IVAX CORP /DE - 10-Q Quarterly Report

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, 2002

Commission File Number 1-09623

IVAX CORPORATION


Florida		16-1003559

(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

(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.

194,554,951 shares of Common Stock, $.10 par value, outstanding as of July 26, 2002.

IVAX CORPORATION

INDEX


	PAGE NO.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001		2

Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001		3

Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2002		5

Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001		6

Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25


PART II — OTHER INFORMATION

Item 1. Legal Proceedings		28

Item 4. Submission of Matters to a Vote of Security Holders		28

Item 6. Exhibits and Reports on Form 8-K		28

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)


					June 30,			December 31,
					2002			2001

					(Unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	149,419		$	178,264
	Marketable securities					26,081			154,842
	Accounts receivable, net of allowances for doubtful accounts of $22,002 in 2002 and $21,670 in 2001					202,058			247,670
	Inventories					291,037			253,471
	Other current assets					145,268			164,692

		Total current assets				813,863			998,939
Property, plant and equipment, net						377,637			356,304
Goodwill, net						414,239			502,077
Intangible assets, net						283,376			187,479
Other assets						51,650			60,650

		Total assets			$	1,940,765		$	2,105,449

			LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	86,047		$	97,465
	Current portion of long-term debt					26,325			52,199
	Loans payable					19,160			13,249
	Accrued income taxes payable					13,295			41,861
	Accrued expenses and other current liabilities					191,791			196,587

		Total current liabilities				336,618			401,361
Long-term debt, net of current portion						910,016			913,486
Other long-term liabilities						58,593			57,536
Minority interest						15,504			14,712
Shareholders’ equity:
	Common stock, $.10 par value, authorized 437,500 shares, issued and outstanding 194,987 shares in 2002 and 196,523 shares in 2001					19,498			19,652
	Capital in excess of par value					318,831			328,095
	Put options					—			34,650
	Retained earnings					501,652			446,469
	Accumulated other comprehensive loss					(219,947	)		(110,512	)

		Total shareholders’ equity				620,034			718,354

		Total liabilities and shareholders’ equity			$	1,940,765		$	2,105,449

The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


		Three Months						Six Months

		2002			2001			2002			2001

Period Ended June 30,
(In thousands, except per share data)

Net revenues		$	280,406		$	301,782		$	552,628		$	561,714
Cost of sales			149,843			143,339			300,090			267,063

	Gross profit		130,563			158,443			252,538			294,651

Operating expenses:
	Selling		43,701			30,103			85,847			57,605
	General and administrative		27,368			28,906			54,634			52,627
	Research and development		18,330			20,020			37,384			38,903
	Amortization of intangible assets		3,918			4,229			6,932			7,823
	Restructuring costs		1,794			(220	)		2,282			(221	)

	Total operating expenses		95,111			83,038			187,079			156,737

	Income from operations		35,452			75,405			65,459			137,914
Other income (expense):
	Interest income		3,026			9,933			5,425			13,741
	Interest expense		(12,312	)		(10,460	)		(24,720	)		(14,819	)
	Other income, net		19,354			9,182			24,374			10,932
	Gain on partial sale of IVAX Diagnostics, Inc.		—			—			—			10,278

	Total other income, net		10,068			8,655			5,079			20,132

	Income from continuing operations before income taxes and minority interest		45,520			84,060			70,538			158,046
Provision for income taxes			13,766			16,211			19,578			29,966

	Income from continuing operations before minority interest		31,754			67,849			50,960			128,080
Minority interest			(32	)		14			62			(85	)

	Income from continuing operations		31,722			67,863			51,022			127,995
Cumulative effect of a change in accounting principle			—			—			4,161			—

Net income		$	31,722		$	67,863		$	55,183		$	127,995

(Continued)

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continuation)


		Three Months				Six Months

		2002		2001		2002		2001

Period Ended June 30,
(In thousands, except per share data)

BASIC EARNINGS PER COMMON SHARE:
	Continuing operations	$	0.16	$	0.34	$	0.26	$	0.64
	Cumulative effect of a change in accounting principle		—		—		0.02		—

	Net income	$	0.16	$	0.34	$	0.28	$	0.64

DILUTED EARNINGS PER COMMON SHARE:
	Continuing operations	$	0.16	$	0.33	$	0.26	$	0.62
	Cumulative effect of a change in accounting principle		—		—		0.02		—

	Net income	$	0.16	$	0.33	$	0.28	$	0.62

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
	Basic		195,083		199,876		195,642		199,567

	Diluted		196,998		207,605		198,128		206,979

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)


				Common Stock														Accumulated
										Capital in								Other
				Number of						Excess of			Put			Retained		Comprehensive
				Shares			Amount			Par Value			Options			Earnings		Income (Loss)			Total

BALANCE, December 31, 2001					196,523		$	19,652		$	328,095		$	34,650		$	446,469	$	(110,512	)	$	718,354
	Comprehensive loss:
		Net income			—			—			—			—			55,183		—			55,183
		Translation adjustment			—			—			—			—			—		(105,832	)		(105,832	)
		Unrealized net loss on available-for-sale equity securities and derivatives, net of tax			—			—			—			—			—		(3,603	)		(3,603	)

			Comprehensive loss		—			—			—			—			—		—			(54,252	)
	Exercise of stock options				577			58			4,700			—			—		—			4,758
	Tax benefit of option exercises				—			—			1,297			—			—		—			1,297
	Employee stock purchases				33			3			499			—			—		—			502
	Repurchase and retirement of common stock				(3,117	)		(312	)		(37,588	)		(12,725	)		—		—			(50,625	)
	Shares issued to settle put options				971			97			21,828			(21,925	)		—		—			—

BALANCE, June 30, 2002					194,987		$	19,498		$	318,831		$	—		$	501,652	$	(219,947	)	$	620,034

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


				2002			2001

Six Months Ended June 30,
(In thousands)

Cash flows from operating activities:
	Net income			$	55,183		$	127,995
	Adjustments to reconcile net income to net cash flows from operating activities:
		Restructuring costs			2,282			(221	)
		Depreciation and amortization			26,668			22,688
		Deferred tax provision (benefit)			1,362			(17,683	)
		Tax effect of stock option exercises			1,297			7,751
		Provision for doubtful accounts			2,064			1,033
		Provision for inventory obsolescence			5,173			10,472
		Interest accretion on QVAR note			453			—
		Minority interest in earnings			(62	)		85
		Equity in earnings of unconsolidated affiliates			(502	)		(619	)
		Gain on sale of marketable securities			(797	)		—
		Gain on sale of product rights			(7,489	)		(7,347	)
		Losses (gains) on sale of assets, net			370			(12,732	)
		Gains on extinguishment of debt			(9,570	)		—
		Cumulative effect of a change in accounting principle			(4,161	)		—
		Changes in operating assets and liabilities:
			Accounts receivable		37,813			(29,665	)
			Inventories		(40,591	)		(12,906	)
			Other current assets		9,396			(6,474	)
			Other assets		3,538			3,482
			Accounts payable, accrued expenses, and other current liabilities		(40,569	)		7,313
			Other long-term liabilities		1,701			(153	)

			Net cash flows from operating activities		43,559			93,019

Cash flows from investing activities:
	Proceeds from sale of product rights				7,489			3,097
	Capital expenditures				(35,150	)		(24,071	)
	Proceeds from sale of assets				—			44,912
	Acquisitions of intangible assets				(32,946	)		(10,907	)
	Acquisitions of businesses, net of cash acquired				6,417			(79,809	)
	Investment in affiliates				58			(17,913	)
	Purchases of marketable securities				(100,473	)		(238,092	)
	Proceeds from sales of marketable securities				226,420			—

