<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, 2000
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)
<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 JULY 10, 2000:
65,571,116
----------
Page 1 of 15
<PAGE> 2
JONES PHARMA INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information PAGE
NUMBER
------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and June 30, 2000 3
Condensed Consolidated Statements of Income -
three months and six months ended June 30, 1999 and 2000 4
Condensed Consolidated Statements of Stockholders'
Equity - six months ended June 30, 1999 and 2000 5
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1999 and 2000 6
Notes to Condensed Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 11 - 15
Part II - Other Information
Note 4. Submission of Matters to a Vote of Security Holders 16
Signatures 17
</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,
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments.................................................... $ 111,003 $ 160,698
Marketable securities.............................................................. 63,228 52,347
Accounts receivable, less allowance for doubtful accounts of
$1,543 at December 31, 1999 and $1,517 at June 30, 2000............................ 15,915 17,404
Inventories........................................................................ 11,587 11,118
Deferred income taxes.............................................................. 3,555 2,135
Other.............................................................................. 1,522 1,516
----------- -----------
Total current assets...................................................................... 206,810 245,218
Net property, plant and equipment......................................................... 24,509 27,545
Net intangible assets..................................................................... 62,801 65,054
Other assets.............................................................................. 6,345 6,811
----------- -----------
Total assets.............................................................................. $ 300,465 $ 344,628
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 11,257 $ 14,907
Income taxes payable............................................................... 4,469 6,642
----------- -----------
Total current liabilities................................................................. 15,726 21,549
Deferred income taxes..................................................................... 5,135 4,029
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding ............................................................. - -
Common stock, $.04 par value; 250,000,000 shares authorized, 65,155,973
shares issued and outstanding at December 31, 1999 and 65,525,222 shares
at June 30, 2000................................................................... 2,606 2,621
Contributed capital................................................................ 111,711 114,411
Retained earnings.................................................................. 165,381 202,070
Accumulated other comprehensive loss............................................... (94) (52)
----------- -----------
Total stockholders' equity................................................................ 279,604 319,050
----------- -----------
Total liabilities and stockholders' equity................................................ $ 300,465 $ 344,628
========== ===========
</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,
------------------------ ----------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.................................................. $ 31,286 $ 51,632 $ 60,762 $ 97,366
Cost of sales.............................................. 5,157 9,474 11,740 17,779
--------- --------- -------- ---------
Gross profit............................................... 26,129 42,158 49,022 79,587
Selling, general and administrative expenses:
Selling.................................................. 4,725 4,973 9,499 9,912
General and administrative............................... 2,727 4,648 5,255 7,892
Research and development................................. 434 418 673 648
Amortization............................................. 868 918 1,736 1,758
--------- --------- -------- ---------
Total selling, general and administrative expenses..... 8,754 10,957 17,163 20,210
--------- --------- -------- ---------
Operating income........................................... 17,375 31,201 31,859 59,377
Other income (expense):
Interest income.......................................... 1,677 2,537 3,072 5,736
Other.................................................... (57) 11 (39) 65
--------- --------- -------- ---------
Total other income..................................... 1,620 2,548 3,033 5,801
Income before taxes........................................ 18,995 33,749 34,892 65,178
Provision for income taxes................................. 7,408 13,612 13,529 25,870
--------- --------- -------- ---------
Net income................................................. $ 11,587 $ 20,137 $ 21,363 $ 39,308
========= ========= ======== =========
Earnings per share:
Basic: ................................................. $ .18 $ .31 $ .33 $ .60
