<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 June 30, 1999
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 PHARMA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1229854
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 JULY 26, 1999:
28,878,357
PAGE 1 OF 20
<PAGE> 2
JONES PHARMA INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information PAGE
NUMBER
------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1999 3
Condensed Consolidated Statements of Income -
three months and six months ended June 30, 1998 and 1999 4
Condensed Consolidated Statements of Stockholders'
Equity - six months ended June 30, 1998 and 1999 5
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 11-17
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Report on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE> 3
JONES PHARMA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---- ----
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents.......................................................... $ 122,745 $ 148,321
Accounts receivable, less allowance for doubtful accounts of
$ 977 at December 31, 1998 and $ 1,170 at June 30, 1999............................ 19,069 14,865
Inventories........................................................................ 7,492 10,561
Deferred income taxes.............................................................. 3,342 3,342
Other.............................................................................. 1,329 2,073
----------- -----------
Total current assets...................................................................... 153,977 179,162
Net property, plant and equipment......................................................... 23,692 23,643
Net intangible assets..................................................................... 66,326 64,603
Other assets.............................................................................. 4,783 4,812
----------- -----------
Total assets.............................................................................. $ 248,778 $ 272,220
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued expenses.............................................. $ 9,951 $ 10,671
Income taxes payable............................................................... 1,771 4,604
----------- -----------
Total current liabilities................................................................. 11,722 15,275
Deferred income taxes..................................................................... 4,386 4,386
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, 43,198,467 issued and
outstanding at December 31, 1998 and 43,246,303 at June 30, 1999 (See Note 2)...... 1,727 1,730
Contributed capital................................................................ 110,464 110,860
Retained earnings.................................................................. 120,479 139,969
----------- -----------
Total stockholders' equity................................................................ 232,670 252,559
----------- -----------
Total liabilities and stockholders' equity................................................ $ 248,778 $ 272,220
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
JONES PHARMA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales from continuing operations .................. $ 26,675 $ 31,286 $ 50,418 $ 60,762
Cost of sales ..................................... 6,371 5,157 12,043 11,740
-------- -------- -------- --------
Gross profit ...................................... 20,304 26,129 38,375 49,022
Selling, general and administrative expenses:
Selling ....................................... 4,239 4,725 8,339 9,499
General and administrative .................... 2,634 2,727 4,668 5,255
Research and development ...................... -- 434 -- 673
Amortization .................................. 945 868 1,922 1,736
Nonrecurring charge ........................... 10,500 -- 10,500 --
-------- -------- -------- --------
Total selling, general and administrative
expenses 18,318 8,754 25,429 17,163
-------- -------- -------- --------
Operating income from continuing operations ....... 1,986 17,375 12,946 31,859
Other income (expense):
Interest income ................................ 1,433 1,677 2,218 3,072
Other .......................................... ( 2) ( 57) ( 31) ( 39)
-------- -------- -------- --------
Income before taxes from continuing operations .... 3,417 18,995 15,133 34,892
Provision for income taxes ........................ 5,412 7,408 9,864 13,529
-------- -------- -------- --------
Income (loss) from continuing operations .......... (1,995) 11,587 5,269 21,363
Income from discontinued operations (net of taxes):
Gain on sale of discontinued operations ........ 17,079 -- 17,079 --
Income from discontinued operations ............ 468 -- 1,689 --
-------- -------- -------- --------
Income from discontinued operations ........ 17,547 -- 18,768 --
-------- -------- -------- --------
Net income ........................................ $ 15,552 $ 11,587 $ 24,037 $ 21,363
======== ======== ======== ========
Earnings (loss) per share (See Note 2):
Basic: Continuing operations ................ $ ( .05) $ .27 $ .12 $ .49
Discontinued operations .............. .41 -- .43 --
-------- -------- -------- --------
$ .36 $ .27 $ .55 $ .49
======== ======== ======== ========
Diluted: Continuing operations ............... $ ( .05) $ .26 $ .12 $ .48
Discontinued operations ............. .40 -- .42 --
-------- -------- -------- --------
$ .35 $ .26 $ .54 $ .48
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
JONES PHARMA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 1998 and 1999
(In thousands of dollars except share and 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, 1997 ........ - 28,647,300 $ -- $ 1,146 $ 109,129 $ 81,451 $ 191,726
Three-for-two stock split
declared July 13, 1999 .............. - 14,323,651 -- 573 (573) -- --
Exercise of stock options ........... - 107,190 -- 3 226 -- 229
Shares tendered in payment of
option price ........................ - (4,316) -- -- -- -- --
Net income .......................... - -- -- -- -- 24,037 24,037
Cash dividend declared - common
stock ($.075 per share) ............. - -- -- -- -- (1,582) (1,582)
- ----------- ------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 ............ - 43,073,825 $ -- $ 1,722 $ 108,782 $ 103,906 $ 214,410
= =========== ======= =========== =========== =========== ===========
Balance at December 31, 1998 ........ - 43,198,467 $ -- $ 1,727 $ 110,464 $ 120,479 $ 232,670
