FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Report
of Foreign Private Issuer
|
Pursuant
to Rule 13a - 16 under
|
the
Securities Exchange Act of 1934
|
For
the quarterly period ended September 30,
2008
|
ICON
plc
(Registrant’s
name)
0-29714
(Commission
file number)
South
County Business Park, Leopardstown, Dublin 18, Ireland.
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F.
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
Indicate
by check mark whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
If “Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82
N/A
ICON plc
Quarterly
Period Ended September 30, 2008
CONTENTS
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Page
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General
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2
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Condensed
Consolidated Balance Sheets as at
September
30, 2008 and December 31, 2007
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3
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Condensed
Consolidated Statements of Operations for
the
three and nine months ended September 30, 2008
and
the three and nine months ended September 30, 2007
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4
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Condensed
Consolidated Statements of Cash Flows for
the
nine months ended September 30, 2008 and the
nine
months ended September 30, 2007
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5
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Condensed
Consolidated Statements of Shareholders’
Equity
and Comprehensive Income
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6
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Notes
to the Condensed Consolidated Financial Statements
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7
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Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
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15
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Signature
Page
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21
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ICON
plc
This
report on Form 6-K is hereby incorporated by reference in the registration
statement on Form F-3 (Registration No. 333-133371) of ICON plc and in the
prospectus contained therein, and this report on Form 6-K shall be deemed a part
of such registration statement from the date on which this report is filed, to
the extent not superseded by documents or reports subsequently filed or
furnished by ICON plc under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
ICON
plc
GENERAL
As used
herein, “ICON”, the “Company” and “we” refer to ICON plc and its consolidated
subsidiaries, unless the context requires otherwise.
Business
We are a
contract research organization, or CRO, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology and
medical device industries. Our focus is on supporting the conduct of clinical
trials. We have historically done so by providing such services as Phase I – IV
clinical trials management, study design, laboratory services and drug
development support. We believe that we are one of a select group of CROs with
the capability and expertise to conduct clinical trials in most major
therapeutic areas on a global basis. As of September 30, 2008, we had
approximately 6,570 employees worldwide, with operations in 71 locations in
38 countries, including the United States and major markets in Europe and Rest
of World. For the nine months ended September 30, 2008 we derived approximately
44.4%, 47.4%, and 8.2% of our net revenue in the United States, Europe and Rest
of World, respectively.
Headquartered
in Dublin, Ireland, we began operations in 1990 and have expanded our business
through internal growth and strategic acquisitions.
Recent
Developments
On July
21, 2008, the Company’s shareholders approved a bonus issue of ordinary shares
(the “Bonus Issue”) to shareholders of record as of the close of business on
August 8, 2008 (the “Record Date”). The Bonus Issue provided for each
shareholder to receive one bonus ordinary share for each ordinary share held as
of the Record Date, effecting the equivalent of a 2-for-1 stock
split. The Bonus shares were issued on August 11, 2008, to Ordinary
Shareholders and on August 12, 2008, to holders of American Depositary Shares
(“ADSs”). NASDAQ adjusted the trading price of ICON's ADSs to effect
the Bonus Issue prior to the opening of trading on August 13,
2008. All outstanding ordinary share amounts referenced in the
following unaudited condensed consolidated financial statements and the notes
thereto give effect to the Bonus Issue as if had occurred as of the date
referenced.
On
February 11, 2008, the Company acquired 100% of the common stock of Healthcare
Discoveries Inc. (“Healthcare Discoveries”) for an initial cash consideration of
approximately $11.1 million, excluding costs of
acquisition. Healthcare Discoveries, located in San Antonio, Texas,
USA, is engaged in the provision of Phase I clinical trials management
activities. Further consideration of up to $10.0 million may become
payable during the year ended December 31, 2008, if certain performance
milestones are achieved.
On
February 4, 2008, an uncommitted credit facility was negotiated with Citibank
N.A, for $30 million. Interest is calculated at the London Interbank
Market rate plus a margin. $12.0 million of this facility was drawn down in
February 2008, primarily to fund the acquisition of Healthcare
Discoveries. On September 30, 2008, the $12.0 million previously
drawn down was repaid in full.
On July 9,
2007, ICON plc entered into a five year committed multi-currency
facility agreement for €35 million ($49.4 million) with
The Governor and Company of the Bank of Ireland. The facility bears interest at
an annual rate equal to the reference rate of EURIBOR plus a margin. Our
obligations under the facility are secured by certain composite guarantees and
indemnities and pledges in favour of the bank. On July 10, 2007, the Company
drew down €29.5 million ($41.6 million) of the facility to fund the acquisition
of DOCS International. On October 15, 2007, the remaining €5.5
million ($7.8 million) of the facility was drawn down to cover expenditure on
the expansion on the facility in Dublin, Republic of Ireland.
On October
17, 2007, an uncommitted credit facility was negotiated with Allied Irish Banks
plc, for €30 million ($42.3 million). Interest is calculated at the EUR
Interbank rate plus a margin. The facility is secured by the same
composite guarantees and indemnities in place for the Bank of Ireland committed
facility. On December 31, 2007, this facility was fully
drawn. The funds were used to refinance overdraft facilities in place
to fund expenditure on the Dublin facility. On January 8, 2008, the facility
with Allied Irish Banks plc was increased to €50 million ($70.5
million). All terms of this facility remain the same. On September
30, 2008, €21.4 million ($30.2 million) of this facility was drawn. The facility
is due to be reviewed on October 31, 2008.