Diluted:................................................. $ .17 $ .30 $ .32 $ .58
</TABLE>
See accompanying notes.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Six months Ended June 30, 1999 and 2000
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Accumulated
Number of shares Other
---------------- Preferred Common Contributed Retained Comprehensive Comprehensive
Preferred Common Stock Stock Capital Earnings Loss Total Income
--------- ------ --------- ------- ----------- -------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 - 64,797,700 $ - $ 2,592 $ 109,599 $ 120,479 $ - $ 232,670 $ -
Exercise of stock options... - 72,393 - 3 362 - - 365 -
Shares tendered in payment
of option price............. - (639) - - - - - - -
Amortization of unearned
Compensation................ - - - - 34 - - 34 -
Net income.................. - - - - - 21,363 - 21,363 21,363
Cash dividend declared-
common stock
($.029 per share)........... - - - - - (1,873) - (1,873) -
-------------------------------------------------------------------------------------------------------
Comprehensive income........ $ 21,363
=========
Balance at June, 1999....... - 64,869,454 $ - $ 2,595 $ 109,995 $ 139,969 - $ 252,559
==============================================================================================
<CAPTION>
Accumulated
Number of shares Other
---------------- Preferred Common Contributed Retained Comprehensive Comprehensive
Preferred Common Stock Stock Capital Earnings Loss Total Income
--------- ------ --------- ------- ----------- -------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 - 65,155,973 $ - $ 2,606 $ 111,711 $ 165,381 $ (94) $ 279,604 $ -
Exercise of stock options... - 393,492 - 16 2,675 - - 2,691 -
Shares tendered in payment
of option price............. - (24,243) - (1) - - - (1) -
Amortization of unearned
compensation................ - - - - 25 - - 25 -
Net income.................. - - - - - 39,308 - 39,308 39,308
Cash dividend declared-
common stock
($.040 per share)........... - - - - - (2,619) - (2,619) -
Net change in net unrealized
losses on marketable
securities, net of tax...... - - - - - - 42 42 42
-------------------------------------------------------------------------------------------------------
Comprehensive income........ $ 39,350
=========
Balance at June 30, 2000.... - 65,525,222 $ - $ 2,621 $ 114,411 $ 202,070 $ (52) $ 319,050
=============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
JONES PHARMA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars) Six months ended
June 30,
-------------------------
OPERATING ACTIVITIES 1999 2000
---- ----
<S> <C> <C>
Net income............................................................. $ 21,363 $ 39,308
Non-cash adjustments:
Depreciation and amortization....................................... 2,800 3,030
Provision for uncollectibles........................................ 193 (26)
Deferred income taxes............................................... - 314
Loss (gain) on sale of assets....................................... 79 (8)
Other non cash items, net........................................... - 30
Change in assets and liabilities:
Accounts receivable................................................. 4,011 (1,463)
Inventories......................................................... (3,069) 470
Other assets........................................................ (744) (460)
Accounts payable and accrued expenses............................... 720 3,649
Income taxes payable................................................ 2,833 2,173
--------- ---------
Net cash from operating activities............................... 28,186 47,017
INVESTING ACTIVITIES
Purchase of marketable securities................................... - (50,680)
Proceeds from maturity of marketable securities..................... - 61,568
Other purchase...................................................... - (4,000)
Proceeds from sale of assets........................................ - 13
Additions to property, plant and equipment.......................... (1,102) (4,294)
--------- ---------
Net cash provided from (used for) investing activities........... (1,102) 2,607
FINANCING ACTIVITIES
Payments of cash dividends.......................................... (1,873) (2,619)
Proceeds from exercise of stock options............................. 365 2,690
--------- ---------
Net cash provided from (used for) financing activities........... (1,508) 71
Increase in cash and short-term investments............................... 25,576 49,695
Cash and short-term investments, beginning of period...................... 122,745 111,003
--------- ---------
Cash and short-term investments, end of period............................ $ 148,321 $160,698
========= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
JONES PHARMA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 2000
(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, 1999, included in the 1999 Annual Report.
2. STOCK SPLIT
On February 3, 2000, the Board of Directors declared a three-for-two stock
split effected in the form of a stock dividend. The financial statements,
including stock options, share data, and per share data have been
retroactively adjusted to reflect this stock split.
3. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share for the six months ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 2000 1999 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net Income ...................... $ 11,587 $ 20,137 $ 21,363 $ 39,308
=========== =========== =========== ===========
Denominator for basic earnings per
share-weighted average shares ........ 64,845,000 65,493,000 64,833,000 65,439,000
Effect of dilutive stock options ......... 1,600,500 2,046,000 1,545,000 2,170,000
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 66,445,500 67,539,000 66,378,000 67,609,000
=========== =========== =========== ===========
Earning per share:
Basic: .............................. $ .18 $ .31 $ .33 $ .60
Diluted: ............................ $ .17 $ .30 $ .32 $ .58
</TABLE>
7
<PAGE> 8
4. INVENTORIES
Inventories are valued at the lower of cost on a first-in, first-out basis
or market.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
(Unaudited)
--------------- -----------
<S> <C> <C>
Raw material......................................................... $ 2,563 $ 2,987
Work-in-process...................................................... 1,460 939
Finished goods....................................................... 7,564 7,192
-------------- --------------
$ 11,587 $ 11,118
============== ==============
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment include the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
(Unaudited)
--------------- -----------
<S> <C> <C>
Land................................................................. $ 2,068 $ 2,068
Building and improvements............................................ 10,819 15,652
Equipment and furniture.............................................. 18,083 19,128
Automobiles.......................................................... 616 548
Projects in process.................................................. 2,312 175
-------------- --------------
33,898 37,571
Less accumulated depreciation........................................ 9,389 10,026
-------------- --------------
$ 24,509 $ 27,545
============== ==============
</TABLE>
8
<PAGE> 9
6. INTANGIBLE ASSETS
Intangible assets include the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
(Unaudited)
--------------- ---------------
<S> <C> <C>
Distribution systems, trademarks and licenses.......................... $ 66,577 $ 70,576
Restrictive covenants and other intangibles............................ 7,647 7,647
Goodwill............................................................... 4,034 4,034
-------------- --------------
78,258 82,257
Less accumulated amortization.......................................... 15,457 17,203
-------------- --------------
$ 62,801 $ 65,054
============== ==============
</TABLE>
7. CONTINGENCIES
The Company carries product liability coverage of $20 million per
occurrence and $20 million in the aggregate on a "claims made" basis and
carries excess coverage of $10 million through an 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 its business.
The Company is a defendant in more than two thousand five hundred
multi-defendant lawsuits involving the manufacture and sale of
dexfenfluramine, fenfluramine, and phentermine. Although the Company has
not at any time manufactured dexfenfluramine, fenfluramine, or phentermine,
the Company was a distributor of a generic phentermine product, and, after
the acquisition of Abana Pharmaceuticals, was a distributor of Obenix, its
branded phentermine product. The plaintiffs in these cases claim injury as
a result of ingesting a combination of these weight-loss drugs and are
seeking compensatory and punitive damages as well as medical care and court
supervised medical monitoring. The plaintiffs claim liability based on a
variety of theories including but not limited to, product liability, strict
liability, negligence, breach of warranty, and misrepresentation. These
suits have been filed in various jurisdictions throughout the United
States, and in each of these suits, the Company is one of many defendants,
including manufacturers and other distributors of these drugs.
The Company denies any liability incident to the distribution of Obenix or
its generic phentermine product and intends to pursue all defenses
available to it. The Company has tendered defense of these lawsuits to its
insurance carriers for handling and they are currently defending the
Company in these suits. The lawsuits are in various stages of litigation,
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. In the event
that the Company's insurance coverage is inadequate to satisfy any
resulting liability, 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
business, financial condition, or results of operations.
9
<PAGE> 10
7. CONTINGENCIES (CONTINUED)
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 applications (NDAs). On April 26, 2000, the
FDA extended the original deadline for the NDA approvals for levothyroxine
sodium products by one year to August 14, 2001. After that date, any
levothyroxine products marketed without an approved NDA will be subject to
regulatory action. Since Levoxyl was marketed prior to the FDA's 1997
action, it will continue to be eligible for marketing until August 14,
2001. The Company expects to comply with the NDA requirement. Research and
development expense of approximately $1.3 million in 1999 and $.3 million
in the first and second quarters of 2000 was incurred with respect to the
NDA approval process.
