
======== ======== ======== ======== ======== ========
1994 First Quarter
- ------------------
Pharmaceuticals $ 15,634 $ 11,238 $ 7,221 $ 1,108 $ - $ 35,201
Intravenous products 14,105 6,059 3,143 1,742 - 25,049
Personal care products 4,535 1,944 98 292 - 6,869
Diagnostics 975 688 321 49 - 2,033
Specialty chemicals 3,656 932 527 347 - 5,462
Corporate and other - 3,291 - - 476 3,767
-------- -------- -------- -------- -------- --------
Total $ 38,905 $ 24,152 $ 11,310 $ 3,538 $ 476 $ 78,381
======== ======== ======== ======== ======== ========
</TABLE>
Selling expenses totalled $43.2 million (15.4% of net revenues) for
the first quarter of 1995 compared to $38.9 million (15.0% of net revenues)
for the first quarter of 1994. A $3.1 million increase in selling expenses
of the Company's international pharmaceutical operations due primarily to
the 67% rise in its net revenues accounted for over 70% of the $4.3 million
increase in total selling expenses as compared to the first quarter of
1994. Selling expenses of the personal care products group were $1.7
million higher than the 1994 first quarter principally due to increased
promotional activity, including trade show expenditures.
General and administrative expenses totalled $24.8 million for the
1995 first quarter, an increase of $637,000 as compared to the same quarter
last year. Higher general and administrative costs of the Company's
pharmaceutical operations, up $1.8 million, were partially offset by a $1.2
million reduction in corporate general and administrative expenses.
Increased facilities and personnel expenditures of the Company's
international pharmaceutical operations, and the inclusion of $764,000 of
general and
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<PAGE>
administrative costs of Galena, were primarily responsible for the
$1.8 million increase in general and administrative expenses of the
pharmaceutical operations as compared to the first quarter of 1994.
The decline in corporate general and administrative expenses was primarily
the result of a receivable recorded during the 1995 first quarter related to
lower than anticipated workers' compensation incidence rates.
Research and development expenses rose $3.9 million in comparison
to the 1994 first quarter to a total of $15.2 million. Expenditures by the
Company's pharmaceutical operations and intravenous products division, in
combination, represented approximately 94% of the total research and
development expenses for the first quarter of 1995. Management intends to
continue to increase the level 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 declined $1.2 million compared to the 1994
first quarter as a result of the write-off of deferred financing costs
associated with the retirement of debt by McGaw in March 1994, 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 $2.7 million from the first quarter of
the prior year, primarily due to gains recorded 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.
CURRENCY FLUCTUATIONS
For the three months ended March 31, 1995, approximately 25% of the
Company's net revenues were attributable to operations which principally
generated revenues in currencies other than the United States dollar,
compared to approximately 16% for the three months ended March 31, 1994.
Fluctuations in the value of foreign currencies relative to the United
States dollar impact the reported results of operations for the Company. If
the United States dollar weakens relative to the foreign currency, the
earnings generated in the foreign currency will, in effect, increase when
converted into United States dollars and vice versa. As a result of
exchange rate differences, net revenues increased by approximately $2.5
million for the three months ended March 31, 1995 as compared to the three
months ended March 31, 1994; the impact on net income was not significant.
INCOME TAXES
The Company's effective tax rate was 24.2% and 28.2% for the three
months ended March 31, 1995 and 1994, respectively. The decline in the
Company's consolidated effective tax rate was primarily the result of the
recognition of $1.3 million in available United States tax credits for 1994
Puerto Rico income and a higher proportion of 1995 first quarter income
generated by the Company's operations in Puerto Rico and Ireland, which
are taxed at lower statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company's working capital was approximately
$344.1 million, compared to $332.8 million at December 31, 1994. Cash and
cash equivalents totalled $11.9 million at March 31, 1995, as compared to
$37.0 million at year-end 1994 and $43.8 million as of March 31, 1994.
The Company used $4.6 million in cash for operating activities
during the first quarter of 1995 compared to cash of $1.0 million provided
by operating activities during the first quarter of 1994. The
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<PAGE>
$5.6 million decline in cash generated from operating activities as compared
to the first quarter of the prior year was primarily the result of the
decrease in current liabilities partially offset by a lower rate of growth
in both accounts receivable and inventories.
The Company utilized net cash of $24.2 million during the first
quarter of 1995 for investing activities compared to $18.0 million during
the first quarter of 1994. The $6.2 million increase was principally the
result of a higher level of capital expenditures. In addition, during the
1995 first quarter, the Company's personal care products division sold
certain trademarks resulting in $2.8 million in proceeds.
Net cash of $2.7 million was provided by financing activities
during the first quarter of 1995, in comparison to net cash of $30.4
million used for financing activities in the same quarter of the prior
year. Prior to the end of the 1994 first quarter, the Company 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 quarter of 1994, McGaw
repaid the amounts borrowed under its $30 million revolving credit facility
which totalled $11.1 million as of December 31, 1993. McGaw's revolving credit
facility was terminated in June 1994.