ICON
plc
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
AT SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
92,428
|
|
|
$
|
76,881
|
|
Short
term investments - available for sale
|
|
|
42,726
|
|
|
|
41,752
|
|
Accounts
receivable
|
|
|
179,553
|
|
|
|
129,865
|
|
Unbilled
revenue
|
|
|
138,864
|
|
|
|
144,661
|
|
Other
receivables
|
|
|
13,243
|
|
|
|
6,171
|
|
Deferred
tax asset
|
|
|
6,342
|
|
|
|
4,919
|
|
Prepayments
and other current assets
|
|
|
21,624
|
|
|
|
16,449
|
|
Income
taxes receivable
|
|
|
685
|
|
|
|
2,448
|
|
Total
current assets
|
|
|
495,465
|
|
|
|
423,146
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
165,227
|
|
|
|
133,426
|
|
Goodwill
|
|
|
130,318
|
|
|
|
123,879
|
|
Non-current
other assets
|
|
|
2,288
|
|
|
|
2,140
|
|
Non-current
income taxes receivable
|
|
|
4,552
|
|
|
|
3,049
|
|
Non-current
deferred tax asset
|
|
|
7,499
|
|
|
|
5,703
|
|
Intangible
asset
|
|
|
3,307
|
|
|
|
1,795
|
|
Total
Assets
|
|
$
|
808,656
|
|
|
$
|
693,138
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
12,344
|
|
|
$
|
13,459
|
|
Payments
on account
|
|
|
129,030
|
|
|
|
96,553
|
|
Other
liabilities
|
|
|
101,315
|
|
|
|
70,743
|
|
Deferred
tax liability
|
|
|
789
|
|
|
|
398
|
|
Bank
credit lines and loan facilities
|
|
|
42,524
|
|
|
|
43,767
|
|
Income
taxes payable
|
|
|
4,708
|
|
|
|
4,955
|
|
Total current
liabilities
|
|
|
290,710
|
|
|
|
229,875
|
|
Other
Liabilities:
|
|
|
|
|
|
|
|
|
Long
term government grants
|
|
|
1,456
|
|
|
|
1,179
|
|
Long
term finance leases
|
|
|
546
|
|
|
|
49
|
|
Non-current
income taxes payable
|
|
|
14,737
|
|
|
|
13,906
|
|
Non-current
deferred tax liability
|
|
|
8,466
|
|
|
|
5,966
|
|
Non-current
other liabilities
|
|
|
1,626
|
|
|
|
1,394
|
|
Non-current
bank credit lines & loan facilities
|
|
|
37,023
|
|
|
|
51,062
|
|
Minority
interest
|
|
|
2,015
|
|
|
|
1,307
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
Ordinary
shares, par value 6 euro cents per share; 100,000,000 shares
authorized,
|
|
|
|
|
|
|
|
|
58,500,155
shares issued and outstanding at September 30, 2008 and
|
|
|
|
|
|
|
|
|
57,670,488
shares issued and outstanding at December 31, 2007
|
|
|
4,918
|
|
|
|
4,843
|
|
Additional
paid-in capital
|
|
|
160,244
|
|
|
|
143,639
|
|
Accumulated
other comprehensive income
|
|
|
21,730
|
|
|
|
31,828
|
|
Retained
earnings
|
|
|
265,185
|
|
|
|
208,090
|
|
Total
Shareholders' Equity
|
|
|
452,077
|
|
|
|
388,400
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
808,656
|
|
|
$
|
693,138
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30,
2007
(UNAUDITED)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
|
(in
thousands except share and per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
313,637
|
|
|
$
|
231,819
|
|
|
$
|
914,082
|
|
|
$
|
625,942
|
|
Subcontractor
costs
|
|
|
(88,126
|
)
|
|
|
(64,903
|
)
|
|
|
(268,927
|
)
|
|
|
(175,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
225,511
|
|
|
|
166,916
|
|
|
|
645,155
|
|
|
|
450,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
127,948
|
|
|
|
91,675
|
|
|
|
364,113
|
|
|
|
254,107
|
|
Selling, general and
administrative expense
|
|
|
62,494
|
|
|
|
51,518
|
|
|
|
187,328
|
|
|
|
132,864
|
|
Depreciation and
amortization
|
|
|
7,937
|
|
|
|
5,020
|
|
|
|
20,676
|
|
|
|
13,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses
|
|
|
198,379
|
|
|
|
148,213
|
|
|
|
572,117
|
|
|
|
400,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
27,132
|
|
|
|
18,703
|
|
|
|
73,038
|
|
|
|
49,455
|
|
Interest
income
|
|
|
665
|
|
|
|
927
|
|
|
|
2,208
|
|
|
|
3,027
|
|
Interest
expense
|
|
|
(889
|
)
|
|
|
(911
|
)
|
|
|
(2,951
|
)
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
26,908
|
|
|
|
18,719
|
|
|
|
72,295
|
|
|
|
51,534
|
|
Provision
for income taxes
|
|
|
(5,355
|
)
|
|
|
(4,158
|
)
|
|
|
(14,493
|
)
|
|
|
(11,344
|
)
|
Minority
interest
|
|
|
(173
|
)
|
|
|
(60
|
)
|
|
|
(707
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
21,380
|
|
|
$
|
14,501
|
|
|
$
|
57,095
|
|
|
$
|
40,082
|
|
Net
income per Ordinary Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
$
|
0.98
|
|
|
$
|
0.70
|
|
Diluted
|
|
$
|
0.35
|
|
|
$
|
0.24
|
|
|
$
|
0.93
|
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Ordinary Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
58,451,960
|
|
|
|
57,521,452
|
|
|
|
58,156,869
|
|
|
|
57,339,596
|
|
Diluted
|
|
|
61,847,265
|
|
|
|
59,652,914
|
|
|
|
61,357,893
|
|
|
|
59,429,170
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(UNAUDITED)
|
|
Nine
Months Ended
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
|
(in
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
57,095
|
|
|
$
|
40,082
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Loss on disposal of property,
plant and equipment
|
|
|
168
|
|
|
|
417
|
|
Depreciation and
amortization
|
|
|
20,676
|
|
|
|
13,626
|
|
Amortization of
grants
|
|
|
(90
|
)
|
|
|
(87
|
)
|
Share
compensation expense
|
|
|
4,433
|
|
|
|
3,940
|
|
Deferred
taxes
|
|
|
(425
|
)
|
|
|
(278
|
)
|
Minority
interest
|
|
|
707
|
|
|
|
108
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts
receivable
|
|
|
(53,749
|
)
|
|
|
(19,532
|
)
|
Decrease/(increase) in unbilled
revenue
|
|
|
4,871
|
|
|
|
(32,089
|
)
|
(Increase)/decrease in other
receivables
|
|
|
(8,011
|
)
|
|
|
1,760
|
|
Increase in prepayments and
other current assets
|
|
|
(6,452
|
)
|
|
|
(815
|
)
|
Increase
in other non current assets
|
|
|
(148
|
)
|
|
|
-
|
|
Increase in payments on
account
|
|
|
33,283
|
|
|
|
1,805
|
|
Increase in other
liabilities
|
|
|
32,905
|
|
|
|
2,199
|
|
Increase
in other non current liabilities
|
|
|
232
|
|
|
|
-
|
|
Increase in income taxes
payable
|
|
|
2,316
|
|
|
|
6,295
|
|
(Decrease)/increase
in accounts payable
|
|
|
(1,776
|
)
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
86,035
|
|
|
|
19,918
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and
equipment
|
|
|
(53,565
|
)
|
|
|
(49,660
|
)
|
Purchase
of subsidiary undertakings and acquisition costs
|
|
|
(11,977
|
)
|
|
|
(40,568
|
)
|
Purchase
of short term investments
|
|
|
(15,000
|
)
|
|
|
-
|
|
Sale
of short term investments
|
|
|
14,026
|
|
|
|
11,116
|
|
Cash
received/(overdraft assumed) on acquisition
|
|
|
5
|
|
|
|
(2,424
|
)
|
Grants received
|
|
|
400
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(66,111
|
)
|
|
|
(81,536
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
(Repayment)/drawdown
of bank credit lines and loan facilities
|
|
|
(13,977
|
)
|
|
|
65,487
|
|
Proceeds
from exercise of share options
|
|
|
8,384
|
|
|
|
4,188
|
|
Share
issuance costs
|
|
|
(128
|
)
|
|
|
(117
|
)
|
Tax
benefit from the exercise of share options
|
|
|
3,991
|
|
|
|
1,070
|
|
Repayment
of other liabilities
|
|
|
(22
|
)
|
|
|
(87
|
)
|
Net
cash (used in)/provided by financing activities
|
|
|
(1,752
|
)
|
|
|
70,541
|
|
Effect
of exchange rate movements on cash
|
|
|
(2,625
|
)
|
|
|
(2,463
|
)
|
Net
increase in cash and cash equivalents
|
|
|
15,547
|
|
|
|
6,460
|
|
Cash
and cash equivalents at beginning of period
|
|
$
|
76,881
|
|
|
|
63,039
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
92,428
|
|
|
$
|
69,499
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(UNAUDITED)
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
57,670,488
|
|
|
$
|
4,843
|
|
|
$
|
143,639
|
|
|
$
|
31,828
|
|
|
$
|
208,090
|
|
|
$
|
388,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,095
|
|
|
|
57,095
|
|
Currency
translation adjustment (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,098
|
)
|
|
|
|
|
|
|
(10,098
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,997
|
|
Share
issuance costs
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
Exercise
of share options
|
|
|
829,667
|
|
|
|
75
|
|
|
|
8,309
|
|
|
|
|
|
|
|
|
|
|
|
8,384
|
|
Non-cash
stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
4,433
|
|
Tax
benefit on exercise of share options
|
|
|
|
|
|
|
|
|
|
|
3,991
|
|
|
|
|
|
|
|
|
|
|
|
3,991
|
|
Balance
at September 30, 2008
|
|
|
58,500,155
|
|
|
$
|
4,918
|
|
|
$
|
160,244
|
|
|
$
|
21,730
|
|
|
$
|
265,185
|
|
|
$
|
452,077
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
ICON plc
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER
30, 2008
1.
