<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ----- TO -----
COMMISSION FILE NO. 0-15098
JONES MEDICAL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1229854
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1945 CRAIG ROAD, ST. LOUIS, MISSOURI 63146
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 576-6100
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 .
----- -----
NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK AS OF NOVEMBER 5,
1996: 28,014,450
PAGE 1 OF 20
<PAGE> 2
JONES MEDICAL INDUSTRIES, INC.
<TABLE>
INDEX
-----
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1995 and September 30, 1996 3
Condensed Consolidated Statements of Income - three months
and nine months ended September 30, 1995 and 1996 4
Condensed Consolidated Statements of Stockholders'
Equity - nine months ended September 30, 1995 and 1996 5
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1995 and 1996 6 - 7
Notes to Condensed Consolidated Financial
Statements 8 - 13
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 14 - 18
Part II - Other Information
Item 1. Legal Proceedings 19
Signatures 20
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31, September 30,
1995 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,221,823 $ 46,517,931
Marketable securities 120,000 120,000
Accounts receivable, less allowance for doubtful accounts of
$187,484 at December 31, 1995 and $251,814 at September 30, 1996 9,438,107 10,324,591
Inventories 13,014,276 12,895,272
Deferred income taxes 1,546,100 1,694,072
Prepaid expenses and other 821,556 804,575
----------- ------------
Total current assets 33,161,862 72,356,441
Net property, plant and equipment 18,659,500 22,747,941
Intangible assets, net 32,935,165 57,080,338
Other assets 1,481,881 2,700,421
----------- ------------
$86,238,408 $154,885,141
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,436,964 $ 5,383,583
Current portion of long-term debt 5,813,474 3,000,000
Income taxes payable 871,401 6,730
Dividends payable 283,605 559,866
----------- ------------
Total current liabilities 14,405,444 8,950,179
Long-term debt 11,420,362 -
Deferred income taxes 4,474,077 4,526,957
Contingencies and commitments (Note 8) - -
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, 1,056 issued and outstanding at
December 31, 1995 and 0 at September 30, 1996 10 -
Common stock, $.04 par value; 30,000,000 authorized,
24,227,425 issued and outstanding at December 31, 1995
and 27,998,325 at September 30, 1996 969,097 1,119,933
Contributed capital (including effects of unearned
compensation and related amortization) 19,590,417 94,290,733
Retained earnings 35,379,001 45,997,339
----------- ------------
Total stockholders' equity 55,938,525 141,408,005
----------- ------------
$86,238,408 $154,885,141
=========== ============
See accompanying notes.
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 19,765,990 $26,224,366 $52,893,036 $73,810,348
Cost of sales 8,640,139 10,882,585 23,261,199 30,305,336
------------ ----------- ----------- -----------
Gross profit on sales 11,125,851 15,341,781 29,631,837 43,505,012
Selling, general and
administrative expenses:
Selling 3,247,436 3,677,461 9,349,293 11,122,236
General and administrative 2,093,195 1,851,166 5,226,400 6,178,242
Research and development 93,857 34,769 334,029 285,623
Amortization 370,562 695,329 998,856 1,920,424
Acquistion costs - 5,664,585 - 5,664,585
----------- ----------- ----------- -----------
Total selling, general
and administrative expenses 5,805,050 11,923,310 15,908,578 25,171,110
Operating income 5,320,801 3,418,471 13,723,259 18,333,902
Other income (expense)
Interest income 67,947 752,725 198,565 1,653,387
Interest expense (163,446) (108,058) (350,876) (472,403)
Other income (expense) 2,324 36,483 (117,008) 18,411
----------- ----------- ----------- -----------
Income before income taxes 5,227,626 4,099,621 13,453,940 19,533,297
Income taxes 2,032,863 2,310,942 4,953,408 8,157,717
----------- ----------- ----------- -----------
Net income $ 3,194,763 $ 1,788,679 $ 8,500,532 $11,375,580
=========== =========== =========== ===========
Average shares outstanding 24,740,000 29,138,000 24,749,000 27,776,000
Earnings per share $ .13 $ .06 $ .34 $ .41
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 1995 and 1996
