<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO _______________________
COMMISSION FILE NUMBER 33-69586
CLINTRIALS RESEARCH INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1406017
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Burton Hills Boulevard
Suite 210
Nashville, Tennessee 37215
(Address of principal executive offices)
(Zip Code)
(615) 665-9665
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 1996, there were 11,527,352 shares of ClinTrials Research Inc.
common stock outstanding.
<PAGE> 2
CLINTRIALS RESEARCH INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION ...................................... 1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)................... 1
Condensed Consolidated Balance Sheets....................... 1
Condensed Consolidated Statements of Operations............. 2
Condensed Consolidated Statements of Operations............. 3
Condensed Consolidated Statements of Cash Flows............. 4
Notes to Condensed Consolidated Financial Statements........ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 6
PART II. OTHER INFORMATION.........................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS.................................13
ITEM 5. OTHER INFORMATION..................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................13
SIGNATURES..........................................................15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ClinTrials Research Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
Assets (Note) (Unaudited)
------------ -----------
<S> <C> <C>
Current assets:
Cash, cash equivalents and held-to-maturity securities $17,031 $12,274
Accounts receivable 22,248 21,754
Advanced payments to investigators 3,932 1,687
Deferred income taxes 644 680
Other current assets 499 1,284
------- -------
Total current assets 44,354 37,679
Equipment, furniture & fixtures:
Equipment 9,042 11,878
Furniture, fixtures and leasehold improvements 3,022 3,293
------- -------
12,064 15,171
Less accumulated depreciation and amortization 4,947 6,090
------- -------
7,117 9,081
Other assets:
Excess of purchase price over net assets acquired 7,088 6,847
Other assets 67 214
------- -------
7,155 7,061
------- -------
$58,626 $53,821
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,579 $ 1,672
Advance billings 19,976 12,080
Payables to investigators 3,490 2,189
Accrued expenses 2,352 2,745
Other current liabilities 90 178
------- -------
Total current liabilities 27,487 18,864
Deferred income taxes 188 224
Commitments and contingencies -- --
Stockholders' equity
Preferred Stock, $.01 par value - 1,000,000 shares
authorized, no shares issued or outstanding -- --
Common Stock, $.01 par value - 30,000,000 shares
authorized, issued and outstanding 8,829,451 and
8,905,710 in 1995 and 1996, respectively 88 89
Additional paid-in capital 40,100 41,429
Retained earnings (deficit) (9,342) (6,953)
Cumulative foreign currency translation adjustments 105 168
------- -------
Total stockholders' equity 30,951 34,733
------- -------
$58,626 $53,821
======= =======
</TABLE>
See notes to condensed consolidated financial statements
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
1
<PAGE> 4
ClinTrials Research Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except for share data)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
-----------------
1995 1996
------- -------
<S> <C> <C>
Revenues:
Service revenue $19,907 $26,619
Less subcontract costs 6,416 7,225
------- -------
Net service revenue 13,491 19,394
Operating costs:
Direct costs 8,044 11,482
Selling, general and administrative costs 3,656 5,197
Depreciation and amortization 564 752
------- -------
Income from operations 1,227 1,963
Other income (expense):
Interest income 202 180
Interest expense (20) (14)
------- -------
Income before income taxes 1,409 2,129
Provision for income taxes 592 853
------- -------
Net income $ 817 $ 1,276
======= =======
Earnings per common and common equivalent share:
Net income $ 0.09 $ 0.14
======= =======
Weighted average shares outstanding (see exhibit 11) 9,058 9,208
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 5
ClinTrials Research Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except for share data)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------
1995 1996
------- -------
<S> <C> <C>
Revenues:
Service revenue $37,937 $53,017
Less subcontract costs 12,663 15,953
------- -------
Net service revenue 25,274 37,064
Operating costs:
Direct costs 14,934 22,008
Selling, general and administrative costs 7,001 9,947
Depreciation and amortization 1,091 1,452
------- -------
Income from operations 2,248 3,657
Other income (expense):
Interest income 426 395
Interest expense (41) (28)
------- -------
Income before income taxes 2,633 4,024
Provision for income taxes 1,095 1,635
------- -------
Net income $ 1,538 $ 2,389
======= =======
Earnings per common and common equivalent share:
Net income $ 0.17 $ 0.26
======= =======
Weighted average shares outstanding (see exhibit 11) 9,044 9,213
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 6
ClinTrials Research Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands, except for share data)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------
1995 1996
------- -------
<S> <C> <C>
Net income $ 1,538 $ 2,389
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,091 1,452
Change in operating assets and liabilities (6,581) (6,668)
Other operating activities 15 63
------- -------
Net cash provided by (used in) operating activities (3,937) (2,764)
Cash flows from investing activities:
Purchasing of property, plant and equipment (net) (2,046) (3,323)
------- -------
Net cash used in investing activities (2,046) (3,323)
Cash flows from financing activities:
Proceeds from issuance of common stock 183 1,330
------- -------
Net cash provided by (used in) financing activities 183 1,330
Net increase (decrease) in cash and cash equivalents (5,800) (4,757)
Cash, cash equivalents, and held-to-maturity securities at
beginning of period 21,045 17,031
------- -------
Cash, cash equivalents, and held-to-maturity securities at
end of period $15,245 $12,274
======= =======
</TABLE>
4
<PAGE> 7
ClinTrials Research Inc.