Exercise of stock options ........... - 48,262 -- 3 362 -- 365
Shares tendered in payment
of option exercise price ............ - (426) -- -- -- -- --
Amortization of unearned
compensation ........................ - -- -- -- 34 -- 34
Net income .......................... - -- -- -- -- 21,363 21,363
Cash dividend declared - common
stock ($.0975 per share) ............ - -- -- -- -- (1,873) (1,873)
----------- ------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 ............ - 43,246,303 $ -- $ 1,730 $ 110,860 $ 139,969 $ 252,559
=========== ======= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
JONES PHARMA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... 24,037 21,363
Non-cash adjustments:
Depreciation and amortization ............................... 2,864 2,800
Provision for uncollectibles ................................ 140 193
Nonrecurring charge ......................................... 10,500 --
Pretax gain on sale of discontinued operations .............. (30,616) --
Deferred income tax ......................................... ( 3,163) --
Loss on asset sales ......................................... -- 79
Change in assets and liabilities:
Accounts receivable ......................................... 3,409 4,011
Inventories ................................................. 802 ( 3,069)
Other current assets ........................................ ( 1,121) ( 744)
Accounts payable and accrued expenses ....................... 6,401 720
Income taxes payable ........................................ ( 653) 2,833
------- -------
Net cash from operating activities ..................... 12,600 28,186
------- -------
Cash flows from (used for) investing activities:
Additions to property, plant and equipment ...................... ( 1,552) ( 1,102)
Proceeds from sale of discontinued operations ................... 55,000 --
Investing activities - discontinued operations .................. -- --
------- -------
Net cash from (used for) investing activities .......... 53,448 ( 1,102)
Cash flows from (used for) financing activities:
Payment of dividends ............................................ ( 1,580) ( 1,873)
Proceeds from exercise of stock options ......................... 229 365
------- -------
Net cash from (used for) financing activities ............... ( 1,351) ( 1,508)
------- -------
Increase (decrease) in cash and cash equivalents ..................... 64,697 25,576
Cash and cash equivalents, beginning of period ....................... 49,877 122,745
------- -------
Cash and cash equivalents, end of period ............................. $ 114,574 $ 148,321
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
JONES PHARMA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1999
(Dollars in thousands except share and per share amounts)
1. GENERAL
The unaudited interim financial information reflects all adjustments
(consisting 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, 1998, included in the 1998 Annual Report.
2. COMMON STOCK SPLIT
On July 13, 1999, the Board of Directors declared a three-for-two stock
split effected in the form of a stock dividend to be paid on August 6, 1999
to holders of record on July 26, 1999. The unaudited condensed consolidated
financial statements, including stock option, share, and per share data
have been retroactively adjusted to reflect the split.
7
<PAGE> 8
3. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share for the three months and six months ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
1998 1999 1998 1999
-------------- ----------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations $ (1,995) $ 11,587 $ 5,269 $ 21,363
Income from discontinued operations 17,547 -- 18,768 --
-------------- ----------- -------------- -----------
$ 15,552 $ 11,587 $ 24,037 $ 21,363
============== =========== ============== ===========
Denominator for basic earnings per
share-weighted average shares 43,068,000 43,230,000 43,045,500 43,222,000
Effect of dilutive stock options 801,000 1,067,000 876,000 1,030,000
-------------- ----------- -------------- -----------
Denominator for diluted earnings per share 43,869,000 44,297,000 43,921,500 44,252,000
============== =========== ============== ===========
Earnings(loss) per share:
Basic: Continuing operations $ (.05) $ .27 $ .12 $ .49
Discontinued operations .41 -- .43 --
-------------- ----------- -------------- -----------
.36 $ .27 $ .55 $ .49
============== =========== ============== ===========
Diluted: Continuing operations $ (.05) $ .26 $ .12 $ .48
Discontinued operations .40 -- .43 --
-------------- ----------- -------------- -----------
$ .35 $ .26 $ .55 $ .48
============== =========== ============== ===========
</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, June 30,
1998 1999
(Unaudited)
<S> <C> <C>
Raw material $ 2,239 $ 2,615
Work-in-process 506 998
Finished goods 4,747 6,948
------- -------
$ 7,492 $10,561
======= =======
</TABLE>
8
<PAGE> 9
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment used in continuing operations are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(Unaudited)
--------- -----------
<S> <C> <C>
Land ......................................... $ 2,068 $ 2,068
Building and improvements .................... 11,608 11,697
Equipment and furniture ...................... 16,526 16,771
Automobiles .................................. 590 655
Projects in process .......................... 128 399
-------- --------
30,920 31,590
Less accumulated depreciation and amortization (7,228) (7,947)
-------- --------
$ 23,692 $ 23,643
======== ========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets used in continuing operations are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(Unaudited)
--------- -----------
<S> <C> <C>
Distribution systems, trademarks and licenses $ 66,805 $ 66,697
Restrictive covenants and other intangibles. 7,647 7,647
Goodwill .................................... 4,034 4,034
-------- --------
78,486 78,378
Less accumulated amortization ............... (12,160) (13,775)
-------- --------
$ 66,326 $ 64,603
======== ========
</TABLE>
7. INCOME TAXES
The provisions for income taxes for the three month and six month periods
ended June 30, 1999 are based on estimated effective annual income tax
rates of 39.0% and 38.8%, respectively. For the three month and six month
periods ended June 30, 1998, the provisions for income taxes reflect the
nondeductibility of the $10,500 nonrecurring charge. Excluding the effects
of the nonrecurring charge, the estimated effective income tax rate in 1998
approximates 38.5%.