		Net cash flows from investing activities			71,815			(322,783	)

Cash flows from financing activities:
	Borrowings on long-term debt and loans payable				9,436			723,785
	Payments on long-term debt and loans payable				(94,419	)		(17,413	)
	Exercise of stock options and employee stock purchases				5,260			11,320
	Repurchase of common stock				(50,625	)		(58,577	)

		Net cash flows from financing activities			(130,348	)		659,115

Effect of exchange rate changes on cash and cash equivalents					(13,871	)		2,126

Net (decrease) increase in cash and cash equivalents					(28,845	)		431,477
Cash and cash equivalents at the beginning of the year					178,264			174,794

Cash and cash equivalents at the end of the period				$	149,419		$	606,271

(Continued)

IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continuation)


			2002		2001

Six Months Ended June 30,
(In thousands)

Supplemental disclosures:
	Interest paid		$	22,895	$	9,135

	Income tax payments		$	38,899	$	34,100

Supplemental schedule of non-cash investing and financing activities:
		Information with respect to acquisitions which were accounted for under the purchase method of accounting is summarized as follows:
Fair value of assets acquired					$	83,886
Liabilities assumed						(56,088	)

Net assets acquired						27,798

Purchase price:
	Cash, net of cash acquired					79,754
	Acquisition costs					55
	Fair market value of stock and options issued					77,056

	Total					156,865

Goodwill					$	129,067

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)

(1) GENERAL:

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the results of operations, financial position and cash flows have been made. The results of operations and cash flows for the six months ended June 30, 2002, are not necessarily indicative of the results of operations and cash flows which may be reported for the remainder of 2002. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements included in IVAX’ Annual Report on Form 10-K for the year ended December 31, 2001. For purposes of these financial statements, North America includes the United States and Canada. Mexico is included within Latin America. Certain prior period amounts presented in the consolidated financial statements have been reclassified to conform to the current period’s presentation.

(2) INVENTORIES:

Inventories consist of the following:


		June 30,		December 31,
		2002		2001

Raw materials		$	114,876	$	110,443
Work-in-process			52,423		34,820
Finished goods			123,738		108,208

	Total inventories	$	291,037	$	253,471

(3) EARNINGS PER SHARE:

A reconciliation of the denominator of the basic and diluted earnings per share computation is as follows:


		Three Months				Six Months

		2002		2001		2002		2001

Period Ended June 30,

Basic weighted average number of shares outstanding			195,083		199,876		195,642		199,567
Effect of dilutive securities — stock options and warrants			1,915		7,729		2,486		7,412

Diluted weighted average number of shares outstanding			196,998		207,605		198,128		206,979

Not included in the calculation of diluted earnings per share because their impact is antidilutive:
	Stock options outstanding		14,264		250		9,960		346
	Convertible debt		23,518		26,514		24,299		26,514
	Put options		—		281		—		281

(4) REVENUES:

Net revenues are comprised of gross revenues less provisions for expected customer returns, inventory credits, discounts, promotional allowances, volume rebates, chargebacks and other allowances. The reserve balances related to these provisions are included in “Accounts receivable, net of allowances for doubtful accounts” and “Accrued expenses and other current liabilities” in the accompanying consolidated balance sheets in the amounts of $133,723 and $97,093, respectively, at June 30, 2002, and $115,752 and $88,955, respectively, at December 31, 2001.

(5) INTANGIBLE ASSETS:

Intangible assets with definite lives are amortized and carried at cost less accumulated amortization. Intangible assets with indefinite lives are carried at cost and are not amortized. Intangible assets consist of the following:


		June 30, 2002				December 31, 2001

		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Amortized intangible assets:
	Patents and related licenses	$	81,824	$	43,709	$	73,031	$	40,766
	Trademarks		115,212		6,074		112,958		2,114
	Licenses and other intangibles		117,557		6,026		22,768		4,352

	Total	$	314,593	$	55,809	$	208,757	$	47,232

Unamortized intangible assets:
	Trademarks & product registrations	$	24,592			$	25,954

On March 1, 2002, IVAX acquired from Syntex Pharmaceuticals International Ltd. the non-U.S. rights to pharmaceutical products containing flunisolide hemihydrate, sold under the tradenames Syntaris, Nasalide, Rhinalar, Locasyn and Lokilan, for 10,156 Swiss francs ($5,986 at the February 28, 2002, currency exchange rate).

On April 2, 2002, IVAX entered into an agreement to acquire the technical files and French marketing authorizations to substantially all of the products comprising the generic pharmaceutical business of Merck & Co., Inc.’s subsidiary in France. The total consideration due is 5,641 Euros ($4,917 at the March 31, 2002, currency exchange rate) one-half of which was paid upon signing and the remainder due in four months. On July 19, 2002, the agreement was amended reducing the second payment to 2,565 Euros ($2,531 as of the August 2, 2002, payment date).

On April 22, 2002, IVAX acquired an exclusive U.S. license to the patent rights to market QVAR™ (beclomethasone dipropionate HFA), an aerosol inhaler prescribed to treat asthma. In addition, IVAX has an option to obtain ownership of the U.S. QVAR trademark, as well as related patents and the New Drug Application in five years. 3M Drug Delivery Systems will manufacture the QVAR product for IVAX under a long-term contract. The purchase price was allocated to the fair values of the assets acquired pursuant to an independent appraisal resulting in a value of $27,140 for the license agreement, which is being amortized over its 5 year life, and $67,116 for the option, which is not being amortized. If the option is exercised, the value of the option will be allocated to the underlying assets acquired by the exercise and appropriate lives determined. The total consideration due under the contract, including options and extensions, is $105,000, $21,000 of which was paid on the effective date, $22,000 is due on

the first anniversary, $31,000 is due on the second anniversary, $26,000 is due on the third anniversary and $5,000 is due on the fifth anniversary upon exercise of the option. IVAX also acquired a non-exclusive worldwide license to certain 3M patents covering HFA formulations of various asthma drugs.

(6) DEBT:

During January 2002, IVAX repaid $48,000 of U.S. denominated loans held by an Argentine subsidiary resulting in a pretax foreign exchange loss of $2,824.

See Note 10, Recently Issued Accounting Standards, for a discussion of the classification of gains on extinguishment of debt. During the first quarter of 2002, IVAX repurchased $35,000 of 4.5% Convertible Senior Subordinated Notes due 2008 for $28,797, plus accrued interest of $484, and wrote off debt issuance costs of $828, resulting in a gain on extinguishment of debt of $6,203. During the second quarter of 2002, IVAX repurchased $20,000 of 4.5% Convertible Senior Subordinated Notes due 2008 for $15,363, plus accrued interest of $111, and wrote off debt issuance costs of $442, resulting in a gain on extinguishment of debt of $4,195.

As described in Note 5, payments for the acquisition of QVAR are due through the third anniversary of the effective date. The payments carried no stated interest rate and were discounted at the risk free interest rate of 3.7% resulting in $73,709 of additional long-term debt as of June 30, 2002, including accretion of interest, of which $22,000 is current.