Notes to Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the three and
six-month periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
Note 2 - Earnings per Share
The earnings per share calculations for the three-month period ending June 30,
1996 are based on 8,862,062 weighted average shares outstanding plus 345,461
common stock equivalent shares related to the 1989 Stock Option Plan. The
earnings per share calculations for the six-month period ending June 30, 1996
are based on 8,877,151 weighted average shares outstanding plus 335,554 common
stock equivalent shares related to the 1989 Stock Option Plan. The Company's
stock is currently traded in the Nasdaq Stock Market and sale information is
included on Nasdaq National Market Issues System under the symbol "CCRO".
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's annual report on Form 10-K for the year
ended December 31, 1995.
The information set forth and discussed below for the three and
six-month periods ended June 30, 1996 is derived from the Condensed
Consolidated Financial Statements included elsewhere herein. The financial
information set forth and discussed below is unaudited but, in the opinion of
management, reflects all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of such information. The Company's results
of operations for a particular quarter may not be indicative of the results
expected during the other quarters or for the entire year.
OVERVIEW
The Company is a full-service clinical research organization
("CRO") serving the pharmaceutical, biotechnology and medical device
industries. The Company designs, monitors and manages clinical trials,
provides clinical data management and biostatistical services and offers
product registration services throughout the United States and Europe. The
Company generates substantially all of its revenue from the clinical testing of
new pharmaceutical and biotechnology products.
The Company's contracts are typically fixed priced, multi-year
contracts that require a portion of the contract amount to be paid at or near
the time the trial is initiated. The Company generally bills its clients upon
the completion of negotiated performance requirements and, to a lesser extent,
on a date certain basis. The Company's contracts generally may be terminated
with or without cause. In the event of termination, the Company is typically
entitled to all sums owed for work performed through the notice of termination
and all costs associated with termination of the study. In addition, most of
the Company's contracts provide for an early termination fee, the amount of
which usually declines as the trial progresses. Termination or delay in the
performance of a contract occurs for various reasons, including, but not
limited to, unexpected or undesired results, inadequate patient enrollment or
investigator recruitment, production problems resulting in shortages of the
drug, adverse patient reactions to the drug, or the client's decision to
deemphasize a particular trial.
Revenue for contracts is recognized on a percentage of
completion basis as work is performed. Revenue is affected by the mix of
trials conducted and the degree to which labor is utilized. The Company
routinely subcontracts with third party investigators in connection with
multi-site clinical trials and with other third party service providers for
laboratory analysis and other specialized services. These costs are passed
through to clients and, in accordance with industry practice, are included in
service revenue. Subcontractor services may vary significantly from
6
<PAGE> 9
contract to contract; therefore, changes in service revenue may not be
indicative of trends in revenue growth. Accordingly, the Company views net
service revenue, which consists of service revenue less subcontractor costs, as
its primary measure of revenue growth. The Company has had, and will continue
to have, certain clients from which at least 10 percent of the Company's
overall revenue is generated over multiple contracts. Such concentrations of
business are not uncommon within the CRO industry.
The Company's quarterly operating results may fluctuate as a
result of factors such as delays experienced in implementing or completing
particular clinical trials and termination of clinical trials, the costs
associated with integrating acquired operations, as well as the costs
associated with opening new offices. Since a high percentage of the Company's
operating costs are relatively fixed while revenue is subject to fluctuation,
minor variations in the timing of contracts or the progress of clinical trials
(both delays and accelerations) may cause significant variations in quarterly
operating results. Results of one quarter are not necessarily indicative of
results for the next quarter.
Since it is common for clients to authorize projects and the
Company to commence providing services before a contract is signed, the Company
believes reported backlog should consist of anticipated net revenue from
uncompleted projects which have been authorized by the client, through a
written contract or otherwise. At June 30, 1996, backlog was approximately
$106.3 million, as compared to approximately $77.2 million at June 30, 1995.