As discussed in Note 5, Subsequent Events, in the Notes to
Condensed Consolidated Financial Statements, on April 28, 1995, the
Company's Board of Directors declared a semi-annual cash dividend of $.04
per share, payable on June 1, 1995 to holders of record of the Company's
common stock on May 12, 1995. Additionally, on April 11, 1995, McGaw
repurchased $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.
-12-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
In connection with the L-Tryptophan litigation previously reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
1994, the Company's wholly-owned subsidiary, Goldline Laboratories, Inc.,
as of May 8, 1995, had either been named as a defendant or assumed the
defense of a customer named as a defendant in a total of 110 lawsuits. As
of such date, 103 of such lawsuits had been settled and 7 remained pending
in both state and federal courts.
In late April 1995, Zenith Laboratories, Inc. ("Zenith"), a
wholly-owned subsidiary of the Company, received approvals from the Food
and Drug Administration to manufacture and market the antibiotic Cefaclor
in capsule and oral suspension formulations in the United States. Cefaclor
is the generic equivalent of Ceclor(Registered Trademark), a product of
Eli Lilly and Company ("Lilly"). On April 27, 1995, Lilly filed a lawsuit
against Zenith and others styled ELI LILLY AND COMPANY V. AMERICAN CYANAMID
COMPANY, BIOCRAFT LABORATORIES, INC., ZENITH LABORATORIES, INC. AND
BIOCHIMICA OPOS S.P.A. in the United States District Court for the Southern
District of Indiana, Indianapolis Division. In general, the lawsuit alleges
that Zenith's Cefaclor raw material supplier, a third party unaffiliated
with the Company, manufactures Cefaclor raw material in a manner which
infringes two process patents owned by Lilly, and that Zenith and the other
named defendants have knowingly and willfully infringed and induced the
supplier to infringe the patents by importing the raw material into the
United States. The lawsuit seeks to enjoin Zenith and the other defendants
from infringing or inducing the infringement of the patents and from making,
using or selling any product incorporating the raw material provided by
such supplier, and seeks an unspecified amount of monetary damages and the
destruction of all Cefaclor raw material manufactured by the supplier and
imported into the United States. The Company intends to defend the lawsuit
vigorously. Although the Company believes Lilly's allegations are without
merit, if determined adversely to the Company, the lawsuit would likely
have a material adverse effect on the Company's financial position and
results of operations. Ceclor(Registered Trademark) is a registered trademark
of Eli Lilly and Company.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10 Letter Agreement, dated April 27, 1995, among the
Company, NationsBank of Florida, National Association and
Continental Bank, N.A.
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) CURRENT REPORT ON FORM 8-K
On January 6, 1995, the Company filed a Current Report on Form 8-K
reporting the consummation on December 30, 1994 of the merger of Zenith
Laboratories, Inc. with and into a wholly-owned subsidiary of the Company.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVAX CORPORATION
Date: May 11, 1995 By: /s/ Michael W. Fipps
------------------------
Michael W. Fipps
Senior Vice President-Finance
Chief Financial Officer
-14-
EXHIBIT 10
April 27, 1995
VIA FACSIMILE
Ms. Allison Freeland
NationsBank of Florida, N.A.
150 S.E. Third Avenue
Miami, Florida 33131
Ms. Susan M. Racher
Vice President & Manager
Bank of America (f.k.a.
Continental Illinois
Commercial Corporation)
801 Brickell Avenue
Miami, Florida 33131
Re: Revolving Credit and Reimbursement Agreement by and
among IVAX Corporation, as Borrower, and NationsBank of
Florida, National Association and Continental Bank N.A.,
as Agents
Dear Allison and Susan:
This letter serves to amend the Revolving Credit and Reimbursement
Agreement (the "Credit Agreement"), by and among IVAX Corporation, as
Borrower ("IVAX"), NationsBank of Florida, National Association and
Continental Bank N.A., as Lenders, NationsBank of Florida, National
Association, as Agent and Administrative Agent, and Continental Bank N.A.,
as Agent.
Effective as of January 1, 1995, the Credit Agreement is amended as
follows:
1. Section 8.19 of the Credit Agreement is deleted in its
entirety, shall be of no further force and effect, and shall be replaced
with the following:
8.19 COMBINED OPERATING INCOME. Permit at any time the
Combined Operating Income for any Four-Quarter Period to be
less than $70,000,000.
<PAGE>
2. The definition of Consolidated Fixed Charges in Section
1.01 is deleted in its entirety, shall be of no further force and effect,
and shall be replaced with the following:
"Consolidated Fixed Charges" means, with respect to the Borrower and
its Subsidiaries, for the periods indicated, the sum of, without
duplication, (i) Consolidated Interest Expense, (ii) dividends and
other shareholder distributions during such period, and (iii) the
current portion of Consolidated Funded Indebtedness.