<CAPTION>
Number of shares Preferred Common Contributed Retained
Preferred Common Stock Stock Capital Earnings Total
--------- ------ --------- ------ ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 99,919 20,769,780 $ 999 $ 949,200 $19,507,277 $24,020,325 $ 44,477,801
Exercise of stock options - 74,475 - 2,979 122,696 - 125,675
Restricted Stock:
Amortization of
unearned compensation - - - - 22,489 - 22,489
Conversion of preferred stock (54,162) 213,215 (542) 8,529 (7,987) - -
Return of escrowed preferred stock (44,004) - (440) - (381,277) - (381,717)
Escrowed preferred dividend - - - - 9,326 - 9,326
Net income - - - - - 8,500,532 8,500,532
Cash dividend declared - common
stock ($.0356 per share) - - - - - (742,837) (742,837)
Cash dividend declared - preferred
stock ($.08 per share) - - - - - (4,140) (4,140)
------- ---------- ----- ---------- ----------- ----------- ------------
Balance at September 30, 1995 1,753 21,057,470 $ 17 $ 960,708 $19,272,524 $31,773,880 $ 52,007,129
======= ========== ===== ========== =========== =========== ============
Balance at December 31, 1995 1,056 24,227,423 $ 10 $969,097 $19,590,417 $35,379,001 $ 55,938,525
Exercise of stock options - 316,820 - 12,674 726,459 - 739,133
Sales of common stock - 3,450,000 - 138,000 75,083,921 - 75,221,921
Restricted stock:
Amortization of
unearned compensation - - - - 12,500 - 12,500
Conversion of preferred stock (1,056) 4,080 (10) 162 (152) - -
Net income - - - - - 11,375,580 11,375,580
Adustment to increase acquired
company's net income to a twelve
month amount - - - - - 701,925 701,925
Costs paid by shareholders on behalf
of the Company - - - - 2,900,000 - 2,900,000
Redemption of dissenter's shares - - - - (4,022,411) - (4,022,411)
Cash dividend declared - common
stock ($.0566 per share) - - - - - (1,459,156) (1,459,156)
Cash dividend declared - preferred
stock ($.04 per share) - - - - - (12) (12)
------- ---------- ----- ---------- ----------- ----------- ------------
Balance at September 30, 1996 - 27,998,322 $ - $1,119,933 $94,290,733 $45,997,339 $141,408,005
======= ========== ===== ========== =========== =========== ============
See accompanying notes
</TABLE>
- 5 -
<PAGE> 6
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, 1995 and 1996
<CAPTION>
Cash flows used from operating activities: 1995 1996
---- ----
<S> <C> <C>
Net income $ 8,500,532 $ 11,375,580
Adjustment to increase acquired company's net income
above to a twelve month amount - 701,925
Non-cash adjustments:
Costs paid by shareholders on behalf of the Company - 2,900,000
Depreciation and amortization 1,771,116 2,899,664
Provision for uncollectibles 27,000 64,330
Loss on asset sales 126,060 101,359
Deferred income taxes 8,444 (95,092)
Change in assets and liabilities:
Accounts receivable (1,303,461) (950,814)
Inventories (3,679,410) 119,004
Prepaid expenses and other assets (584,555) (1,376,728)
Accounts payable and accrued expenses 1,674,866 (2,053,380)
Income taxes payable 362,341 (864,671)
------------ ------------
Net cash from operating activities 6,902,933 12,821,177
------------ ------------
Cash flows used for investing activities:
Proceeds from sale of assets 766,108 183,229
Note receivable from related party 60,201 60,810
Acquisition of Tapazole(R) - (26,057,057)
Acquisition of Brevital(R) (14,070,000) -
Additions to property, plant and equipment (3,090,011) (5,275,511)
------------ ------------
Net cash used for investing activities (16,333,702) (31,088,529)
------------ ------------
Cash flows from (used for) financing activities:
Proceeds from debt 14,000,000 26,000,000
Repayment of long term debt (4,322,937) (37,758,316)
Purchase of dissenters' shares - (4,022,411)
Repayment of note payable to former stockholder (99,875) (2,475,520)
Payment of dividends (706,699) (1,141,347)
Proceeds from exercise of stock options 125,675 739,133
Proceeds from common stock sale - 75,221,921
------------ ------------
Net cash from (used for) financing activities 8,996,164 56,563,460
------------ ------------
Increase (decrease) in cash and temporary investments (434,605) 38,296,108
Cash and temporary investments, beginning of period 8,542,757 8,221,823
------------ ------------
Cash and temporary investments, end of period $ 8,108,152 $ 46,517,931
============ ============
See accompanying notes.