The Company believes that backlog is not a consistent indicator of future
results because backlog can be affected by a number of factors, including the
variable size and duration of projects, many of which are performed over
several years. Additionally, projects may be terminated by the client or
delayed by regulatory authorities for many reasons, including unexpected test
results. Moreover, the scope of a project can change during the course of a
study.
The Company's core business in the United States has experienced
significant growth, reflecting both an expansion of the Company's client base
and an increase in the number and size of projects under management. Prior to
1992, the Company's European operations primarily performed services required
by contracts generated by United States operations. In late 1992, the Company
began expanding its European operations, which contributed significantly to
operating losses for 1993 and 1994 in Europe. European operations broke even
in 1995, and are expected to become profitable in 1996. Recently, the Company
expanded its international operations by opening offices in Australia, Israel
and Chile. This was done partially in response to client requests for the
Company to provide services in these areas. The Company plans to continue to
develop these and other operations abroad. This will require additional
investments in marketing and infrastructure and may include the establishment
of other new offices. As a result, the Company expects its new offices to
incur losses at least through 1996.
Contracts between the Company's United Kingdom subsidiary and
its clients are generally denominated in pounds sterling. Payments received
for services rendered on such contracts, as well as payments made for the
subsidiaries' expenses, are in pounds sterling. Therefore, the subsidiary
7
<PAGE> 10
recognizes revenue and expense in pounds sterling and its earnings are not
materially affected by fluctuations in exchange rates. Due to the Company's
expansion abroad as discussed previously, it is possible the Company's
subsidiaries will enter into contracts which are denominated in currencies
other than the local currency of the subsidiary. Because substantially all of
the subsidiaries' expenses are paid in the local currency of that subsidiary,
fluctuations in exchange rates may affect the subsidiaries' earnings.
The Company's consolidated financial statements are denominated
in U.S. dollars and, accordingly, changes in the exchange rates between the
Company's subsidiaries' local currency and the U.S. dollar will affect the
translation of such subsidiaries' financial results into U.S. dollars for
purposes of reporting the Company's consolidated financial results.
Translation adjustments are reported as a separate section of stockholders'
equity. To date, such adjustments have not been material to the Company's
financial statements.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30,
1995
Net service revenue increased 43.8% to $19.4 million in the
second quarter of 1996 from $13.5 million in the same period of 1995. This
increase resulted primarily from an increase in the number of contracts under
management and in the number of clients served. The backlog at June 30, 1996
was $106.3 million, representing 241 contracts from 62 clients, as compared to
$77.2 million at June 30, 1995, representing 148 contracts from 46 clients.
Direct costs increased 42.8% to $11.5 million in the second
quarter of 1996 from $8.0 million in the same period of 1995, and declined as a
percentage of net service revenue to 59.2% from 59.6%. Direct costs, as a
percentage of net revenue, may fluctuate from one period to the next based on
the mix of contracts in the backlog as of any given date. In addition, direct
costs may fluctuate due to changes in labor utilization resulting from the
growth the Company has experienced.
Selling, general and administrative costs increased 42.1% to
$5.2 million in the second quarter of 1996 from $3.7 million in the same period
of 1995, and declined as a percentage of net service revenue to 26.8% from
27.1%. Selling, general and administrative costs are relatively fixed in the
near term and generally will increase at a lower rate than net revenue. The
two largest components of selling, general and administrative costs are labor
(executive, business development, finance and administration) and rent. Labor
costs increased 32.7% to $1.7 million in the second quarter of 1996 from $1.3
million in the same period of 1995, and declined as a percentage of net service
revenue to 9.0% from 9.8%. Rent expense increased 38.0% to $894,000 in the
second quarter of 1996 from $648,000 in the same period of 1995, and declined
as a percentage of net service revenue to 4.6% from 4.8%.
8
<PAGE> 11
Depreciation and amortization expense increased 33.2% to $751,000
in the second quarter of 1996 compared to $564,000 in the same period of 1995.
Interest income, net of interest expense, decreased to $166,000
in the second quarter of 1996 from $182,000 in the same period of 1995.
Consolidated income before income taxes increased $720,000 to
$2.1 million in the second quarter of 1996, which included income of $136,000
from foreign operations, compared to consolidated income before income taxes of
$1.4 million in the same period of 1995, which included a $100,000 loss from
foreign operations. The provision for income taxes was $853,000 in the second
quarter of 1996 as compared to $592,000 in the same period of 1995 resulting in
effective tax rates of 40.1% for 1996 and 42.0% for 1995. The significant
items that create the difference between the Company's federal statutory and
effective tax rates are foreign net operating losses unrecognized for U.S. tax
purposes, nondeductible amortization of goodwill, timing differences created by
depreciation, state and local income taxes, tax-exempt interest income and
certain other accrued expenses. The Company will not be able to record a tax
asset for losses incurred in its foreign operations until such time, if any,
that it has three years of profits in the applicable jurisdiction. However,
the Company will be able to recognize a tax benefit for losses incurred in its
foreign operations as the subsidiary generates taxable income to the extent of
the cumulative losses.