8. SUBSEQUENT EVENT
On July 13, 2000, the Company announced that it had entered into an
agreement with King Pharmaceuticals (NYSE: KG) pursuant to which the
Company would become a wholly owned subsidiary of King in a tax-free
reorganization in which holders of the Company's common stock would receive
1.125 shares of the common stock of King for each share of the Company's
common stock held as of the closing date. The transaction is subject to
various conditions, including necessary approvals by holders of the
Company's and King's common stock. A meeting of the Company's shareholders
to vote upon the transaction has been scheduled to occur on August 31,
2000. Additional information concerning the transaction is available in a
registration statement filed by King under the Securities Act of 1933. The
prospectus included in that registration statement also constitutes the
joint proxy statement of the Company and King concerning the merger and was
first mailed to holders of the Company's common stock entitled to vote on
the transaction commencing August 11, 2000.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion contains forward-looking statements that involve
risks and uncertainties as further discussed in the Company's 1999 Annual
Report filed on Form 10K. 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)
THREE MONTHS ENDED (DECREASE) SIX MONTHS ENDED INCREASE
June 30, AGGREGATE June 30, AGGREGATE
------------------ DOLLAR ------------------- DOLLAR
1999 2000 AMOUNT 1999 2000 AMOUNT
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 65.0% 100.0% 100.0% 60.2%
Cost of sales 16.5 18.3 83.7 19.3 18.3 51.4
------ ------- ------- ------- ------- -------
Gross profit 83.5 81.7 61.3 80.7 81.7 62.3
Selling, general and administrative expenses:
Selling 15.1 9.6 5.2 15.7 10.2 4.3
General and administrative 8.7 9.0 70.4 8.6 8.1 50.2
Research and development 1.4 0.8 (3.7) 1.1 0.7 (3.7)
Amortization 2.8 1.8 5.8 2.8 1.8 1.3
------ ------- ------- ------- ------- -------
Total selling, general and
administrative expenses 28.0 21.2 25.2 28.2 20.8 17.8
------ ------- ------- ------- ------- -------
Operating income 55.5 60.5 79.6 52.5 60.9 86.4
Interest income 5.4 4.9 51.3 5.0 5.9 86.7
Other income (expense) (0.2) 0.0 (119.3) (0.1) 0.1 (266.7)
------- ------- -------- -------- ------- --------
Income before taxes 60.7 65.4 77.7 57.4 66.9 86.8
Provision for income taxes 23.7 26.4 83.7 22.3 26.6 91.2
------- ------- ------- ------- ------- -------
Net income 37.0% 39.0% 73.8% 35.1% 40.3% 84.0%
======= ======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
SALES
QUARTER ENDED JUNE 30:
Sales for the three months ended June 30, 2000 increased 65.0% to $51.6 million
from $31.3 million for the three months ended June 30, 1999.
Critical care product sales in the second quarter of 2000 were up approximately
78.1% from $10.7 million for the three months ended June 30, 1999 to $19.1
million for the three months ended June 30, 2000. This increase was due to an
84.3% increase in Thrombin product sales from $7.3 million in the second quarter
of 1999 to $13.4 million in the second quarter of 2000. Thrombin product sales
increased between the second quarters of 1999 and 2000 due to a 57.5% increase
in unit volume and improved average selling price.
Endocrine product sales in the second quarter of 2000 increased $11.4 million,
or 61.6%, to $29.8 million as compared to $18.4 million in the second quarter of
1999. Sales of Levoxyl increased 37.1% to $10.8 million in the second quarter of
2000 from $7.9 million in the same period of 1999 due to 6.3% unit growth and
improved average selling price. Second quarter 2000 sales of Tapazole increased
123.8% to $12.3 million as compared to $5.5 million in the comparable period of
1999 due to 89.3% unit growth and improved average selling price.
Veterinary product sales increased 29.6% from $2.2 million during the second
quarter of 1999 to $2.8 million during the second quarter of 2000.
SIX MONTHS ENDED JUNE 30:
Sales for the six months ended June 30, 2000 increased 60.2% to $97.4 million
from $60.8 million for the six months ended June 30, 1999.
Critical care product sales for the six months ended June 30, 2000 increased
61.5% from $21.7 million in 1999 to $35.0 million in 2000. The majority of this
increase was due to Thrombin product sales of $25.3 million for the six months
ended June 30, 2000 compared to $14.1 million for the same period in 1999. The
increase in Thrombin products results from a 10.7% unit volume increase and
improved average selling price.
Endocrine product sales increased 67.2% from $34.3 million for the first six
months ended June 30, 1999 to $57.3 million for the first six months ended June
30, 2000. Levoxyl sales increased 75.6% from $14.6 million for the six months
ended June 30, 1999 to $25.6 million for the six months ended June 30, 2000 with
a 20.4% increase in unit volume. Sales of Tapazole increased 85.0% from $11.1
million for the six months ended June 30, 1999 to $20.5 million for the six
months ended June 30, 2000 with a 52.9% increase in unit volume.