9
<PAGE> 10
8. CONTINGENCIES
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 a 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 $15,000 for the six months ended June 30, 1998 and $16,000
for the six months ended June 30, 1999, was marketed prior to the date of
the FDA notice and therefore will continue to be eligible for marketing
until August 14, 2000. The Company plans to dedicate significant resources
to this NDA process during 1999 and 2000 and expects to incur costs in
excess of $2,000 to secure an approved NDA for Levoxyl.
The Company currently carries product liability coverage of $20,000 per
occurrence and $20,000 in the aggregate on a "claims made" basis. In
addition to this policy, the Company carries a $10,000 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 distributed Obenix, its branded
phentermine product; however, the Company did not and does not manufacture
Obenix or other Fen/Phen combinations. 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.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Statements contained in this discussion which are not historical facts or
information are "forward-looking statements" as that term is used in the
Private Securities Litigation Reform Act of 1995. Words such as "believe,"
"expect," "intend," "will," "should" and other expressions that indicate
future events and trends identify such forward-looking statements. These
forward-looking statements involve risks and uncertainties which could
cause the outcome to be materially different than stated. Such risks and
uncertainties include both general economic risks and are discussed more
fully in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The Company cautions that any forward-looking
statement reflects only the belief of the Company or its management at the
time the statement was made. Although the Company believes such
forward-looking statements are based upon reasonable assumptions, such
assumptions may ultimately prove to be inaccurate or incomplete. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement was
made.
********************************************
The following table sets forth, for the 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 INCREASE
(DECREASE) (DECREASE)
AGGREGATE AGGREGATE
THREE MONTHS ENDED DOLLAR SIX MONTHS ENDED DOLLAR
June 30, AMOUNT June 30, AMOUNT
------------------ ------ ----------------- ------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales from continuing operations ....................... 100.0% 100.0% 17.3% 100.0% 100.0% 20.5%
Cost of sales .......................................... 23.9 16.5 (19.1) 23.9 19.3 (2.5)
----- ----- ----- ----- ----- ----
Gross profit ........................................... 76.1 83.5 28.7 76.1 80.7 27.7
Selling, general and
administrative expenses:
Selling ........................................... 15.9 15.1 11.5 16.5 15.7 13.9
General and administrative ........................ 9.9 8.7 3.5 9.3 8.6 12.6
Research and development .......................... -- 1.4 N/A -- 1.1 N/A
Amortization ...................................... 3.5 2.8 (8.1) 3.8 2.8 (9.7)
Nonrecurring Charge ............................... 39.4 -- N/A 20.8 -- N/A
----- ----- ----- ----- ----- ----
Total selling, general and
administrative expenses .................... 68.7 28.0 12.0* 50.4 28.2 14.9*
----- ----- ----- ----- ----- ----
Operating income from
continuing operations ............................... 7.4 55.5 39.2* 25.7 52.5 35.9*
Interest income ........................................ 5.4 5.4 17.0 4.4 5.0 38.5
Other income (expense) ................................. 0.0 (0.2) N/A (0.1) (0.1) N/A
----- ----- ----- ----- ----- ----
Income before taxes from
continuing operations .......................... 12.8 60.7 36.5* 30.0 57.4 36.1*
Provision for income taxes ............................. 20.3 23.7 36.9* 19.5 22.3 37.1*
----- ----- ----- ----- ----- ----
Income (loss) from continuing operations ............... (7.5) 37.0 36.2* 10.5 35.1 35.5*
Income from discontinued
operations (net of tax) ....................... 65.8 -- N/A 37.2 -- N/A
----- ----- ----- ----- ----- ----
Net income ............................................. 58.3% 37.0% N/A 47.7% 35.1% N/A
===== ===== ==== ===== ===== ====
</TABLE>
*Excludes effect of $10,500 nonrecurring charge in 1998
11
<PAGE> 12
SALES FROM CONTINUING OPERATIONS
QUARTER ENDED JUNE 30:
Sales from continuing operations for the three months ended June 30, 1999
increased 17.3% to $31.3 million from $26.7 million for the three months ended
June 30, 1998.
Critical Care product sales in the second quarter of 1999 were up approximately
77.0% from $6.7 million for the three months ended June 30, 1998 to $11.9
million for the three months ended June 30, 1999. Substantially all of this
increase was attributable to Thrombin-JMI with sales of $7.4 million in the
second quarter of 1999 compared to $2.3 million in 1998, despite a 17% unit
volume decline. The majority of the Company's hospital buying group contracts
were renegotiated during the first quarter of 1999 resulting in a significant
reduction in Thrombin-JMI sales discounts in the second quarter of 1999. The
Company believes the increase in the Thrombin-JMI net selling price per unit
will continue to result in an increase in total net sales, however, there can be
no assurance that the renegotiated contract pricing will not negatively impact
sales volume or result in quarterly volatility in net sales in 1999.
Endocrine product sales in the second quarter of 1999 were down 2.0% from $17.5
million for the three months ended June 30, 1998 to $17.1 million for the three
months ended June 30, 1999. Sales of Levoxyl, the Company's leading Endocrine
product, were up 3.1% from $8.8 million in the second quarter of 1998 to $9.0
million in the second quarter of 1999 with a 2.5% increase in unit volume.