Six Months Ended June 30, 1996 Compared to Six Months Ended
June 30, 1995
Net service revenue increased 46.6% to $37.1 million in the
first six months of 1996 from $25.3 million in the same period of 1995. This
increase resulted primarily from an increase in the number of contracts under
management and in the number of clients served. The backlog at June 30, 1996
was $106.3 million, representing 241 contracts from 62 clients, as compared to
$77.2 million at June 30, 1995, representing 148 contracts from 46 clients.
Direct costs increased 47.4% to $22.0 million in the first six
months of 1996 from $14.9 million in the same period of 1995, and increased as
a percentage of net service revenue to 59.4% from 59.1%. Direct costs, as a
percentage of net revenue, may fluctuate from one period to the next based on
the mix of contracts in the backlog as of any given date. In addition, direct
costs may fluctuate due to changes in labor utilization resulting from the
growth the Company has experienced.
Selling, general and administrative costs increased 42.1% to
$9.9 million in the first six months of 1996 from $7.0 million in the same
period of 1995, and declined as a percentage of net service revenue to 26.8%
from 27.7%. Selling, general and administrative costs are relatively fixed in
the near term and generally will increase at a lower rate than net revenue.
The two largest components of selling, general and administrative costs are
labor (executive, business development, finance and administration) and rent.
Labor costs increased 33.1% to $3.4 million in the first six months of 1996
from $2.6 million in the same period of 1995, and declined as a percentage of
net
9
<PAGE> 12
service revenue to 9.2% from 10.1%. Rent expense increased 35.2% to $1.7
million in the first six months of 1996 from $1.3 million in the same period of
1995, but decreased as a percentage of net service revenue to 4.6% from 5.0%.
Depreciation and amortization expense increased 33.1% to $1.5
million in the first six months of 1996 compared to $1.1 million in the same
period of 1995.
Interest income, net of interest expense, decreased to $367,000
in the first six months of 1996 from $385,000 in the same period of 1995.
Consolidated income before income taxes increased $1.4 million
to $4.0 million in the first six months of 1996, which included income of
$130,000 from foreign operations, compared to consolidated income before income
taxes of $2.6 million in the same period of 1995, which included a $136,000
loss from foreign operations. The provision for income taxes was $1.6 million
in the first six months of 1996 as compared to $1.1 million in the same period
of 1995 resulting in effective tax rates of 40.6% for 1996 and 41.6% for 1995.
The significant items that create the difference between the Company's federal
statutory and effective tax rates are foreign net operating losses unrecognized
for U.S. tax purposes, nondeductible amortization of goodwill, timing
differences created by depreciation, state and local income taxes, tax-exempt
interest income and certain other accrued expenses. The Company will not be
able to record a tax asset for losses incurred in its foreign operations until
such time, if any, that it has three years of profits in the applicable
jurisdiction. However, the Company will be able to recognize a tax benefit for
losses incurred in its foreign operations as the subsidiary generates taxable
income to the extent of the cumulative losses.
LIQUIDITY AND CAPITAL RESOURCES
The CRO industry is generally not capital intensive. The
Company's primary cash needs on both a short-term and long-term basis are the
payment of salaries, office rent and the travel expenditures of its employees.
The Company has historically financed these expenditures, as well as
acquisitions, with cash flow from operations, issuances of equity securities
and borrowings under its Credit Facility as defined below. The Company
utilizes its working capital to finance these expenditures pending receipt of
its receivables. Contract payments by the Company's clients vary according to
the terms of each contract. Capital expenditures have primarily been made for
computer system additions and upgrades and computer equipment for new
employees. Capital expenditures were $2.0 million in 1994 and $3.8 million in
1995 and are anticipated to be approximately $5 million in 1996.
The Company's contracts usually require a portion of the
contract amount to be paid at or near the time the trial is initiated.
Payments are generally made upon the completion of negotiated performance
requirements and, to a lesser extent, on a date certain basis throughout the
life of the contract. The Company has experienced a trend, which it expects
will continue, in which clients
10
<PAGE> 13
place less emphasis on prepayments and greater emphasis on negotiated
performance requirements. This is likely to increase days sales outstanding in
accounts receivable. However, the Company does not expect this trend to have a
significant impact on its ability to maintain its overall working capital.
Cash receipts do not correspond to costs incurred and revenue recognition
(which is based on cost-to-cost type of percentage of completion accounting).