Basis of Presentation
These
condensed consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles (“US
GAAP”), have not been audited. The condensed consolidated financial statements
reflect all adjustments, which are, in the opinion of management, necessary to
present a fair statement of the operating results and financial position for the
periods presented. The preparation of the condensed consolidated financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect reported amounts and disclosures in the condensed
consolidated financial statements. Actual results could differ from those
estimates.
The
condensed consolidated financial statements should be read in conjunction with
the accounting policies and notes to the consolidated financial statements
included in ICON’s Form 20-F for the year ended December 31, 2007. Operating
results for the nine months ended September 30, 2008, are not necessarily
indicative of the results that may be expected for the fiscal period ending
December 31, 2008.
2.
Goodwill
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Opening
balance
|
|
$
|
123,879
|
|
|
$
|
78,717
|
|
Payments
made in respect of current period acquisitions
|
|
|
11,170
|
|
|
|
42,081
|
|
Foreign
exchange movement
|
|
|
(4,731
|
)
|
|
|
3,081
|
|
Closing
balance
|
|
$
|
130,318
|
|
|
$
|
123,879
|
|
The
goodwill balance relates entirely to the clinical research segment.
Acquisition
of Healthcare Discoveries Inc.
On
February 11, 2008, the Company acquired 100% of the common stock of Healthcare
Discoveries Inc. (“Healthcare Discoveries”) for an initial cash consideration of
approximately $11.1 million, excluding costs of
acquisition. Healthcare Discoveries, located in San Antonio, Texas,
USA, is engaged in the provision of Phase I clinical trial management
activities. Further consideration of up to $10.0 million may become
payable during the year ended December 31, 2008, if certain performance
milestones are achieved.
The
acquisition of Healthcare Discoveries has been accounted for as a purchase in
accordance with FASB Statement No. 141
Business Combinations
(“SFAS
141”). The following table summarises the fair values of the assets acquired and
the liabilities assumed at the date of acquisition.
|
|
At February 11,
|
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Property,
plant and equipment
|
|
$
|
300
|
|
Intangible
assets
|
|
|
2,550
|
|
Goodwill
|
|
|
10,856
|
|
Cash
|
|
|
5
|
|
Other
current assets
|
|
|
445
|
|
Current
liabilities
|
|
|
(2,158
|
)
|
Purchase
price
|
|
$
|
11,998
|
|
Prior
Period Acquisitions
On July
12, 2007, the Company acquired 100% of the common stock of DOCS International
(“DOCS”), a European based clinical research staffing organization, for a cash
consideration of approximately $40.6 million (€29.5 million), excluding costs of
acquisition.
The
acquisition of DOCS has been accounted for as a purchase in accordance with FASB
Statement No. 141
Business
Combinations
(“SFAS 141”). The following table summarises the
fair values of the assets acquired and the liabilities assumed at the date of
acquisition.
|
|
At July 12,
|
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Property,
plant and equipment
|
|
$
|
984
|
|
Intangible
asset
|
|
|
2,035
|
|
Goodwill
|
|
|
42,395
|
|
Bank
overdraft
|
|
|
(2,400
|
)
|
Other
current assets
|
|
|
7,646
|
|
Current
liabilities
|
|
|
(9,510
|
)
|
Purchase
price
|
|
$
|
41,150
|
|
3.
Adoption of the provisions of FASB Interpretation No. 48
Accounting for Uncertainty in Income
Taxes
In June
2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109, Accounting for Income
Taxes
. The Interpretation addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements.
Under FIN
48, the Company may recognize the tax benefits from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
50% likelihood of being recognized upon ultimate settlement.
FIN 48
also provides guidance on derecognition, classification, interest and penalties
on income taxes, accounting in interim periods and requires increased
disclosures.
The
Company adopted the provisions of FIN 48 effective January 1, 2007. As at
September 30, 2008, the Company maintains a $10.2 million liability for
unrecognized tax benefit, which is comprised of $8.5 million related to items
generating unrecognized tax benefits and $1.7 million for interest and related
penalties to such items. The Company recognizes interest accrued on unrecognized
tax benefits as an additional income tax expense.
The
Company has analyzed filing positions in all of the significant federal, state
and foreign jurisdictions where it is required to file income tax returns, as
well as open tax years in these jurisdictions. The only periods subject to
examination by the major tax jurisdictions where the Company does business are
2003 through 2007 tax years. The Company does not believe that the outcome of
any examination will have a material impact on its financial
statements.
4.
Net income per ordinary share
Basic net
income per ordinary share has been computed by dividing net income available to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted net income per ordinary share is computed
by adjusting the weighted average number of ordinary shares outstanding during
the period for all potentially dilutive ordinary shares outstanding during the
period and adjusting net income for any changes in income or loss that would
result from the conversion of such potential ordinary shares. There is no
difference in net income used for basic and diluted net income per ordinary
share.
The
reconciliation of the number of shares used in the computation of basic and
diluted net income per ordinary share is as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted
average number of ordinary shares outstanding for
basic
net income per ordinary share
|
|
|
58,451,960
|
|
|
|
57,521,452
|
|
|
|
58,156,869
|
|
|
|
57,339,596
|
|
Effect
of dilutive share options outstanding
|
|
|
3,395,305
|
|
|
|
2,131,462
|
|
|
|
3,201,024
|
|
|
|
2,089,574
|
|
Weighted
average number of ordinary shares for diluted net
income
per ordinary share
|
|
|
61,847,265
|
|
|
|
59,652,914
|
|
|
|
61,357,893
|
|
|
|
59,429,170
|
|
5.
