FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission File Number 1-09623
IVAX CORPORATION
| Florida | 16-1003559 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 4400 Biscayne Boulevard, Miami, Florida | 33137 | |
| (Address of principal executive offices) | (Zip Code) | |
(305) 575-6000
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). 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.
195,662,835 shares of Common Stock, $.10 par value, outstanding as of July 25, 2003.
IVAX CORPORATION
INDEX
| PAGE NO. | ||||
| PART I - FINANCIAL INFORMATION | ||||
| Item 1 - | Financial Statements | |||
| Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 | 2 | |||
| Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 | 3 | |||
| Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2003 | 4 | |||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 | 5 | |||
| Notes to Consolidated Financial Statements | 6 | |||
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
| Item 3 - | Quantitative and Qualitative Disclosures About Market Risk | 26 | ||
| Item 4 - | Controls and Procedures | 27 | ||
| PART II - OTHER INFORMATION | ||||
| Item 1 - | Legal Proceedings | 28 | ||
| Item 4 - | Submission of Matters to a Vote of Security Holders | 29 | ||
| Item 6 - | Exhibits and Reports on Form 8-K | 29 | ||
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
| ASSETS | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 185,955 | $ | 155,408 | ||||||||
Marketable securities, short-term |
2,101 | 28,873 | ||||||||||
Accounts receivable, net of allowances for doubtful
accounts of $22,882 in 2003 and $21,719 in 2002 |
205,368 | 224,768 | ||||||||||
Inventories |
345,132 | 309,655 | ||||||||||
Other current assets |
148,577 | 162,513 | ||||||||||
Total current assets |
887,133 | 881,217 | ||||||||||
Property, plant and equipment, net |
453,102 | 420,246 | ||||||||||
Goodwill, net |
420,790 | 407,403 | ||||||||||
Intangible assets, net |
279,810 | 283,298 | ||||||||||
Other assets |
85,885 | 55,595 | ||||||||||
Total assets |
$ | 2,126,720 | $ | 2,047,759 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 116,186 | $ | 111,590 | ||||||||
Current portion of long-term debt |
37,289 | 28,617 | ||||||||||
Loans payable |
15,668 | 14,935 | ||||||||||
Accrued income taxes payable |
32,549 | 50,555 | ||||||||||
Accrued expenses and other current liabilities |
233,731 | 228,366 | ||||||||||
Total current liabilities |
435,423 | 434,063 | ||||||||||
Long-term debt, net of current portion |
819,510 | 872,339 | ||||||||||
Other long-term liabilities |
55,251 | 46,115 | ||||||||||
Minority interest |
12,608 | 10,379 | ||||||||||
Shareholders’ equity: |
||||||||||||
Common stock, $.10 par value, authorized 437,500 shares,
issued and outstanding 195,337 shares in 2003 and
194,372 shares in 2002 |
19,534 | 19,437 | ||||||||||
Capital in excess of par value |
323,337 | 311,367 | ||||||||||
Retained earnings |
639,500 | 569,225 | ||||||||||
Accumulated other comprehensive loss |
(178,443 | ) | (215,166 | ) | ||||||||
Total shareholders’ equity |
803,928 | 684,863 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 2,126,720 | $ | 2,047,759 | ||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
2
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Period Ended June 30, | Three Months | Six Months | ||||||||||||||||
| (In thousands, except per share data) | 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net revenues |
$ | 342,985 | $ | 280,406 | $ | 660,678 | $ | 552,628 | ||||||||||
Cost of sales |
192,033 | 149,843 | 363,583 | 300,090 | ||||||||||||||
Gross profit |
150,952 | 130,563 | 297,095 | 252,538 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Selling |
52,458 | 43,701 | 98,053 | 85,847 | ||||||||||||||
General and administrative |
31,279 | 27,368 | 56,347 | 54,634 | ||||||||||||||
Research and development |
25,065 | 18,330 | 45,486 | 37,384 | ||||||||||||||
Amortization of intangible assets |
5,315 | 3,918 | 9,806 | 6,932 | ||||||||||||||
Restructuring costs |
317 | 1,794 | 780 | 2,282 | ||||||||||||||
Total operating expenses |
114,434 | 95,111 | 210,472 | 187,079 | ||||||||||||||
Income from operations |
36,518 | 35,452 | 86,623 | 65,459 | ||||||||||||||
Other income (expense): |
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Interest income |
686 | 3,026 | 1,919 | 5,425 | ||||||||||||||
Interest expense |
(11,003 | ) | (12,312 | ) | (21,952 | ) | (24,720 | ) | ||||||||||
Other income, net |
230 | 19,354 | 5,854 | 24,374 | ||||||||||||||
Total other income (expense) |