Therefore, the Company's cash flow is influenced by the interaction of changes
in receivables and advance billings. The Company typically receives a low
volume of large-dollar cash receipts. Historically, the Company has received
significant cash receipts from its clients in the fourth quarter. As a result,
the number of days revenue outstanding in accounts receivable will fluctuate
due to the timing and size of cash receipts, particularly in the fourth
quarter. The number of days revenue outstanding in accounts receivable was 75
days at June 30, 1996 and 84 days at June 30, 1995. The number of days revenue
outstanding in accounts receivable net of advanced billings was 22 days at June
30, 1996 and 27 days at June 30, 1995.
During the six months ended June 30, 1996, net cash used by
operating activities totaled $2.8 million primarily due to net income, net of
non-cash expenses, of $3.8 million, a decrease in net advance payments to
investigators of $900,000, and a decrease in accounts receivable of $500,000
which were partially offset by a decrease in advance billings of $7.9 million.
Cash used in investing activities of $3.3 million during the six
months ended June 30, 1996 consisted principally of capital expenditures. Cash
provided by financing activities of $1.3 million for the same period resulted
principally from the issuance of common stock.
The Company had cash, cash equivalents and held-to-maturity
securities of $12.3 million at June 30, 1996 as compared to $15.2 million at
June 30, 1995.
The Company's Credit Facility consists of a $10.0 million line
of credit to be used for working capital and acquisition purposes at the
Company's discretion (the "Credit Facility"). Interest on any outstanding
portion of the Credit Facility is at the bank's prime lending rate (8.25% at
June 30, 1996) or LIBOR plus 200 basis points at the Company's option. The
Company pays a fee of .25% (annualized) of the unused portion of the available
borrowings. The fee is payable quarterly. The Company had no principal
borrowings outstanding under the Credit Facility as of June 30, 1996. The
Credit Facility is collateralized by the Company's assets and by a pledge of
the capital stock of its subsidiaries. The Credit Facility contains certain
financial and operational covenants including minimum levels for stockholders'
equity, working capital, and fixed charge coverage ratios. The Credit Facility
also limits the amount of capital expenditures, sale of any shares of capital
stock, incurrence of indebtedness or liens, investments and guarantees, and
prohibits the declaration or payment of dividends.
The Company signed a definitive agreement on May 24, 1996 to
combine into its organization the business and assets of Bio-Research
Laboratories Ltd., a privately held preclinical services company based in
Senneville, Quebec (the "Acquisition"). Effective July 24,
11
<PAGE> 14
1996 the Company offered 2,990,000 shares of its common stock priced at $30 per
share. Net proceeds to the Company from the offering were approximately $84.7
million, of which $65.0 million was used to fund the Acquisition.
The Company expects to continue expanding its operations through
internal growth and strategic acquisitions. The Company expects such
activities will be funded from existing cash, cash equivalents,
held-to-maturity securities, cash flow from operations, and available
borrowings under its Credit Facility. The Company estimates that such sources
of cash will be sufficient to fund the Company's current operations, including
expansions of its foreign operations, at least through 1997. Although the
Company has no present acquisition agreements or arrangements, other than the
Acquisition, there may be acquisition or other growth opportunities which
require additional external financing, and the Company may from time to time
seek to obtain additional funds from public or private issuances of equity or
debt securities. There can be no assurances that such financings will be
available on terms acceptable to the Company.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On May 3, 1996, the Company held its 1996 Annual Meeting of
Stockholders for the purpose of electing six directors and amending the
Company's 1989 Stock Option Plan to increase the number of shares available for
grant thereunder to 1,350,000.
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Herbert J. AMENDMENT
William C. Thomas G. Irwin B. Richard Edward G. Schulman, OF 1989 STOCK
O'Neil, Jr. Cigarran Eskind, M.D. J. Eskind Nelson M.D. OPTION PLAN
----------- --------- ------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
For 7,619,329 7,616,229 7,609,329 7,619,329 7,619,329 7,619,329 6,635,227
Against - - - - - - 207,632
Withheld 40,700 43,800 50,700 40,700 40,700 40,700 -
Abstentions - - - - - - 21,753
Non-Voting
(1) 1,176,018 1,176,018 1,176,018 1,176,018 1,176,018 1,176,018 1,971,435
--------- --------- --------- --------- --------- --------- ---------
Eligible
Shares 8,836,047 8,836,047 8,836,047 8,836,047 8,836,047 8,836,047 8,836,047
========= ========= ========= ========= ========= ========= =========
</TABLE>
(1) Includes broker non-votes.