- 6 -
<PAGE> 7
<CAPTION>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
(UNAUDITED)
Nine Months Ended September 30, 1995 and 1996
Supplemental Disclosures of Cash Flow Information:
- -------------------------------------------------
Cash paid during the nine months for: 1995 1996
---- ----
<S> <C> <C>
Interest $ 165,187 $ 354,581
============ ============
Income taxes $ 3,502,945 $ 9,489,483
============ ============
See accompanying notes.
</TABLE>
- 7 -
<PAGE> 8
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. GENERAL
-------
In August 1996, the Company (also referred to as JMED)
acquired Daniels Pharmaceuticals, Inc. ("Daniels"), a Florida
corporation, in a business combination accounted for as a
pooling of interests by way of a merger (the "Merger") among
Daniels, Daniels' parent entity, Galen Drugs of Florida, Inc.
("Galen"), a Florida corporation, and the Company's wholly
owned subsidiary, JGD Acquisition Corporation, a Florida
corporation. The accompanying financial statements are based
on the assumption that the two companies were combined at the
beginning of the year, and all financial statements for prior
periods presented have been restated to give effect to the
combination. Earnings per share data reflects the shares
issued in the merger for all periods presented.
The unaudited interim financial information reflects all
adjustments (consisting only of normal recurring accruals)
which management considers necessary for a fair presentation
of the results of operations for such periods and is subject
to year end adjustments. Certain footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted from the unaudited interim
financial information as permitted by rules and regulations
of the Securities and Exchange Commission. Management
believes that the disclosures made are adequate to make the
information presented not misleading. The results for the
interim periods are not necessarily indicative of results for
the full year. It is suggested that these financial
statements be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended
December 31, 1995, included in the 1995 Annual Report.
2. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All
significant inter-company accounts and transactions have been
eliminated.
3. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
-----------------------------------------------
Earnings per common and common equivalent share are based on
the weighted average number of shares of common stock and
common stock equivalents outstanding during the period
(24,740,000 and 24,749,000 for the three months and nine
months ended September 30, 1995; 29,138,000 and 27,776,000
for the three months and nine months ended September 30,
1996.) The computation assumes that outstanding stock
options were exercised and the proceeds used to purchase
common shares. It also assumes that the preferred stock was
converted to shares of common stock.
8
<PAGE> 9
4. INVENTORIES
-----------
Inventories are valued at the lower of cost on a first-in,
first-out basis or market.
Inventories are comprised as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
------------ -------------
<S> <C> <C>
Raw material $ 5,613,815 $ 5,217,366
Work-in-process 1,130,532 2,051,406
Finished goods 6,269,929 5,626,500
----------- -----------
$13,014,276 $12,895,272
=========== ===========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
------------ -------------
<S> <C> <C>
Land $ 2,397,755 $ 2,419,676
Building and improvements 9,617,331 11,010,547
Equipment and furniture 10,031,272 13,739,387
Automobiles 461,702 418,344
----------- -----------
22,508,060 27,587,954
Less accumulated depreciation and
amortization 3,848,560 4,840,013
----------- -----------
$18,659,500 $22,747,941
=========== ===========
</TABLE>
9
<PAGE> 10
6. INTANGIBLE ASSETS
-----------------
Intangible assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
(Unaudited)
------------ -------------
<S> <C> <C>
Distribution systems, trademarks
and licenses $24,336,110 $48,336,110
Customer list 6,084,967 6,084,967
Restrictive covenants and other
intangibles 3,142,328 5,209,385
Goodwill 4,255,298 4,255,298
----------- -----------
37,818,703 63,885,760
Less accumulated amortization 4,883,538 6,805,422
----------- -----------
$32,935,165 $57,080,338
=========== ===========
</TABLE>
7. INCOME TAXES
------------
The provisions for income taxes for the nine months ended
September 30, 1995 and 1996 of $4,953,408 and $8,157,717,
respectively, are based on an estimated effective annual
income tax rate of 37.0% and 42.0%, respectively.
