<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 March 31, 1998
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)
<TABLE>
<S><C>
DELAWARE 43-1229854
(State or other jurisdiction of Incorporation or organization) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1945 Craig Road, St. Louis, Missouri 63146
(Address of principal executive offices) (Zip Code)
</TABLE>
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 April 28, 1998:
28,709,758
Page 1 of 17
<PAGE> 2
JONES MEDICAL INDUSTRIES, INC.
INDEX
Part I - Financial Information PAGE
NUMBER
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Income -
three months ended March 31, 1997 and 1998 4
Condensed Consolidated Statements of Stockholders'
Equity - three months ended March 31, 1997 and 1998 5
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1997 and 1998 6 - 7
Notes to Condensed Consolidated Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 12 - 15
Part II - Other Information
Item 1. Legal Proceedings 16
Signatures 17
2
<PAGE> 3
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 49,877 $ 66,188
Accounts receivable, less allowance for doubtful accounts of
$ 1,196 at December 31, 1997 and $ 1,157 at March 31, 1998 ............... 13,650 14,176
Inventories .............................................................. 7,299 7,391
Deferred income taxes .................................................... 2,443 2,443
Other .................................................................... 479 860
Net assets of discontinued operations .................................... 10,883 8,979
-------- --------
Total current assets .......................................................... 84,631 100,037
Net property, plant and equipment ............................................. 23,297 23,330
Net intangible assets ......................................................... 80,482 79,521
Other assets .................................................................. 2,219 2,553
Net assets of discontinued operations ......................................... 13,100 12,889
-------- --------
Total assets .................................................................. $203,729 $218,330
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................................... $ 4,631 $ 6,568
Income taxes payable ..................................................... 1,450 6,145
-------- --------
Total current liabilities ..................................................... 6,081 12,713
Deferred income taxes ......................................................... 5,922 5,922
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding .................................................... -- --
Common stock, $.04 par value; 75,000,000 authorized, 28,647,300 issued and
outstanding at December 31, 1997 and 28,706,798 at March 31, 1998 ........ 1,146 1,149
Contributed capital ...................................................... 109,129 109,330
Retained earnings ........................................................ 81,451 89,216
-------- --------
Total stockholders' equity .................................................... 191,726 199,695
-------- --------
Total liabilities and stockholders' equity .................................... $203,729 $218,330
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1998
---- ----
<S> <C> <C>
Sales from continuing operations .......................... $ 21,637 $ 23,743
Cost of sales ............................................. 4,846 5,672
-------- --------
Gross profit .............................................. 16,791 18,071
Selling, general and administrative expenses:
Selling .............................................. 3,800 4,100
General and administrative ........................... 2,409 2,035
Amortization ......................................... 720 977
-------- --------
Total selling, general and administrative
expenses ........................................ 6,929 7,112
-------- --------
Operating income from continuing operations ............... 9,862 10,959
Other income (expense):
Interest income ...................................... 678 785
Other ................................................ (106) (28)
Total other income (expense) ..................... -------- --------
572 757
Income before taxes from continuing operations ............ 10,434 11,716
Provision for income taxes ................................ 3,965 4,451
-------- --------
Income from continuing operations ......................... 6,469 7,265
Income from discontinued operations (net of taxes) ........ 1,649 1,218
-------- --------
Net income ................................................ $ 8,118 $ 8,483
======== ========
Earnings per share:
Basic: Continuing operations ................... $ .23 $ .25
Discontinued operations ................. .06 .05
-------- --------
$ .29 $ .30
======== ========
Diluted: Continuing operations ................... $ .22 $ .25
Discontinued operations ................. .06 .04
-------- --------
$ .28 $ .29
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended March 31, 1997 and 1998
(In thousands of dollars except per share amounts)
<TABLE>
<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, 1996 .. -- 28,435,451 $ -- $ 1,137 $ 108,582 $ 52,200 $ 161,919
Exercise of stock options ..... -- 159,799 -- 6 453 -- 459
Shares tendered in payment
of option exercise price ...... -- (10,182) -- -- (340) -- (340)
Return of escrowed shares ..... -- (2,693) -- -- (88) -- (88)
Net income .................... -- -- -- -- -- 8,118 8,118
Cash dividend declared - common
stock ($.020 per share) ....... -- -- -- -- -- (571) (571)
------ ---------- ------- --------- --------- --------- ---------
Balance at March 31, 1997 ..... -- 28,582,375 $ -- $ 1,143 $ 108,607 $ 59,747 $ 169,497
