UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 205494
------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 1-10173
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HUNTINGDON LIFE SCIENCES GROUP plc
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
WOOLLEY ROAD, ALCONBURY, HUNTINGDON, PE17 5HS,
CAMBRIDGESHIRE, ENGLAND
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or Section 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 report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
- ------------------------------------------------------------------------------
At March 31, 1999 291010094 Ordinary Shares of 5 pence each were outstanding.
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HUNTINGDON LIFE SCIENCES GROUP PLC
INDEX
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements 3
Condensed Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1999 4
Condensed Consolidated Statement of
Charges in Shareholders' Equity 4
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and reports on Forms 6-K and 8-K 10
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HUNTINGDON LIFE SCIENCES GROUP PLC
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1999 1998
(pound)'000 (pound)'000
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents 8,017 14,080
Account receivable net of allowance
for uncollectables of (pound)111,000
(1998: (pound)111,000 7,734 7,791
Amounts recoverable on contracts 4,693 4,060
Inventories 1,123 1,137
Prepaid expenses and other 1,247 1,441
Deferred income taxes 782 873
------------ ------------
Total current assets 23,596 29,382
------------ ------------
Property, Plant and Equipment:
Cost 133,795 132,552
Less accumulated depreciation and amortisation 58,684 57,136
------------ ------------
75,111 75,416
------------ ------------
Investments 154 154
Unamortised costs of raising long term debt 824 882
Deferred income taxes 4,863 4,303
------------ ------------
Total Assets 104,548 110,137
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade payables, accrued expenses and accrued
payroll and benefits 11,122 11,826
Short term debt 2,869 4,116
Fees invoiced in advance 8,098 8,340
------------ ------------
------------ ------------
Total current liabilities 22,089 24,282
------------ ------------
------------ ------------
Long term debt 55,337 54,688
------------ ------------
------------ ------------
Other long term liabilities 1,154 2,571
------------ ------------
------------ ------------
Deferred income taxes 14,583 15,285
------------ ------------
Shareholders' Equity: 5p Ordinary Shares
Authorised-at March 31, 1999 400,000,000
(1998, 400,000,000)
Issued and outstanding-at March 31, 1999
291,010,294 (1998, 291,010,294) 14,550 14,550
Share premium 25,100 25,100
Retained earnings (28,265) (26,339)
------------ ------------
Total Shareholders' Equity 11,385 13,311
------------ ------------
Total Liabilities and Shareholders' Equity 104,548 110,137
------------ ------------
</TABLE>
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<TABLE>
HUNTINGDON LIFE SCIENCES GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
- --------------------------------------------------------------------------------------------
Three months ended March 31,
- --------------------------------------------------------------------------------------------
1999 1998
(pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues 13,383 13,428
Cost of sales 11,879 13,868
------- -------
Gross profit/(loss) 1,504 (440)
Selling and administrative expenses 3,057 2,732
------- -------
Operating loss (1,553) (3,172)
Interest income 155 17
Interest expense (1,099) (1,578)
Other (loss)/income (600) 554
------- -------
Loss before income taxes (3,097) (4,179)
Income taxes 1,171 1,674
------- -------
Net loss (1,926) (2,505)
------- -------
Earnings/(loss) per share
- -basic (pound)(0.007) (pound)(0.022)
- -diluted - -
'000 '000
Weighted average shares outstanding
- -basic 291,010 114,007
- -diluted - -
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS EQUITY
Ordinary Share Retained
Shares Premium Earnings Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Balance, December 31, 1998 14,550 25,100 (26,339) 13,311
Net loss for period - - (1,926) (1,926)
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Balance, March 31, 1999 14,550 25,100 (28,265) 11,385
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<TABLE>
HUNTINGDON LIFE SCIENCES GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
March, 31 March, 31
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Operating Activities:
Net loss (1,926) (2,505)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortisation 1,485 1,755