8. CONTINGENCIES
-------------
The Company currently carries product liability coverage of
$20,000,000 per occurrence and $20,000,000 in the aggregate
on a "claims made" basis. In addition to this coverage, the
Company carries a $5,000,000 umbrella policy. There is no
assurance that the Company's present insurance will cover any
potential claims that may be asserted in the future. In
addition, the Company is subject to legal proceedings and
claims which arise in the ordinary course of business.
9. COMMON STOCK SPLIT
------------------
On February 7, 1996, the Board of Directors declared a three-
for-two stock split effected in the form of a stock dividend
to be paid on March 1, 1996 to holders of record on February
23, 1996. In addition, on May 22, 1996, the Board of
Directors declared a three-for-two stock split effected in
the form of a stock dividend to be paid on June 10, 1996 to
holders of record
10
<PAGE> 11
on June 3, 1996. The financial statements, including share
and per share data, have been retroactively adjusted to reflect
these stock splits.
10. ACQUISITIONS
------------
TAPAZOLE(R)
-----------
On March 18, 1996, the Company entered into a perpetual
licensing agreement with Eli Lilly and Company ("Lilly") for
the exclusive United States marketing rights to the
Tapazole(R) product line. The purchase price of
approximately $26.0 million was financed with short-term
bank debt of $8.7 million and Lilly financing of $17.3
million for six months. Approximately $24.0 million was
allocated to the perpetual license with an amortizable life
of 30 years, and $2.0 million was allocated to a restrictive
covenant with an amortizable life of 10 years. In connection
with the acquisition, the Company entered into a
manufacturing agreement with Lilly whereby Lilly will
manufacture and supply the Company with Tapazole(R) for a
period of at least ten years. In addition, the Company
agreed to pay Lilly royalties totalling 5% of net sales of
Tapazole(R) for a period of ten years.
DANIELS PHARMACEUTICALS, INC.
-----------------------------
On August 31, 1996 JMED consummated its acquisition of
Daniels Pharmaceuticals, Inc., a St. Petersburg, Florida
based manufacturer of prescription pharmaceutical products,
and the principal operating entity of Galen Drugs of Florida,
Inc. (See Note 1). Daniels principal product is Levoxyl, a
synthetic thyroid hormone for the treatment of
hypothyroidism. Daniels other products include Soloxine, a
branded formulation of Levothyrozine for veterinary treatment
of hypothyroidism.
In connection with the merger, the Company issued 2,910,474
shares of its common stock and paid cash consideration of
approximately $4,022,000 to dissenting shareholders (in lieu
of 4,286 shares of JMED stock). In addition, JMED issued
49,750 shares of its common stock to Daniels Enterprises,
Inc. ("DEI"), a subchapter S-Corporation controlled by the
principal shareholders of Galen, to acquire the real estate
associated with the business. The book value of the real
estate acquired was $892,000 at the consummation date of the
combination.
In connection with the Merger, Daniels changed its fiscal
year end from September 30 to December 31, which conforms to
JMED's year end. The consolidated financial statements for
all periods prior to 1996 include Daniels' results of
operations on a September 30 fiscal year-end basis and JMED's
results of operations on a December 31 calendar year basis.
The unaudited interim Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Income presented
herein combine both entities' results as of September 30,
1996 and for the three months and nine months ended September
30, 1996. Because the conformity of Daniels' fiscal year end
has been changed prospectively, Daniels' net income for the
three months ended December 31, 1995 has been added directly
to retained earnings of the combined Company. During the
three months ended December 31, 1995, Daniels reported sales of
11
<PAGE> 12
$4,206,864 and net income of $701,925. The Condensed
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 combines JMED's cash flows for that
period with the cash flows of Daniels for the twelve months
ended September 30, 1996.
Nonrecurring merger expenses related to this acquisition
totaled $5,664,585, comprised primarily of costs paid by
shareholders on behalf of the Company, investment banking and
professional fees, and severance costs and have been charged
to the Company's operations during the third quarter of 1996.
Combined results for JMED and Daniels for the three months
and nine months ended September 30, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
JMED $22,749 $15,250 $60,738 $39,991
Daniels 3,475 4,516 13,072 12,902
------- ------- ------- -------
$26,224 $19,766 $73,810 $52,893
Net Income:
JMED $ 2,143 $ 2,338 $10,323 $ 6,512
Daniels (354) 857 1,053 1,989
------- ------- ------- -------
$ 1,789 $ 3,195 $11,376 $ 8,501
</TABLE>
11. COMMON STOCK OFFERING
---------------------
On April 3, 1996 and April 23, 1996 the Company sold a total
of 3,450,000 shares of common stock as contemplated in the
Company's Registration on Form S-3. Net proceeds of the
common stock offering were approximately $75,000,000.
