<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, 1997
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 OCTOBER 24,
1997: 28,631,050
PAGE 1 OF 16
<PAGE> 2
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
INDEX
-----
<CAPTION>
Part I - Financial Information PAGE
NUMBER
------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 3
Condensed Consolidated Statements of Income -
three months and nine months ended September 30, 1996 and 1997 4
Condensed Consolidated Statements of Stockholders'
Equity - nine months ended September 30, 1996 and 1997 5
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1996 and 1997 6 - 7
Notes to Condensed Consolidated Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 11 - 14
Part II - Other Information
Item 1. Legal Proceedings 15
Signatures 16
</TABLE>
2
<PAGE> 3
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52,171,684 $ 40,646,988
Accounts receivable, less allowance for doubtful accounts of
$388,109 at December 31, 1996 and $419,609 at September 30, 1997 11,301,251 16,931,306
Inventories 12,752,523 17,025,234
Income taxes receivable 1,763,864 -
Deferred income taxes 1,846,318 1,846,318
Prepaid expenses and other 715,165 964,118
------------ ------------
Total current assets 80,550,805 77,413,964
Net property, plant and equipment 24,170,353 26,471,108
Intangible assets, net 69,847,240 90,285,789
Other assets 2,664,990 2,875,099
------------ ------------
$177,233,388 $197,045,960
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,471,061 $ 7,575,292
Current portion of long-term debt 3,000,000 -
Income taxes payable - 1,472,494
Dividends payable 560,298 -
------------ ------------
Total current liabilities 10,031,359 9,047,786
Deferred income taxes 5,282,307 5,282,307
Contingencies and commitments (Note 6) - -
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized at
December 31, 1996 and 5,000,000 shares authorized at September 30, 1997 - -
Common stock, $.04 par value; 30,000,000 authorized, 28,435,451 issued
and outstanding at December 31, 1996 and 75,000,000 authorized, 28,624,325
issued and outstanding at September 30, 1997 1,137,418 1,144,973
Contributed capital 108,582,105 108,762,021
Retained earnings 52,200,199 72,808,873
------------ ------------
Total stockholders' equity 161,919,722 182,715,867
------------ ------------
$177,233,388 $197,045,960
============ ============
</TABLE>
See accompanying notes.
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,
--------------------- ----------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $26,224,366 $31,649,345 $73,810,348 $89,311,537
Cost of sales 10,882,585 11,353,613 30,305,336 31,860,593
----------- ----------- ----------- -----------
Gross profit on sales 15,341,781 20,295,732 43,505,012 57,450,944
Selling, general and administrative
expenses:
Selling 3,677,461 4,512,064 11,122,236 13,762,124
General and administrative 1,851,166 2,003,339 6,178,242 5,943,548
Research and development 34,769 - 285,623 -
Amortization 695,329 1,140,032 1,920,424 2,879,894
Acquisition costs 5,664,585 - 5,664,585 -
----------- ----------- ----------- -----------
Total selling, general and
administrative expenses 11,923,310 7,655,435 25,171,110 22,585,566
----------- ----------- ----------- -----------
Operating income 3,418,471 12,640,297 18,333,902 34,865,378
Other income (expense)
Interest income 752,725 534,415 1,653,387 1,960,086
Interest expense (108,058) (59,556) (472,403) (238,366)
Other income
(expense) 36,483 (23,931) 18,411 (22,800)
----------- ----------- ----------- -----------
Income before income taxes 4,099,621 13,091,225 19,533,297 36,564,298
Income taxes 2,310,942 4,974,580 8,157,717 13,953,404
----------- ----------- ----------- -----------
Net income $ 1,788,679 $ 8,116,645 $11,375,580 $22,610,894
=========== =========== =========== ===========
Average shares outstanding 29,138,000 29,419,000 27,776,000 29,459,000
Earnings per share $ .06 $ .28 $ .41 $ 77
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 1996 and 1997
<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, 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
Adjustment to increase pooled
companies net income to conform
to year-end - - - - - 701,925 701,925
Costs paid by shareholders on
behalf of the company - - - - 2,900,000 - 2,900,000
Redemption of dissenters' 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 - 27,998,323 $ - $1,119,933 $ 94,290,734 $45,997,338 $141,408,005
====== ========== ==== ========== ============ =========== ============
Balance at December 31, 1996 - 28,435,451 - $1,137,418 $108,582,105 $52,200,199 $161,919,722
Exercise of stock options - 201,749 - 8,069 607,206 - 615,275
Shares tendered in payment of
option price - (10,182) - (407) (339,606) - (340,013)
Return of escrowed shares - (2,693) - (107) (87,684) - (87,791)
Net income - - - - - 22,610,894 22,610,894