Industry market share data indicates that total Levoxyl prescriptions dispensed
have increased 25% during the three months ended June 30, 1999 as compared to
the same period of 1998. The Company's reported growth in net sales of Levoxyl
may differ from industry market share data based upon the buying patterns and
inventory levels maintained by the wholesale distributors and the level of sales
discounts offered by the Company. Tapazole sales were down 18.1% from $6.9
million for the three months ended June 30, 1998 to $5.7 million for the three
months ended June 30, 1999 while Cytomel sales were up 65.3% from $2.1 million
in the second quarter of 1998 to $3.4 million in the second quarter of 1999.
Veterinary product sales were down 9.5% from $2.4 million in the second quarter
of 1998 to $2.2 million in the second quarter of 1999.
SIX MONTHS ENDED JUNE 30:
Sales from continuing operations for the six months ended June 30, 1999
increased 20.5% from $50.4 million in the second quarter of 1998 to $60.8
million in the second quarter of 1999.
Critical Care product sales for the six months ended June 30, 1999 increased
52.8% from $16.0 million in 1998 to $24.5 million for the same period of 1999.
The majority of this increase was due to Thrombin-JMI with sales of $14.6
million for the six months ended June 30, 1999 compared to $7.0 million for the
same period of 1998. The increase in Thrombin-JMI results from the renegotiated
contract pricing, described above, and a 4% unit volume increase.
Endocrine product sales increased 5.6% from $29.7 million for the six months
ended June 30, 1998 to $31.3 million for the six months ended June 30, 1999.
Levoxyl sales increased from $15.2 million for the six months ended June 30,
1998 to $16.3 million for the six months ended June 30, 1999 with a 10% increase
in unit volume. Sales of Cytomel increased from $3.1 million for the six months
ended June 30, 1998 to $5.1 million for the same period of 1999.
Year-to-date sales of veterinary products increased 4.9% from $4.7 million in
1998 to $4.9 million in 1999.
12
<PAGE> 13
GROSS PROFIT
Gross profit during the three months ended June 30, 1999 increased 28.7% or $5.8
million to $26.1 million from $20.3 million in the same period of 1998. As a
percentage of sales from continuing operations, margins increased from 76.1% in
the second quarter of 1998 to 83.5% in the second quarter of 1999. The increase
is primarily due to the reduction in sales discounts associated with the
renegotiation of Thrombin-JMI pricing, discussed above.
Gross profit for the six months ended June 30, 1999 increased 27.7% or $10.6
million to $49.0 million from $38.4 million. As a percentage of sales from
continuing operations, margins increased from 76.1% in 1998 to 80.7% in 1999.
The year-over-year improvement in gross margin primarily resulted from the
Thrombin-JMI sales discount reduction, discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses increased 11.5% or $.5 million to $4.7 million in the second
quarter of 1999 due to a net increase of approximately ten field sales
representatives and increases in sales commissions. As a percentage of sales
from continuing operations, selling expenses declined from 15.9% in the second
quarter of 1998 to 15.1% in the second quarter of 1999.
For the six months ended June 30, 1999, selling expenses increased 13.9% or $1.2
million to $9.5 million. The increase primarily resulted from the increase in
the number of field sales representatives and increases in sales commissions
discussed above. As a percentage of sales from continuing operations, selling
expenses declined from 16.5% for the six months ended June 30, 1998 to 15.7% for
the six months ended June 30, 1999.
General and administrative expenses remained relatively unchanged at $2.7
million for the second quarter of 1999 vs. $2.6 million for the second quarter
of 1998. For the six months ended June 30, 1999, general and administrative
expenses increased $.6 million to $5.3 million, from $4.7 million in 1998. The
increase in 1999 over 1998 resulted from increases in license fees, bonuses, and
depreciation. As a percentage of sales from continuing operations, general and
administrative expenses decreased from 9.3% in 1998 to 8.6% in 1999.
The nonrecurring charge of $10.5 million in 1998 related to the write-down of
goodwill associated with certain lower-margin pharmaceutical products. As a
result of this goodwill write-down, amortization expense in 1999 has been
reduced by approximately $.1 million per quarter.
OPERATING INCOME FROM CONTINUING OPERATIONS
Excluding the effect of the $10.5 million nonrecurring charge in 1998, operating
income from continuing operations increased $4.9 million or 39.2% during the
second quarter of 1999 as compared to the second quarter of 1998. For the six
months ended June 30, 1999, operating income from continuing operations
increased $8.4 million or 35.9% over the same period of 1998, excluding the
effect of the 1998 nonrecurring charge.
13
<PAGE> 14
OTHER INCOME (EXPENSE)
Other income increased during the three months and six months ended June 30,
1999 as compared to the same periods of 1998 primarily due to the increase in
interest income earned on the additional invested cash balances generated from
the $55 million of proceeds from the sale of the Company's Nutritional Business
on April 30, 1998 and positive cash flow from operations.
INCOME TAXES
The provisions for income taxes for the three month and six month periods ended
June 30, 1999 are based on estimated effective annual income tax rates of 39.0%
and 38.8%, respectively. For the three month and six month periods ended June
30, 1998, the provisions for income taxes reflect the nondeductibility of the
$10.5 million nonrecurring charge. Excluding the effects of the nonrecurring
charge in 1998, the estimated effective income tax rate approximates 38.5%.