12
<PAGE> 13
12. SUBSEQUENT EVENTS
-----------------
On October 24, 1996 the Company announced an agreement with
Abana Pharmaceuticals, Inc. ("Abana") and the holders of a
majority of Abana's outstanding stock for the acquisition of
Abana by means of a merger into a subsidiary of the Company.
Under the terms of the transaction, the Company will issue
approximately 420,000 shares of its common stock to Abana's
stockholders to acquire 100% ownership. Although Abana's
founders and principal stockholders currently hold a majority
of the outstanding shares of Abana and have adopted and
approved the transaction, final closing of the transaction
will be deferred until a registration statement relating to
the transaction is filed and becomes effective under federal
securities law and formal notice of the transaction is given
to Abana's other stockholders in accordance with Delaware
law. The Agreement contemplates that the transaction will
become effective at or near December 31, 1996.
Abana, headquartered in Birmingham, Alabama, is a growing
regional marketer of seven specialty prescription products.
13
<PAGE> 14
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- -----------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
- ----------------------------------
The following table sets forth, for the two interim periods
indicated, the percentages which certain components of the
Consolidated Statements of Income bear to product net sales and the
percentage change of such components (based on aggregate dollars) as
compared to the prior year.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
INCREASE INCREASE
(DECREASE) (DECREASE)
AGGREGATE AGGREGATE
THREE MONTHS ENDED DOLLAR NINE MONTHS ENDED DOLLAR
SEPTEMBER 30, AMOUNT SEPTEMBER 30, AMOUNT
------------- ------ ------------- ------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 32.7% 100.0% 100.0% 39.5%
Cost of sales 43.7 41.5 26.0 44.0 41.1 30.3
Gross profit margin 56.3 58.5 37.9 56.0 58.9 46.8
Selling, general and
administrative expenses:
Selling 16.4 14.0 13.2 17.7 15.1 19.0
General and administrative 10.6 7.1 (11.6) 9.9 8.4 18.2
Research and development 0.5 0.1 (63.0) 0.6 0.4 (14.5)
Amortization 1.9 2.7 87.6 1.9 2.6 92.3
Acquisition costs 0.0 21.6 N/A 0.0 7.7 N/A
Total selling, general
and administrative
expenses 29.4 45.5 105.4 30.1 34.1 58.2
Operating income 26.9 13.0 (35.8) 25.9 24.8 33.6
Interest income 0.3 2.9 1007.8 0.4 2.2 732.7
Interest (expense) (0.8) (0.4) (33.9) (0.7) (0.6) 34.6
Other (expense) 0.0 0.1 1469.8 (0.2) 0.0 115.7
Income before income taxes 26.4 15.6 (21.6) 25.4 26.5 45.2
Provision for income taxes 10.3 8.8 13.7 9.4 11.1 64.7
Net income 16.2 6.8 (44.0) 16.1 15.4 33.8
</TABLE>
14
<PAGE> 15
RESULTS OF OPERATIONS
---------------------
SALES
- -----
The following summarizes approximate sales activity by product category for
the third quarter ended September 30:
SALES BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
1995 % 1996 %
---- - ---- -
<S> <C> <C> <C> <C>
Pharmaceutical products $11,521,000 58.0 $18,282,000 70.0
Vitamin and Nutritional
Supplement products 8,245,000 42.0 7,942,000 30.0
----------- ----- ----------- -----
Total Sales $19,766,000 100.0 $26,224,000 100.0
=========== ===== =========== =====
</TABLE>
Sales for the third quarter ended September 30, 1996 increased 33% to $26.2
million from $19.8 million in the third quarter of 1995. The Company's
sales increased primarily due to a 58% increase of branded pharmaceutical
products which is attributed to the following: nine months sales of the
September 1, 1995 acquisition of Brevital(R), and six and one-half months
sales of the March 16, 1996 acquisition of Tapazole(R).