Cash dividend declared - common
stock ($.07 per share) - - - - - (2,002,220) (2,002,220)
------ ---------- ---- ---------- ------------ ----------- ------------
Balance at September 30, 1997 - 28,624,325 $ - $1,144,973 $108,762,021 $72,808,873 $182,715,867
====== ========== ==== ========== ============ =========== ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
<CAPTION>
September 30,
Cash flows from operating activities 1996 1997
---- ----
<S> <C> <C>
Net income $ 11,375,580 $ 22,610,894
Adjustment to increase pooled companies net income to conform to year end 701,925 -
Non-cash adjustments:
Costs paid by shareholders on behalf of the Company 2,900,000 -
Depreciation and amortization 2,899,664 4,445,177
Provision for uncollectibles 64,330 31,500
Loss on asset sales 101,359 43,577
Deferred income taxes (95,092) -
Change in assets and liabilities:
Accounts receivable (950,814) (5,661,555)
Inventories 119,004 (4,272,711)
Prepaid expenses and other assets (1,376,728) (1,167,353)
Accounts payable and accrued expenses (2,053,380) 1,104,231
Income taxes payable (864,671) 1,472,494
Income taxes receivable - 1,763,864
------------ ------------
Net cash from operating activities 12,821,177 20,370,118
------------ ------------
Cash flows used for investing activities:
Proceeds from sale of assets 183,229 255,913
Note receivable from related party 60,810 -
Acquisition of Tapazole(R) (26,057,057) -
Acquisition of Cytomel(R) and Triostat(R) - (22,800,000)
Additions to property, plant and equipment (5,275,511) (4,063,471)
------------ ------------
Net cash used for investing activities (31,088,529) (26,607,558)
------------ ------------
Cash flows from (used for) financing activities:
Proceeds from debt 26,000,000 -
Repayment of long term debt (37,758,316) (3,000,000)
Purchase of dissenters' shares (4,022,411) -
Repayment of note payable to former stockholder (2,475,520) -
Payment of dividends (1,141,347) (2,562,518)
Proceeds from exercise of stock options 739,133 275,262
Proceeds from common stock sale 75,221,921 -
------------ ------------
Net cash from (used for) financing activities 56,563,460 (5,287,256)
------------ ------------
Increase (decrease) in cash and cash equivalents 38,296,108 (11,524,696)
Cash and cash equivalents, beginning of period 8,221,823 52,171,684
------------ ------------
Cash and cash equivalents, end of period $ 46,517,931 $ 40,646,988
============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
<TABLE>
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
(UNAUDITED)
Nine Months Ended September 30, 1996 and 1997
<CAPTION>
Supplemental Disclosures of Cash Flow Information:
--------------------------------------------------
Cash paid during the nine months for: 1996 1997
---- ----
<S> <C> <C>
Interest $ 354,581 $ 434,700
========== ===========
Income taxes $9,489,483 $10,701,886
========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 8
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1997
1. GENERAL
-------
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, 1996,
included in the 1996 Annual Report.
2. 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 (29,138,000 and 27,776,000 for the three months
and nine months ended September 30, 1996; 29,419,000 and 29,459,000 for the
three months and nine months ended September 30, 1997). The computation
assumes that outstanding stock options were exercised and the proceeds used
to purchase common shares.
3. 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,
1996 1997
(Unaudited)
----------- -----------
<S> <C> <C>
Raw material $ 4,766,356 $ 7,106,753
Work-in-process 1,539,115 1,578,124
Finished goods 6,447,052 8,340,357
----------- -----------
$12,752,523 $17,025,234
=========== ===========
</TABLE>
8
<PAGE> 9
4. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
(Unaudited)
----------- -----------
<S> <C> <C>
Land $ 2,419,676 $ 2,419,676
Building and improvements 11,710,066 13,138,430
Equipment and furniture 15,022,571 17,283,327
Automobiles 438,451 582,419
----------- -----------
29,590,764 33,423,852
Less accumulated depreciation and amortization 5,420,411 6,952,744
----------- -----------
$24,170,353 $26,471,108
=========== ===========
</TABLE>
5. INTANGIBLE ASSETS
-----------------
Intangible assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
(Unaudited)
----------- ------------
<S> <C> <C>
Distribution systems, trademarks and licenses $48,409,609 $ 69,409,609
Customer list 6,084,967 6,084,967
Restrictive covenants and other intangibles 5,602,768 8,089,070
Goodwill 17,249,968 17,060,114
----------- ------------
77,347,312 100,643,760
Less accumulated amortization 7,500,072 10,357,971
----------- ------------
$69,847,240 $ 90,285,789
=========== ============
</TABLE>
9
<PAGE> 10
6. 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 policy, 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.