ITEM 5. OTHER INFORMATION
Bio-Research Acquisition
The final closing of the acquisition of substantially all of the
assets of Bio-Research Laboratories Ltd., a Quebec pre-clinical services
company ("Bio-Research"), by the Company occurred on August 7, 1996. The
Company acquired the assets through arm's length negotiations with Bio-Research
and certain shareholders thereof. Prior to this transaction, no material
relationship existed between Bio-Research and the Company or any of its
affiliates, any director or officer of the Company, or any associate of such
director or officer. The Company intends to continue operating the acquired
assets of Bio-Research to perform pre-clinical services.
13
<PAGE> 16
The consideration for the acquisition comprised approximately
$65,000,000 cash. The Company funded substantially all of the consideration
through a registered public offering of its common stock, effective July 24,
1996.
The Consolidated Financial Statements of Bio-Research for the years
ended December 31, 1995, and 1994, including the Notes thereto, are
incorporated herein by reference to the Company's Current Report on Form 8-K
dated June 19, 1996.
In addition, the Company files herewith the attached Schedule A
containing introductory information and Unaudited Pro Forma Condensed Combined
Financial Statements, including the Notes thereto, reflecting the acquisition
of Bio-Research by the Company.
Glaxo Wellcome Strategic Alliance
During the third quarter of 1996 the Company signed a strategic
alliance with Glaxo Wellcome. The Company will perform a full range of
clinical research services on a global basis. The services to be provided will
initially include clinical monitoring, data management, biostatistics, quality
assurance and medical writing. The alliance with Glaxo Wellcome is similar to
those previously entered into with Baxter, Sandoz and SmithKline Beecham.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits furnished with this report are listed in the
Exhibit Index immediately following Schedule A.
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed a Current Report on Form 8-K dated June 19, 1996, as
amended by Form 8-K/A, disclosing the acquisition of
Bio-Research and certain consolidated financial statements of
Bio-Research and unaudited pro forma condensed combined
financial statements.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLINTRIALS RESEARCH INC.
Date: August 12, 1996 By: /s/ William C. O'Neil, Jr.
-------------------------------------
William C. O'Neil, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Date: August 12, 1996 By: /s/ John W. Robbins
-------------------------------------
John W. Robbins
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
15
<PAGE> 18
SCHEDULE A
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CLINTRIALS RESEARCH INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 1996............. F-3
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet......................... F-4
Unaudited Pro Forma Condensed Combined Statements of Income for the three months ended
March 31, 1996 and year ended December 31, 1995..................................... F-5
Notes to Unaudited Pro Forma Condensed Combined Statements of Income.................. F-7
</TABLE>
F-1
<PAGE> 19
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of income for the
year ended December 31, 1995 and for the three months ended March 31, 1996 gives
effect to the Acquisition as if it had occurred on January 1, 1995. The
unaudited pro forma condensed combined balance sheet as of March 31, 1996, gives
effect to the Acquisition as if it had occurred on March 31, 1996.
The unaudited pro forma condensed combined financial statements give effect
only to the reclassifications and adjustments set forth in the accompanying
Notes to unaudited pro forma condensed combined financial statements. The pro
forma financial information is provided as additional information only and is
not necessarily indicative of actual results that would have been achieved had
the Acquisition been consummated at the beginning of the periods presented or of
future results.
These statements have been prepared from the consolidated financial
statements of the Company and the financial statements of Bio-Research and
should be read in conjunction with such statements and the related Notes. The
financial statements of Bio-Research are included elsewhere herein by
incorporation by reference. The consolidated financial statements of the
Company are incorporated herein by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1995, as amended by Form
10-K/A dated June 14, 1996.