(7) INCOME TAXES:

The provision for income taxes from continuing operations consists of the following:


		Three Months					Six Months

		2002		2001			2002		2001

Period Ended June 30,

Current:
	Domestic	$	5,062	$	29,562		$	7,242	$	40,706
	Foreign		6,083		3,217			10,974		6,943
Deferred			2,621		(16,568	)		1,362		(17,683	)

Total		$	13,766	$	16,211		$	19,578	$	29,966

The effective tax rate during the first six months of 2002 is less than the statutory rate due primarily to low tax rates applicable to IVAX’ Puerto Rico and Waterford, Ireland manufacturing operations. Payment of the current tax provision for the year ended December 31, 2001, for domestic and foreign operations will be reduced by $926 and $370, respectively, representing the incremental impact of compensation expense deductions associated with non-qualified stock option exercises during the current quarter. These amounts were credited to “Capital in excess of par value”. As of June 30, 2002, a domestic net deferred tax asset of $100,372 and an aggregate foreign net deferred tax asset of $3,691 are included in “Other current assets” and “Other assets” in the accompanying consolidated balance sheet. Realization of the net deferred tax assets is dependent upon generating sufficient future domestic and foreign taxable income. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized.

(8) BUSINESS SEGMENT INFORMATION:


		Three Months						Six Months

		2002			2001			2002			2001

Revenues by Region
Period Ended June 30,

North America
	External sales	$	111,546		$	162,246		$	214,507		$	300,989
	Intersegment sales		276			77			552			463
	Other revenues		7,124			147			14,860			268

	Net revenues — North America		118,946			162,470			229,919			301,720

Europe
	External sales		80,906			75,910			166,189			146,198
	Intersegment sales		15,516			13,459			29,905			21,200
	Other revenues		8,651			13,684			17,191			28,889

	Net revenues — Europe		105,073			103,053			213,285			196,287

Latin America
	External sales		57,726			38,661			116,503			65,170
	Other revenues		430			306			830			535

	Net revenues — Latin America		58,156			38,967			117,333			65,705

Corporate & Other
	External sales		12,928			9,360			20,208			17,731
	Intersegment sales		(15,792	)		(13,536	)		(30,457	)		(21,663	)
	Other revenues		1,095			1,468			2,340			1,934

	Net revenues — Corporate & Other		(1,769	)		(2,708	)		(7,909	)		(1,998	)

Consolidated net revenues		$	280,406		$	301,782		$	552,628		$	561,714


		Three Months						Six Months

		2002			2001			2002			2001

Profits by Region
Period Ended June 30,

Income from continuing operations before minority interest:
	North America	$	16,419		$	62,543		$	29,992		$	97,629
	Europe		5,446			(10,382	)		14,888			(10,306	)
	Latin America		13,288			1,783			17,466			3,088
	Corporate & Other		(3,399	)		13,905			(11,386	)		37,669

Income from continuing operations
	Before minority interest		31,754			67,849			50,960			128,080

Net Income:
	Minority interest		(32	)		14			62			(85	)
	Cumulative effect of a change in accounting principle		—			—			4,161			—

Net income		$	31,722		$	67,863		$	55,183		$	127,995


		June 30,

		2002		2001

Long-Lived Assets:
	North America	$	306,290	$	70,267
	Europe		265,458		210,956
	Latin America		431,074		175,720
	Corporate & Other		110,048		111,572

Total		$	1,112,870	$	568,515

(9) SHAREHOLDERS’ EQUITY:

On March 5, 2002, IVAX elected the net share settlement method and issued 160 shares of IVAX’ common stock to settle one put option for 200 shares, bearing a strike price of $31.00, that expired on March 1, 2002. On April 4, 2002, IVAX elected the physical settlement method for one put option, and paid $4,750 to purchase 250 shares of IVAX’ common stock at a strike price of $19.00. On April 30, 2002, IVAX elected the physical settlement method for one put option, and paid $7,975 to purchase 250 shares of IVAX’ common stock at a strike price of $31.90. On May 15, 2002, IVAX elected the net share settlement method and issued 444 shares of IVAX’ common stock to settle one put option for 250 shares, bearing a strike price of $32.28, that expired on May 14, 2002. On May 22, 2002, IVAX elected the net share settlement method and issued 367 shares of IVAX’ common stock to settle one put option for 250 shares, bearing a strike price of $32.15, that expired on May 21, 2002.

On March 15, 2002, IVAX’ Board of Directors expanded the authorization of our repurchase program by an additional 10,000 shares of common stock or a like-valued amount of IVAX’ convertible debentures.

(10) RECENTLY ISSUED ACCOUNTING STANDARDS:

Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets. It is effective for fiscal years beginning after June 15, 2002. Management believes the impact of adoption of this statement will not be significant.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than when a commitment to an exit plan is made. It is effective for exit or disposal activities that are initiated after December 31, 2002. Management believes the impact of adoption of this statement will not be significant.

Effective January 1, 2002, IVAX adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, EITF Issue No. 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products, and EITF Issue No. 01-09, Accounting for Consideration Given to a Customer or a Reseller of Vendor’s Products. The impact of adoption was not significant.

In accordance with SFAS No. 141, Business Combinations, on January 1, 2002, $4,161 of negative goodwill recorded in the balance sheet as of December 31, 2001, was reversed through a cumulative effect of a change in accounting principle. In addition, a workforce in place intangible asset in the amount of $722 was reclassified to goodwill.

Effective January 1, 2002, IVAX adopted SFAS No. 142, Goodwill and Other Intangible Assets. Intangible assets that have indefinite lives and goodwill are no longer amortized. This will increase net income by approximately $2,000 per quarter, or $8,000 per year. The life of one product intangible asset with a net book value of $6,519 as of January 1, 2002, was extended based on a review of the expected remaining estimated useful life. Intangible assets with indefinite lives were tested for impairment resulting in the write-down of one intangible asset by $177. The initial test for impairment of goodwill as of January 1, 2002, was completed during the second quarter and no impairments were indicated. An independent valuation firm was used to perform the test.

Goodwill and Other Intangible Assets — Adoption of SFAS No. 142:


		Three Months				Six Months

		2002		2001		2002		2001

Period Ended June 30,

Reported net income		$	31,722	$	67,863	$	55,183	$	127,995
Addback: Goodwill amortization					2,090				3,302
Addback: Workforce in place amortization					55				109
Adjust: Product intangible amortization					903				1,806

Adjusted net income		$	31,722	$	70,911	$	55,183	$	133,212

Basic earnings per common share:
	Reported net income	$	0.16	$	0.34	$	0.28	$	0.64
	Goodwill amortization				0.01				0.02
	Product intangible amortization				—				0.01

	Adjusted net income	$	0.16	$	0.35	$	0.28	$	0.67

Diluted earnings per common share:
	Reported net income	$	0.16	$	0.33	$	0.28	$	0.62
	Goodwill amortization				0.01				0.01
	Product intangible amortization				—				0.01

	Adjusted net income	$	0.16	$	0.34	$	0.28	$	0.64

The following table displays the changes in the carrying amounts of goodwill by operating segment for the six months ended June 30, 2002:


		Balance		Foreign			Balance
		December 31,		Exchange and			June 30,
		2001		Other			2002


North America		$	3,972	$	—		$	3,972
Europe			24,200		7,015			31,215
Latin America			427,157		(95,521	)		331,636
Corporate and other			46,748		668			47,416

	Consolidated goodwill	$	502,077	$	(87,838	)	$	414,239

During the second quarter of 2002, IVAX elected to early adopt SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The impact of adoption was the reclassification into income from continuing operations of extraordinary losses from the early retirement of subordinated notes of $8,725 in 2000, an extraordinary gain of $7,120, net of taxes of $4,182, during the third quarter of 2001, an extraordinary gain of $3,413, net of taxes of $1,962, during the first quarter of 2002 and an extraordinary gain of $2,664, net of taxes of $1,531, during the second quarter of 2002.