INCOME FROM CONTINUING OPERATIONS
Excluding the effect of the nonrecurring charge in 1998, income from continuing
operations for the second quarter of 1999 increased $3.1 million to $11.6
million and for the six months ended June 30, 1999, increased $5.6 million to
$21.4 million.
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations in 1998 includes an approximate $17 million
(net of tax) gain from the sale of the Company's Nutritional Business on April
30, 1998. In addition, income from discontinued operations includes the
after-tax operating results of the Company's discontinued businesses prior to
the sale of the Nutritional Business on April 30, 1998.
EARNINGS PER SHARE
After giving retroactive effect to a three-for-two stock split declared July 13,
1999, diluted earnings per share from continuing operations totaled $.26 and
$.48 for the quarter and six months ended June 30, 1999 as compared to $.19 and
$.36 for the same periods of 1998, excluding the $10.5 million after-tax
nonrecurring charge. The earnings per share increases represent net income
growth computed on relatively flat average shares outstanding.
BALANCE SHEET INFORMATION
The Company's current ratio decreased from 13.1:1 as of December 31, 1998 to
11.7:1 as of June 30, 1999 although working capital increased to $163.9 million
at June 30, 1999 from $142.3 million at December 31, 1998 primarily due to an
increase in cash generated from positive operating cash flow.
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 June 30, 1999 and December 31,
1998, the Company had cash and cash equivalents of $148.3 million and $122.7
million, respectively. The Company believes that available resources and
anticipated cash flows from operations are adequate to meet currently
anticipated operating
14
<PAGE> 15
needs and 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 $23.4 million to $272.2 million at June 30, 1999 from
$248.8 million at December 31, 1998 primarily due to the increase in cash
discussed above. Total liabilities increased $3.6 million to $19.7 million at
June 30, 1999 from $16.1 million at December 31, 1998 primarily due to the
increase in income taxes payable.
Inventories increased to $10.6 million at June 30, 1999 compared to $7.5 million
at December 31, 1998 due to planned quantity build-ups of Levoxyl and
JMI-Thrombin. Accounts receivable decreased to $14.9 million at June 30, 1999
from $19.1 million at December 31, 1998 due to higher sales levels in the month
of December 1998 vs. the month of June 1999, and due to the Company's
concentrated effort on improving collections. In days outstanding, accounts
receivable decreased from 60 days at December 31, 1998 to 51 days at June 30,
1999.
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.
YEAR 2000 UPDATE
The Year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes it, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures. The inability to accurately process date
related information would have a material impact on the Company's operations and
financial condition. To mitigate the risks of a Year 2000 failure, a Year 2000
action plan (the "Plan") has been developed and is currently being executed by
the Company. The Plan is directed and monitored by the Company's Information
Technology (IT) Steering Committee and is proceeding within the planned
timetable. The Plan addresses the Year 2000 risk presented by the following IT
and non-IT elements of the Company's operations.
Specifically, the Plan addresses Year 2000 issues in the following areas:
Information Technology Infrastructure
The Company has completed the replacement of its software and systems in
the normal course of business. The financial system has been replaced with
an Enterprise Reporting System that the developer states is Year 2000
compliant. Assessment of all other hardware and software is complete and
remediation and testing is currently underway with an expected completion
date of August 30, 1999.
Business Infrastructure
The Company's review in this area includes such things as security,
utilities, environmental control systems, telephones, facsimile machines,
manufacturing, laboratory and shipping
15
<PAGE> 16
equipment. Efforts in this area, including compliance validation with
vendors, remediation and testing, are expected to be completed by September
30, 1999.
External Interfaces
This area of review includes all Company interfaces with external service
agencies such as purchased information sources, payroll processing,
benefits processing, insurance and investments, health claims and banking.
The Company is substantially complete with its efforts to secure third
party compliance statements in assessing the compliance status of our
external interfaces.
Supplier and Customer Readiness
The Company is highly dependent on internal and third-party computer
systems to process its daily transactions. The Company has commenced
efforts to determine the extent to which it may be impacted by Year 2000
issues of third parties, including suppliers, and customers. Contact with
major customers and suppliers has been initiated and responses have been
received from approximately 50 percent of those solicited. The Company
plans to follow-up with those that have not responded by August 15, 1999.
To date, the Company is not aware of any non-Year 2000 compliant
third-party customers or suppliers that would materially impact the
Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring these entities will be Year
2000-ready. Furthermore, the Company has no means of ensuring the customers
of its wholesale distributors (e.g., hospital buying groups, hospitals and
pharmacies) will be Year 2000-ready. The inability of third parties to
complete their Year 2000 programs in a timely manner could materially
impact the Company. Given the Company's reliance upon third-party
manufacturers for the supply of certain key products, the Company has made
arrangements to purchase 3 to 6 month supplies of Brevital, Tapazole and
Cytomel in the fourth quarter of 1999.
Contingency Plan
Contingency plans for the Company are being developed to minimize business
risks in case of local and/or regional Year 2000-related failures. The
Company is in the process of developing contingency plans for each of its
manufacturing and distribution facilities as well as the corporate
operation. Such plans are expected to be completed by September 30, 1999.