F-2
<PAGE> 20
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
AS REPORTED AS REPORTED TO REFLECT TO REFLECT COMBINED
CLINTRIALS BIO-RESEARCH ACQUISITION SUBTOTAL OFFERING PRO FORMA
----------- ------------ ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $16,831 $ 5,548 $ -- $ 22,379 $ 74,051(2) $ 31,430
(65,000)(2)
Accounts receivable....... 25,407 6,913 32,320 32,320
Other current assets...... 4,515 2,753 7,268 7,268
----------- ------------ ----------- -------- ----------- ---------
Total current assets........ 46,753 15,214 61,967 9,051 71,018
Property and equipment.... 13,387 28,439 41,826 41,826
Less accumulated
depreciation and
amortization............ 5,491 11,639 17,130 17,130
----------- ------------ ----------- -------- ----------- ---------
7,896 16,800 24,696 24,696
Excess of purchase price
over net assets
acquired.................. 6,965 38,367 (1) 45,332 45,332
Other assets................ 38 38 38
----------- ------------ ----------- -------- ----------- ---------
$61,652 $ 32,014 $ 38,367 $132,033 $ 9,051 $141,084
=========== ============ =========== ========= =========== =========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable and
accrued expenses........ $ 8,143 $ 3,192 $ -- $ 11,335 $ -- $ 11,335
Advance billings.......... 21,167 2,189 23,356 23,356
Payable to stockholders of
Bio-Research............ 65,000 (1) 65,000 (65,000)(2) --
----------- ------------ ----------- -------- ----------- ---------
Total current liabilities... 29,310 5,381 65,000 99,691 (65,000) 34,691
Deferred income taxes....... 234 234 234
Stockholders' equity:
Common stock.............. 88 3,128 (3,128)(1) 88 26(2) 114
Additional paid-in
capital................. 40,180 39 (39)(1) 40,180 74,025(2) 114,205
Retained earnings......... (8,229) 24,941 (24,941)(1) (8,229) (8,229)
Cumulative foreign
currency translation
adjustments............. 69 (1,475) 1,475 (1) 69 69
----------- ------------ ----------- -------- ----------- ---------
Total stockholders'
equity.................... 32,108 26,633 (26,633) 32,108 74,051 106,159
----------- ------------ ----------- -------- ----------- ---------
$61,652 $ 32,014 $ 38,367 $132,033 $ 9,051 $141,084
=========== ============ =========== ========= =========== =========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
F-3
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
(1) To record the purchase of the net assets (including the recording of excess
of purchase price over net assets acquired) and eliminate the
stockholders' equity of Bio-Research. No estimate of any purchase
accounting adjustments to record property and equipment at fair value has
been made at this time. ClinTrials expects to obtain and record a valuation
of Bio-Research's property and equipment within six months following the
Acquisition. It is not expected that the reclassification between excess of
purchase price over net assets acquired and property and equipment will be
significant to the combined balance sheet. The pro forma adjustments
reflect a temporary payable to the stockholders of Bio-Research to effect
the purchase of Bio-Research. The temporary payable would be satisfied from
the proceeds of the offering referred to in pro forma adjustment (2).
(2) To record the net proceeds from the completion of the offering of 2,617,334
shares of ClinTrials Common Stock at an assumed price of $30.00 per
share. Gross proceeds of $78.5 million, less estimated issuance costs of
$4.4 million, provides net proceeds of $74.1 million. A portion of the net
proceeds would be utilized to retire the temporary payable to the
stockholders of Bio-Research referred to in pro forma adjustment (1).
F-4
<PAGE> 22
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED PRO FORMA COMBINED PRO
CLINTRIALS BIO-RESEARCH ADJUSTMENTS FORMA(1)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net service revenue........................ $17,670 $6,324 $ -- $ 23,994
Operating costs:
Direct costs............................. 10,526 3,658 14,184
Selling, general and administrative
costs................................. 4,750 1,954 6,704
Depreciation and amortization............ 700 426 240(2) 1,366
----------- ------------ ----------- ------------
Income from operations..................... 1,694 286 (240) 1,740
Other income (expense):
Interest income.......................... 215 77 --(3) 292
Interest expense......................... (14) (1) (15)
----------- ------------ ----------- ------------
Income before income taxes................. 1,895 362 (240) 2,017
Provision for income taxes................. (782) 176 --(4) (606)
----------- ------------ ----------- ------------
Net income................................. $ 1,113 $ 538 $ (240) $ 1,411
========= ========= ========= ==========
Weighted average common shares............. 9,185 2,316(5) 11,501
========= ========= ==========
Earnings per common and common equivalent
share.................................... $ 0.12 $ 0.12
========= ==========
</TABLE>
See notes to unaudited pro forma condensed combined statement of income.
F-5
<PAGE> 23
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED PRO FORMA COMBINED
CLINTRIALS BIO-RESEARCH ADJUSTMENTS PRO FORMA(1)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net service revenue............................. $57,846 $ 26,342 $ -- $ 84,188
Operating costs:
Direct costs.................................. 34,850 14,408 49,258
Selling, general and administrative costs..... 15,209 8,024 23,233
Depreciation and amortization................. 2,287 1,573 959(2) 4,819
----------- ------------ ----------- ------------
Income from operations.......................... 5,500 2,337 (959) 6,878
Other income (expense):
Interest income............................... 744 373 --(3) 1,117
Interest expense.............................. (79) (10) (89)
----------- ------------ ----------- ------------
Income before income taxes...................... 6,165 2,700 (959) 7,906
Provision for income taxes...................... (2,564) 1,026 --(4) (1,538)
----------- ------------ ----------- ------------
Net income...................................... $ 3,601 $ 3,726 $ (959) $ 6,368
========= ========= ========= ==========
Weighted average common shares.................. 9,088 2,316(5) 11,404
========= ========= ==========
Earnings per common and common equivalent
share......................................... $ 0.40 $ 0.56
========= ==========
</TABLE>
See notes to unaudited pro forma condensed combined statement of income.