Share-Based Payments
On July
21, 2008, the Company adopted the Employee Share Option Plan 2008 (the “2008
Employee Plan”) pursuant to which the Compensation Committee of the Company’s
Board of Directors may grant options to any employee, or any director holding a
salaried office or employment with the Company or a Subsidiary for the purchase
of ordinary shares. On the same date, the Company also adopted the Consultants
Share Option Plan 2008 (the “2008 Consultants Plan”), pursuant to which the
Compensation Committee of the Company’s Board of Directors may grant options to
any consultant, adviser or non-executive director retained by the Company or any
Subsidiary for the purchase of ordinary shares.
Each
option granted under the 2008 Employees Plan or the 2008 Consultants Plan
(together the “2008 Option plans”) will be an employee stock option, or NSO, as
described in Section 422 or 423 of the Code. Each grant of an option under the
2008 Options Plans will be evidenced by a Stock Option Agreement between the
optionee and the Company. The exercise price will be specified in each Stock
Option Agreement, however option prices will not be less than 100% of the fair
market value of an ordinary share on the date the option is
granted.
An
aggregate of 6.0 million ordinary shares have been reserved under the 2008
Employee Plan as reduced by any shares issued or to be issued pursuant to
options granted under the 2008 Consultants Plan under which a limit of 400,000
shares applies. Further, the maximum number of ordinary shares with
respect to which options may be granted under the 2008 Employee Option Plan
during any calendar year to any employee shall be 400,000 ordinary
shares. There is no individual limit under the 2008 Consulants Option
Plan. No options may be granted under the plans after July 21,
2018.
On July
21, 2008, the Company adopted the the 2008 Employees Restricted Share Unit Plan
(the “2008 RSU Plan”) pursuant to which the Compensation Committee of the
Company’s Board of Directors may select any employee, or any director holding a
salaried office or employment with the Company or a Subsidiary to receive an
award under the plan. An aggregate of 1.0 million ordinary
shares have been reserved for issuance under the 2008 RSU
Plan. Awards under the 2008 RSU may be settled in cash or shares
.
On January
17, 2003, the Company adopted the Share Option Plan 2003 (the “2003 Plan”)
pursuant to which the Compensation Committee of the Company’s Board of Directors
may grant options to officers and other employees of the Company or its
subsidiaries for the purchase of ordinary shares. Each option will be an
employee stock option, or NSO, as described in Section 422 or 423 of the Code.
Each grant of an option under the 2003 Plan will be evidenced by a Stock Option
Agreement between the optionee and the Company. The exercise price will be
specified in each Stock Option Agreement, however option prices will not be less
than 100% of the fair market value of an ordinary share on the date the option
is granted.
An
aggregate of 6.0 million ordinary shares have been reserved under the 2003 Plan;
in no event will the number of ordinary shares that may be issued pursuant to
options awarded under the 2003 Plan exceed 10% of the outstanding shares, as
defined in the 2003 Plan, at the time of the grant. Further, the maximum number
of ordinary shares with respect to which options may be granted under the 2003
Plan during any calendar year to any employee shall be 400,000 ordinary
shares. No options can be granted under the 2003 plan after January
17, 2013.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Accounting Standards (“SFAS”) 123 (revised 2004),
Share Based Payment
(“SFAS
123R”) which replaced SFAS 123
Accounting for Stock-Based
Compensation
and supersedes Accounting Principles Board (“APB”) Opinion
No. 25
Accounting for Stock
Issued to Employees
. SFAS 123R requires, with effect from
accounting periods beginning after June 15, 2005, that all share based payments
to employees, including stock options granted, be recognized in the financial
statements based on their grant date fair values.
The
Company has adopted SFAS 123R with effect from January 1, 2006, with the
Black-Scholes method of valuation being used to calculate the fair value of
options granted. The Company adopted SFAS 123R using the
modified-prospective transition method. Under that transition method
compensation cost recognized in the period includes; (a) compensation cost for
all share-based payments granted prior to, but not yet vested as of, January 1,
2006, based on grant date fair value estimated in accordance with the original
provisions of SFAS 123 and (b) compensation cost for all share based payments
granted subsequent to January 1, 2006, based on grant date fair values estimated
in accordance with the provisions of SFAS 123R. Results for prior
periods have not been restated.
The
following table summarizes option activity for the nine months ended September
30, 2008:
|
|
Options
Outstanding
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
4,976,126
|
|
|
$
|
12.27
|
|
|
$
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,265,190
|
|
|
$
|
35.43
|
|
|
$
|
12.93
|
|
|
|
|
Exercised
|
|
|
(829,667
|
)
|
|
$
|
10.11
|
|
|
$
|
4.45
|
|
|
|
|
Forfeited
|
|
|
(133,836
|
)
|
|
$
|
17.62
|
|
|
$
|
7.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
5,277,813
|
|
|
$
|
18.02
|
|
|
$
|
7.26
|
|
|
|
5.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2008
|
|
|
1,455,913
|
|
|
$
|
10.84
|
|
|
$
|
4.67
|
|
|
|
4.15
|
|
Share
option awards are generally granted with an exercise price equal to the market
price of the Company’s shares at date of grant. Share options
typically vest over a period of five years from date of grant and expire eight
years from date of grant. The maximum contractual term of options
outstanding at September 30, 2008, is eight years.
The
weighted average fair value of stock options granted during the nine months
ended September 30, 2008 calculated using the Black-Scholes option pricing
model, was $12.93 based on the following assumptions; dividend yield - 0%, risk
free interest rate – 1.654% to 3.2%, expected volatility - 35% and weighted
average expected life – 5.11 years.
Expected
volatility is based on historical volatility of our common stock over a period
equal to the expected term of the options; the expected life represents the
weighted average period of time that options granted are expected to be
outstanding given consideration to vesting schedules, and our historical
experience of past vesting and termination patterns. The risk-free rate is based
on the U.S. gilts zero-coupon yield curve in effect at time of grant for periods
corresponding with the expected life of the option.
On August
7, 2008, the Company issued 6,280 restricted share units to certain employees of
the Group. These shares are exercisable over periods ranging
from February 26, 2009, to February 26, 2011. The market value of the
Company’s shares on date of issue was $41.95.