The costs associated with the Company's Year 2000 Plan have, for the most part,
been planned capital expenditures and budgeted internal staffing expenses. The
total capital expenditures related to these system upgrades and/or replacements
approximate $1.5 million and have been capitalized as incurred. Additional costs
to be incurred to complete the Plan are not expected to be significant and will
relate to the ongoing capital expenditures and internal staffing described
above.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failure could materially and adversely impact the Company's
results of operations, liquidity, and financial condition. Although the Company
has not yet developed a comprehensive contingency plan to address situations
that may result if the Company or any of the third parties upon which the
Company is dependent is unable to achieve Year 2000 readiness, a plan will be
completed by the fourth quarter of 1999 to
16
<PAGE> 17
address the most reasonably likely worst-case scenario with respect to potential
Year 2000 compliance failures. Based on the Company's progress to date and
timeline to complete the Year 2000 Plan, the Company does not foresee
significant financial or operational risks associated with its compliance at
this time. However, these expectations are subject to uncertainties including,
but not limited to, the readiness of third-party customers, suppliers, and
service providers, failure to identify all susceptible systems, and the
availability and cost of personnel necessary to address any unforeseen problems.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of JONES PHARMA INCORPORATED was held on
May 17, 1999. At the Annual Meeting, each of the nine nominees to the Board of
Directors was elected for a one-year term by the shareholders:
<TABLE>
<CAPTION>
WITHHELD OR
DIRECTOR FOR ABSTAIN
-------- --- -------
<S> <C> <C>
Dennis M. Jones 22,752,845 158,428
Judith A. Jones 22,748,965 162,308
Michael T. Bramblett 22,753,055 158,218
G. Andrew Franz 22,751,990 159,283
David A. McLaughlin 22,753,450 157,823
J. Hord Armstrong, III 22,746,025 165,248
L. John Polite, Jr. 22,760,791 150,482
Edward A. Chod 22,752,355 158,918
Thomas F. Patton, Ph.D. 22,764,225 147,048
</TABLE>
Item 5. Other Information
On July 13, 1999, the Board of Directors of the Company adopted an
incentive stock plan known the 1999 Equity Participation Plan for Non-Management
Directors (the "1999 Equity Participation Plan"). The purpose of the 1999 Equity
Participation Plan is to provide certain long-term equity incentives to eligible
directors of the Company in order to encourage the highest level of performance
of non-management directors by providing those directors with a proprietary
interest in the Company's success and progress through grants of options to
purchase shares of the Company's Common Stock and other equity-based awards in
accordance with the terms and conditions set forth in the 1999 Equity
Participation Plan. A copy of the 1999 Equity Participation Plan is included as
an exhibit to this Form 10-Q.
18
<PAGE> 19
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
(10) 1999 Equity Participation Plan for Non-Management Directors.
(22) The Company's proxy statement dated April 8, 1999, containing the
full text of the proposals referred to in Item 4 of Part II of
this Form 10-Q, which was previously filed electronically, is
hereby incorporated by reference.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
NONE
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 PHARMA INCORPORATED
Date: August 6, 1999 By:/s/ Dennis M. Jones
------------------------- -------------------------------
Dennis M. Jones, President
Date: August 6, 1999 By: /s/ Judith A. Jones
------------------------- ------------------------------
Judith A. Jones
Executive Vice President and
Principal Financial and
Accounting Officer
20
<PAGE> 1
Exhibit 10
JONES PHARMA INCORPORATED
1999 EQUITY PARTICIPATION PLAN FOR NON-MANAGEMENT DIRECTORS
1. PURPOSE. The purpose of this 1999 Equity Participation Plan is to
provide certain long-term equity incentives to eligible directors of the Company
in order to encourage the highest level of performance of non-management
directors by providing those directors with a proprietary interest in the
Company's success and progress through grants of options to purchase shares of
the Company's Common Stock and other equity-based awards in accordance with the
terms and conditions set forth below.
2. DEFINITIONS. Whenever used herein, the following shall have the
meanings set forth below:
(a) "Affiliate" refers to any corporation or other entity which directly,
or through one or more intermediaries, controls, is controlled by, or is under
common control with the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Jones Pharma Incorporated.
(e) "Eligible Director" shall mean an individual who is a member of the
Board and who is not at the time of the grant, an employee of the Company or any
subsidiary of the Company.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "FSO Plan" shall mean the 1994 Formula Stock Option Plan for
non-management directors of the Company.
(h) "Formula Stock Option" shall mean an option granted to an Eligible
Director pursuant to Section 6 of this Plan.
(i) "Initial Exercise Date" with respect to any Formula Stock Option shall
mean the date which is eleven (11) months following the date on which an
Eligible Director becomes a Participant in this Plan.
(j) "Option Period" with respect to any Formula Stock Option shall mean
the period of time during which a Participant may exercise his Formula Stock
Option as more specifically set forth in paragraph (d) of Section 6 of this
Plan.
(k) "Option Price" with respect to any Formula Stock Option or any option
right provided in any Other Award shall mean the price per share of Common Stock
at which a
<PAGE> 2
Participant may purchase Common Stock and shall be subject to adjustment as
provided in Section 4(c) below.