F-6
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF INCOME
(1) The pro forma condensed combined statements of income do not give effect to
any overhead reductions or cost savings, if any, which may be realized
after the consummation of the Acquisition.
(2) To adjust amortization expense. The excess of purchase price over net assets
acquired related to the Acquisition will be amortized over 40 years
using the straight line method. The amounts for the year ended December 31,
1995 and the three months ended March 31, 1996 were $959 and $240,
respectively. No estimate of any purchase accounting adjustments to record
property and equipment at fair value has been made at this time. ClinTrials
expects to obtain and record a valuation of Bio-Research's property and
equipment within six months following the Acquisition. It is not expected
that any reclassification between excess of purchase price over net assets
acquired and property and equipment would significantly affect amortization
expense.
(3) Interest income as a result of the cash proceeds received in excess of the
cash used to acquire Bio-Research and for costs of the Offering is not
reflected in the pro forma condensed combined statements of income. The
Company is presently earning a 4.11% yield on tax exempt investments. The
following table summarizes the total effect on the pro forma condensed
combined statements of income as if the interest had been earned on the
excess cash.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, 1995 ENDED MARCH 31, 1996
----------------- --------------------
<S> <C> <C>
Excess cash invested.................................. $ 9,051 $ 9,051
======= ========
Pro forma income, as stated........................... 6,368 1,411
Estimated tax exempt interest income.................. 372 93
------- --------
Pro forma income with excess cash invested............ $ 6,740 $ 1,504
======= ========
Pro forma weighted average shares outstanding for
entire offering..................................... 11,705 11,802
======= ========
Pro forma earnings per share after consideration of
investment of excess funds.......................... $ 0.58 $ 0.13
======= ========
</TABLE>
(4) The pro forma amortization adjustment (Note 2) does not affect the income
tax provision as such tax benefit of the amortization adjustment would
merely increase the federal and Quebec research and development tax credits
to be carried forward to future periods. The pro forma condensed combined
statements of income do not provide for deferred United States taxes on the
income earned by Bio-Research in Canada as ClinTrials intends to
permanently reinvest any earnings outside the United States.
(5) The weighted average common shares outstanding in the pro forma columns
include the 2,316,000 shares of Common Stock offered hereby that will
be used to fund the $65 million cost of the Acquisition. The calculation of
these shares is based on an offering price of $30.00 per share, net of
offering costs.
F-7
<PAGE> 25
EXHIBIT INDEX
Exhibit No.
- -----------
2 Asset Purchase Agreement among Bio-Research,
certain shareholders thereof, and the Company
(incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated June 19, 1996)
11 Computation of Earnings Per Common and
Common Equivalent Share
27 Financial Data Schedule (for SEC use only)
<PAGE> 1
Exhibit 11
ClinTrials Research Inc.
Computation of Earnings per Common and Common Equivalent Share
(in thousands, except for earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1996
------ ------
<S> <C> <C>
Net income $ 817 $1,276
====== ======
Average shares outstanding 8,770 8,862
Net effect of dilutive stock options - based on treasury
stock method using average market price 288 346
------ ------
Weighted average shares 9,058 9,208
====== ======
Earnings per common and common equivalent share $ 0.09 $ 0.14
====== ======
</TABLE>
<PAGE> 2
ClinTrials Research Inc.
Computation of Earnings per Common and Common Equivalent Share
(in thousands, except for earnings per share)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1996
------ ------
<S> <C> <C>
Net income $1,538 $2,389
====== ======
Average shares outstanding 8,775 8,877
Net effect of dilutive stock options - based on treasury
stock method using average market price 269 336
------ ------
Weighted average shares 9,044 9,213
====== ======
Earnings per common and common equivalent share $ 0.17 $ 0.26
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 12,274
<SECURITIES> 0
<RECEIVABLES> 21,754
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,679
<PP&E> 15,171
<DEPRECIATION> 6,090
<TOTAL-ASSETS> 53,821
<CURRENT-LIABILITIES> 18,864
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 34,644
<TOTAL-LIABILITY-AND-EQUITY> 53,821
<SALES> 0
<TOTAL-REVENUES> 37,064
<CGS> 0
<TOTAL-COSTS> 22,008
<OTHER-EXPENSES> 11,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 4,024
<INCOME-TAX> 1,635
<INCOME-CONTINUING> 2,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,389
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.26
</TABLE>
