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 SEPTEMBER 30, 2000
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
------------------------
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, PE28 4HS, 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 September 30, 2000, 291,010,094 Ordinary Shares of 5 pence each were
outstanding.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2000 and 3
December 31, 1999
Condensed Consolidated Statements of Income for the three and 4
nine month periods ended September 30, 2000 and September 30, 1999
Condensed Consolidated Statement of Changes in Shareholders' 4
Equity
Condensed Consolidated Statements of Cash Flows for the nine 5
months ended September 30, 2000 and September 30, 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 13
Item 6 Exhibits and reports on Forms 6-K and 8-K 14
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
2000 1999
(pound)'000 (pound)'000
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents 927 5,258
Accounts receivable net of allowance for uncollectables of
(pound)69,000 (1999:(pound)115,000) 11,192 9,595
Unbilled receivables 7,263 5,689
Inventories 724 803
Prepaid expenses and other 1,794 1,233
Deferred income taxes 511 825
------------------ ------------------
Total current assets 22,411 23,403
------------------ ------------------
Property and equipment: net 66,495 68,969
------------------ ------------------
Investments 157 79
Unamortised costs of raising long term debt 611 692
Deferred income taxes 5,103 5,492
------------------ ------------------
Total assets 94,777 98,635
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 3,753 3,982
Accrued payroll and other benefits 832 760
Accrued expenses and other liabilities 4,005 4,593
Fees invoiced in advance 10,139 9,317
Short term debt 22,586 22,656
------------------ ------------------
Total current liabilities 41,315 41,308
------------------ ------------------
Long term debt 33,818 31,023
------------------ ------------------
Other long term liabilities 1,863 2,977
------------------ ------------------
Deferred income taxes 13,239 14,111
------------------ ------------------
Shareholders' Equity: 5p Ordinary Shares
Authorised-at September 30, 2000 400,000,000 (1999,
400,000,000)
Issued and outstanding-at September 30, 2000 291,010,294
(1999, 291,010,294) 14,550 14,550
Paid in capital 25,100 25,100
Retained earnings (35,490) (30,434)
Accumulated other comprehensive income
- cumulative translation adjustment 382 -
------------------ ------------------
Total shareholders' equity 4,542 9,216
------------------ ------------------
Total liabilities and shareholders' equity 94,777 98,635
------------------ ------------------
</TABLE>
<PAGE>
<TABLE>
HUNTINGDON LIFE SCIENCES GROUP PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
<CAPTION>
Three months ended Nine months ended September
September 30 30
2000 1999 2000 1999
(pound)'000 (pound)'000 (pound)'000 (pound)'000
(except per (except per (except per (except per
share data) share data) share data) share data)
<S> <C> <C> <C> <C>
Revenues 16,054 15,035 47,467 42,701
Cost of sales (13,498) (13,115) (40,083) (38,441)
--------------- --------------- ------------- -------------
Gross profit 2,556 1,920 7,384 4,260
Selling and administrative expenses
(2,475) (2,099) (7,136) (6,793)
Other operating income - 522 - 522
--------------- --------------- ------------- -------------
Operating profit/(loss) 81 343 248 (2,011)
Interest income 17 62 102 300
Interest expense (1,216) (1,070) (3,419) (3,256)
Other (loss)/gain (576) 833 (2,156) (235)
--------------- --------------- ------------- -------------
(Loss)/profit before income taxes (1,694) 168 (5,225) (5,202)
Income taxes (145) 713 169 2,470
--------------- --------------- ------------- -------------
Net (loss)/profit (1,839) 881 (5,056) (2,732)
--------------- --------------- ------------- -------------
(Loss)/Earnings per share (pence)
- basic (0.6) 0.3 (1.7) (0.9)
- diluted (0.6) 0.3 (1.7) (0.9)
(Loss)/Earnings per ADR (cents)
- basic (24.4) 12.2 (66.9) (37.8)
- diluted (24.4) 12.2 (66.9) (37.8)
'000 '000 '000 '000
Weighted average shares outstanding
- basic 291,010 291,010 291,010 291,010
- diluted 291,010 291,010 291,010 291,010
</TABLE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Unaudited
<CAPTION>
Ordinary Paid in Retained Accumulated Other Total
Shares Capital Earnings Comprehensive Income