====== ========== ======= ========= ========= ========= =========
Balance at December 31, 1997 .. -- 28,647,300 $ -- $ 1,146 $ 109,129 $ 81,451 $ 191,726
Exercise of stock options ..... -- 62,375 -- 3 201 -- 204
Shares tendered in payment of
option price .................. -- (2,877) -- -- -- -- --
Net income .................... -- -- -- -- -- 8,483 8,483
Cash dividend declared - common
stock ($.025 per share) ....... -- -- -- -- -- (718) (718)
------ ---------- ------- --------- --------- --------- ---------
Balance at March 31, 1998 ..... -- 28,706,798 $ -- $ 1,149 $ 109,330 $ 89,216 $ 199,695
====== ========== ======= ========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
Cash flows from operating activities: 1997 1998
---- ----
<S> <C> <C>
Net income ........................................................ $ 8,118 $ 8,483
Non-cash adjustments:
Depreciation and amortization ................................ 1,107 1,439
Provision for uncollectibles ................................. 7 (23)
Loss on asset sales .......................................... 18 --
Change in assets and liabilities:
Accounts receivable .......................................... (4,975) (503)
Income tax receivable ........................................ 1,764 --
Inventories .................................................. (2,204) (92)
Other current assets ......................................... (411) (738)
Accounts payable and accrued expenses ........................ 1,431 1,936
Income taxes payable ......................................... 3,398 4,695
Discontinued operations - Non cash charges and working
capital .................................................... 500 2,107
------- --------
Net cash from operating activities ....................... 8,753 17,304
------- --------
Cash flows used for investing activities:
Proceeds from sale of assets ................................. 25 3
Additions to property, plant and equipment ................... (762) (440)
Investing activities - discontinued operations ............... (85) (42)
------- --------
Net cash used for investing activities ................... (822) (479)
Cash flows used for financing activities:
Payment of dividends ......................................... (560) (718)
Proceeds from exercise of stock options ...................... 119 204
------- --------
Net cash used for financing activities ................... (441) (514)
------- --------
Increase in cash and cash equivalents ............................. 7,490 16,311
Cash and cash equivalents, beginning of period .................... 52,172 49,877
------- --------
Cash and cash equivalents, end of period .......................... $59,662 $ 66,188
======= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
JONES MEDICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
(UNAUDITED)
(In thousands of dollars)
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
Cash paid during the three months for: 1997 1998
---- ----
<S> <C> <C>
Interest ....................................................................... $ - $ -
====== =======
Income taxes ................................................................... $ 28 $ 116
====== =======
</TABLE>
See accompanying notes.
7
<PAGE> 8
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1998
(Dollars in thousands except per share amounts)
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, 1997,
included in the 1997 Annual Report.
2. DISCONTINUED OPERATIONS
On March 16, 1998, the Board of Directors of Jones Medical Industries, Inc.
("JMED" or the "Company") approved a plan to discontinue the Company's
nutritional supplement product line and contract manufacturing operations.
On March 17, 1998, the Company signed a binding agreement with certain
operating subsidiaries of Twinlab Corporation (Twin) to sell a portion of
this business for $55 million cash on the April 30, 1998 closing date. Net
proceeds from the sale to Twin will approximate $40 million, after tax and a
net gain on the sale, for financial reporting purposes, will approximate $15
million. The accompanying consolidated statements of income reflect the
operating results, net of tax, of the Company's nutritional supplement
product line and contract manufacturing operations as discontinued
operations. Net sales associated with the discontinued operations
approximate $8,728 and $8,139 for the three months ended March 31, 1998 and
1997, respectively.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
exclude any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share are very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts
for all periods have been presented and, where appropriate, restated to
conform to the Statement No. 128 requirements.
The following table sets forth the computations of basic and diluted
earnings per share for the three months ended March 31:
8
<PAGE> 9
3. EARNINGS PER SHARE (CONT'D)
<TABLE>
<CAPTION>
1997 1998
---- ----
(Unaudited)
<S> <C> <C>
Numerator for basic and diluted
earnings per share:
Income from continuing operations $ 6,469 $ 7,265
Income from discontinued operations 1,649 1,218
------------ ------------
$ 8,118 $ 8,483
============ ============
Denominator for basic earnings per
share-weighted average shares 28,477,265 28,683,106
Effect of dilutive stock options 877,489 830,288
------------ ------------
Denominator for diluted earnings per share 29,354,754 29,513,394
============ ============
Earning per share:
Basic: Continuing operations $ .23 $ .25
Discontinued operations .06 .05
------------ ------------
$ .29 $ .30
============ ============
Diluted: Continuing operations $ .22 $ .25
Discontinued operations .06 .04
------------ ------------
$ .28 $ .29
============ ============
</TABLE>
4. INVENTORIES
Inventories are valued at the lower of cost on a first-in, first-out basis
or market.