(11) ACQUISITIONS:

On February 9, 2001, IVAX indirectly acquired IVAX Pharmaceuticals Mexico, S.A. de C.V. (“IVAX Mexico”, formerly known as Laboratorios Fustery, S.A. de C.V.), a Mexican pharmaceutical company, by purchasing the outstanding securities of IVAX Mexico’s parent, Maancirkel Holding B.V., a corporation organized under the laws of The Netherlands, from Morcob CVA, an entity organized

under the laws of Belgium, pursuant to a stock purchase agreement entered into among the parties on October 11, 2000. The operating results of IVAX Mexico are included in the consolidated financial statements subsequent to the February 9, 2001, acquisition date. During the second quarter of 2002, IVAX received a refund of $6,417 on the purchase price of IVAX Mexico, which reduced goodwill.

On February 26, 2001, IVAX acquired the assets of a research organization located in the United States. The operating results of this company are included in the consolidated financial statements subsequent to its acquisition date.

On March 13, 2001, IVAX acquired Netpharma Scandinavia AB (“Netpharma”), a Swedish pharmaceutical company. The operating results of Netpharma are included in the consolidated financial statements subsequent to its acquisition date.

On April 3, 2001, IVAX acquired the remaining 70% of Indiana Protein Technologies, Inc. (“Indiana Protein”) that it did not already own. Indiana Protein was previously accounted for as an investment under the equity method of accounting. The operating results of Indiana Protein are included in the consolidated financial statements subsequent to its acquisition date.

During the third quarter of 2001, IVAX acquired 99.9% of the outstanding shares and American Depositary Shares (“ADS”) of Laboratorio Chile S.A. (“Lab Chile”), a Chilean pharmaceutical company, in two tender offers for cash. The operating results of Lab Chile are included in the consolidated financial statements subsequent to its acquisition date.

Proforma information for the above acquisitions as if the purchases occurred on January 1, 2001, is presented below.


	Three months		Six months
	2001		2001

Period Ended June 30,

Revenues	$	348,980	$	678,002
Net income		79,918		144,160

Diluted weighted average shares		207,605		207,785
Diluted earnings per share	$	0.38	$	0.69

These proforma results of operations are not necessarily indicative of results that might have been achieved if the acquisitions had actually occurred on January 1, 2001.

(12) PARTIAL SALE OF IVAX DIAGNOSTICS, INC.:

On March 14, 2001, IVAX’ wholly-owned subsidiary, IVAX Diagnostics, Inc., was merged with b2bstores.com, a non-operating company with approximately $22,285 of cash, resulting in IVAX owning approximately 70% of the newly merged public company. IVAX received 20,000 shares of b2bstores.com common stock in exchange for all of the outstanding shares of IVAX Diagnostics, Inc. and b2bstores.com’s name was changed to IVAX Diagnostics, Inc. For accounting purposes, this transaction was treated as a partial sale of IVAX Diagnostics, Inc. in exchange for cash of b2bstores.com. IVAX elected income statement recognition as its accounting policy for sales of subsidiary stock and recorded a gain of $10,278. Deferred taxes were not recorded related to the gain as it represents an outside basis difference and IVAX expects it can recover its investment in IVAX Diagnostics, Inc. tax-free. Also

recorded was $1,041 of nondeductible compensation expense from outstanding options under the IVAX Diagnostics, Inc. 1999 Stock Option Plan converting to a fair value plan as a result of the merger. IVAX Diagnostics, Inc. is engaged in the development, manufacture and marketing of diagnostic test kits, reagents and instruments.

(13) LEGAL PROCEEDINGS:

On January 11, 2002, two of the class action lawsuits containing allegations similar to those in the Louisiana Wholesale Drug Co. v. Abbott Laboratories, Geneva Pharmaceuticals, Inc. and Zenith Goldline Pharmaceuticals, Inc. case, previously reported in IVAX’ Annual Report on Form 10-K for the year ended December 31, 2001, were settled.

In April 2002, we received notice of an investigation by United Kingdom National Health Service officials concerning prices charged by generic drug companies, including IVAX UK Limited, for penicillin-based antibiotics and warfarin sold in the United Kingdom from 1996 to 2000. This is an investigation by the Serious Fraud Office of the United Kingdom involving all pharmaceutical companies that sold these products in the United Kingdom during this period. According to statements by investigating agencies, this is a complex investigation expected to continue for some time and there is no indication from the agencies when or if charges will be made against any of these companies. The Company is cooperating fully with this investigation and believes its sales of these products have been in compliance with all applicable laws and regulations.

On June 13, 2002, the Louisiana Wholesale Drug Co. v. Abbott Laboratories and Valley Drug Co. v. Abbott Laboratories et al. cases, previously reported in IVAX’ Annual Report on Form 10-K for the year ended December 31, 2001, were also settled.

(14) SUBSEQUENT EVENTS:

From July 1, 2002, through July 26, 2002, IVAX repurchased 458 shares of its common stock at a total cost, including commissions, of $4,934.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes to consolidated financial statements and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2001, and the unaudited interim consolidated financial statements and the related notes to unaudited interim consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

Six months ended June 30, 2002 compared to the six months ended June 30, 2001

Net income for the six months ended June 30, 2002, was $55 million, or $.28 per diluted share, compared to $128 million, or $.62 per diluted share, for the same period of the prior year. Income from continuing operations for the six months ended June 30, 2002, was $51 million, or $.26 per diluted share, compared to $128 million, or $.62 per diluted share, for the same period of the prior year. As of January 1, 2002, we recorded a cumulative change in accounting principle credit in the amount of $4.2 million, or $.02 per diluted share, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

Net Revenues and Gross Profit

Net revenues for the six months ended June 30, 2002, totaled $553 million, a decrease of $9 million, or 2%, from the $562 million reported in the same period of the prior year. This decrease was comprised of decreases in net revenues of $72 million from North American subsidiaries and $6 million from other operations, partially offset by increases of $17 million from European subsidiaries and $52 million from Latin American subsidiaries.

North American subsidiaries generated net revenues of $230 million for the six months ended June 30, 2002, compared to $302 million for the same period of the prior year. The $72 million, or 24%, decrease in net revenues was primarily attributable to decreased volume and lower prices of our paclitaxel product and higher sales returns and allowances, partially offset by increased volume and prices of certain brand-equivalent pharmaceutical products, increased sales of proprietary respiratory products and increased product development fees. North American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $278 million during the six months ended June 30, 2002, and $139 million for the same period of the prior year. The increase of $139 million, or 100%, was primarily due to reduced net prices on certain brand-equivalent pharmaceutical products and increased sales volume.

European subsidiaries generated net revenues of $213 million for the six months ended June 30, 2002, compared to $196 million for the same period of the prior year. The $17 million, or 9%, increase in net revenues was primarily due to higher sales volumes and favorable effects of currency exchange rates, partially offset by reduced product development fees and lower prices for certain brand-equivalent products. European subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $23 million during the six months ended June 30, 2002, and $17 million for the same period of the prior year.