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 14,550 25,100 (30,434) - 9,216
Net loss for period - - (5,056) - (5,056)
Translation adjustment - - - 382 382
------------- ------------- ------------ ------------- -----------
Balance, September 30, 2000 14,550 25,100 (35,490) 382 4,542
------------- ------------- ------------ ------------- -----------
</TABLE>
<PAGE>
<TABLE>
HUNTINGDON LIFE SCIENCES GROUP PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<CAPTION>
Nine months ended September 30
2000 1999
(pound)'000 (pound)'000
<S> <C> <C>
Cash flows from operating activities:
Net loss (5,056) (2,732)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortisation 4,489 5,737
Amortisation of loan costs 216 199
Profit on sale of property, plant and equipment - (1,772)
Deferred income taxes (169) (2,442)
Changes in operating assets and liabilities:
Accounts receivable and prepaid expenses (3,734) (1,295)
Inventories 79 72
Accounts payable, accrued expenses and other liabilities
and accrued payroll and other benefits (1,745) (2,409)
Fees invoiced in advance 822 (969)
Other liabilities (1,114) (26)
--------------- ----------------
Net cash used by operating activities (6,212) (5,637)
--------------- ----------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,480) (2,151)
Proceeds from sale of property, plant and equipment - 4,214
--------------- ----------------
Net cash (used in)/generated from investing activities (1,480) 2,063
--------------- ----------------
Cash flows from financing activities:
Loan received 1,000 -
Repayment of loan - (5,214)
Repayments of short term borrowings - (747)
--------------- ----------------
Net cash generated from/(used by) financing activities 1,000 (5,961)
--------------- ----------------
Effect of exchange rate changes on cash and cash equivalents
2,361 85
--------------- ----------------
Decrease in cash and cash equivalents (4,331) (9,450)
Cash and cash equivalents at beginning of year 5,258 14,080
--------------- ----------------
Cash and cash equivalents at end of year 927 4,630
--------------- ----------------
</TABLE>
<PAGE>
HUNTINGDON LIFE SCIENCES GROUP PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 Group plc and
subsidiaries ("Huntingdon" or "the Company") for the years ended December 31,
1999, 1998 and 1997 included in the Annual Report on Form 10-K for the fiscal
year ended December 31, 1999. Operating results for the three month and nine
month periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
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 10-K.
Certain reclassifications have been made to the 1999 amounts to conform to the
2000 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenues represent the value of work done for clients, exclusive of VAT or sales
taxes. Billings in advance of work performed are recorded as fees invoiced in
advance and included in current liabilities, while billings in arrears of work
performed are included in current assets as amounts recoverable on contracts.
Contracts
Profit on contracts, irrespective of length, is taken as the work is carried
out. The profit is calculated to reflect the proportion of the work performed,
by recording turnover and related costs as contract activity progresses.
Turnover is calculated as that proportion of total contract value which costs
incurred to date bear to total expected costs for that contract. Full provision
is made for losses on contracts when they are first foreseen.
Depreciation
The cost of depreciable assets is written off in equal monthly instalments over
their expected useful lives as follows:
Freehold buildings and facilities 15 - 50 years
Plant and equipment 5 - 15 years
Vehicles 5 years
Computer software 5 years
Taxation
The current charge for income taxes is calculated in accordance with the
relevant tax regulations applicable to each entity in the Company. Deferred
income taxes are recognised for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. The effect on
deferred tax assets and liabilities of a change in tax rates is recognised in
income in the period that includes the enactment date. Deferred tax assets are
recognised in full subject to a valuation allowance that reduces the amount
recognised to that which is more likely than not to be realised.
Inventories
Inventories comprise consumables and items for use on contracts and are valued
at the lower of cost and net realisable value after making due allowances for
any obsolete items.