(l) "Option Shares" shall mean the shares of Common Stock which are
subject to any stock option granted or awarded pursuant to this Plan, whether or
not a Formula Stock Option and the number of Option Shares shall be subject to
adjustment as provided in Section 4(c) below.
(m) "Other Award" means an equity-based incentive award granted under this
Plan other than a Formula Stock Option.
(n) "Participant" shall mean an Eligible Director to whom a Formula Stock
Option or Other Award has been granted pursuant to this Plan.
(o) "Plan" means this 1999 Equity Participation Plan for Non-Management
Directors.
(p) "Termination of Service" is the date as of which (i) the service of a
director as a member of the Board is discontinued because of the death, removal,
resignation or expiration of term without re-election, or (ii) a director
becomes an employee of the Company or any Affiliate of the Company, whichever is
the first to occur.
(q) "Year of Service" with respect to any Formula Stock Option means each
continuous twelve (12) month period following the Initial Exercise Date during
which a Participant serves as a director of the Company.
3. ADMINISTRATION. This Plan shall, to the extent necessary, be
administered by the President of the Company, or such other person or persons as
may be appointed by the President (the "Administrator"). The Administrator shall
take such action necessary so as to comply with the provisions of this Plan. The
grant of a Formula Stock Option shall be evidenced by the execution of a Formula
Stock Option Agreement in the form of Exhibit A attached hereto executed by each
Participant. Grants of Other Awards must be approved by (i) a majority of the
entire Board of Directors and (ii) a majority of those members of the Board of
Directors who are not Eligible Directors.
4. SHARES AVAILABLE FOR FORMULA STOCK OPTIONS AND OTHER AWARDS.
(a) There is hereby reserved for issuance under this Plan an aggregate of
150,000 shares of Common Stock, subject to adjustment as provided in paragraph
(c) of this Section 4.
(b) In the event of a lapse, expiration, termination or cancellation of
any Formula Stock Options or Other Awards granted under this Plan without the
issuance of shares of Common Stock, the shares subject to or reserved for such
Formula Stock Options or Other Awards (including any shares of Common Stock
forfeited and returned to the Company under the terms of any such Other Award)
may again be used for new grants and awards hereunder; provided that in no event
may the number of shares issued under this Plan exceed the total number of
shares reserved for issuance in accordance with paragraph (a) of this Section 4.
2
<PAGE> 3
(c) In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering, or any
other change in the corporate structure or shares of Common Stock of the
Company, an equitable adjustment shall be made in the number and kind of shares
authorized by this Plan, and in the number and kind of shares covered by any
Formula Stock Options or Other Awards granted so that the position of each
Participant after such transaction will be equivalent to his relative position
prior to such transaction including, in the case of any Formula Stock Option or
any stock option forming a part of any Other Award, an appropriate adjustment in
the Option Price per share.
5. ELIGIBILITY. The individuals who are eligible to receive Formula Stock
Options or any Other Award hereunder shall be limited to Eligible Directors. An
Eligible Director of the Company shall become a Participant in this Plan on the
first day of the month following the date (subsequent to the Effective Date of
this Plan set forth in Section 13) on which said Eligible Director is elected or
appointed to the Board (whether elected by shareholders of the Company or
appointed by the Board itself to fill a vacancy on the Board).
6. GRANT OF FORMULA STOCK OPTIONS.
(a) Grant to Participants. Each Eligible Director shall be granted a
Formula Stock Option on the day that said Eligible Director becomes a
Participant as provided in Section 5, provided, however, that no Eligible
Director shall be awarded a Formula Stock Option under this Plan (i) if such
Eligible Director has previously been granted, and currently holds any unvested
Formula Stock Options pursuant to the FSO Plan or this Plan, or (ii) if such
Eligible Director has previously been granted and holds any Other Award under
this Plan as to which all vesting or service contingencies relating to such
Other Award shall not have been fulfilled.
(b) Option Price. The Option Price per share of Common Stock with respect
to each Formula Stock Option shall be equal to the fair market value of the
Common Stock on the date that the Formula Stock Option is granted. During any
period in which the Common Stock is listed for trading on a registered national
securities exchange or on the NASDAQ National Market System, the fair market
value shall be equal to the lower of (i) the closing price, and (ii) the average
of the high and low prices (or the average of the low bid and high asked prices,
as appropriate), on the date of grant.
(c) Option Shares. The number of Option Shares subject to each Formula
Stock Option granted to a Participant shall be Fifteen Thousand (15,000) shares
of Common Stock subject to adjustment pursuant to the provisions of paragraph
(c) of Section 4. Each Formula Stock Option shall be subject to the vesting
provisions set forth in Section 7 below.
(d) Option Period. Each Formula Stock Option must be exercised, if at all,
on or before the first to occur of (i) the date that is ninety (90) days after
the effective date of the Termination of Service of a Participant, provided,
however, that if the Termination of Service is a result of the death of a
director or is a result of a director becoming an employee of the Company or any
Affiliate, then two hundred eighty (280) days after the date of such Termination
of Service and (ii) the fifth anniversary of the Initial Exercise Date, at which
time the entire
3
<PAGE> 4
Formula Stock Option granted to such Participant (or such portion thereof that
has not been exercised) shall lapse, terminate and be of no further force and
effect.