3. For purposes of computing the Consolidated Fixed Charge
Ratio under Section 8.05 of the Credit Agreement, Indebtedness with respect
to any Person shall not include items which would be classified as "Loans
payable" on the consolidated balance sheet of the Borrower and its
Subsidiaries or on the combined balance sheet of the Borrower and its
Significant Subsidiaries or the consolidated balance sheet of such Person,
as the case may be, all as determined in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis, unless and only to the
extent that the aggregate amount of such "Loans payable" exceeds
$10,000,000.
All other provisions of the Credit Agreement shall remain in full
force and effect.
In connection with the foregoing, IVAX agrees to negotiate in good
faith to obtain, on or before May 30, 1995, the consent of Mellon Bank,
N.A. under the Loan and Security Agreement, dated December 11, 1990, as
amended (the "Mellon Agreement"), between Mellon Bank (East) National
Association, now known as Mellon Bank, N.A., and Zenith Laboratories, Inc.
("Zenith") in order to permit Zenith to become a Guarantor under the Credit
Agreement.
IVAX agrees to terminate the Mellon Agreement effective June 30,
1995, and not to renew that agreement. IVAX also agrees to cause Zenith to
become a Guarantor under the Credit Agreement on or before July 3, 1995.
IVAX's failure to perform its obligations under either of the foregoing two
sentences shall constitute a Default under the Credit Agreement.
Capitalized terms used but not defined in this letter have the
meanings given to them in the Credit Agreement.
Your execution of this letter in the space provided below will
acknowledge your agreement to the foregoing amendment. Once
<PAGE>
executed by each of you, this letter agreement shall constitute such
amendment, and no other document or action shall be required by any
party to effectuate the amendment. Please return an executed copy of
this letter agreement to my attention at telecopy number 305-590-2615.
Very truly yours,
IVAX CORPORATION
/s/ Michael W. Fipps
-----------------------
Michael W. Fipps
Chief Financial Officer
THE FOREGOING IS ACKNOWLEDGED
AND AGREED TO BY THE UNDERSIGNED:
NATIONSBANK OF FLORIDA,
NATIONAL ASSOCIATION
By: /s/ Allison S. Freeland
--------------------------------
Name: Allison S. Freeland
Title: Vice President
Date: April 27, 1995
BANK OF AMERICA ILLINOIS (f.k.a CONTINENTAL BANK N.A.)
By: /s/ R. A. Kilgannon
-------------------------------
Name: R. A. Kilgannon
Title: Senior Vice President
Date: April 27, 1995
EXHIBIT 11
IVAX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1995 1994
------- -------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Income before extraordinary items $ 23,303 $ 24,968
Extraordinary items 54 (1,648)
-------- --------
$ 23,357 $ 23,320
Net income for primary computation ======== ========
Average number of common and dilutive common equivalent
shares-primary 117,564 117,057
======== ========
Earnings before extraordinary items $.20 $.21
======== ========
Net earnings $.20 $.20
======== ========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary items $ 23,303 $ 24,968
Adjustment for interest expense on 9.00% Convertible Subordinated
Debentures, net of tax 19 20
-------- --------
Adjusted income before extraordinary items for fully diluted
computation 23,322 24,988
Extraordinary items 54 (1,648)
-------- --------
Net income for fully diluted computation $ 23,376 $ 23,340
======== ========
Average number of common and dilutive common equivalent
shares-fully diluted 118,690 117,347
======== ========
Earnings before extraordinary items $.20 $.21
======== ========
Net earnings $.20 $.20
======== ========
AVERAGE NUMBER OF COMMON SHARES AND DILUTIVE
COMMON SHARE EQUIVALENTS
Primary shares:
Average number of common shares outstanding 114,328 104,544
Incremental shares for options and warrants 3,236 4,463
Conversion of pooled company's convertible preferred stock - 8,050
-------- --------
117,564 117,057
======== ========
Fully diluted shares:
Average number of common shares outstanding 114,328 104,544
Incremental shares for options and warrants 4,076 4,467
Conversion of pooled company's convertible preferred stock - 8,050
Conversion equivalent of 9.00% Convertible Subordinated Debentures 286 286
-------- --------
118,690 117,347
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 11,922
<SECURITIES> 0
<RECEIVABLES> 240,852
<ALLOWANCES> 12,461
<INVENTORY> 235,518
<CURRENT-ASSETS> 526,830
<PP&E> 471,774
<DEPRECIATION> 132,323
<TOTAL-ASSETS> 1,133,259
<CURRENT-LIABILITIES> 182,728
<BONDS> 248,679
<COMMON> 11,458
0
0
<OTHER-SE> 658,990
<TOTAL-LIABILITY-AND-EQUITY> 1,133,259
<SALES> 281,080
<TOTAL-REVENUES> 281,080
<CGS> 161,362
<TOTAL-COSTS> 161,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,847
<INTEREST-EXPENSE> 5,401
<INCOME-PRETAX> 32,499
<INCOME-TAX> 7,860
<INCOME-CONTINUING> 23,303
<DISCONTINUED> 0
<EXTRAORDINARY> 54
<CHANGES> 0
<NET-INCOME> 23,357
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