(10,087 | ) | 10,068 | (14,179 | ) | 5,079 | ||||||||||||
Income before income taxes and minority interest |
26,431 | 45,520 | 72,444 | 70,538 | ||||||||||||||
Provision for income taxes |
7,378 | 13,766 | 24,484 | 19,578 | ||||||||||||||
Income before minority interest |
19,053 | 31,754 | 47,960 | 50,960 | ||||||||||||||
Minority interest |
33 | (32 | ) | 111 | 62 | |||||||||||||
Income from continuing operations |
19,086 | 31,722 | 48,071 | 51,022 | ||||||||||||||
Income from discontinued operations, net of tax
of $12,763 |
22,204 | — | 22,204 | — | ||||||||||||||
Cumulative effect of accounting change |
— | — | — | 4,161 | ||||||||||||||
Net income |
$ | 41,290 | $ | 31,722 | $ | 70,275 | $ | 55,183 | ||||||||||
Basic earnings per common share: |
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Continuing operations |
$ | 0.10 | $ | 0.16 | $ | 0.25 | $ | 0.26 | ||||||||||
Discontinued operations |
0.11 | — | 0.11 | — | ||||||||||||||
Cumulative effect of accounting change |
— | — | — | 0.02 | ||||||||||||||
Net income |
$ | 0.21 | $ | 0.16 | $ | 0.36 | $ | 0.28 | ||||||||||
Diluted earnings per common share: |
||||||||||||||||||
Continuing operations |
$ | 0.10 | $ | 0.16 | $ | 0.25 | $ | 0.26 | ||||||||||
Discontinued operations |
0.11 | — | 0.11 | — | ||||||||||||||
Cumulative effect of accounting change |
— | — | — | 0.02 | ||||||||||||||
Net income |
$ | 0.21 | $ | 0.16 | $ | 0.36 | $ | 0.28 | ||||||||||
Weighted average number of common
shares outstanding: |
||||||||||||||||||
Basic |
195,163 | 195,083 | 195,066 | 195,642 | ||||||||||||||
Diluted |
198,503 | 196,998 | 197,578 | 198,128 | ||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
| Common Stock | Accumulated | ||||||||||||||||||||||||||
| Capital in | Other | ||||||||||||||||||||||||||
| Number of | Excess of | Retained | Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Par Value | Earnings | Income (Loss) | Total | ||||||||||||||||||||||
BALANCE, January 1, 2003 |
194,372 | $ | 19,437 | $ | 311,367 | $ | 569,225 | $ | (215,166 | ) | $ | 684,863 | |||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||
Net income |
— | — | — | 70,275 | — | 70,275 | |||||||||||||||||||||
Translation adjustment |
— | — | — | — | 36,631 | 36,631 | |||||||||||||||||||||
Unrealized
net gain on
available-for-sale equity
securities and derivatives,
net of tax |
— | — | — | — | 92 | 92 | |||||||||||||||||||||
Comprehensive income |
106,998 | ||||||||||||||||||||||||||
Exercise of stock options |
472 | 48 | 4,523 | — | — | 4,571 | |||||||||||||||||||||
Tax benefit of option exercises |
— | — | 768 | — | — | 768 | |||||||||||||||||||||
Employee stock purchases |
43 | 4 | 446 | — | — | 450 | |||||||||||||||||||||
Repurchase and retirement of
common stock |
(550 | ) | (55 | ) | (6,100 | ) | — | — | (6,155 | ) | |||||||||||||||||
Shares issued in acquisitions |
1,000 | 100 | 12,293 | — | — | 12,393 | |||||||||||||||||||||
Value of stock options issued
to non-employees |
— | — | 40 | — | — | 40 | |||||||||||||||||||||
BALANCE, June 30, 2003 |
195,337 | $ | 19,534 | $ | 323,337 | $ | 639,500 | $ | (178,443 | ) | $ | 803,928 | |||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | 2003 | 2002 | |||||||||
| (In thousands) | |||||||||||
Cash flows from operating activities: |
|||||||||||
Net income |
$ | 70,275 | $ | 55,183 | |||||||
Adjustments to reconcile net income to net cash
flows from operating activities: |
|||||||||||
Restructuring costs |
780 | 2,282 | |||||||||
Depreciation and amortization |
35,313 | 26,668 | |||||||||
Deferred
tax provision (benefit) |
(282 | ) | 1,362 | ||||||||
Tax effect of stock options exercised |
768 | 1,297 | |||||||||
Value of stock options issued to non-employees |
40 | — | |||||||||
Provision for doubtful accounts |
2,003 | 2,064 | |||||||||
Provision for inventory obsolescence |
16,485 | 5,173 | |||||||||
Interest accretion on notes payable |
1,362 | 453 | |||||||||
Minority interest in earnings |
(111 | ) | (62 | ) | |||||||
Equity in earnings of unconsolidated affiliates |
(614 | ) | (502 | ) | |||||||
Gain on sale of marketable securities |
— | (797 | ) | ||||||||
Gains on sale of product rights |
(5,309 | ) | (7,489 | ) | |||||||
(Gain) loss on sale of assets, net |
(139 | ) | 370 | ||||||||
Gains on extinguishment of debt |
(2,274 | ) | (9,570 | ) | |||||||
Income from discontinued operations |
(22,204 | ) | — | ||||||||
Cumulative effect of accounting change |
— | (4,161 | ) | ||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
24,387 | 37,813 | |||||||||
Inventories |
|||||||||||