(e) Payment. The Option Price shall be payable in cash by the Participant
at the time the Formula Stock Option is exercised, provided, however, that if
the Company permits "exchange exercise" features with respect to option plans
for employees, such "exchange exercise" features shall be applicable to options
granted under this Plan also. No shares shall be issued until full payment
therefore has been made. A grantee of a Formula Stock Option shall have none of
the rights of a shareholder of the Company until the shares are issued.
7. EXERCISE OF FORMULA STOCK OPTIONS.
During the Option Period, a Formula Stock Option shall vest and may be
exercised at the times and in the amounts as follows: (i) twenty percent (20%)
of the Option Shares may be purchased by the Participant at any time during the
period commencing with the Initial Exercise Date and ending on the last day of
the Option Period; and (ii) an additional twenty percent (20%) of the Option
Shares may be purchased by the Participant for each Year of Service of said
Participant following the Initial Exercise Date during the Option Period.
8. OTHER AWARDS.
The Board of Directors is authorized under this Plan to grant and award
other equity incentives to Eligible Directors based upon the Company's Common
Stock, provided, however, that no such Other Award shall be issued to any
Eligible Director who holds an outstanding unvested Formula Stock Option under
this Plan or under the 1994 FSO Plan unless such unvested option is waived and
forfeited by written agreement between the Company and the Eligible Director.
Any such Other Award may take the form of an option to purchase shares of the
Company's Common Stock having an expiration date not more than ten years from
the date of grant or may take the form of restricted share grants or of stock
appreciation rights payable in cash or in stock, provided that all contingencies
associated with any such Other Award are to be fully resolved within not more
than ten years from the date of grant.
9. THE DISCONTINUANCE OR AMENDMENT OF PLAN. The Board may discontinue
this Plan at any time and may from time to time amend or revise the terms of the
Plan as permitted by applicable statutes, except that it may not revoke or
alter, in any manner unfavorable to Plan Participants, any Formula Stock Options
or Other Awards outstanding, nor may the Board amend this Plan without
shareholder approval, where the absence of such approval would cause this Plan
to fail to comply with Rule 16b-3 under the Exchange Act, or any other
requirement of applicable law or regulation. Furthermore, the provisions of this
Plan shall not be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code of 1986, as amended (the "Code"), the
Employee Retirement Income Security Act, or the rules thereunder.
No Formula Stock Option or Other Award shall be granted under this Plan
after June 30, 2009, but Formula Stock Options and Other Awards granted
theretofore may extend beyond that date is accordance with their terms
4
<PAGE> 5
10. NON-TRANSFERABILITY. No Formula Stock Option or Other Award granted
under this Plan shall be transferable other than by will or the laws of descent
and distribution and shall be exercisable, during the grantee's lifetime, only
by the grantee or the grantee's guardian or legal representative.
11. NO RIGHT OF DIRECTORSHIP. Nothing in this Plan shall be deemed to
create any obligation on the part of the Board to nominate any director for
re-election as a director by the shareholders of the Company nor to create any
right to continue as a director of the Company.
12. RESTRICTION ON RESALE OF STOCK. Each Formula Stock Option or Other
Award issued hereunder shall be subject to the requirement that if at any time
the Administrator shall determine, in his discretion, that the listing,
registration or qualification of the shares subject to the Formula Stock Option
or Other Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the granting of such option
or the issue or purchase of shares thereunder, such Formula Stock Option or
Other Award may not be exercised in whole or in part unless and until such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Administrator.
Certificates representing shares of stock issued pursuant to this Plan shall
bear the following legend unless the shares have been registered under the
referenced laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
WITHOUT AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE
COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY EFFECTED IN THE ABSENCE OF SUCH
REGISTRATION."
13. EFFECTIVE DATE. This Plan shall be effective as of July 13, 1999.
14. EXPENSES OF PLAN. The expenses of this Plan shall be borne by the
Company.
15. SHAREHOLDER APPROVAL OF FORMULA STOCK OPTION GRANTS. Any other
provision of this Plan notwithstanding, no Formula Stock Option shall be issued
pursuant hereto prior to the ratification of such grants by holders of a
majority of the outstanding Common Stock of the Company at an annual or special
meeting of the shareholders of the Company. Any failure of the shareholders to
ratify the issuance of Formula Stock Options hereunder shall not affect any
Other Awards authorized hereunder, whether such authorization occurs prior or
subsequent to the vote on ratification of Formula Stock Option grants.
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 148,321
<SECURITIES> 0
<RECEIVABLES> 16,035
<ALLOWANCES> 1,170
<INVENTORY> 10,561
<CURRENT-ASSETS> 179,162
<PP&E> 31,590
<DEPRECIATION> 7,947
<TOTAL-ASSETS> 272,220
<CURRENT-LIABILITIES> 15,275
<BONDS> 0
0
0
<COMMON> 1,730
<OTHER-SE> 250,829
<TOTAL-LIABILITY-AND-EQUITY> 272,220
<SALES> 60,762
<TOTAL-REVENUES> 60,672
<CGS> 11,740
<TOTAL-COSTS> 11,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 193
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,892
<INCOME-TAX> 13,529
<INCOME-CONTINUING> 21,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,363
<EPS-BASIC> 49
<EPS-DILUTED> 48
</TABLE>