Loss per share
Loss per share is computed in accordance with FASB Statement No. 128, "Earnings
Per Share". Basic loss per share is computed by dividing net income available to
common stockholders by the weighted average number of shares outstanding during
the period. The computation of diluted loss per share is similar to the
computation of basic loss per share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued. The potential dilution
which could arise from outstanding share options and the Convertible Capital
Bonds is not computed as any adjustments would be anti-dilutive.
Loss per share/ADR is calculated using an exchange rate of $1.54 = (pound)1.00
(1999 $1.61 = (pound)1.00). On July 10, 2000 the Company changed its ADR ratio
to one ADR representing twenty-five Ordinary Shares and the loss per ADR for
each period has been calculated using this ratio; previously each ADR
represented five Ordinary Shares. The ratio change was implemented to assure
compliance with the New York Stock Exchange's listing requirement that ADR's
trade at a minimum price of $1.00 per share.
Segment Analysis
The Company's operating locations have been aggregated into a single reportable
segment, as permitted under SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", since they have similar economic
characteristics, products, production processes, types of customers and
distribution methods.
Going Concern
Bank loans totalling (pound)22,586,000 are repayable on November 30, 2000.
Management have entered into an agreement, in principle, with FHP Realty LLC, a
private US investment firm affiliated with current Management and shareholders
of the Company to effect a refinancing of the Company in conjunction with
proposed sale and leasebacks and/or loans (to be secured on one or more of the
Company's properties) which are currently under negotiation. The Company's
current bank facility, which had been scheduled to expire on October 31, 2000
was extended to November 30, 2000 to facilitate this transaction.
Since the refinancing requires the convening of a shareholder meeting in order
to obtain shareholder approval, the Company does not believe that the
refinancing will be completed prior to November 30, 2000. Accordingly the
Company is in discussions with its bank group for an additional extension beyond
November 30, 2000 to facilitate completion of the refinancing. The Company
believes it will obtain this extension and complete the refinancing. As a result
Management have formed a judgement that it is appropriate to adopt the going
concern basis in preparing the accounts. The financial statements do not include
any adjustments that would result from an inability to secure adequate finance.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting periods. Although these estimates
are based upon management's best knowledge of current events and actions, actual
results could differ from those estimates.
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 people use, eat and are 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 September 30, 2000 compared with three months ended September
30, 1999
Revenues for the three months ended September 30, 2000 were (pound)16.1 million,
an increase of 6.8% on revenues of (pound)15.0 million for the three months
ended September 30, 1999. The impact of increases in orders since the
refinancing in September 1998 continues to feed through to revenues.
Cost of sales for the three months ended September 30, 2000 were (pound)13.3
million, an increase of 1.5% on cost of sales of (pound)13.1 million for the
three months ended September 30, 1999. This increase was driven by the increase
in revenues, but was partially offset by a lower charge for pension costs this
year. Pension costs in the three months ended September 30, 2000 were (pound)0.5
million lower than in the corresponding period in 1999.
Selling and administration expenses rose by 17.9% to (pound)2.5 million for the
three months ended September 30, 2000 from (pound)2.1 million in the
corresponding period in 1999. The increase was largely due to a reclassification
of certain expenditure as cost of sales in the third quarter last year which
reduced selling and administration expenses by (pound)0.2 million in that
quarter.
Net interest expense for the three months ended September 30, 2000 was
(pound)1.2 million, an 18.9% increase on net interest expense of (pound)1.0
million for the three months ended September 30, 1999. The increase in expense
was due to increases in interest rates and fees for extending the facility.
The unrealised loss on exchange of (pound)0.6 million arose on net liabilities
denominated in US dollars (primarily the Convertible Capital Bonds of $50
million) with the weakening of sterling against the dollar. In the third quarter
of 1999 sterling strengthened against the dollar resulting in a (pound)0.8
million gain on exchange.