Year-to-date sales of veterinary products increased 5.0% from $4.8 million in
1999 to $5.0 million in 2000.
12
<PAGE> 13
GROSS PROFIT
Gross profit during the three months ended June 30, 2000 increased 61.3% to
$42.2 million from $26.1 million in the same period of 1999. As a percentage of
sales, margins decreased slightly from 83.5% in the second quarter of 1999 to
81.7% in the second quarter of 2000.
Gross profit for the six months ended June 30, 2000 increased 62.3% or $30.6
million to $79.6 million from $49.0 million during the six months ended June 30,
1999. As a percentage of sales, margins increased slightly from 80.7% in 1999 to
81.7% in 2000.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling expenses increased 5.2% or $0.2 million to $5.0 million in the second
quarter of 2000 due to normal salary and commission increases. As a percentage
of sales, selling expenses were down from 15.1% in the second quarter of 1999 to
9.6% in the second quarter of 2000.
For the six months ended June 30, 2000, selling expenses increased 4.3%, or $0.4
million to $9.9 million due to normal salary and commission increases. As a
percentage of sales, selling expenses declined from 15.7% for the six months
ended June 30, 1999 to 10.2% for the six months ended June 30, 2000.
General and administrative expenses increased from $2.7 million during the
second quarter of 1999 to $4.6 million in the second quarter of 2000 mainly due
to approximately $1.5 million of nonrecurring costs associated with the
contemplated merger with King Pharmaceuticals. As a percentage of sales, general
and administrative expenses slightly increased from 8.7% in 1999 to 9.0% in
2000.
For the six months ended June 30, 2000, general and administrative expenses
increased to $7.9 million from $5.3 million in 1999. The increase in 2000 over
1999 resulted primarily from approximately $1.5 million of nonrecurring costs
associated with the contemplated merger with King Pharmaceuticals and normal
increases in employee compensation and depreciation. As a percentage of sales,
general and administrative expenses decreased from 8.6% in 1999 to 8.1% in 2000.
Research and development expenses remained relatively unchanged at $0.4 million
for the second quarter of 2000 and 1999. Research and development expenses
decreased slightly from $0.7 million in the six months ended June 30, 1999 to
$0.6 million during the same period in 2000.
Amortization expenses associated with intangible assets remained relatively flat
at $0.9 million in the second quarter of 2000 and 1999 and $1.7 million in both
of the six months ended June 30, 2000 and 1999. As a percentage of sales,
amortization expense decreased from 2.8% during the three months ended June 30,
1999 to 1.8% during the three months ended June 30, 2000. Amortization expense
as a percentage of sales also decreased from 2.8% during the six months ended
June 30, 1999 to 1.8% in the six months ended June 30, 2000.
13
<PAGE> 14
OPERATING INCOME
Operating income during the second quarter of 2000 increased 79.6% or $13.8
million to $31.2 million from $17.4 million in 1999, and increased as a
percentage of sales to 60.5% in 2000 from 55.5% in 1999, as a result of lower
operating expenses as a percent of sales. For the six months ended June 30,
2000, operating income increased $27.5 million or 86.4% over the same period of
1999. As a percentage of sales, operating income increased from 52.5% to 60.9%
during the respective six month periods in 1999 and 2000 due to improved
operating expenses as a percent of sales.
OTHER INCOME (EXPENSE)
Total other income increased during the three months and six months ended June
30, 2000 as compared to the same periods in 1999 due primarily to the increase
in interest income resulting from higher invested cash balances and higher
interest rates in 2000.
INCOME TAXES
The provision for income taxes for the three month and six months ended June 30,
2000 are based on estimated effective annual income tax rates of 40.3% and
39.7%, respectively. For the three month and six month periods ended June 30,
1999, the estimated effective annual income tax rates of 39.0% and 38.8% were
utilized in determining the provision for income taxes.
NET INCOME
Net income increased 73.8% to $20.1 million in the second quarter of 2000 from
$11.6 million in 1999, and as a percentage of sales net income increased to
39.0% in 2000 as compared to 37.0% in 1999. For the six months ended June 30,
2000, net income increased 84.0% from $21.4 million to $39.3 million. As a
percentage of sales for the six months ended June 30, net income increased from
35.1% in 1999 to 40.3% in 2000.