The following summarizes approximate sales activity by product category for
the nine months ended September 30:
SALES BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
1995 % 1996 %
---- - ---- -
<S> <C> <C> <C> <C>
Pharmaceutical products $30,641,000 58.0 $48,944,000 66.0
Vitamin and Nutritional
Supplement products 22,252,000 42.0 24,866,000 34.0
----------- ----- ----------- -----
Total Sales $52,893,000 100.0 $73,810,000 100.0
=========== ===== =========== =====
</TABLE>
Sales for the first nine months of 1996 increased 40%, to $73.8
million compared to $52.9 million for the same nine months of
1995.
Sales of pharmaceutical products increased 60% for the same
reasons as the three month period ending September 30, 1996
described above.
15
<PAGE> 16
GROSS PROFIT
- ------------
Gross profit during the third quarter of 1996 increased 37.9% in
total dollars and 2.2% to 58.5%, as a percent of sales as
compared to the same period of 1995, due to increases in sales of
higher margin products.
Gross profit for the first nine months of 1996, as compared to
the first nine months of 1995, increased 46.8% in total dollars,
or 2.97% to 58.9% as a percent of sales, for the same reason as
third quarter results improved.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling expenses decreased 2.4%, as a percent of sales, however
in aggregate dollars increased $430,000 during the third quarter
of 1996 over the third quarter of 1995 due, primarily, to
expenses associated with additional sales representatives.
Selling expenses for the nine month period ended September 30,
1996 were up 19% in the aggregate or $1.8 million, compared to
the same period in 1995. As a percent of sales, expenses
decreased by 2.6% for the same reasons as third quarter.
General and administrative expenses during the third quarter of
1996, compared to third quarter of 1995, decreased 11.6% in
aggregate terms due to decreases in overhead via the
consolidation of the administration of Daniels Pharmaceuticals,
Inc. on August 31, 1996 ("Daniels"). General and administrative
expenses, as a percent of sales, decreased from 10.6% during the
third quarter of 1995 to 7.1% during the 1996 third quarter due
to efficiencies of the St. Louis operations. The nine month
period ended September 30, 1996 as compared to the nine month
period ended September 30, 1995 increased 18.2% in the aggregate
or $1.0 million, but decreased as a percent of sales from 9.9% to
8.4%. This increase is due primarily to annual salary increases
and normal increased operation expenses.
Amortization expenses associated with intangible assets included
in selling, general and administrative expenses increased as a
percent of sales from 1.9% to 2.7% or $325,000 during the third
quarter of 1996 as compared to the third quarter of 1995 due to
the additional amortization of certain assets associated with the
Brevital(R) and Tapazole(R) acquisitions.
Acquisition costs incurred during the third quarter of 1996 of
$5,664,585 represent one time costs associated with the pooling
of interests transaction in connection with the Daniels
acquisition.
OPERATING INCOME
- ----------------
Operating income during the third quarter of 1996, compared to
the third quarter of 1995, decreased 35.8% in total dollars
primarily due to the one time costs associated with the
acquisition of Daniels. For the same reasons, operating income
decreased, as a percent of sales, from 26.9% in the 1995 third
quarter to 13.0% in the 1996 third quarter.
16
<PAGE> 17
For the first nine months of 1996 operating income was up 33.6%,
or $4,611,000 in total dollars due to higher gross profit margins
but down 1.1% as a percent of sales, over the same period of 1995
for the same reasons third quarter results decreased due to the
one time acquisition costs.
OTHER INCOME (EXPENSES)
- -----------------------
Interest income for the third quarter increased 1007.8% over the
same quarter of 1995 and 732.7% during the nine months of 1996
over 1995 due to larger cash balances on hand resulting from the
sale of common stock in April, 1996.
Interest expense was down 33.9% for the third quarter of 1996,
compared to third quarter of 1995 due to the repayment of debt.
However, interest expense for the first nine months of 1996 was
up 34.6% over the same period of 1995 due to the debt associated
with the Brevital(R) acquisition.
INCOME TAXES
- ------------
The provision for income taxes for the third quarter and first
nine months of 1996 are based on estimated effective income tax
rates of approximately 56.4% and 41.8% respectively. The
increase in the estimated effective income tax rates in 1996 over
1995 is due to the nondeductibility of certain acquisition
expenses.