Income
from operations for the nine months ended September 30, 2008 is stated after
charging $4.4 million in respect of non-cash stock compensation
expense. Basic and diluted earnings per share for the nine months
ended September 30, 2008, had SFAS 123R not been introduced would have been
$1.06 and $1.01 respectively. Non-cash stock compensation expense for
the three and nine months ended September 30, 2008, has been allocated to direct
costs and selling, general and administrative expenses as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
Sept 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands
)
|
|
|
(In
thousands
)
|
|
Direct
costs
|
|
$
|
882
|
|
|
$
|
760
|
|
|
$
|
2,420
|
|
|
$
|
2,167
|
|
Selling,
general and administrative
|
|
|
722
|
|
|
|
620
|
|
|
|
2,013
|
|
|
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,604
|
|
|
$
|
1,380
|
|
|
$
|
4,433
|
|
|
$
|
3,940
|
|
Non vested
shares outstanding as at September 30, 2008 are as follows:
|
|
Options
Outstanding
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
Non
vested outstanding at December 31, 2007
|
|
|
3,617,898
|
|
|
$
|
13.23
|
|
|
$
|
5.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,265,190
|
|
|
$
|
35.43
|
|
|
$
|
12.93
|
|
Vested
|
|
|
(939,598
|
)
|
|
$
|
11.91
|
|
|
$
|
5.27
|
|
Forfeited
|
|
|
(121,590
|
)
|
|
$
|
17.92
|
|
|
$
|
7.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
vested outstanding at September 30, 2008
|
|
|
3,821,900
|
|
|
$
|
20.76
|
|
|
$
|
8.25
|
|
As at
September 30, 2008, total unrecognized compensation cost related to unvested
options, which the Company expects to recognize over a weighted average period
of 2.32 years, amounted to $19.1 million. The Company has granted
options with fair values ranging from $3.17 to $13.93 per option or a weighted
average fair value of $5.78 per option. The Company issues new
ordinary shares for all options exercised. The total amount of
fully vested share options which remained outstanding at September 30, 2008, was
1,455,913. The fully vested options have an average remaining
contractual term of 4.15 years and average exercise price of $10.84 and a total
intrinsic value of $39.9 million. The total intrinsic value of
options exercised during the three months ended September 30, 2008, was $3.9
million (three months ended September 30, 2007, was $1.3
million). The total intrinsic value of options exercised during the
nine months ended September 30, 2008, was $23.4 million (nine months ended
September 30, 2007, was $10.3 million).
6.
Business Segment Information
The
Company operates predominantly in the contract clinical research industry
providing a broad range of clinical research and integrated product development
services on a global basis for the pharmaceutical and biotechnology industries.
The Company also has a central laboratory segment primarily based in New York,
USA. This, together with laboratory services based in Dublin, form the central
laboratory segment information disclosed below.
The
Company's areas of operation outside of Ireland principally include the United
States, England, Scotland, France, Germany, Spain, Italy, The Netherlands,
Denmark, Sweden, Finland, Russia, Latvia, Lithuania, Ukraine, Poland, Romania,
Czech Republic, Hungary, Israel, Australia, New Zealand, Japan, South Korea,
China, Taiwan, Hong Kong, Thailand, Singapore, India, South Africa, Canada,
Columbia, Mexico, Brazil, Peru, Argentina and Chile. Segment
information for the three and nine months ended September 30, 2008, the three
and nine months ended September 30, 2007, and as at September 30, 2008, and
December 31, 2007, is as follows:
a) The
distribution of net revenue by geographical area was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Ireland*
|
|
$
|
36,868
|
|
|
$
|
20,047
|
|
|
$
|
109,261
|
|
|
$
|
70,435
|
|
Rest
of Europe
|
|
|
72,540
|
|
|
|
47,598
|
|
|
|
196,568
|
|
|
|
115,147
|
|
U.S.
|
|
|
93,601
|
|
|
|
88,552
|
|
|
|
286,236
|
|
|
|
237,545
|
|
Rest
of the World
|
|
|
22,502
|
|
|
|
10,719
|
|
|
|
53,090
|
|
|
|
26,925
|
|
Total
|
|
$
|
225,511
|
|
|
$
|
166,916
|
|
|
$
|
645,155
|
|
|
$
|
450,052
|
|
*
All sales shown for Ireland are export sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b) The
distribution of net revenue by business segment was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Central
laboratory
|
|
$
|
18,507
|
|
|
$
|
13,845
|
|
|
$
|
51,545
|
|
|
$
|
39,802
|
|
Clinical
research
|
|
|
207,004
|
|
|
|
153,071
|
|
|
|
593,610
|
|
|
|
410,250
|
|
Total
|
|
$
|
225,511
|
|
|
$
|
166,916
|
|
|
$
|
645,155
|
|
|
$
|
450,052
|
|
c) The
distribution of income from operations by geographical area was as
follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Ireland
|
|
$
|
17,896
|
|
|
$
|
3,342
|
|
|
$
|
40,361
|
|
|
$
|
23,279
|
|
Rest
of Europe
|
|
|
2,834
|
|
|
|
3,585
|
|
|
|
7,337
|
|
|
|
6,660
|
|
U.S.
|
|
|
5,353
|
|
|
|
10,221
|
|
|
|
23,781
|
|
|
|
17,918
|
|
Rest
of the World
|
|
|
1,049
|
|
|
|
1,555
|
|
|
|
1,559
|
|
|
|
1,598
|
|
Total
|
|
$
|
27,132
|
|
|
$
|
18,703
|
|
|
$
|
73,038
|
|
|
$
|
49,455
|
|
d) The
distribution of income from operations by business segment was as
follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Central
laboratory
|
|
$
|
1,316
|
|
|
$
|
966
|
|
|
$
|
3,847
|
|
|
$
|
2,759
|
|
Clinical
research
|
|
|
25,816
|
|
|
|
17,737
|
|
|
|
69,191
|
|
|
|
46,696
|
|
Total
|
|
$
|
27,132
|
|
|
$
|
18,703
|
|
|
$
|
73,038
|
|
|
$
|
49,455
|
|
e) The
distribution of property, plant and equipment, net, by geographical area was as
follows:
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
Ireland
|
|
$
|
99,185
|
|
|
$
|
82,127
|
|
Rest
of Europe
|
|
|
19,959
|
|
|
|
15,547
|
|
U.S.
|
|
|
38,242
|
|
|
|
29,072
|
|
Rest
of the World
|
|
|
7,841
|
|
|
|
6,680
|
|
Total
|
|
$
|
165,227
|
|
|
$
|
133,426
|
|
f) The
distribution of property, plant and equipment, net, by business segment was as
follows:
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
Central
laboratory
|
|
$
|
11,466
|
|
|
$
|
7,048
|
|
Clinical
research
|
|
|
153,761
|
|
|
|
126,378
|
|
Total
|
|
$
|
165,227
|
|
|
$
|
133,426
|
|
g) The
distribution of depreciation and amortization by geographical area was as
follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Ireland
|
|
$
|
3,179
|
|
|
$
|
1,731
|
|
|
$
|
7,252
|
|
|
$
|
4,493
|
|
Rest
of Europe
|
|
|
1,321
|
|
|
|
906
|
|
|
|
4,335
|
|
|
|
2,358
|
|
U.S.
|
|
|
2,852
|
|
|
|
1,982
|
|
|
|
7,431
|
|
|
|
5,703
|
|
Rest
of the World
|
|
|
585
|
|
|
|
401
|
|
|
|
1,658
|
|
|
|
1,072
|
|
Total
|
|
$
|
7,937
|
|
|
$
|
5,020
|
|
|
$
|
20,676
|
|
|
$
|
13,626
|
|
h) The
distribution of depreciation and amortization by business segment was as
follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Central
laboratory
|
|
$
|
715
|
|
|
$
|
515
|
|
|
$
|
1,752
|
|
|
$
|
1,358
|
|
Clinical
research
|
|
|
7,222
|
|
|
|
4,505
|
|
|
|
18,924
|
|
|
|
12,268
|
|
Total
|
|
$
|
7,937
|
|
|
$
|
5,020
|
|
|
$
|
20,676
|
|
|
$
|
13,626
|
|
i) The
distribution of total assets by geographical area was as follows:
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
Ireland
|
|
$
|
218,908
|
|
|
$
|
202,293
|
|
Rest
of Europe
|
|
|
217,283
|
|
|
|
161,746
|
|
U.S.