Latin American subsidiaries generated net revenues of $117 million for the six months ended June 30, 2002, compared to $65 million for the same period of the prior year. The $52 million, or 79%, increase was primarily due to the revenue generated by Laboratorio Chile S.A. (“Lab Chile”), which was

acquired July 5, 2001, partially offset by unfavorable effects of currency exchange rates. Latin American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $18 million during the six months ended June 30, 2002, and $3 million for the same period of the prior year. The $15 million, or 500%, increase was primarily due to the acquisition of Lab Chile.

Gross profit was $253 million (46% of net revenues) for the six months ended June 30, 2002, compared to $295 million (52% of net revenues) for the same period of the prior year. The decrease in gross profit percentage was primarily attributable to reduced volume and pricing of our paclitaxel product. We are continuing to experience increased competition for paclitaxel as well as our brand equivalent albuterol products and the resulting pricing and volume pressures have negatively impacted and may continue to negatively impact our revenues and gross profits. Our results for the first six months of 2002 were also adversely impacted by a significant currency devaluation in Argentina, reductions in government purchases of our products in Mexico and continued pricing pressures in the United States and the United Kingdom. Revenues from the sale of our paclitaxel product did not contribute significantly to our revenues and gross profits during the first six months of 2002 and, because of the continuing price erosion and competition, are not likely to contribute significantly in the near future to our North American results. Our future net revenues and gross profits will depend upon:

• our ability to maintain our pricing and volume levels and obtain a consistent supply of raw materials for paclitaxel;

• our ability to obtain and maintain FDA approval of our manufacturing facilities;

• our ability to maintain a pipeline of products in development;

• our ability to develop and rapidly introduce new products;

• the timing of regulatory approval of such products;

• our ability to manufacture such products efficiently;

• the number and timing of regulatory approvals of competing products; and

• our ability to replace or renew license fees, royalties and development service fees as the related agreements expire or are terminated.

Operating Expenses

Selling expenses increased $28 million, or 49%, to $86 million (16% of net revenues) for the six months ended June 30, 2002, compared to $58 million (10% of net revenues) for the same period of the prior year. The increase was due to higher expenses associated with the operations of Lab Chile and IVAX Pharmaceuticals Mexico, S.A. de C.V. (“IVAX Mexico”, formerly known as Laboratorios Fustery, S.A. de C.V.) and increased sales and promotional expenses at IVAX Laboratories, our U.S. proprietary respiratory subsidiary, and our European subsidiaries, partially offset by reduced sales and promotional expenses at Elvetium Argentina and favorable effects of foreign currency rates.

General and administrative expenses increased $2 million, or 4%, to $55 million (10% of net revenues) for the six months ended June 30, 2002, compared to $53 million (9% of net revenues) for the same period of the prior year. The increase is primarily attributable to additional general and administrative expenses from the operations of Lab Chile and IVAX Mexico and increased expenses at North American pharmaceutical subsidiaries, partially offset by reduced expenses at Elvetium Argentina, favorable effects of foreign currency rates and lower professional fees at Corporate. In June 2002, we received $2.2 million in partial settlement of a vitamin price-fixing class action lawsuit. In addition, we paid $2.1 million to settle the Louisiana Wholesale Drug Co. v. Abbott Laboratories and Valley Drug Co. v. Abbott Laboratories et al. cases, previously reported in our Annual Report on Form 10-K for the year ended December 31, 2001.

Research and development expenses for the six months ended June 30, 2002, decreased $2 million, or 4%, to a total of $37 million (7% of net revenues), compared to $39 million (7% of net revenues) for the same period of the prior year. Our future level of research and development

expenditures will depend on, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity.

During the first six months of 2002, we incurred $2 million of restructuring costs, which were substantially paid out during the quarter, at two subsidiaries, consisting primarily of employee termination benefits.

Other Income (Expense)

Interest income decreased $8 million and interest expense increased $10 million for the six months ended June 30, 2002, as compared to the same period of the prior year primarily due to the cash purchases of Lab Chile on July 5, 2001, and Nasarel and Nasalide on October 16, 2001, and the issuance of $725 million of 4.5% Convertible Senior Subordinated Notes in 2001.

Other income, net increased $13 million for the six months ended June 30, 2002, compared to the same period of the prior year. During January 2002, we repaid $48 million of U.S. denominated loans held by an Argentine subsidiary resulting in a pretax foreign exchange loss of approximately $2.8 million, which was partially offset by foreign currency gains at other subsidiaries. During the second quarter, we reclassified $5.3 million of first quarter extraordinary gains on the repurchase of subordinated notes into other income in accordance with the early adoption of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. During the second quarter of 2002, we realized a gain of $4.2 million on the repurchase of subordinated notes, earned a $4.3 million milestone as additional consideration for the sale of Elmiron to ALZA Corporation during 1997, which is to be received in the first quarter of 2003, and recorded a gain of $6.3 million on the sale of certain intangible assets in the Czech Republic, which proceeds are due under the contract in the third quarter of 2002. These gains were partially offset by net foreign currency losses at various subsidiaries.

On March 14, 2001, we sold a partial interest in IVAX Diagnostics, Inc. through a merger with b2bstores.com, Inc. resulting in a gain of $10.3 million.

Three months ended June 30, 2002 compared to the three months ended June 30, 2001

Net income for the three months ended June 30, 2002, was $32 million, or $.16 per diluted share, compared to $68 million, or $.33 per diluted share, for the same period of the prior year.

Net Revenues and Gross Profit

Net revenues for the three months ended June 30, 2002, totaled $280 million, a decrease of $22 million, or 7%, from the $302 million reported in the same period of the prior year. This decrease was comprised of a reduction in net revenues of $44 million from North American subsidiaries, partially offset by increases in net revenues of $2 million from European subsidiaries, $19 million from Latin American subsidiaries and $1 million from other operations.

North American subsidiaries generated net revenues of $119 million for the three months ended June 30, 2002, compared to $163 million for the same period of the prior year. The 27% decrease was primarily attributable to decreased volume and lower prices of our paclitaxel product and higher sales returns and allowances, partially offset by increased volume and prices of certain brand-equivalent pharmaceutical products,

increased sales of proprietary respiratory products and increased product development fees. North American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $146 million during the three months ended June 30, 2002, and $81 million for the same period of the prior year. The increase of $65 million, or 80%, was primarily due to reduced net prices on certain brand-equivalent pharmaceutical products and increased sales volume.

European subsidiaries generated net revenues of $105 million for the three months ended June 30, 2002, compared to $103 million for the same period of the prior year. The 2% increase was primarily due to higher sales volumes and favorable effects of currency exchange rates, partially offset by reduced product development fees and lower prices for certain brand-equivalent products. European subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $11 million during the three months ended June 30, 2002, and $7 million for the same period of the prior year.

Latin American subsidiaries generated net revenues of $58 million for the three months ended June 30, 2002, compared to $39 million for the same period of the prior year. The 49% increase was primarily due to the revenue generated by Lab Chile, which was acquired July 5, 2001, partially offset by reduced sales volume in Mexico and unfavorable effects of currency exchange rates. Latin American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $8 million during the three months ended June 30, 2002, and $1 million for the same period of the prior year. The $7 million, or 700%, increase was primarily due to the acquisition of Lab Chile.

Gross profit was $131 million (47% of net revenues) for the three months ended June 30, 2002, compared to $158 million (53% of net revenues) for the same period of the prior year. The decrease in gross profit percentage was primarily attributable to reduced volume and pricing of our paclitaxel product. We are continuing to experience increased competition for paclitaxel as well as our brand equivalent albuterol products and the resulting pricing and volume pressures have negatively impacted and may continue to negatively impact our revenues and gross profits. Our results this quarter were also adversely impacted by a significant currency devaluation in Argentina and by reductions in government purchases of our products in Mexico.