The Company, as successor to Abana Pharmaceuticals, Inc. ("Abana"), is
a defendant in a number of lawsuits involving the manufacture and sale of
certain weight-loss drugs, including fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting these
weight-loss drugs. Abana was, and the Company now is, a distributor of
Obenix, its branded phentermine product; neither the Company nor Abana has at
any time manufactured Obenix. The suits have been filed in various
jurisdictions throughout the United States and in each of these suits, the
Company or Abana is one of many defendants who have either manufactured or sold
these weight-loss drugs in the past. The Company denies any wrongdoing incident
to its distribution of Obenix and has tendered defense of these lawsuits to its
insurance carriers for handling. The lawsuits are in their preliminary
stages and it is too early to determine what, if any, liability the Company
will have with respect to the claims set forth in these lawsuits. In the
event that there is not adequate insurance coverage to satisfy all claims set
forth in these lawsuits, then the Company will have to resume defense of
these lawsuits and be responsible for the damages, if any, that are awarded
against it. Management of the Company does not believe that the outcome of
these lawsuits will have a material adverse effect on the Company's financial
position.
7. ACQUISITION
-----------
On June 30, 1997, the Company acquired two products, Cytomel(R) (liothyronine
sodium tablets) and Triostat(R) (liothyronine sodium injection) from SmithKline
Beecham Corporation (SKB), for a cash purchase price of $22.8 million. The
purchase price has been allocated to the acquired intangibles with
amortizable lives ranging from 10 to 25 years. In connection with the
acquisition, the Company entered into manufacturing agreements for the future
supply of both Cytomel(R) and Triostat(R). Subsequent to June 30, 1997, the
Company purchased approximately $850,000 of SKB's related finished goods
inventory that was on hand at the date of acquisition.
10
<PAGE> 11
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
------------- ------ ------------- ------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 20.6% 100.0% 100.0% 21.0%
Cost of sales 41.5 35.9 4.3 41.1 35.7 5.1
Gross profit margin 58.5 64.1 32.2 58.9 64.3 32.0
Selling, general and
administrative expenses:
Selling 14.0 14.3 22.7 15.0 15.4 23.7
General and administrative 7.1 6.3 8.2 8.4 6.7 (3.8)
Research and development 0.1 0.0 (100.0) 0.4 0.0 (100.0)
Amortization 2.7 3.6 64.0 2.6 3.2 50.0
Acquisition costs 21.6 0.0 (100.0) 7.7 0.0 (100.0)
Total selling, general and
administrative expenses 45.5 24.2 (35.8) 34.1 25.3 (10.3)
Operating income 13.0 39.9 269.8 24.8 39.0 90.2
Interest income 2.9 1.7 (29.0) 2.2 2.2 18.5
Interest expense (0.4) (0.2) (44.9) (0.6) (0.3) (49.5)
Other income (expense) 0.1 (0.1) (165.6) 0.0 0.0 (223.8)
Income before income taxes 15.6 41.3 219.3 26.4 40.9 87.2
Provision for income taxes 8.8 15.7 115.3 11.0 15.6 71.0
Net income 6.8 25.6 353.8 15.4 25.3 98.8
</TABLE>
11
<PAGE> 12
RESULTS OF OPERATIONS
---------------------
SALES
- -----
The following summarizes approximate sales activity by product category for
the third quarter ended September 30:
<TABLE>
SALES BY PRODUCT CATEGORY
<CAPTION>
1996 % 1997 %
---- - ---- -
<S> <C> <C> <C> <C>
Pharmaceutical products $18,282,000 70.0 $23,420,000 74.0
Vitamin and Nutritional
Supplement products 7,942,000 30.0 8,229,000 26.0
----------- -----------
Total sales $26,224,000 100.0 $31,649,000 100.0
=========== ===========
</TABLE>
Sales for the third quarter ended September 30, 1997 increased 20.6% to $31.6
million from $26.2 million in the third quarter of 1996. The Company's sales
increased as a result of a 28.1% increase in pharmaceutical product sales,
and a 3.6% increase in vitamin and nutritional supplement product sales.
