SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 0-15515
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APPLIED BIOSCIENCE INTERNATIONAL INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2734293
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4350 N. Fairfax Drive
Arlington, VA 22203-1627
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 516-2490
---------------
Indicate by checkmark 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
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 28,175,048 shares of common
stock, par value $.01 per share, as of May 1, 1995.
APPLIED BIOSCIENCE INTERNATIONAL INC.
AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements.
Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and
March 31, 1994........................................3
Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994..................4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and
March 31, 1994........................................5
Notes to Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........8
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 Form 8-K..............................10
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Applied Bioscience International Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share data)
Three months ended March 31,
1995 1994
(unaudited) (unaudited)
----------- -----------
Pharmaco LSR revenues, net of subcontractor costs of
$6,860 and $5,077, respectively $ 33,354 $ 29,712
Environmental sciences revenues, net of subcontractor
costs of $1,358 and $764, respectively 12,419 10,483
------------ ------------
45,773 40,195
------------ ------------
Direct costs - Pharmaco LSR 24,049 21,767
Direct costs - Environmental sciences 8,689 6,681
Selling, general and administrative expenses 11,568 10,597
------------ ------------
44,306 39,045
------------ ------------
Operating income 1,467 1,150
Interest: (Expense) (829) (587)
Income 71 153
Other income, net 44 96
------------ ------------
Income from continuing operations before provision for
income taxes 753 812
Provision for income taxes 317 256
------------ ------------
Income from continuing operations 436 556
------------ ------------
Discontinued operations:
Operating losses from discontinued operations (net of
income tax benefit of $47) - (104)
------------ ------------
Net income $ 436 $ 452
============ ============
Weighted average number of common shares outstanding 28,430 28,386
============ ============
Earnings per common share:
Income from continuing operations $ 0.02 $ 0.02
Loss from discontinued operations 0.00 0.00
------------ ------------
Earnings per share $ 0.02 $ 0.02
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
Applied Bioscience International Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
March 31, December 31,
ASSETS 1995 1994
(unaudited)
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 4,467 $ 7,944
Accounts receivable, net 61,091 63,585
Supply inventories 1,142 1,163
Income tax receivable 2,586 2,297
Prepaid expenses and other current assets 6,288 6,077
------------ ------------
Total current assets 75,574 81,066
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 83,634 82,905
GOODWILL, less accumulated amortization 5,593 5,738
OTHER ASSETS 9,036 8,982
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 2,951 2,989
------------ ------------
Total assets $ 176,788 $ 181,680
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,259 $ 2,406
Accounts payable 4,472 6,156
Accrued liabilities 24,691 24,619
Advance billings 29,243 23,649
Net current liabilities of discontinued operations 826 553
------------ ------------
Total current liabilities 62,491 57,383
LONG-TERM DEBT 32,145 42,884
DEFERRED INCOME TAXES 11,806 11,348
DEFERRED RENT 1,281 1,357
------------ ------------
Total liabilities 107,723 112,972
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 40,000,000 shares
authorized, 29,520,000 shares issued and
outstanding 295 295
Paid-in capital 68,826 68,826
Retained earnings 12,498 12,062
Treasury stock, at cost, 1,347,000 shares (9,355) (9,355)
Unrealized loss on investments (778) (728)
Cumulative translation adjustment (1,709) (1,561)
Deferred compensation (712) (831)
------------ ------------
Total stockholders' equity 69,065 68,708
------------ ------------
Total liabilities and stockholders' equity $ 176,788 $ 181,680
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
Applied Bioscience International Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Three months ended March 31,
1995 1994
(unaudited) (unaudited)
------------ ------------
Cash flows from operating activities:
Net income $ 436 $ 452
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,950 1,677
Deferred income taxes 135 121
Deferred rent benefit (76) (76)