Operating Expenses

Selling expenses increased $14 million, or 45%, to $44 million (16% of net revenues) for the three months ended June 30, 2002, compared to $30 million (10% of net revenues) for the same period of the prior year. The increase was due to higher expenses associated with the operations of Lab Chile and IVAX Mexico and increased sales and promotional expenses at IVAX Laboratories and our European subsidiaries, partially offset by reduced sales and promotional expenses at Elvetium Argentina and favorable effects of foreign currency rates.

General and administrative expenses decreased $2 million, or 5%, to $27 million (10% of net revenues) for the three months ended June 30, 2002, compared to $29 million (10% of net revenues) for the same period of the prior year. The decrease is primarily attributable to reduced general and administrative expenses at Elvetium Argentina, favorable effects of foreign currency rates and lower professional fees at Corporate, partially offset by increased expenses at North American pharmaceutical subsidiaries and general and administrative expenses from the operation of Lab Chile. In June 2002, we received $2.2 million in partial settlement of a vitamin price-fixing class action lawsuit. In addition, we paid $2.1 million to settle the Louisiana Wholesale Drug Co. v. Abbott Laboratories and Valley Drug Co. v. Abbott Laboratories et al. cases, previously reported in our Annual Report on Form 10-K for the year ended December 31, 2001.

Research and development expenses for the three months ended June 30, 2002, decreased $2 million, or 8%, to $18 million (7% of net revenues), compared to the same period of the prior year. Our future level of research and development expenditures will depend on, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity.

During the second quarter of 2002, we incurred $2 million of restructuring costs, which were substantially paid out during the quarter, at two subsidiaries, consisting primarily of employee termination benefits.

Other Income (Expense)

Interest income decreased $7 million and interest expense increased $2 million for the three months ended June 30, 2002, compared to the same period of the prior year primarily due to the cash purchases of Lab Chile on July 5, 2001, and Nasarel and Nasalide on October 16, 2001, and the issuance of $725 million of 4.5% Convertible Senior Subordinated Notes in 2001.

Other income, net increased $10 million for the three months ended June 30, 2002, compared to the same period of the prior year. During the second quarter of 2002, we realized a gain of $4.2 million on the repurchase of subordinated notes, earned a $4.3 million milestone as additional consideration for the sale of Elmiron to ALZA Corporation during 1997, which is to be received in the first quarter of 2003, and recorded a gain of $6.3 million on the sale of certain intangible assets in the Czech Republic, which proceeds are due under the contract in the third quarter of 2002.

Recently Issued Accounting Standards

Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, EITF Issue No. 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products, and EITF Issue No. 01-09, Accounting for Consideration Given to a Customer or a Reseller of Vendor’s Products. The impact of adoption was not significant.

In accordance with SFAS No. 141, Business Combinations, on January 1, 2002, $4.2 million of negative goodwill recorded in the balance sheet as of December 31, 2001, was reversed through a

cumulative effect of a change in accounting principle. In addition, a workforce in place intangible asset in the amount of $.7 million was reclassified to goodwill.

Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Intangible assets that have indefinite lives and goodwill are no longer amortized. This will increase net income by approximately $2 million per quarter, or $8 million per year. The life of one product intangible asset with a net book value of $6.5 million as of January 1, 2002, was extended based on a review of the expected remaining estimated useful life. Intangible assets with indefinite lives were tested for impairment resulting in the write-down of one intangible asset by $.2 million. The initial test for impairment of goodwill as of January 1, 2002, was completed during the second quarter and no impairments were indicated. An independent valuation firm was used to perform the test.

Goodwill and Other Intangible Assets — Adoption of SFAS No. 142 (in thousands, except per share amounts):


		Three Months				Six Months

		2002		2001		2002		2001

Period Ended June 30,

Reported net income		$	31,722	$	67,863	$	55,183	$	127,995
Addback: Goodwill amortization					2,090				3,302
Addback: Workforce in place amortization					55				109
Adjust: Product intangible amortization					903				1,806

Adjusted net income		$	31,722	$	70,911	$	55,183	$	133,212

Basic earnings per common share:
	Reported net income	$	0.16	$	0.34	$	0.28	$	0.64
	Goodwill amortization				0.01				0.02
	Product intangible amortization				—				0.01

	Adjusted net income	$	0.16	$	0.35	$	0.28	$	0.67

Diluted earnings per common share:
	Reported net income	$	0.16	$	0.33	$	0.28	$	0.62
	Goodwill amortization				0.01				0.01
	Product intangible amortization				—				0.01

	Adjusted net income	$	0.16	$	0.34	$	0.28	$	0.64

The following table displays the changes in the carrying amounts of goodwill by operating segment for the six months ended June 30, 2002 (in thousands):


		Balance		Foreign			Balance
		December 31,		Exchange and			June 30,
		2001		Other			2002


North America		$	3,972	$	—		$	3,972
Europe			24,200		7,015			31,215
Latin America			427,157		(95,521	)		331,636
Corporate and other			46,748		668			47,416

	Consolidated goodwill	$	502,077	$	(87,838	)	$	414,239

During the second quarter of 2002, IVAX elected to early adopt SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The impact of adoption was the reclassification into income from continuing operations of extraordinary losses from the early retirement of subordinated notes of $8.7 million in 2000, an extraordinary gain of $7.1 million, net of taxes of $4.2 million, during the third quarter of 2001, an extraordinary gain of $3.4 million, net of taxes of $2.0 million, during the first quarter of 2002 and an extraordinary gain of $2.7 million, net of taxes of $1.5 million, during the second quarter of 2002.

Liquidity and Capital Resources

At June 30, 2002, working capital was $477 million compared to $598 million at December 31, 2001. Cash and cash equivalents were $149 million at June 30, 2002, compared to $178 million at December 31, 2001. Short-term marketable securities were $26 million at June 30, 2002 compared to $155 million at December 31, 2001.

Net cash of $44 million was provided by operating activities during the first six months of 2002 compared to $93 million during the same period of the prior year. The decrease in cash provided by operating activities was primarily the result of reduced operating earnings and increases in inventories and payments of accounts payable, partially offset by increased collections of accounts receivable and decreases in other assets.

Net cash of $72 million was provided by investing activities during the first six months of 2002 compared to $323 million used for investing activities during the same period of the prior year. During the first six months of 2002, our capital expenditures increased by approximately $11 million as compared to the same period of the prior year. During the first six months of 2001, we also received $45 million in proceeds from the sale of assets. During the first six months of 2002 we spent $26 million to acquire intangible assets, net of $6.4 million refund of purchase price from the acquisition of IVAX Mexico, compared to $109 million to acquire intangible assets and businesses and increase our ownership interest in affiliates during the same period of the prior year. During the first six months of 2002, we received $126 million net proceeds from the sale of marketable securities compared to using $238 million to acquire marketable securities during the same period of the prior year.