Inventories used in continuing operations are comprised as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
(Unaudited)
------------ -----------
<S> <C> <C>
Raw material.............................. $ 1,961 $ 2,210
Work-in-process........................... 745 404
Finished goods............................ 4,593 4,777
------- -------
$ 7,299 $ 7,391
======= =======
</TABLE>
9
<PAGE> 10
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment used in continuing operations are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
(Unaudited)
------------ -----------
<S> <C> <C>
Land............................. $ 2,059 $ 2,059
Building and improvements........ 11,298 11,331
Equipment and furniture.......... 14,473 14,880
Automobiles...................... 591 591
--------- ---------
28,421 28,861
Less accumulated depreciation
and amortization............... (5,124) (5,531)
--------- ---------
$ 23,297 $ 23,330
========= =========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets used in continuing operations are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
(Unaudited)
-------------- --------------
<S> <C> <C>
Distribution systems, trademarks and licenses................. $ 66,827 $ 66,827
Restrictive covenants and other intangibles................... 7,624 7,646
Goodwill...................................................... 14,534 14,534
------------ ------------
88,985 89,007
Less accumulated amortization................................. (8,503) (9,486)
------------ ------------
$ 80,482 $ 79,521
============ ============
</TABLE>
10
<PAGE> 11
7. 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 is a defendant in a number of lawsuits involving the
manufacture and sale of dexfenfluramine, fenfluramine, and phentermine
(collectively, "Fen/Phen"). The Company distributes Obenix, its branded
phentermine product; however, the Company does not manufacture Obenix or
other Fen/Phen combinations. The lawsuits are in their preliminary stages
and it is too early to determine what, if any, liability the Company may
have with respect to the claims set forth in these lawsuits. Management of
the Company believes that the outcome of these lawsuits will not have a
material adverse effect on the Company's business, financial condition, and
results of operations.
The FDA announced in an August 14, 1997, Federal Register Notice that
orally administered drug products containing levothyroxine sodium are now
classified as new drugs. Manufacturers, who wish to continue to market
these products, must submit new drug application (NDA). After August 14,
2000, any levothyroxine sodium product marketed without an approved NDA
will be subject to regulatory action. Levoxyl, with total sales of
approximately $5.8 million in the first quarter of 1997 and $6.3 million in
the first quarter of 1998, was marketed prior to the date of the FDA notice
and, therefore, will continue to be eligible for marketing until August 14,
2000. The FDA is allowing the Company and other current manufacturers three
(3) years to obtain approved NDA's. The Company plans to dedicate
significant resources to this NDA process during 1998 and 1999 and expects
to incur costs in excess of $2 million to secure an approved NDA for
Levoxyl.
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The Company's decision to dispose of its nutritional supplements product
line and contract manufacturing operations requires a restatement of its
historical financial information under applicable accounting principles and
regulations to reflect such operations as `discontinued operations' (See
Note 2 to the Condensed Consolidated Financial Statements elsewhere in this
report). As a result of the Company's restatement of its historical
financial information, the comparative dollar values and percentage amounts
used throughout Item 2 of this report reflect this restatement and relate
solely to the Company's continuing pharmaceutical operations, unless
otherwise indicated.
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results in future
periods may differ significantly from the results discussed in or
anticipated by such forward-looking statements.