Approximately $2.1 million or 11% of the pharmaceutical product sales growth
is attributable to the acquisition of Cytomel(R) and Triostat(R) from SmithKline
Beecham on June 30, 1997. The remaining increase in pharmaceutical sales
primarily results from internal sales growth of Levoxyl(R), Tapazole(R),
Thrombin-JMI(R), and Brevital(R). Vitamin and nutritional supplement product
sales increased only slightly as the Company continues to focus primarily on
the higher margin pharmaceutical product sales.
The following summarizes approximate sales activity by product category for
the nine months ended September 30:
<TABLE>
<CAPTION>
SALES BY PRODUCT CATEGORY 1996 % 1997 %
---- - ---- -
<S> <C> <C> <C> <C>
Pharmaceutical products $48,944,000 66.0 $65,875,000 74.0
Vitamin and Nutritional
Supplement products 24,866,000 34.0 23,437,000 26.0
----------- ----- ----------- -----
Total sales $73,810,000 100.0 $89,312,000 100.0
=========== ===== =========== =====
</TABLE>
Sales for the first nine months of 1997 increased 21.0%, or $15.5 million
over the first nine months of 1996. The increase results from a 34.6%
increase in pharmaceutical product sales offset by a 5.7% decrease in vitamin
and nutritional supplement product sales. The pharmaceutical product sales
increase is primarily due to the inclusion of a full nine months of sales of
Tapazole(R) (acquired March 18, 1996), the addition of the Cytomel(R) and
Triostat(R) product lines (acquired June 30, 1997) and the increasing sales
of Levoxyl(R), Tapazole(R), Thrombin-JMI(R), and Brevital(R). The decrease
in vitamin and nutritional supplement product sales primarily results from a
decline in the lower margin contract vitamin sales.
12
<PAGE> 13
GROSS PROFIT
- ------------
Gross profit during the third quarter of 1997 increased 32.3% or $4,954,000
in aggregate dollars over the third quarter of 1996. As a percentage of
sales, gross profit increased 5.6%. The significant gross profit increase,
in both aggregate dollars and as a percentage of sales, was due to the
increase in the higher margin pharmaceutical product sales discussed above.
Gross profit for the first nine months of 1997 increased $13,945,000 or 32.1%
in aggregate dollars over the first nine months of 1996 and as a percentage
of sales, increased 5.4%. The increase in both aggregate dollars and as a
percentage of sales resulted from the increase in the higher margin
pharmaceutical product sales discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling expenses increased as a percentage of sales in the third quarter of
1997 as compared to the third quarter of 1996 from 14.0% to 14.3% and, in
aggregate dollars, increased 22.7% or $835,000. These expenses increased as
a result of the additional sales personnel employed January 1, 1997 in
connection with the Abana acquisition. For the same reason, the first nine
months selling expenses increased in aggregate dollars by 23.7% or
$2,640,000.
General and administrative expenses as a percentage of sales decreased from
7.1% for the third quarter of 1996 to 6.3% for the third quarter of 1997 and,
in the aggregate, increased 8.2% or $152,000. General and administrative
expenses as a percentage of sales decreased from 8.4% for the nine months
ended September 30, 1996 to 6.7% for the nine months ended September 30, 1997
and, in the aggregate, decreased 3.8% or $234,000. The 1997 general and
administrative expenses reflect the impact of consolidating the
administrative functions at Daniels Pharmaceuticals (merged on August 31,
1996) with the Company's corporate facility.
Amortization expenses associated with intangible assets included in selling,
general and administrative expenses were up 64.0% and 50.0%, respectively,
for the third quarter and the first nine months of 1997 over 1996 as a result
of additional amortization on intangible assets acquired with the Tapazole(R)
acquisition (acquired March 16, 1996), the Abana acquisition (acquired
December 31, 1996), and the Cytomel(R) and Triostat(R) acquisition (acquired
June 30, 1997).
Acquisition costs incurred during the third quarter of 1996 of $5,665,000
represent one-time costs associated with the Daniels Pharmaceuticals
acquisition in a pooling of interests transaction.
OPERATING INCOME
- ----------------
Operating income during the third quarter of 1997, compared to the third
quarter of 1996, increased 269.8% in aggregate terms, and as a percentage of
sales from 13.0% to 39.9% due to the one-time costs associated with the
acquisition of Daniels in 1996 and the improved gross margins in 1997.