Deferred compensation expense 119 143
Change in assets and liabilities:
Decrease in accounts receivable, net 2,723 3,601
Increase in supply inventories, prepaid
expenses and other current assets (123) (490)
Decrease in other assets 100 280
Change in assets and liabilities of
discontinued operations, net 311 (2,594)
Decrease in accounts payable and accrued
liabilities (2,001) (2,781)
Increase in current income taxes 88 979
Increase (decrease) in advance billings 5,357 (3,133)
------------ ------------
Net cash provided by (used in)
operating activities 10,019 (1,821)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,636) (1,104)
------------ ------------
Cash flows from financing activities:
Short-term bank borrowings (repayments), net - (489)
Repayment of long-term debt (29,266) (1,123)
Other long-term borrowings 19,350 1,903
Proceeds from issuance of common stock - 214
------------ ------------
Net cash (used in) provided by
financing activities (9,916) 505
------------ ------------
Effect of exchange rate changes on cash (944) 204
------------ ------------
Net decrease in cash and cash equivalents (3,477) (2,216)
Cash and cash equivalents, beginning of the
period 7,944 10,549
------------ ------------
Cash and cash equivalents, end of the period $ 4,467 $ 8,333
============ ============
SUPPLEMENTAL INFORMATION
Cash Paid:
Interest expense, net of amount capitalized $ 854 $ 599
============ ============
Income Taxes $ 17 $ 130
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
Applied Bioscience International Inc. and Subsidiaries
Notes To Consolidated Financial Statements
1. BASIS OF PRESENTATION
---------------------
The financial statements as of March 31, 1995, and for the three
months ended March 31, 1995, and 1994, are unaudited. In the opinion of
management of Applied Bioscience International Inc. (the "Company"), the
unaudited financial statements as of March 31, 1995, and for the three months
ended March 31, 1995, and 1994, include all adjustments consisting of normal
recurring accruals necessary for a fair presentation. The results of operations
for the interim periods are not necessarily indicative of the results expected
for the full year.
Certain amounts in the prior year have been reclassified to
conform to current year presentation.
2. SEGMENT RESULTS
---------------
Results of the continuing operations by business segment are as
follows (unaudited, dollars in thousands):
Three months ended March 31,
1995 1994 % Change
--------- --------- ---------
NET REVENUES
Pharmaco LSR $ 33,354 $ 29,712 12.3%
APBI Environmental Sciences 12,419 10,483 18.5%
--------- ---------
Total $ 45,773 $ 40,195 13.9%
========= =========
OPERATING INCOME
Pharmaco LSR $ 1,562 $ 1,068 46.3%
APBI Environmental Sciences 2,452 2,537 (3.4%)
Corporate and other (2,547) (2,455) (3.7%)
--------- ---------
Total $ 1,467 $ 1,150 27.6%
========= =========
3. DISCONTINUED OPERATIONS
-----------------------
As of December 31, 1993, APBI adopted a plan to divest ETC, its
analytical laboratory division. In connection with the plan, APBI wrote down its
investment in ETC to estimated net realizable value and provided for losses
until its expected disposition. On August 3, 1994, the Company's subsidiary APBI
Environmental Sciences Group, Inc. along with PACE, Inc. and Coast-to-Coast
Analytical Services, Inc. each contributed to PACE Incorporated, a newly formed
entity, substantially all of the assets used in their respective environmental
laboratory businesses. This is the first step in the ultimate disposition of
ETC. In the fourth quarter of 1994, the Company recorded additional writedowns
to reduce the carrying value of the investment to the current net realizable
value. In June 1994, the Company adopted a plan to sell, and completed the sale
of, Paragon. The prior year consolidated statements of operations have been
restated to reclassify ETC and Paragon as discontinued operations to conform to
the current year presentation.
6
4. FINANCING AGREEMENT
-------------------
On May 24, 1994 the Company completed a refinancing of its principal
credit facility. The new three-year facility consists of a term loan of
$25,000,000 and a secured revolving line of credit of $20,000,000. Approximately
84% or $21,111,000 of the term loan accrues interest at a fixed rate of 9.25%
per annum and the remainder bears interest at the prime rate plus 1.5%.
Repayment of principal is scheduled to begin on September 1, 1995 at $892,900
per quarter. The secured revolving line of credit accrues interest at the prime
rate plus 1.5%. The proceeds from the loan were used to repay in full the
Company's then existing bank facility and a portion of its other long-term debt
and working capital debt. The unused portion will be used to provide working
capital and for general corporate purposes.
5. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115), issued in May
1993, changes the accounting treatment of certain equity investments. The
Company implemented SFAS 115 during the first quarter of 1994 with respect to
its investment in the common stock of EnSys. Under SFAS 115, the Company's
investment in EnSys is classified as "available for sale" and is carried at its
fair value of $2,918,000. Unrealized losses of $778,000 are reported as a
separate component of stockholders' equity.
6. EARNINGS PER COMMON SHARE
-------------------------
Earnings per common share were computed using the weighted average
number of common stock and common stock equivalents outstanding during the year.
Common equivalent shares are calculated using the treasury stock method and
consist primarily of shares issuable upon exercise of stock options.
7
Applied Bioscience International Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
- ---------------------
General
- -------
Applied Bioscience International Inc. (the "Company") recorded net
revenues for the quarter ended March 31, 1995 of $45,773,000, a 13.9% increase
from the first quarter of 1994. Net revenues from Pharmaco LSR, the Company's
life sciences business, were up 12.3% from the first quarter of 1994. Net
revenues from APBI Environmental Sciences Group, the Company's environmental
sciences business, were up 18.5% versus the comparable period last year.
Net income from continuing operations for the first quarter of 1995
was $436,000, or $0.02 per share compared to $452,000, or $0.02 per share for
the first quarter of 1994. The first quarter net income compares favorably to
the net loss from continuing operations of $248,000, or $0.01 per share reported
in the fourth quarter of 1994.
The Company is continuing to evaluate the long-term strategic fit
of its life sciences and environmental sciences businesses, as well as the
individual business units within these groups. At this time, the Company is
actively reviewing divestiture plans with respect to its Astrix division,
which sells and licenses certain software products.
After evaluating various strategic alternatives with respect to
ENVIRON, the Company believes that retention of ENVIRON as one of the Company's
core businesses is in the best interests of the Company's stockholders. In view
of the role of ENVIRON senior management within this business, the Company has
engaged an outside compensation consulting firm to advise the Company with
respect to the development of an appropriate incentive compensation program for
this business unit. Such an incentive program might be in addition to, or in
lieu of, the Company's existing "Economic Value Added" compensation program but
would include certain enhanced retention features and the possible negotiation
of certain employment or retention agreements. The existing employment contracts
with the four original ENVIRON founders who continue to be active within ENVIRON
come up for renewal in September 1995.
Three Months Ended March 31, 1995 Versus Three Months Ended March 31, 1994
- --------------------------------------------------------------------------
Net revenues from continuing operations increased $5,578,000 (13.9%)
to $45,773,000 for the three months ended March 31, 1995, from $40,195,000 for
the three months ended March 31, 1994. Of such increase, $3,642,000 (65.3%) was
attributable to the Company's life sciences business, and $1,936,000 (34.7%) was
attributable to the Company's environmental sciences business.
The increase in net revenues of the life sciences business was
principally due to the continued increase in demand for the Company's clinical
development services. The clinical development services business in North
America and Europe, which also includes the Company's biostatistical services in
North America and Europe, reported a net revenue increase of $3,600,000 (33.3%)
to $14,402,000 for the three months ended March 31, 1995, from $10,802,000 for
the same period last year. Net revenues from the Company's clinics, labs, and
toxicology business reported a slight increase of $42,000 (0.2%) to $18,952,000
for the quarter as compared to $18,910,000 for the comparable period last year.
Net revenues in the clinics, labs, and toxicology business were impacted by
several project delays and cancellations at the analytical laboratory in
Richmond, Virginia and at the toxicology laboratory in Europe.
The $1,936,000 increase in net revenues in the Company's
environmental sciences business was generated by increased volume of consulting
services provided by its ENVIRON division. ENVIRON's net revenues increased
$2,166,000 (21.1%) to $12,411,000 in the first quarter of 1995 as compared to
the first quarter of 1994. Offsetting ENVIRON's net revenue increase versus last
year was $230,000 of miscellaneous net revenue reported in the first quarter
last year without corresponding revenue in the first quarter of 1995.