|
|
|
345,764
|
|
|
|
301,183
|
|
Rest
of the World
|
|
|
26,701
|
|
|
|
27,916
|
|
Total
|
|
$
|
808,656
|
|
|
$
|
693,138
|
|
j) The
distribution of total assets by business segment was as follows:
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
Central
laboratory
|
|
$
|
49,134
|
|
|
$
|
40,562
|
|
Clinical
research
|
|
|
759,522
|
|
|
|
652,576
|
|
Total
|
|
$
|
808,656
|
|
|
$
|
693,138
|
|
ICON
plc
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and accompanying notes
included elsewhere herein and the Consolidated Financial Statements and related
notes thereto included in our Form 20-F for the year ended December
31, 2007. The Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States.
We are a
contract research organization (“CRO”), providing outsourced development
services on a global basis to the pharmaceutical, biotechnology and medical
device industries. We specialize in the strategic development, management and
analysis of programs that support Clinical Development - from compound selection
to Phase I-IV clinical studies. We have the operational flexibility to provide
development services on a stand-alone basis or as part of an integrated “full
service” solution. Our primary approach is to use dedicated teams to achieve
optimum results, but we can implement a range of resourcing models to suit
client requirements.
In a
highly fragmented industry, we are one of a small number of companies with the
capability and expertise to conduct clinical trials in all major therapeutic
areas on a global basis. Currently, we have approximately 6,570 employees, in 71
locations in 38 countries, providing Phase I - IV Clinical Trial Management,
Drug Development Support Services, Data Management and Biostatistics and Central
Laboratory and Imaging Services. For the nine months ended September 30, 2008,
we derived approximately 44.4% , 47.4%, and 8.2% of our net revenue in the
United States, Europe and Rest of World, respectively.
Revenue
consists primarily of fees earned under contracts with third-party clients. In
most cases, a portion of the contract fee is paid at the time the study or trial
is started, with the balance of the contract fee generally payable in
installments over the study or trial duration, based on the achievement of
certain performance targets or "milestones". Revenue from contracts is
recognized on the basis of the relationship between time incurred and the total
estimated duration of the trial or on a fee-for-service basis according to the
particular circumstances of the contract. As is customary in the CRO industry,
we subcontract with third party investigators in connection with clinical
trials. All subcontractor costs and certain other costs where reimbursed by
clients, are, in accordance with industry practice, deducted from gross revenue
to arrive at net revenue. As these costs vary from contract to contract, we view
net revenue as our primary measure of revenue growth.
Direct
costs consist primarily of compensation, associated fringe benefits and share
based compensation expense for project-related employees and other direct
project driven costs. Selling, general and administrative expenses consist of
compensation, related fringe benefits and share based compensation expense for
selling and administrative employees, professional services, advertising costs
and all costs related to facilities and information systems.
As the
nature of ICON's business involves the management of projects having a typical
duration of one to three years, the commencement or completion of projects in a
fiscal year can have a material impact on revenues earned with the relevant
clients in such years. In addition, as we typically work with some, but not all,
divisions of a client, fluctuations in the number and status of available
projects within such divisions can also have a material impact on revenues
earned from such clients from year to year.
Although
we are domiciled in Ireland, we report our results in U.S. dollars. As a
consequence the results of our non-U.S. based operations, when translated into
U.S. dollars, could be materially affected by fluctuations in exchange rates
between the U.S. dollar and the currencies of those operations.
In
addition to translation exposures, we are also subject to transaction exposures
because the currency in which contracts are priced can be different from the
currencies in which costs relating to those contracts are
incurred. We have 19 operations operating in U.S. dollars, 11 trading
in Euros, 6 in pounds Sterling, 3 in Indian Rupee, 2 each in Russian Rouble,
Japanese Yen, Swedish Krona and Polish Zloty, and 1 each in Australian dollars,
Singapore dollars, Israeli New Shekels, Latvian Lats, Argentine Peso, South
African Rand, Canadian dollar, Hungarian Forint, Danish Krone, Czech Koruna,
Ukraine Hryvnia, Romanian New Leu, Hong Kong dollar, Taiwan dollar, Mexican
Peso, Brazilian Real, Chilean Peso, South Korean Won, Thai Baht, Chinese Yuan
Renminbi, Lithuanian Litas, Peruvian Neuvo Sol, Columbian Peso & New Zealand
dollars. Our operations in the United States are not materially exposed to such
currency differences as the majority of our revenues and costs are in U.S.
dollars. However, outside the United States the multinational nature of our
activities means that contracts are usually priced in a single currency, most
often U.S. dollars, Euros or pounds Sterling, while costs arise in a number of
currencies, depending, among other things, on which of our offices provide staff
for the contract, and the location of investigator sites. Although many such
contracts benefit from some degree of natural hedging due to the matching of
contract revenues and costs in the same currency, where costs are incurred in
currencies other than those in which contracts are priced, fluctuations in the
relative value of those currencies could have a material effect on ICON's
results of operations. This risk is partially mitigated by clauses in certain of
our contracts which allow for price renegotiation with our clients if changes in
the relative value of those currencies exceed predetermined tolerances. We
regularly review our currency exposures and hedge a portion of these, using
forward exchange contracts, where they are not covered by natural
hedges.
As we
conduct operations on a global basis, our effective tax rate has depended and
will depend on the geographic distribution of our revenue and earnings among
locations with varying tax rates. ICON's results of operations therefore may be
affected by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of our results of operations among various tax
jurisdictions changes, our effective tax rate may vary significantly from period
to period.
Three
Months Ended September 30, 2008 compared with Three Months Ended September 30,
2007
The
following table sets forth for the periods indicated certain financial data as a
percentage of net revenue and the percentage change in these items compared to
the prior comparable period. The trends illustrated in the following table may
not be indicative of future results.
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
September 30
,
2008
|
|
|
September 30
,
2007
|
|
|
|
|
|
2007
to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Percentage of Net Revenue
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
100
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
35.1
|
%
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs
|
|
|
56.7
|
%
|
|
|
54.9
|
%
|
|
|
|
|
|
|
39.6
|
%
|
Selling,
general and administrative
|
|
|
27.7
|
%
|
|
|
30.9
|
%
|
|
|
|
|
|
|
21.3
|
%
|
Depreciation
and amortization
|
|
|
3.5
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
58.1
|
%
|
Income
from operations
|
|
|
12.0
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
45.1
|
%
|
Net
revenue increased by $58.6 million, or 35.1%, from $166.9 million for the three
months ended September 30, 2007, to $225.5 million for the three months ended
September 30, 2008. In the three months ended September 30, 2008, net
revenue from our central laboratory business increased by 33.7%, from $13.8
million, to $18.5 million, while our clinical research segment grew by 35.2%,
from $153.1 million, to $207.0 million, over the period ended September 30,
2007. This increase in net revenue has resulted from a combination of increased
business from existing clients, business won from new clients, increased use of
outsourcing by the pharmaceutical, biotechnology and medical device industries
and an underlying increase in research and development spending.