Amortisation of loan costs 58 26
Deferred income taxes (1,171) (949)
Changes in operating assets and liabilities
net of effects from purchase of subsidiary
companies during the period:
(Increase)/decrease in accounts receivable
and prepaid expenses (382) 1,929
Decrease in inventories 14 14
(Decrease) in accounts payable and accrued expenses,
salaries and wages and income tax (704) (26)
Decrease in fees invoiced in advance (242) (1,452)
Decrease in other liabilities (1,417) (742)
------------ ------------
Net cash used by operating activities (4,285) (1,950)
------------ ------------
Investing activities:
Purchase of property, plant and equipment (1,017) (871)
Proceeds from sale of property, plant and equipment - 5
------------ ------------
Net cash used in investing activities (1,017) (866)
------------ ------------
Financing activities:
Repayment of loan (500) -
Repayments of short term borrowings (747) -
------------ ------------
Net cash used by financing activities (1,247) -
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents 486 (74)
Decrease in cash and cash equivalents (6,549) (2,816)
Cash and cash equivalents at beginning of year 14,080 443
------------ ------------
Cash and cash equivalents at end of year 8,017 (2,447)
------------ ------------
</TABLE>
<PAGE>
HUNTINGDON LIFE SCIENCES GROUP PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary for a fair statement of the results of operations for the
interim periods presented. The consolidated financial statements have been
compiled without audit and are subject to such year-end adjustments as may be
considered appropriate and should be read in conjunction with the historical
consolidated financial statements of Huntingdon Life Sciences plc. and
subsidiaries (Huntingdon) for the years ended December 31, 1998, 1997 and 1996
included in the Annual Report on Form 20-F for the fiscal year ended December
31, 1998. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
These financial statements have been prepared in accordance with US GAAP and
under the same accounting principles as the financial statements included in the
Annual Report on Form 20-F. As a result adjustments have been made to the
financial statements reported under UK GAAP for deferred taxation and holiday
pay.
Certain reclassifications have been made to the 1998 amounts to conform to the
1999 presentation.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. OVERVIEW
Huntingdon is a leading Contract Research Organisation offering world-wide
pre-clinical and non-clinical testing for biological safety and efficacy
assessment which is necessary for the development of pharmaceuticals and
chemicals. Huntingdon serves the rapidly evolving requirements to perform safety
evaluations on new pharmaceutical compounds and chemical compounds contained
within the products that man uses, eats, and is otherwise exposed to. In
addition it tests the effect of such compounds on the environment and also
performs work on assessing the safety and efficacy of veterinary products.
2. RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared with three months ended
March 31, 1999
The increases in order volume in the latter part of 1998 following the
refinancing in September 1998 continued into the first quarter of 1999. Orders
for the quarter were at the highest quarterly level for two years and 20% ahead
of the same period last year.
Backlog also continued to grow, and at March 31, 1999 was 5% above the year end
level.
With the long term nature of many of the contracts Huntingdon undertakes the
impact of this increase in order volume only feeds through gradually into
revenues. Revenues for the quarter were (pound)13.4 million, the same as the
corresponding period in 1998 and marginally ahead of the fourth quarter of 1998.
Cost of sales fell by 14.3% to (pound)11.9 million for the three months ended
March 31, 1999 from (pound)13.9 million for the corresponding period in 1998.
Huntingdon's operating capacity was reduced throughout 1998 through natural
attrition and the closure of the Wilmslow Research Centre. In addition a cost
reduction programme was announced by new management in December 1998. This was
designed to align operations with current sales levels and is on course to
produce targetted savings of (pound)6 million per year.
Selling and administration expenses rose by 11.9% to (pound)3.1 million for the
three months ended March 31, 1999 from (pound)2.7 million in the corresponding
period in 1998. The increase was due to increased spending on information
technology and sales and marketing as Huntingdon strengthened its data
collection systems and sales and marketing effort.