The taxation charge on losses for the three months ended September 30, 2000 was
(pound)0.1 million. The charge arising from the tax treatment of exchange gains
and losses on the Convertible Capital Bonds increased this charge by (pound)0.4
million and adjustments to tax losses brought forward by a further (pound)0.1
million. Taxation relief for the three months ended September 30, 1999 was
(pound)0.7 million as the exchange gain of (pound)0.8 million was not taxable
and the profit on the sale of the Wilmslow Research Centre of (pound)1.8 million
was offset by capital losses brought forward from prior years.
The overall net loss for the three months ended September 30, 2000 was
(pound)1.8 million compared to a net profit of (pound)0.9 million for the three
months ended September 30, 1999.
The increase in the net loss of (pound)2.7 million is due to a reduction in
other operating income of (pound)0.5 million, increased interest expense of
(pound)0.2 million, higher exchange losses of (pound)1.4 million and an increase
in income tax expense of (pound)0.9 million due to the tax treatment of exchange
gains and losses on the Convertible Capital Bonds and the availability of
capital losses to offset the tax charge arising on other operating income. These
were offset by an improvement in operating profits (excluding other operating
income) of (pound)0.3 million.
Loss per share was 0.6 pence, compared to earnings per share of 0.3 pence last
year, on shares in issue of 291,010,294 (1999, 291,010,294). Loss per ADR was
24.4 cents, compared to earnings per ADR of 12.2 cents last year.
Nine months ended September 30, 2000 compared with nine months ended September
30, 1999
Revenues for the nine months ended September 30, 2000 were (pound)47.5 million,
an increase of 11.2% on revenues of (pound)42.7 million for the nine months
ended September 30, 1999. The impact of increases in orders since the
refinancing in September 1998 continues to feed through to revenues.
Cost of sales for the nine months ended September 30, 2000 were (pound)39.9
million, an increase of 3.8% on cost of sales of (pound)38.4 million for the
nine months ended September 30, 1999. This increase was driven by the increase
in revenues, but was partially offset by a lower charge for pension costs this
year. Pension costs in the nine months ended September 30, 2000 were (pound)1.4
million lower than in the corresponding period in 1999.
Selling and administration expenses rose by 5.0% to (pound)7.1 million for the
nine months ended September 30, 2000, from (pound)6.8 in the corresponding
period in 1999. (pound)0.2 million of this increase was due to the
reclassification of certain expenditure as cost of sales in the third quarter
last year reducing selling and administration expenses in that quarter.
Net interest expense for the nine months ended September 30, 2000 was (pound)3.3
million, a 12.2% increase on net interest expense of (pound)3.0 million for the
nine months ended September 30, 1999. The increase in expense was due to lower
cash balances leading to lower interest income and an increase in interest
rates, resulting in higher interest expense.
The unrealised loss on exchange of (pound)2.2 million arose on net liabilities
denominated in US dollars (primarily the Convertible Capital Bonds of $50
million) with the weakening of sterling against the dollar. In the nine months
ended September 30, 1999 sterling also weakened against the dollar resulting in
a (pound)0.2 million loss on exchange.
Taxation relief on losses for the nine months ended September 30, 2000 was
(pound)0.2 million representing relief at 3.2%. The charge arising from the tax
treatment of exchange gains and losses on the Convertible Capital Bonds reduced
this relief by (pound)1.1 million and adjustments to tax losses brought forward
by a further (pound)0.1 million. Taxation relief for the nine months ended
September 30, 1999 was 48% of losses before income tax as the profit on the sale
of the Wilmslow Research Centre of (pound)1.8 million was offset by capital
losses brought forward from prior years.
The overall net loss for the nine months ended September 30, 2000 was (pound)5.1
million compared to a loss of (pound)2.7 million for the nine months ended
September 30, 1999. The increase in the net loss of (pound)2.3 million is due to
a reduction in other operating income of (pound)0.5 million, increased net
interest expense of (pound)0.4 million, higher exchange losses of (pound)1.9
million and an increase in income tax expense of (pound)2.3 million due to the
tax treatment of exchange gains and losses on the Convertible Capital Bonds and
the availability of capital losses to offset the tax charge arising on other
operating income. These were offset by an improvement in operating profit
(excluding other operating income) of (pound)2.8 million.