For the first nine months of 1997 operating income increased 90.0% over the
same period of 1996 due to the 1996 one-time acquisition costs and higher
gross profits in 1997.
13
<PAGE> 14
OTHER INCOME (EXPENSE)
- ----------------------
Interest income decreased 29.0% for the third quarter of 1997, but increased
18.5% or $307,000 for the first nine months compared to the same period of
1996. Fluctuations in interest income result from the receipt of the $75
million net proceeds from the Company's sale of common stock in April 1996,
the partial use of those proceeds to repay certain indebtedness in 1996 and
1997, and the cash purchase of Cytomel(R) and Triostat(R) for $22.8 million on
June 30, 1997.
Interest expense was down 44.9% and 49.5%, respectively, for the third
quarter and the first nine months of 1997 as compared to the same periods of
1996 due to the reduction in the Company's outstanding debt.
Other income (expense) consists primarily of gains or losses on the sale of
fixed assets.
INCOME TAXES
- ------------
The effective tax rates for the third quarter and the first nine months of
1997 were 38.0% and 38.2%, respectively, as compared to 56.4% and 41.8% for
the same periods of 1996. The effective tax rates in 1996 were unusually
high due to the nondeductibility of certain acquisition costs.
NET INCOME
- ----------
Earnings per share increased from $.06 on average shares outstanding of
29,138,000 for the quarter ended September 30, 1996 to $.28 on average shares
outstanding of 29,419,000 for the quarter ended September 30, 1997. For the
first nine months of 1997 earnings per share increased to $.77 on average
shares outstanding of 29,459,000 from $.41 on average shares outstanding of
27,776,000 for the first nine months of 1996.
Net income for the third quarter of 1997 was $8,117,000, up 34.4% over the
third quarter of 1996, before the $5,665,000 one-time pretax charge for
acquisition costs in 1996. Net income for the nine months ended September
30, 1997 was $22,611,000, up 44.7% for the same period of 1996, before the
one-time pretax charge in 1996.
FINANCIAL CONDITION
- -------------------
Balance Sheet Information
- -------------------------
At September 30, 1997 the Company's current ratio increased slightly to 8.6:1
from 8.0:1 at December 31, 1996 while working capital decreased from $70.5
million at December 31, 1996 to $68.4 million at September 30, 1997. The
decline in working capital is primarily due to the acquisition of Triostat(R)
and Cytomel(R) on June 30, 1997 for $22.8 million, offset by $20.4 million of
net cash generated from operations during the first nine months of 1997. The
debt to equity ratio was 1.8% at December 31, 1996. The Company has no
outstanding long-term debt at September 30, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
Adoption of FASB Statement No. 128, "Earnings Per Share", which is effective
for the Company in 1997, is not anticipated to have a material effect on the
Company's consolidated financial statements.
14
<PAGE> 15
PART II - OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS
- ------- -----------------
Jones Medical Industries, Inc. (the "Company"), as successor to Abana
Pharmaceuticals, Inc. ("Abana"), is a defendant in a number of lawsuits
involving the manufacture and sale of certain weight-loss drugs, including
fenfluramine and phentermine. The plaintiffs in these cases claim injury as
a result of ingesting these weight-loss drugs. Abana was, and the Company
now is, a distributor of Obenix, its branded phentermine product; neither the
Company nor Abana has at any time manufactured Obenix. The suits have been
filed in various jurisdictions throughout the United States and in each of
these suits, the Company or Abana is one of many defendants who have either
manufactured or sold these weight-loss drugs in the past. The Company denies
any wrongdoing incident to its distribution of Obenix and has tendered
defense of these lawsuits to its insurance carriers for handling. The
lawsuits are in their preliminary stages and it is too early to determine
what, if any, liability the Company will have with respect to the claims set
forth in these lawsuits. In the event that there is not adequate insurance
coverage to satisfy all claims set forth in these lawsuits, then the Company
will have to resume defense of these lawsuits and be responsible for the
damages, if any, that are awarded against it. Management of the Company does
not believe that the outcome of these lawsuits will have a material adverse
effect on the Company's financial position.
15
<PAGE> 16
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 3, 1997 By: /s/ Dennis M. Jones
---------------------- ----------------------------------------
Dennis M. Jones, President
Date: November 3, 1997 By: /s/ Judith A. Jones
---------------------- ----------------------------------------
Judith A. Jones
Executive Vice President and
Principal Financial and Accounting Officer
16
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