Net interest expense fell by 39.5% to (pound)0.9 million for the three months
ended March 31, 1999 from (pound)1.6 million for the corresponding period in
1998. Expenses for the three months ended March 31, 1998 included costs of
(pound)0.5 million relating to the review of borrowing facilities. The remainder
of the reduction in expense was due to a combination of lower debt levels and
lower interest rates.
The unrealised loss on exchange of (pound)0.6 million arose on net liabilities
denominated in US dollars (primarily the Capital Bonds of $50 million) with the
weakening of sterling against the dollar. In the first quarter of 1998 sterling
strengthened against the dollar resulting in a (pound)0.6 million gain on
exchange.
Taxation relief on losses for the three months ended March 31, 1999 was
(pound)1.2 million, representing relief at 38% compared to 40% for the
corresponding period in 1998. As Huntingdon operates in both the UK and the US
its effective tax rate is subject to variation from period to period due to
changes in the geographic distribution of its pre tax earnings.
The overall net loss for the three months ended March 31, 1999 was (pound)2.0
million compared to (pound)2.5 million in the corresponding period in 1998. Loss
per share was 0.7 pence, down from 2.2 pence last year on shares in issue of
291,010,294 (1998, 114,006,863).
3. LIQUIDITY & CAPITAL RESOURCES
During the first quarter funds absorbed were (pound)6.1 million, which includes
the impact of exchange rate movements and repayment of short term borrowings of
(pound)0.8 million, reducing cash in hand and on short term deposit from
(pound)14.1 million at December 31, 1998 to (pound)8.0 million at March 31,
1999. The funds were utilised as follows:-
(pound)m
Operating loss excluding depreciation 0.2
Cost reduction programme (1.5)
Working capital movements (1.0)
Interest (1.5)
Capital expenditure (1.0)
Loan repayments (1.3)
------------
(6.1)
------------
During 1998 poor trading results put a heavy strain on cash resources, utilising
Huntingdon's available facilities. Given the medium to long term element of many
of Huntingdon's activities and the reluctance of clients to place new work until
Huntingdon's finances were stabilised, Huntingdon required a substantial
injection of finance to both initially restore confidence and then to fund
operations during the period until Huntingdon returned to profitability.
On September 2, 1998 a Group of new investors subscribed (pound)15 million for
120 million ordinary shares whilst existing shareholders and institutional
investors took up a further 57 million shares, contributing (pound)7.1 million.
After expenses of (pound)1.7 million, the issue of shares raised (pound)20.4
million. On the same date Huntingdon's bankers agreed to confirm and fix
Huntingdon's facilities at (pound)24.5 million until August 31, 2000.
Accordingly bank debt is now shown within liabilities repayable after more than
one year.
As at March 31, 1999 the bank facility is fully drawn down. Interest is payable
in quarterly breaks at "LIBOR" plus 1.75% per annum in respect of drawings up to
(pound)19,500,000 and LIBOR plus 1% in respect of drawings over
(pound)19,500,000. The interest rate payable at March 31, 1999 is 7.26% on
(pound)19,500,000 and 6.51% on (pound)5,000,000.
The remainder of Huntingdon's long term finance is provided by Convertible
Capital Bonds repayable in 2006. Bonds totalling $50 million were issued in 1991
and remained outstanding as at March 31, 1999. The Bonds carry interest at 7.5%,
payable at six-monthly breaks in March and September. The conversion rate, which
is based upon a fixed rate of exchange of (pound)1.00=US $1.6825 is 242.3 pence
per Ordinary Share and is subject to adjustment in certain circumstances.
In addition (pound)2.8 million of the consideration payable for the purchase of
the Wilmslow Research Centre (acquired in 1997) remained outstanding as at March
31, 1999. This debt bears no interest and although (pound)1.5 million is
repayable in quarterly instalments during the remainder of 1999 and (pound)1.3
million is repayable in 2000, the full amount is classed as due within one year
as Huntingdon's intention is to sell the site. Such a disposal would render the
debt repayable upon demand.
4. EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
In the three months to March 31, 1999 following the weakening of sterling
against the US dollar, net liabilities denominated in US dollars (mainly $50
million Capital Bonds) have increased in value on consolidation to sterling.
This does not affect the cashflow of Huntingdon but has increased the reported
loss before tax, accounting largely for the unrealised loss on exchange of
(pound)0.6 million reported in these results. This compares with an exchange
gain in the first quarter of 1998 of (pound)0.6 million.
Interest on the Bonds is payable half-yearly (in March and September) in US
dollars and the impact of fluctuations in the exchange rate between sterling and
US dollars is offset by US dollar denominated revenues receivable by Huntingdon.
Although reported results have been affected by conversion into sterling of the
Bonds on consolidation and there may be an impact in the future, the Directors
have decided not to hedge against this exposure. Such a hedge might impact upon
Huntingdon's cash flow compared with movements on the Bonds which do not affect
cash flow in the medium term.
Huntingdon operates on a worldwide basis and generally invoices its clients in
the currency of the country in which it operates. Thus, for the most part
exposure to exchange rate fluctuations is limited as sales are denominated in
the same currency as costs. Trading exposures to currency fluctuations do occur
as a result of certain sales contracts, performed in the UK for US clients,
which are denominated in US dollars and contribute approximately 14% of total
revenues. Huntingdon has not experienced difficulty in transferring funds to and
receiving funds remitted from those countries outside the US or UK in which it
operates and Management expects this situation to continue.
Whilst the UK has not at this time entered the European Monetary Union,
Huntingdon has ascertained that its financial systems are capable of dealing
with Euro denominated transactions. In addition upgrades which are currently
underway (to ensure that the financial systems are Year 2000 compliant) will
ensure that Huntingdon, if ever required to do so, will be able to report in
Euro's.
5. YEAR 2000
Many computer systems in use today were designed and developed using two digits
rather than four to specify the year, or otherwise fail to deal with specific
date related problems arising in the year 2000. This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken. The Company utilises software and related computer
technologies essential to its operations that will be affected by this year 2000
issue and it has been implementing a strategy since 1996 to replace its computer
infrastructure and software applications to ensure that all critical services
and controls will operate efficiently on and after January 1, 2000. Additionally
an audit of equipment and machinery has been conducted and remedial actions
relating to year 2000 issues are being taken.
The operations of the Company's business depends not only on its own systems,
but also to a certain extent on those of its suppliers and in appropriate cases
formal assurance is being sought from them.
However, there can be no assurance that the Year 2000 problem, even after giving
effect to the implementation of these measures and applicable contingency plans,
will not occur and that such an occurrence could have a material adverse impact
on the Company's business, financial conditions, results of operations and cash
flows.
The Company currently estimates that the amounts that have or will be expensed
as incurred over the three year period to December 31, 2000 will total between
(pound)0.8 million and (pound)1.0 million. The amounts that will be capitalised
will be primarily incurred in two years to December 31, 1999 and are estimated
at (pound)2.1 million.
This announcement contains statements that may be forward-looking as defined by
the USA's Private Litigation Reform Act of 1995. These statements are based
largely on Huntingdon's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond Huntingdon's control, as more fully
described in Huntingdon's Form 20-F as filed with the US Securities and Exchange
Commission.
<PAGE>
HUNTINGDON LIFE SCIENCES GROUP PLC
OTHER INFORMATION
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORMS 6-K AND 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1999 since it is domiciled in the UK
and was a foreign private issuer at that time.
The Company filed a Report of a Foreign Private Issuer on Form
6-K with the SEC on January 13, 1999, announcing the
appointment of a new finance director.
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.
HUNTINGDON LIFE SCIENCES GROUP plc
(Registrant)
By: /s/ Julian T. Griffiths
Name: Julian T Griffiths
Title: Finance Director
Date: May 13, 1999