Loss per share was 1.7 pence, up from 0.9 pence last year , on shares in issue
of 291,010,294 (1999, 291,010,294). Loss per ADR was 66.9 cents, up from 37.8
cents last year.
3. LIQUIDITY & CAPITAL RESOURCES
During the nine months ended September 30, 2000 funds absorbed were (pound)4.3
million, which includes the impact of exchange rate movements, reducing cash in
hand and on short term deposit from (pound)5.3 million at December 31, 1999 to
(pound)0.9 million at September 30, 2000. The funds were utilised as follows:-
(pound)m
Operating profit excluding depreciation 4.7
Working capital movements (5.2)
Interest (3.3)
Capital expenditure (1.5)
Loans 1.0
------------
(4.3)
------------
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 and this
amount was fully drawn down.
On September 1, 1999 the sale of the Wilmslow Research Centre was completed.
Part of the proceeds from this sale ((pound)1.9 million) were used to repay bank
debt and the facility was reduced accordingly. Interest was payable in quarterly
breaks at "LIBOR" plus 1.75% per annum in respect of drawings up to (pound)19.5
million and LIBOR plus 2% in respect of drawings over (pound)19.5 million up
until August 31, 2000, after that date interest was payable at LIBOR plus 3%.
The interest rate payable at September 30, 2000 is 9.18815%.
During August 2000 Management entered into an agreement, in principle, with FHP
Realty LLC, a private US investment firm affiliated with current Management and
shareholders of the Company to effect a refinancing of the Company in
conjunction with proposed sale and leasebacks and/or loans (to be secured on one
or more of the Company's properties) which are currently under negotiation. The
Company's current bank facility, which had been scheduled to expire on October
31, 2000 was extended to November 30, 2000 to facilitate this transaction.
Since the refinancing requires the convening of a shareholder meeting in order
to obtain shareholder approval, the Company does not believe that the
refinancing will be completed prior to November 30, 2000. Accordingly, the
Company is in discussions with its bank group for an additional extension beyond
November 30, 2000 to facilitate completion of the refinancing. The Company
believes it will obtain this extension and complete the refinancing. As a
result, Management have formed a judgement that it is appropriate to adopt the
going concern basis in preparing the accounts. The financial statements do not
include any adjustments that would result from an inability to secure adequate
finance.
The remainder of Huntingdon's long term finance is provided by Convertible
Capital Bonds repayable in 2006 (the "Bonds"). Bonds totalling $50 million were
issued in 1991 and remained outstanding as at September 30, 2000. 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.
The balance of the consideration payable for the purchase of the Wilmslow
Research Centre ((pound)3.3 million) was repaid in 1999.
4. EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
In the nine months to September 30, 2000 following the weakening of sterling
against the US dollar, net liabilities denominated in US dollars (mainly $50
million Bonds) have increased in value on consolidation to sterling. For the
period this does not affect the cash flow of Huntingdon but has increased the
reported loss before tax, accounting largely for the unrealised loss on exchange
of (pound)2.2 million reported in these results. This compares with an exchange
loss in the nine months to September 30 of 1999 of (pound)0.2 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, Management 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's current treasury policy does not
include any hedging or derivative activity.
Huntingdon operates on a world-wide 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 11% 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 expect 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 these systems ensure that
Huntingdon, if ever required to do so, will be able to report in Euro's.
5. INTEREST RATES
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt obligations. The Company has a cash flow
exposure on its bank loans due to its variable LIBOR pricing. In the 3 months
ended September 30, 2000 a 1% change in LIBOR would have resulted in a
fluctuation in interest expense of approximately (pound)60,000.
6. COMPETITION
Competition in both the pharmaceutical and non-pharmaceutical market segments
ranges from in-house research and development divisions of large pharmaceutical,
agrochemical and industrial chemical companies, who perform their own safety
assessments to contract research organisations like Huntingdon, who provide a
full range of services to the industries and niche suppliers focussing on
specific services or industries.