NET INCOME
- ----------
Earnings per share decreased 267.4% to $.06 per share on
29,138,000 average shares outstanding for the third quarter 1996
from $.13 per share on 24,740,000 average shares outstanding for
the third quarter 1995 and increased 378.2% to $.41 per share on
27,776,000 average shares outstanding for the nine months ended
September 30, 1996, from $.34 per share in the same period of
1995 on 24,749,000 shares outstanding.
Before a $5.7 million one time pretax charge for expenses
relating to the August 1996 acquisiton of Daniels
Pharmaceuticals, Inc., in a pooling of interest transaction, net
income for the 1996 third quarter was $6.1 million up 89% over
the same quarter of 1995 and earnings per share were $.21 up from
$.13. For the nine months ending September 30, 1996, net income
was $15.6 million up 84% over the same period of 1995 and
earnings per share were $.56 up from $.35.
FINANCIAL CONDITION
- -------------------
Balance Sheet Information
- -------------------------
At September 30, 1996 the Company's current ratio increased to
8.0:1 from 2.3:1 at December 31, 1995 due to an increase in cash
from the sale of common stock in April, 1996. Working capital
increased to $63.4 million from $18.8 million at December 31,
1995 and debt as a percent of equity decreased from 20.4% at
December 31, 1995 to 6.3% at September 30, 1996.
17
<PAGE> 18
Total assets increased $68.6 million at September 30, 1996 over
year-end 1995 to $154.9 million and total liabilities decreased
$16.8 to $13.5 million. The above ratios were most significantly
impacted from the approximate net proceeds of $75,000,000
received in April from the stock offering.
Inventories decreased slightly at September 30, 1996 from those
at December 31, 1995, primarily, due to better forecasting of
needs.
Accounts receivable increased at September 30, 1996 over
December 31, 1995 due to increased sales.
18
<PAGE> 19
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
EXHIBITS
None.
REPORTS ON FORM 8-K
- -------------------
The Registrant filed two (2) Current Reports on Form 8-K during the
quarter for which this Report on Form 10-Q is filed. The first Form
8-K was dated July 30, 1996 and reported, pursuant to Item 2 of Form
8-K, the signing of a definitive agreement for the Registrant to
acquire all of the outstanding shares of stock of Daniels
Pharmaceuticals, Inc. ("Daniels"), by way of a merger with its
parent entity. The second Form 8-K was dated August 30, 1996 and
reported, pursuant to Item 2 of Form 8-K, the Registrant's
acquisition of all of the outstanding shares of stock of Daniels by
way of a merger among Daniels, Daniels' parent entity, Galen Drugs
of Florida, Inc. and the Registrant's wholly owned subsidiary, JGD
Acquisition Corporation in a reorganization transaction qualifying
under Section 368(a) of the Internal Revenue Code of 1986, as
amended. Financial statements, as required, were subsequently filed
on Form 8-K/A, dated October 1, 1996.
19
<PAGE> 20
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.
JONES MEDICAL INDUSTRIES, INC.
Date: November 14, 1996 By: /s/ Dennis M. Jones
-------------------------------- --------------------------------
Dennis M. Jones, President
Date: November 14, 1996 By: /s/ Judith A. Jones
-------------------------------- --------------------------------
Judith A. Jones,
Executive Vice President and
Principal Financial and
Accounting Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 46,517,931
<SECURITIES> 0
<RECEIVABLES> 10,576,405
<ALLOWANCES> 251,814
<INVENTORY> 12,895,272
<CURRENT-ASSETS> 72,356,441
<PP&E> 27,587,954
<DEPRECIATION> 4,840,013
<TOTAL-ASSETS> 154,885,141
<CURRENT-LIABILITIES> 8,950,179
<BONDS> 0
<COMMON> 1,119,933
0
0
<OTHER-SE> 140,288,072
<TOTAL-LIABILITY-AND-EQUITY> 154,885,141
<SALES> 73,810,348
<TOTAL-REVENUES> 73,810,348
<CGS> 30,305,336
<TOTAL-COSTS> 30,305,336
<OTHER-EXPENSES> (18,411)
<LOSS-PROVISION> 64,330
<INTEREST-EXPENSE> 472,403
<INCOME-PRETAX> 19,533,297
<INCOME-TAX> 8,157,717
<INCOME-CONTINUING> 11,375,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,375,580
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>