********************************************
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>
INCREASE
(DECREASE)
AGGREGATE
THREE MONTHS ENDED DOLLAR
MARCH 31, AMOUNT
-------------------- ------------
1997 1998
--------- -------
<S> <C> <C> <C>
Sales from continuing operations 100.0% 100.0% 9.7%
Cost of sales 22.4 23.9 17.0
--------- ------- --------
Gross profit 77.6 76.1 7.6
Selling, general and administrative expenses:
Selling 17.6 17.3 7.9
General and administrative 11.1 8.6 (15.5)
Amortization 3.3 4.1 35.7
--------- ------- --------
Total selling, general and
administrative expenses 32.0 30.0 2.6
--------- ------- --------
Operating income from continuing operations 45.6 46.1 11.1
Interest income 3.1 3.3 15.8
Other income (expense) (0.5) (0.1) (72.8)
--------- ------- --------
Income before taxes from continuing operations 48.2 49.3 12.3
Provision for income taxes 18.3 18.8 12.3
--------- ------- --------
Income from continuing operations 29.9 30.5 12.3
Income from discontinued operations (net of tax) 7.6 5.1 (26.1)
--------- ------- --------
Net income 37.5% 35.6% 4.5%
========= ======= ========
</TABLE>
12
<PAGE> 13
SALES FROM CONTINUING OPERATIONS
Sales from continuing operations for the three months ended March 31, 1998
increased 9.7% to $23.7 million from $21.6 million for the three months ended
March 31, 1997. The Company's increase in sales from continuing operations in
the first quarter of 1998 occurred despite the fact that sales for the first
quarter of 1997 were at an abnormally higher level due to distributor forward
buying of Levoxyl and Tapazole. The strong sales in the first quarter of 1998
result from the acquisition of Triostat and Cytomel from SmithKline Beecham on
June 27, 1997 and internal unit and dollar sales growth in the Company's primary
products including Thrombin-JMI, Levoxyl and Brevital.
GROSS PROFIT
Gross profit during the first quarter of 1998 increased 7.6% or $1.3 million to
$18.1 million from $16.8 million in 1997. As a percentage of sales from
continuing operations, margins decreased slightly from 77.6% in 1997 to 76.1% in
1998. The decrease occurred due to an abnormally higher level of buying by
distributors related to the forward buying of two of the Company's higher margin
products, Levoxyl and Tapazole, in the first quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses increased 7.9% or $300,000 to $4.1 million for the three months
ended March 31, 1998 from $3.8 million in 1997 due to increased royalties
related to sales of Brevital in 1998, increased administrative fees to hospital
buying groups resulting from sales increases in Thrombin-JMI and Levoxyl, and
increased sampling of products to physician prescribers. As a percentage of
sales from continuing operations, selling expenses were 17.3% in the first
quarter of 1998 as compared to 17.6% in the first quarter of 1997.
General and administrative expenses decreased from $2.4 million in the first
quarter of 1997 to $2.0 million in the first quarter of 1998 primarily due to
the accrual of higher bonuses and donations in the 1997 first quarter. As a
percentage of sales from continuing operations, general and administrative
expenses declined from 11.1% in 1997 to 8.6% in 1998.
Amortization expenses associated with intangible assets and included in selling,
general and administrative expenses increased 35.7% to $977,000 in the first
quarter of 1998 from $720,000 in the first quarter of 1997 due to amortization
expense associated with the acquisition of Cytomel and Triostat in June 1997. As
a percentage of sales from continuing operations, amortization expense increased
from 3.3% in 1997 to 4.1% in 1998.
OPERATING INCOME FROM CONTINUING OPERATIONS
Operating income from continuing operations during the first quarter of 1998
increased 11.1% or $1.1 million to $11.0 million from $9.9 million in 1997, and
increased as a percentage of sales from continuing operations to 46.1% in 1998
from 45.6% in 1997, as a result of lower operating expenses as a percentage of
sales.
13
<PAGE> 14
OTHER INCOME (EXPENSE)
Total other income increased $185,000 in the first quarter of 1998 compared to
the first quarter of 1997 due primarily to the increase in interest income from
$678,000 in the first quarter of 1997 to $785,000 in the first quarter of 1998.
The increase in interest income results from higher invested cash balances in
1998.
INCOME TAXES
The provision for income taxes in the first quarter of 1998 remained unchanged
at 38.0% of pre-tax income as compared to the first quarter of 1997.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased 12.3% or $796,000 to $7.3 million in
the first quarter of 1998 from $6.5 million in the first quarter of 1997 and
increased as a percentage of sales from continuing operations to 30.5% in 1998
from 29.9% in 1997.
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations, net of taxes, decreased from $1.6 million
in the first quarter of 1997 to $1.2 million in the first quarter of 1998 due to
lower margins on the nutritional contract manufacturing business. As a
percentage of sales from continuing operations, income from discontinued
operations decreased from 7.6% of sales from continuing operations in 1997 to
5.1% in 1998. The decline in significance of the Discontinued Operations results
from the Company's strategy to increase, both through acquisitions and internal
growth, the sales of higher-margin products and to focus on its proprietary
pharmaceutical operations.
NET INCOME
Net income increased 4.5% or $365,000 to $8.5 million in 1998 from $8.1 million
in 1997 and as a percentage of sales from continuing operations decreased
slightly to 35.6% in 1998 from 37.5% in 1997 due to the decrease in income from
discontinued operations.