EARNINGS PER SHARE
Diluted earnings per share totaled $0.30 and $0.58 for the quarter and six
months ended June 30, 2000 as compared to $0.17 and $0.32 for the same periods
of 1999. The earnings per share increases represent net income growth computed
on relatively flat average shares outstanding.
14
<PAGE> 15
FINANCIAL CONDITION
BALANCE SHEET INFORMATION
Working capital increased to $223.7 million as of June 30, 2000 from $191.1
million as of December 31, 1999 primarily due to the increase in cash and
short-term investments of $49.7 million offset by the decrease in marketable
securities of $10.9 million and the $5.8 million increase in income taxes and
accounts payable. The Company's current ratio decreased from 13.2:1 as of
December 31, 1999 to 11.4:1 as of June 30, 2000 primarily due to the increase in
income taxes payable and accounts payable at June 30, 2000 resulting from the
timing of related payments.
LIQUIDITY AND CAPITAL RESOURCES
We believe that available resources and anticipated cash flows from operations
are adequate to meet currently anticipated operating needs and to fund future
growth. While the Company does not maintain current lines of credit, we believe
we have sufficient borrowing capacity in the event that growth opportunities
cannot be funded from existing resources.
At June 30, 2000 and December 31, 1999, the Company had cash and short-term
investments of $160.7 and $111.0 million, respectively. The net cash generated
from operating activities of $47.0 million during the six month period ended
June 30, 2000, together with $61.6 million in proceeds from the maturity of
marketable fixed income securities in the first six months of 2000, was used for
the purchase of marketable fixed income securities of $50.7 million, capital
improvements and other purchases of $8.3 million, and payment of common stock
dividends of $2.6 million.
Total assets increased $44.1 million to $344.6 million at June 30, 2000 from
$300.5 million at December 31, 1999 primarily due to the increase in cash
generated from operations. Total liabilities increased $4.7 million to $25.6
million at June 30, 2000 from $20.9 million at December 31, 1999 due to an
increase in accounts payable and accrued expenses as well as income taxes
payable due to the timing of cash payments.
Inventories remained relatively flat totaling $11.1 million at June 30, 2000 as
compared to $11.6 million at December 31, 1999. Accounts receivable increased to
$17.4 million at June 30, 2000 from $15.9 million at December 31, 1999 as sales
were higher in the month of June as compared to December 1999 due to the lack of
product shipped during the last week of December 1999 as a result of a scheduled
plant shut-down. In days outstanding, accounts receivable decreased from 48 days
at December 31, 1999 to 31 days at June 30, 2000.
15
<PAGE> 16
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 25, 2000. At the Annual Meeting, the following proposals were adopted by the
margins indicated:
(1) Each of the seven nominees to the Board of Directors was elected for a
one-year term by the shareholders:
<TABLE>
<CAPTION>
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
<S> <C> <C> <C>
Dennis M. Jones 55,883,719 0 1,546,245
Judith A. Jones 55,876,801 0 1,553,163
Michael T. Bramblett 55,881,944 0 1,548,020
G. Andrew Franz 55,876,909 0 1,553,055
J. Hord Armstrong, III 56,218,154 0 1,211,810
Edward A. Chod 54,980,864 0 2,449,100
Thomas F. Patton, Ph.D. 56,181,785 0 1,248,179
</TABLE>
(2) The shareholders approved the proposed amendment to the Registrant's
Amended and Restated Certificate of Incorporation increasing the authorized
capital stock to 250,000,000 shares of common stock:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN
-------- --- ------- -------
<S> <C> <C> <C>
Increase Authorized Capital Stock 35,844,985 21,525,922 59,057
</TABLE>
(3) The shareholders ratified the adoption of the 1999 Equity Participation
Plan for Non-Management Directors:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN
-------- --- ------- -------
<S> <C> <C> <C> <C>
Ratify Adoption of 1999 Equity 52,643,362 4,610,868 175,534
Participation Plan
</TABLE>
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 PHARMA INCORPORATED
Date: August 14, 2000 By: /s/ Dennis M. Jones
----------------------- ---------------------------------
Dennis M. Jones, President
Date: August 14, 2000 By: /s/ Judith A. Jones
----------------------- ---------------------------------
Judith A. Jones
Executive Vice President and
Principal Financial and Accounting Officer
17