On March 1, 2002, we acquired from Syntex Pharmaceuticals International Ltd. the non-U.S. rights to pharmaceutical products containing flunisolide hemihydrate, sold under the tradenames Syntaris, Nasalide, Rhinalar, Locasyn and Lokilan, for 10.2 million Swiss francs ($6.0 million at the February 28, 2002, currency exchange rate). During April 2002, we entered into an agreement to acquire the technical files and French marketing authorizations to substantially all of the products comprising the generic pharmaceutical business of Merck & Co., Inc.’s subsidiary in France for total consideration of approximately $5 million payable half on signing and half in four months. On July 19, 2002, the agreement was amended reducing the second payment to 2.6 million Euros ($2.5 million as of the August 2, 2002, payment date). We also acquired an exclusive U.S. license to the patent rights to market QVAR™ (beclomethasone dipropionate HFA), an aerosol inhaler prescribed to treat asthma. In addition, we have an option to obtain ownership of the U.S. QVAR trademark, as well as related patents and the New Drug Application in five years. 3M Drug Delivery Systems will manufacture the QVAR product for us under a long-term contract. The total consideration due under the contract, including options and extensions, is $105 million, $21 million of which was paid on the effective date, $22 million is due on the first anniversary, $31 million is due on the second anniversary, $26 million is due on the third anniversary and $5 million is due on the fifth anniversary upon exercise of the option. The payments carry no stated interest rate and were discounted at the risk free rate of 3.7%.

Net cash of $130 million was used by financing activities during the first six months of 2002 compared to $659 million provided by financing activities during the same period of the prior year primarily reflecting the $725 million Convertible Senior Subordinated Notes sold in May of 2001. During the first six months of 2002, we repaid $48 million of bank debt and repurchased $55 million of our convertible debentures for $44.2 million, but reduced our repurchases of common stock by $8 million compared to the same period of the prior year. On March 15, 2002, our Board of Directors expanded the authorization of our repurchase program by an additional 10 million shares of our common stock or a like-valued amount of our convertible debentures.

We plan to spend substantial amounts of capital in 2002 to continue the research and development of pharmaceutical products. Although research and development expenditures are expected to be between $80 million and $90 million during 2002, actual expenditures will depend on, among other things, the outcome of clinical testing or products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity. In addition, we plan to spend between $80 million and $90 million in 2002 to improve and expand our pharmaceutical and other related facilities.

Our principal sources of short-term liquidity are existing cash and internally generated funds, which we believe will be sufficient to meet our operating needs and anticipated capital expenditures over the short term. For the long term, we intend to utilize principally internally generated funds, which are anticipated to be derived primarily from the sale of existing pharmaceutical products and pharmaceutical products currently under development. There can be no assurance that we will successfully complete products under development, that we will be able to obtain regulatory approval for any such products, or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed. We may consider issuing debt or equity securities in the future to fund potential acquisitions and growth.

Income Taxes

We recognized a $19.6 million tax provision for the six months ended June 30, 2002, of which $11.8 million related to foreign operations. The effective tax rate during the first quarter of 2002 is less than the statutory rate due primarily to low tax rates applicable to our Puerto Rico and Waterford, Ireland manufacturing operations.

As of June 30, 2002, domestic net deferred tax assets totaled $100.4 million and aggregate foreign net deferred tax assets totaled $3.7 million. Realization of the net deferred tax assets is dependent upon generating sufficient future domestic and foreign taxable income. Although realization is not assured, we believe it is more likely than not that the net deferred tax assets will be realized. Our estimates of future taxable income are subject to revision due to, among other things, regulatory and competitive factors affecting the pharmaceutical industries in the markets in which we operate. Such factors are further discussed in management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2001.

Critical Accounting Policies

Revenue Recognition, Sales Returns and Allowances — Revenues and the related cost of sales are recognized at the time product is shipped. Our pharmaceutical revenues are affected by the level of provisions for estimated returns, inventory credits, discounts, promotional allowances, volume rebates

and chargebacks, as well as other sales allowances. The custom in the pharmaceutical industry is generally to grant customers the right to return purchased goods. In the brand equivalent pharmaceutical industry, this custom has resulted in a practice of suppliers issuing inventory credits (also known as shelf-stock adjustments) to customers based on the customers’ existing inventory following decreases in the market price of the related brand equivalent pharmaceutical product. We have contractual agreements with many of our customers which require that we grant these customers inventory credit following a price decrease. In other cases, the determination to grant a credit is at our discretion. These credits allow customers with established inventories to compete with those buying product at the current market price, and allow us to maintain shelf space, market share and customer loyalty.

Provisions for estimated returns, inventory credits and chargebacks, as well as other sales allowances, are established by us concurrently with the recognition of revenue. The provisions are established in accordance with generally accepted accounting principles based upon consideration of a variety of factors, including actual return and inventory credit experience for products during the past several years by product type, the number and timing of regulatory approvals for the product by our competitors (both historical and projected), the market for the product, expected sell-through levels by our wholesaler customers to customers with contractual pricing arrangements with us, estimated customer inventory levels by product and projected economic conditions. Actual product returns and inventory credits incurred are, however, dependent upon future events, including price competition and the level of customer inventories at the time of any price decreases. We continually monitor the factors that influence the pricing of our products and customer inventory levels and make adjustments to these provisions when we believe that actual product returns, inventory credits and other allowances may differ from established reserves.

Legal Costs — Legal charges are recorded for the costs anticipated to be incurred in connection with litigation and claims against us when we can reasonably estimate these costs. We intend to vigorously defend each of the lawsuits described in Note 13, Commitments and Contingencies, in the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001, and in Part II Item 1 of this Form 10-Q but their respective outcomes cannot be predicted. Any of such lawsuits or investigations, if determined adversely to us, could have a material adverse effect on our financial position and results of operations. Our ultimate liability with respect to any of these proceedings is not presently determinable.

We are involved in various other legal proceedings arising in the ordinary course of business, some of which involve substantial amounts. In order to obtain brand equivalent approvals prior to the expiration of patents on branded products, and to benefit from the exclusivity allowed to Abbreviated New Drug Application applicants that successfully challenge these patents, we frequently become involved in patent infringement litigation brought by branded pharmaceutical companies. Although these lawsuits involve products that are not yet marketed and therefore pose little or no risk of liability for damages, the legal fees and costs incurred in defending such litigation can be substantial. While it is not feasible to predict or determine the outcome or the total cost of these proceedings, in our opinion, based on a review with legal counsel, any losses resulting from such legal proceedings will not have a material adverse impact on our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows. We, in the normal course of doing business, are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

Foreign Currency Exchange Rate Risk — We have subsidiaries in more than 20 countries worldwide. During the six months ended June 30, 2002, sales outside the United States accounted for approximately 61% of worldwide sales. Virtually all of these sales were denominated in currencies of the local country. As such, our reported profits and cash flows are exposed to changing exchange rates. 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. Although we do not speculate in the foreign exchange market, we do from time to time manage exposures that arise in the normal course of business related to fluctuations in foreign currency exchange rates by entering into offsetting positions through the use of foreign exchange forward contracts. As a result of exchange rate differences, net revenues decreased by $8 million for the six months ended June 30, 2002, as compared to the same period of the prior year. The effects of inflation on consolidated net revenues and operating income were not significant. Certain firmly committed transactions are hedged with foreign exchange forward contracts. As exchange rates change, gains and losses on the exposed transactions are partially offset by gains and losses related to the hedging contracts. Both the exposed transactions and the hedging contracts are translated at current spot rates, with gains and losses included in earnings. Our derivative activities, which primarily consist of foreign exchange forward contracts, are initiated primarily to hedge forecasted cash flows that are exposed to foreign currency risk.