Direct costs increased in the first quarter by $4,290,000 (15.1%)
over the first quarter last year. Of such increase, $2,282,000 was attributable
to Pharmaco LSR and $2,008,000 was attributable to the Company's Environmental
Sciences Group. The increase in the direct costs of Pharmaco LSR relates to the
overall increase in business. The 10.5% increase in direct costs, primarily
higher physician costs and depreciation expense at Pharmaco LSR, compares
favorably to the net revenue increase of 12.3% previously mentioned.
8
Consequently, as a percentage of net revenue, direct costs of the life sciences
group decreased to 72.1% in the first quarter of 1995 as compared to 73.3%
during the first quarter last year. In the environmental sciences business, the
percentage of direct costs to net revenues increased to 70.0% from 63.7%. The
increase was attributable to start up of the new air sciences office in Novato,
California, and increased payroll related taxes and benefits.
Selling, general and administrative expenses increased $971,000
(9.2%) to $11,568,000 in the first quarter of 1995 compared to $10,597,000 for
the same period last year. As a percentage of net revenues, selling, general and
administrative expenses decreased to 25.3% in 1995 compared to 26.4% in 1994.
The dollar increase was due in part to expenses related to the Company's
investment in information technology. The investment, in the form of computer
and systems personnel, higher depreciation and amortization of hardware and
software as well as higher communications costs allow the Company to better
manage data flow and collection to improve the overall speed and quality of
service to our clients.
Operating income increased $317,000 (27.6%) to $1,467,000 in the
first three months of 1995 as compared to $1,150,000 for the first three months
of 1994. As a percentage of net revenue, operating income increased to 3.2% in
1995 compared to 2.9% in 1994.
Interest expense, net of interest income, increased to $758,000 in
the first quarter of 1995 from $434,000 in the first quarter of 1994 due
principally to an increase in the prime rate by approximately three hundred
basis points.
Liquidity
- ---------
During the three months ended March 31, 1995, the Company expended
$2,636,000 for capital additions. Expenditures included $951,000 for expansion
and improvement of offices and laboratory testing facilities and $1,685,000 for
new laboratory, office, and computer equipment.
On May 24, 1994, the Company completed a refinancing of its
principal credit facility. The new three-year facility consists of a term loan
of $25,000,000 and a secured revolving line of credit of $20,000,000.
Approximately 84% or $21,111,000 of the term loan accrues interest at a fixed
rate of 9.25% per annum and the remainder bears interest at the prime rate plus
1.5%. Repayment of principal is scheduled to begin on September 1, 1995 at
$892,900 per quarter. The secured revolving line of credit accrues interest at
the prime rate plus 1.5%. The rate is subject to reduction at March 31, 1995,
and each quarter thereafter if certain covenants related to financial
performance are met. The Company's financial performance in the first quarter
did not result in an interest rate reduction. The proceeds from the loan were
used to repay in full the Company's then existing bank facility and a portion of
its other long-term debt and working capital debt. The unused portion will be
used to provide working capital and for general corporate purposes. As of March
31, 1995, the Company has $4,467,000 cash and cash equivalents on hand and has
$17,710,000 available under its lines of credit.
The Company believes that cash flow generated by its own operating
activities, together with its current borrowing capacity, is adequate to finance
its world-wide operations and normal growth of its business. Further growth of
the Company's business also may be funded through additional borrowings, the
sale of non-strategic assets or through issuance of shares of common stock by
the Company.
9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
None.
ITEM 2. Changes in Securities.
----------------------
Not Applicable.
ITEM 3. Defaults upon Senior Securities.
--------------------------------
Not Applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
ITEM 5. Other Information.
------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibit 10.34 Interim Employment Agreement by and between
Pharmaco LSR International Inc. and Charles L. Defesche
dated as of March 1, 1995
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
10
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.
APPLIED BIOSCIENCE INTERNATIONAL INC.
-------------------------------------
(Registrant)
By /s/ Kenneth H. Harper
----------------------------------
President
(Chief Executive Officer)
By /s/ Jamie G. Donelan
----------------------------------
Controller
(Chief Accounting Officer)
Date: May 12, 1995
11
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Number
- ----- ------
10.34 Interim Employment Agreement by and between Pharmaco
LSR International Inc. and Charles L. Defesche
dated as of March 1, 1995 13
11. Computation of Earnings Per Share 18
27. Financial Data Schedule 19
12