Direct
costs increased by $36.3 million, or 39.6%, from $91.7 million for the three
months ended September 30, 2007, to $127.9 million for the three months ended
September 30, 2008, primarily due to increased personnel related costs of $32.5
million resulting from a higher number of project-related employees. The
remainder of the movement resulted primarily from increased laboratory and
consulting expenses. Direct costs as a percentage of net revenue increased from
54.9% for the three months ended September 30, 2007, to 56.7% for three months
ended September 30, 2008.
Selling,
general and administrative expenses increased by $11.0 million, or 21.3%, from
$51.5 million for the three months ended September 30, 2007, to $62.5 million
for the three months ended September 30, 2008. The increase in SG&A costs is
primarily driven by increased personnel related costs of $8.0 million resulting
from increased levels of selling and administrative employees to support the
continued expansion of the business. In addition to these personnel costs there
were additional rent and utility charges of $4.2 million arising from further
office openings since the quarter ended September 30, 2007. As a
percentage of net revenue, selling, general and administrative expenses,
decreased from 30.9% in the three months ended September 30, 2007, to 27.7% in
the three months ended September 30, 2008.
Depreciation
and amortization expense increased by $2.9 million, or 58.1%, from $5.0 million
for the three months ended September 30, 2007, to $7.9 million for the three
months ended September 30, 2008. As a percentage of net revenue, depreciation
and amortization increased from 3.0% in the three months ended September 30,
2007 to 3.5% in the three months ended September 30, 2008. The
increase in absolute terms arises primarily from construction of the Company’s
new facility in Dublin, Republic of Ireland, and the ongoing investment in
global infrastructure and information technology to support the Company’s
current and future growth together with increased amortisation of intangible
assets following the acquisitions of DOCS International in July 2007 and
Healthcare Discoveries in February 2008.
Income
from operations increased by $8.4 million, or 45.1%, from $18.7 million for the
three months ended September 30, 2007, to $27.1 million for the three months
ended September 30, 2008. As a percentage of net revenue, income from operations
increased from 11.2% for the three months ended September 30, 2007, to 12.0% of
net revenues for the three months ended September 30, 2008. The operating income
for the quarter is derived after the recognition of the non cash stock
compensation charge of $1.6 million.
The three
months ended September 30, 2008, saw a continued improvement in the performance
of the central laboratory business, with results improving from an operating
profit of 7.0% for the three months ended September 30, 2007, to an operating
profit of 7.1% for the three months ended September 30, 2008. The central
laboratory constitutes approximately 8.2% of our business revenues for the three
months ended September 30, 2008. Operating margins for our clinical research
segment increased to 12.5% in the three months ended September 30, 2008, from
11.6% for the three months ended September 30, 2007.
Net
interest expense for the three months ended September 30, 2008, was $0.2
million, a decrease of $0.2 million on a neutral net interest income of $0.016
million for the three months ended September 30, 2007.
Our
provision for income taxes increased from $4.2 million for the three months
ended September 30, 2007, to $5.4 million for the three months ended September
30, 2008. ICON plc’s effective tax rate for the three months ended
September 30, 2008, was 19.9% compared with 22.2% for the three months ended
September 30, 2007. The effective tax rate is principally a function of the
distribution of pre-tax profits in the territories in which the Group
operates.
Nine
Months Ended September 30, 2008 Compared with Nine Months Ended September 30,
2007
The
following table sets forth for the periods indicated certain financial data as a
percentage of net revenue and the percentage change in these items compared to
the prior comparable period. The trends illustrated in the following table may
not be indicative of future results.
|
|
Nine Months
Ended
|
|
|
|
|
|
|
|
|
|
September 30
,
2008
|
|
|
September 30
,
2007
|
|
|
|
|
|
2007
to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Percentage of Net Revenue
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
43.4
|
%
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs
|
|
|
56.4
|
%
|
|
|
56.5
|
%
|
|
|
|
|
|
|
43.3
|
%
|
Selling,
general and administrative
|
|
|
29.0
|
%
|
|
|
29.5
|
%
|
|
|
|
|
|
|
41.0
|
%
|
Depreciation
and amortization
|
|
|
3.2
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
51.7
|
%
|
Income
from operations
|
|
|
11.3
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
47.7
|
%
|
Net
revenue increased by $195.1 million, or 43.4%, from $450.1 million for the nine
months ended September 30, 2007, to $645.2 million for the nine months ended
September 30, 2008. During the nine months ended September 30, 2008, net
revenue from our central laboratory business increased by 29.5% from $39.8
million to $51.5 million, while our clinical research segment grew by 44.7% from
$410.3 million to $593.6 million over the prior period. This increase in net
revenue has resulted from a combination of increased business from existing
clients, business won from new clients, increased use of outsourcing by the
pharmaceutical, biotechnology and medical device industries and an underlying
increase in research and development spending.
Direct
costs increased by $110.1 million, or 43.3%, from $254.1 million for the nine
months ended September 30, 2007, to $364.1 million for the nine months ended
September 30, 2008, primarily due to increased personnel related costs of $99.3
million resulting from a higher number of project related employees. The
remainder of the movement resulted from an increase in general overhead
costs. Direct costs as a percentage of net revenue decreased from
56.5% for the nine months ended September 30, 2007, to 56.4% for the nine months
ended September 30, 2008.
Selling,
general and administrative expenses increased by $54.5 million, or 41.0%, from
$132.9 million for the nine months ended September 30, 2007, to $187.3 million
for the nine months ended September 30, 2008. As a percentage of net revenue,
selling, general and administrative expenses, decreased from 29.5% for the nine
months ended September 30, 2007, to 29.0% for the nine months ended September
30, 2008. The movement in SG&A costs is primarily attributable to increased
personnel related costs of $27.4 million resulting from higher levels of selling
and administrative employees to support the continued expansion of the business,
increased rent and utility charges of $9.9 million from further office openings,
increased IT expenses of $3.1 million and increased professional, legal and
accounting costs of $3.5 million.
Depreciation
and amortization expense increased by $7.1 million, or 51.7%, from $13.6 million
for the nine months ended September 30, 2007 to $20.7 million for the nine
months ended September 30, 2008. As a percentage of net revenue, depreciation
and amortization, increased from 3.0% for the nine months ended September 30,
2007 to 3.2% for the nine months ended September 30, 2008. The increase in
absolute terms arises primarily from construction of the Company’s new facility
in Dublin, Republic of Ireland, and the ongoing investment in global
infrastructure and information technology to support the Company’s current and
future growth together with the increased amortisation of intangible assets
following the acquisition of DOCS International in July 2007 and Healthcare
Discoveries in February 2008.