14
<PAGE> 15
FINANCIAL CONDITION
BALANCE SHEET INFORMATION
The Company's current ratio decreased from 13.9:1 as of December 31, 1997 to
7.9:1 as of March 31, 1998, primarily due to the increase in income taxes
payable at March 31, 1998. Working capital increased to $87.3 million as of
March 31, 1998 from $78.6 million as of December 31, 1997 primarily due to the
increase in cash of $16.3 million offset by the increase in current liabilities
of $6.7 million.
LIQUIDITY AND CAPITAL RESOURCES
Since inception the Company has financed its operations primarily through cash
flow from operations, public and private sales of equity securities and
borrowings under revolving credit facilities. At March 31, 1998 and December 31,
1997, the Company had cash and cash equivalents of $66.2 million and $49.9
million, respectively. The net cash generated from operating activities of $17.3
million in the first quarter of 1998 was used to fund property, plant and
equipment additions of $440,000, payment of common stock dividends of $718,000,
and increase the cash and cash equivalents balance by $16.3 million. The Company
believes that available resources and anticipated cash flows from operations are
adequate to meet currently anticipated operating needs and, together with the
net proceeds of approximately $40 million to be derived from Discontinued
Operations, to fund future acquisitions. While the Company does not maintain
current lines of credit, it believes it has sufficient borrowing capacity in the
event that acquisition opportunities cannot be funded from existing resources.
Total assets increased $14.7 million to $218.3 million at March 31, 1998 from
$203.7 million at December 31, 1997 primarily due to the increase in cash
generated from operations. Total liabilities increased $6.7 million to $18.7
million at March 31, 1998 from $12.0 million at December 31, 1997 primarily due
to the increase in income taxes payable.
Inventories remained relatively flat at $7.4 million at March 31, 1998 compared
to $7.3 million at December 31, 1997. Accounts receivable increased to $14.2
million at March 31, 1998 from $13.7 million at December 31, 1997 due to
increases in sales from continuing operations in the first quarter of 1998. In
days outstanding, accounts receivable decreased from 54 days at December 31,
1997 to 53 days at March 31, 1998.
Net assets of discontinued operations (including current and noncurrent)
decreased from $24.0 million at December 31, 1997 to $21.9 million at March 31,
1998 primarily due to a decrease in accounts receivable of $885,000, a decrease
in inventory of $654,000, an increase in accounts payable of $324,000, and
depreciation and amortization of $362,000.
The Company has experienced only moderate raw material and labor price increases
in recent years. While the Company has passed some price increases along to
customers, the Company has primarily benefited from rapid sales growth, negating
most inflationary pressures. The Company's manufacturing operations are not
capital intensive and, as such, the impact of inflation on the property, plant,
and equipment and associated depreciation expense of the Company has been
minimal.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in more than 200 lawsuits which claim damages
for personal injury arising from the manufacture, sale and prescription of
certain weight-loss drugs, including dexfenfluramine, fenfluramine and
phentermine. The lawsuits seek, among other things, compensatory and punitive
damages and court supervised medical monitoring of persons who have ingested
the products. Generally, the lawsuits allege that the Company and the other
defendants (i) marketed these products for the treatment of obesity and misled
users of the products with respect to the dangers associated with them, (ii)
failed to adequately test the products individually and when taken in
combination with the other drugs, and (iii) knew or should have known about the
negative effects of the drugs, and should have informed the public about the
risks of such negative effects.
The Company, as successor to Abana Pharmaceuticals, Inc. ("Abana"),
distributes Obenix, its branded phentermine product. The lawsuits have been
filed in various state and federal jurisdictions throughout the United States
and in each of these suits, the Company or Abana is one of many defendants who
are alleged to have either manufactured or distributed these weight-loss
products in the past. Neither the Company nor Abana has at any time (i)
manufactured Obenix or any of the other products in the lawsuits, nor (ii)
distributed any of the other products in the lawsuits.
The Company denies any wrongdoing incident to its distribution of
Obenix and has tendered defense of these lawsuits to it insurance carriers for
handling. The Company intends to vigorously defend the lawsuits and pursue all
reasonable defenses available to it. 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, the Company will have to resume defense of these suits 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 condition.
16
<PAGE> 17
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: May 15, 1998 By:/s/ Dennis M. Jones
---------------------- -------------------------
Dennis M. Jones, President
Date: May 15, 1998 By: /s/ Judith A. Jones
----------------------- ------------------------
Judith A. Jones
Executive Vice President and
Principal Financial and Accounting Officer
17
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