This competition could have a material adverse effect on Huntingdon's net
revenues and net income, either through in-house research and development
divisions doing more work internally to utilise capacity or through the loss of
studies to other competitors on pricing. As Huntingdon operates on an
international basis, movements in exchange rates, particularly against sterling,
can have a significant impact on its price competitiveness.
7. INDUSTRY CONSOLIDATION
The process of consolidation within the pharmaceutical industry should
accelerate the move towards outsourcing work to contract research organisations
such as Huntingdon in the longer term as resources are increasingly invested on
in-house facilities for discovery and lead optimisation, rather than development
and regulatory safety evaluation. However, in the short term, there is a
negative impact with development pipelines being rationalised and a focus on
integration rather than development. This can have a material adverse impact on
Huntingdon's net revenues and net income.
8. INFLATION
While most of Huntingdon's net revenues are earned under fixed price contracts,
the effects of inflation do not generally have a material adverse effect on its
operations or financial condition as only a minority of the contracts have a
duration in excess of one year.
9. YEAR 2000
The Company completed its Year 2000 compliance program in December 1999. Where
necessary, items of computer hardware, software and other equipment relying on
computer related technologies were upgraded or replaced and the Company has
experienced no disruption to its operations as a result of equipment or computer
failures. Equally there has been no disruption caused by problems at the
Company's clients or suppliers.
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)1,900,000 and (pound)2,000,000. Of this amount a total of
(pound)1,818,000 has been incurred and expensed in the two years to December 31,
1999 ((pound)1,808,000 in 1999 and (pound)10,000 in 1998). The amounts that will
be capitalised have primarily been incurred in the two years to December 31,
1999 and are estimated at (pound)1,500,000 ((pound)1,203,000 in 1999 and
(pound)275,000 in 1998).
The Company is continuing to monitor for potential issues through 2000, but
believes that Year 2000 compliance will have no material adverse effect on the
results of its operations.
10. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognise all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. As amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FAB
Statement No. 133", this statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000, although early adoption is
encouraged. The Company is in the process of analysing the impact of the
adoption of this statement on its consolidated financial statements.
11. FORWARD LOOKING STATEMENTS
Certain statements in this section and elsewhere in this Quarterly Report on
Form 10-Q (as well as information included in oral statements or other written
statements made or to be made by Huntingdon) constitute "forward-looking
statements" pursuant to the safe-harbor provisions of the United States Private
Litigation Reform Act of 1995. Such forward-looking statements include the
discussions of the business strategies of Huntingdon and expectations concerning
future operations, margins, profitability, liquidity and capital resources
including, without limitation, the status of the Company's efforts to refinance
its existing bank debt and the ability of the Company to obtain an extension
from its bank group of the expiration date of its current bank facility.
Although Huntingdon believes that such forward-looking statements are
reasonable, it can give no assurance that any forward-looking statements will
prove to be correct. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of Huntingdon to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These risks, uncertainties and other factors are
more fully described in the Huntingdon's Form 10-K for the year ended December
31, 1999 as filed with the SEC.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
HUNTINGDON LIFE SCIENCES GROUP PLC
OTHER INFORMATION
PART II OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 10, 2000 the Company changed its ADR ratio to one ADR
representing twenty-five Ordinary Shares, previously each ADR
represented five Ordinary Shares. The ratio change was
implemented to assure compliance with the New York Stock
Exchange's listing requirement that ADRs trade at a minimum
price of $1 per share.
ITEM 6 EXHIBITS AND REPORTS ON FORMS 6-K AND 8-K
(A) Exhibits
Exhibit 99.1 - Press Release, dated November 14, 2000,
announcing third quarter earnings results.
(B) Reports on Form 8-K
Current Report on Form 8-K dated November 14, 2000, with
respect to Items 7 & 9.
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 authorised.
HUNTINGDON LIFE SCIENCES GROUP plc
(Registrant)
By:
Name: Julian T Griffiths
Title: Finance Director
Date: November 14, 2000