The foreign exchange forward contracts generally require us to exchange local currencies for foreign currencies based on pre-established exchange rates at the contracts’ maturity dates. If the counterparties to the exchange contracts do not fulfill their obligations to deliver the contracted currencies, we could be at risk for currency related fluctuations. We enter into these contracts with counterparties that we believe to be creditworthy and do not enter into any leveraged derivative transactions. As of June 30, 2002, we had $15.4 million in foreign exchange forward contracts outstanding. During January 2002, we repaid $48 million of United States dollar denominated bank loans of the Argentine operations assumed in the acquisition of Lab Chile resulting in a pretax loss of $2.8 million.

Interest Rate Risk — Our only material debt obligations relate to the 4.5% and 5.5% Convertible Notes, which bear fixed rates of interest, and the amounts we owe for the purchase of QVAR, which carry no stated interest rate. We believe that our exposure to market risk relating to interest rate risk is not material.

Disclosure Regarding Forward-Looking Statements

We caution the reader that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statement which may have been deemed to have been made in this report or which are otherwise made by us or on our behalf. For this purpose any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “could”, “would”, “estimate”, “continue” or “pursue”, or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, among other things:

• difficulties in product development and uncertainties related to the timing or outcome of product development;

• the availability on commercially reasonable terms of raw materials, particularly raw materials for our paclitaxel product, and other third-party sourced products;

• our dependence on sole or limited source suppliers and the risk associated with a production interruption or shipment delays at such suppliers;

• difficulties in manufacturing products;

• efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to recalls, withdrawals or declining sales;

• that our proposed spending on facilities improvement and expansion may not be as projected;

• our ability to obtain and maintain FDA approval of our manufacturing facilities, the failure of which could result in production stoppage or delays;

• our ability to obtain approval from the FDA to market new pharmaceutical products;

• the acceptance of new products by the medical community as effective as alternative forms of treatment for indicated conditions;

• the outcome of any pending or future litigation or investigation (including patent, trademark and copyright litigation and the United Kingdom National Health Service investigation), and the cost, expenses and possible diversion of management’s time and attention arising from such litigation or investigation;

• the impact of new regulations or court decisions regarding the protection of patents and the exclusivity period for the marketing of branded drugs;

• the impact of the adoption of certain accounting standards;

• our success in acquiring or licensing proprietary technologies that are necessary for our product development activities;

• our ability to obtain and maintain a sufficient supply of products to meet market demand;

• the impact of political and economic instability in the countries in which we operate, particularly Argentina and other Latin American countries;

• our successful compliance with extensive, costly, complex and evolving governmental regulations and restrictions;

• our ability to successfully compete in both the branded and brand-equivalent pharmaceutical sectors; and

• other risks and uncertainties detailed herein and from time to time in our Securities and Exchange Commission filings.

The information in this Form 10-Q is as of June 30, 2002 or, where clearly indicated, as of the date of this filing. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. We also may make additional disclosures in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we may file from time to time with the Securities and Exchange Commission. Please

also note that we provide a cautionary discussion of risks and uncertainties under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2001. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On June 13, 2002, the Louisiana Wholesale Drug Co. v. Abbott Laboratories and Valley Drug Co. v. Abbott Laboratories et al. cases, previously reported in our Annual Report on Form 10-K for the year ended December 31, 2001, were settled.

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

Our annual meeting of shareholders was held on June 27, 2002. The following is a summary of the matters voted on at that meeting:

The shareholders elected nine Directors, constituting the entire Board of Directors, to serve until the next annual meeting of shareholders and until their respective successors are duly elected and qualified. The persons elected to our Board of Directors and the number of votes cast for and withheld for each nominee for director were as follows:


Director	For		Withheld

Mark Andrews		168,378,084		4,852,551
Ernst Biekert, Ph.D.		169,236,083		3,994,552
Charles M. Fernandez		168,339,098		4,891,537
Jack Fishman, Ph.D.		167,787,138		5,443,497
Neil Flanzraich		151,651,825		21,578,810
Phillip Frost, M.D.		151,665,727		21,564,908
Jane Hsiao, Ph.D.		151,664,290		21,586,345
Isaac Kaye		151,612,620		21,618,015
Richard C. Pfenniger, Jr.		168,695,694		4,534,941

In May 2002, Richard C. Pfenninger, Jr., the Chief Executive Officer, Vice Chairman and a Director of Whitman Education Group, Inc., was appointed to IVAX Audit Committee. Phillip Frost, M.D., our Chairman and Chief Executive Officer, continues to serve on the Compensation Committee and is the Chairman of the Board of Directors at Whitman.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


3.2	Amended and Restated Bylaws	Filed herewith.

99.1	Certificate of the Chairman and Chief Executive Officer of IVAX Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

99.2	Certificate of the Chief Financial Officer of IVAX Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

(b) Reports on Form 8-K

On May 15, 2002, we filed a report under Item 5 — Other Events on Form 8-K reporting our issuance of 444,000 shares of our common stock in settlement of certain put option obligations.

On May 22, 2002, we filed a report on Form 8-K, as amended by Form 8-K/A filed on May 24, 2002, under Item 4 — Changes in Registrant’s Certifying Accountant reporting that our Board of Directors selected Ernst & Young LLP as our independent auditors replacing Arthur Andersen LLP and under Item 5 — Other Events reporting our issuance of 367,700 shares of our common stock in settlement of certain put option obligations.

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 13, 2002	By: /s/ Thomas E. Beier

		Thomas E. Beier Senior Vice President-Finance Chief Financial Officer

	•		our ability to maintain our pricing and volume levels and obtain a consistent supply of raw materials for paclitaxel;

	•		our ability to obtain and maintain FDA approval of our manufacturing facilities;

	•		our ability to maintain a pipeline of products in development;

	•		our ability to develop and rapidly introduce new products;

	•		the timing of regulatory approval of such products;

	•		our ability to manufacture such products efficiently;

	•		the number and timing of regulatory approvals of competing products; and

	•		our ability to replace or renew license fees, royalties and development service fees as the related agreements expire or are terminated.

	•		difficulties in product development and uncertainties related to the timing or outcome of product development;

	•		the availability on commercially reasonable terms of raw materials, particularly raw materials for our paclitaxel product, and other third-party sourced products;

	•		our dependence on sole or limited source suppliers and the risk associated with a production interruption or shipment delays at such suppliers;

	•		difficulties in manufacturing products;

	•		efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to recalls, withdrawals or declining sales;

	•		that our proposed spending on facilities improvement and expansion may not be as projected;

	•		our ability to obtain and maintain FDA approval of our manufacturing facilities, the failure of which could result in production stoppage or delays;

	•		our ability to obtain approval from the FDA to market new pharmaceutical products;

	•		the acceptance of new products by the medical community as effective as alternative forms of treatment for indicated conditions;

	•		the outcome of any pending or future litigation or investigation (including patent, trademark and copyright litigation and the United Kingdom National Health Service investigation), and the cost, expenses and possible diversion of management’s time and attention arising from such litigation or investigation;

	•		the impact of new regulations or court decisions regarding the protection of patents and the exclusivity period for the marketing of branded drugs;

	•		the impact of the adoption of certain accounting standards;

	•		our success in acquiring or licensing proprietary technologies that are necessary for our product development activities;

	•		our ability to obtain and maintain a sufficient supply of products to meet market demand;

	•		the impact of political and economic instability in the countries in which we operate, particularly Argentina and other Latin American countries;

	•		our successful compliance with extensive, costly, complex and evolving governmental regulations and restrictions;

	•		our ability to successfully compete in both the branded and brand-equivalent pharmaceutical sectors; and

	•		other risks and uncertainties detailed herein and from time to time in our Securities and Exchange Commission filings.