Income
from operations increased by $23.6 million, or 47.7%, from $49.5 million for the
nine months ended September 30, 2007, to $73.0 million for the nine months ended
September 30, 2008. As a percentage of net revenue, income from operations
increased from 11.0% for the nine months ended September 30, 2007 to 11.3% for
the nine months ended September 30, 2008. The operating income for
the nine months is derived after the recognition of the non cash stock
compensation charge of $4.4 million. As a percentage of net revenue,
the central laboratory business’s operating profits increased to 7.5% for the
nine months ended September 30, 2008, compared to 6.9% for the nine months ended
September 30, 2007, due to the efficiencies gained from higher testing volumes
in fiscal 2008. For the nine months ended September 30, 2008, the central
laboratory constituted approximately 8.0% of our business
revenues.
Net
interest expense for the nine months ended September 30, 2008, was $0.7 million,
a decrease of $2.8 million on net interest income of $2.1 million for the nine
months ended September 30, 2007. The Company entered into a number of
significant banking facilities in the period since July 2007, to fund the
acquisition of DOCS International in July 2007, ($40.6 million), the acquisition
of Healthcare Discoveries in February 2008, ($11.1 million), and the
construction of the Company’s new facility in Dublin, Republic of
Ireland.
ICON's
effective tax rate for the nine months ended September 30, 2008, was 20.0%
compared with 22.0% for the nine months ended September 30, 2007.
Liquidity
and Capital Resources
The CRO
industry generally is not capital intensive. Since our inception, we have
financed our operations and growth primarily with cash flows from operations,
net proceeds of $49.1 million raised in our initial public offering in May 1998,
net proceeds of $44.3 million raised in our public offering in August 2003 and
net borrowings of $79.5 million used to finance the acquisitions of DOCS
International and Healthcare Discoveries, and expenditure on the expansion of
our Dublin facility. Our principal operating cash needs are payment
of salaries, office rents, travel expenditures and payments to subcontractors.
The aggregate amount of employee compensation paid in the nine months ended
September 30, 2008, amounted to $384.9 million, compared to $272.2 million for
the nine months ended September 30, 2007. Investing activities primarily reflect
capital expenditures for facilities and information systems enhancements, the
sale and purchase of short-term investments and acquisitions.
Our
clinical research and development contracts are generally fixed price with some
variable components and range in duration from a few months to several years.
Revenue from contracts is generally recognized as income on the basis of the
relationship between time incurred and the total estimated contract duration or
on a fee-for-service basis. The cash flow from contracts typically consists of a
down payment of between 10% and 20% paid at the time the contract is entered
into, with the balance paid in instalments over the contract's duration and in
some cases upon the achievement of certain milestones. Accordingly, cash
receipts do not necessarily correspond to costs incurred and revenue recognized
on contracts.
As of
September 30, 2008, our working capital amounted to $204.8 million, compared to
$193.3 million at December 31, 2007. The other significant influence on our
operating cash flow is revenue outstanding, which comprises accounts receivable
and unbilled revenue, less payments on account. The dollar values of these
amounts and the related days revenue outstanding can vary due to the achievement
of contractual milestones, including contract signing, and the timing of cash
receipts. The number of days revenue outstanding was 54 days at September 30,
2008, compared to 66 days at December 31, 2007.
Net cash
provided by operating activities was $86.0 million for the nine months ended
September 30, 2008, compared to $19.9 million for the nine months ended
September 30, 2007. The increase in net cash from operating activities is
primarily due to the increase in payments on account and other
liabilities.
Net cash
used in investing activities was $66.1 million for the nine months ended
September 30, 2008, compared to $81.5 million for the nine months ended
September 30, 2007. Net cash used in investing activities was primarily used to
finance the Company’s investment in its global infrastructure and information
technology in the period of $53.6 million and the acquisition of Healthcare
Discoveries in February 2008 for $12.0 million including the costs of
acquisition of $0.9 million.
Net cash
used by financing activities was $1.8 million for the nine months ended
September 30, 2008, compared to $70.5 million provided for the nine months ended
September 30, 2007. The Company drew down $65.5 million in bank credit lines and
loan facilities during the nine months ended September 30, 2007. A
further $30.4 million was drawn down during the nine months ended September 30,
2008, primarily to fund the acquisition of Healthcare Discoveries in February
2008, the construction of the new facility located in Dublin, Republic of
Ireland and the ongoing investment in global infrastructure and information
technology to support the Company’s current and future growth. This was offset
by repayments of $44.4 million during the nine months ended September 30, 2008,
proceeds received from the exercise of share options of $8.4 million and the
corporate tax benefit associated with the exercise of share options of $4.0
million.
As a
result of these cash flows, cash and cash equivalents increased by $15.5
milllion for the nine months ended September 30, 2008, compared to $6.5 million
for the nine months ended September 30, 2007.
On July 9,
2007, ICON plc entered into a five year committed multi-currency
facility agreement for €35 million ($49.4 million) with
The Governor and Company of the Bank of Ireland. The facility bears interest at
an annual rate equal to the reference rate of EURIBOR plus a margin. Our
obligations under the facility are secured by certain composite guarantees and
indemnities and pledges in favour of the bank. On July 10, 2007, the Company
drew down €29.5 million ($41.6 million) of the facility to fund the acquisition
of DOCS International. On October 15, 2007, the remaining €5.5
million ($7.8 million) of the facility was drawn down to cover expenditure on
the expansion of the Company’s facility in Dublin, Republic of
Ireland.
On October
17, 2007, an uncommitted credit facility was negotiated with Allied Irish Banks
plc, for €30 million ($42.3 million). Interest is calculated at the EUR
Interbank rate plus a margin. The facility is secured by the same
composite guarantees and indemnities in place for the Bank of Ireland committed
facility. On December 31, 2007, this facility was fully
drawn. The funds were used to refinance overdraft facilities in place
to fund expenditure on the Dublin facility. On January 8, 2008, the facility
with Allied Irish Banks plc was increased to €50 million ($70.5
million). All terms of this facility remain the same. On September
30, 2008, €21.4 million ($30.2 million) of this facility was drawn. The facility
is due to be reviewed on October 31, 2008.
On
February 4, 2008, an uncommitted credit facility was negotiated with Citibank
N.A, for $30 million. Interest is calculated at the London Interbank
Market rate plus a margin. $12.0 million of this facility was drawn down in
February 2008, primarily to fund the acquisition of Healthcare
Discoveries. On September 30, 2008, the $12.0 million previously
drawn down was repaid in full.
The
average margin payable on the above mentioned facilities is 0.64 per
cent.
The
current available overdraft facility with Allied Irish Banks plc is €2 million
($2.8 million). The applicable interest rate when utilised is the bank’s prime
rate and is repayable on demand if the Company defaults under its obligations as
specified in the loan agreement. As of September 30, 2008, the facility was
undrawn and available.
We believe
the effects of inflation generally do not have a material adverse impact on our
operations or financial conditions.
Legal
Proceedings
We are not
party to any litigation or other legal proceedings that we believe could
reasonably be expected to have a material adverse effect on our business,
results of operations and financial condition.
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.
|
ICON
plc
|
|
|
|
|
|
|
|
|
|
/s/ Ciaran
Murray
|
Date
October 21, 2008
|
Ciaran
Murray
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
21
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