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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, 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 0-15515
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
incorporation or organization) Identification Number)
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
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The number of shares outstanding of the registrant's classes of common
stock, par value $0.01 per share, was 29,537,164 as of May 3, 1996.
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INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Condensed Statements of Operations for the
Three Month Periods Ended March 31, 1996, and 1995 3
Consolidated Condensed Balance Sheets as of
March 31, 1996, and December 31, 1995 4
Consolidated Condensed Statements of Cash Flows for the
Three Month Periods Ended March 31, 1996, and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three months ended March 31,
----------------------------------------
1996 1995
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Life sciences revenues, net of subcontractor costs of
$4,756 and $6,860, respectively $25,555 $33,354
Environmental sciences revenues, net of subcontractor
costs of $882 and $1,358, respectively 11,834 12,419
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37,389 45,773
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Direct costs - Life sciences 16,295 24,049
Direct costs - Environmental sciences 8,793 8,689
Selling, general and administrative expenses 10,365 11,568
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35,453 44,306
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Operating income 1,936 1,467
Interest income (expense), net 128 (758)
Other (expense) income (85) 44
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Income before provision for income taxes 1,979 753
Provision for income taxes 752 317
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Net income $1,227 $436
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Weighted average number of common
shares outstanding 29,685 28,430
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Earnings per share $0.04 $0.02
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The accompanying notes are an integral part of these
consolidated condensed financial statements.
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
(unaudited) (audited)
March 31, December 31,
1996 1995
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,683 $ 11,304
Accounts receivable, net 56,426 54,426
Prepaid expenses and other current assets 6,843 6,601
Deferred tax asset 4,067 4,756
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Total current assets 76,019 77,087
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 21,086 21,515
GOODWILL, less accumulated amortization 10,048 10,041
OTHER ASSETS 6,439 6,514
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$113,592 $115,157
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 277 $ 322
Accounts payable 3,294 7,089
Accrued liabilities 21,659 26,749
Advance billings 12,971 9,536
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Total current liabilities 38,201 43,696
LONG-TERM DEBT 552 572
DEFERRED RENT 2,912 3,010
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Total liabilities 41,665 47,278
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STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 40,000,000
shares authorized, 30,235,000 and 29,724,000
shares issued and outstanding, respectively 302 297
Paid-in capital 72,244 69,598
Retained earnings 4,371 3,144
Treasury stock, at cost, 713,000 shares (4,335) (4,335)
Unrealized loss on investments (78) --
Cumulative translation adjustment (183) (425)
Deferred compensation (394) (400)
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Total stockholders' equity 71,927 67,879
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$113,592 $115,157
=============== ==============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended March 31,
-------------------------------------
1996 1995
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Cash flows from operating activities:
Net income $1,227 $ 436
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,982 2,950
Other 732 178
Change in operating assets and liabilities (7,692) 6,455
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Net cash (used in) provided by operating activities (3,751) 10,019
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Cash flows from investing activities:
Purchases of property and equipment, net (1,530) (2,636)
Other (213) --
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Net cash used in investing activities (1,743) (2,636)
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Cash flows from financing activities:
Repayment of long-term debt, net (64) (9,916)
Proceeds from issuance of stock 2,516 --
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Net cash provided by (used in) financing activities 2,452 (9,916)
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Effect of exchange rate changes on cash 421 (944)
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Net decrease in cash and cash equivalents (2,621) (3,477)
Cash and cash equivalents, beginning of the period 11,304 7,944
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Cash and cash equivalents, end of the period $8,683 $4,467
========== ==========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited
consolidated condensed financial statements reflect all the normal recurring
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods presented. The results for
the three month period ended March 31, 1996, may not necessarily be indicative
of the results for the entire fiscal year.
These financial statements should be read in conjunction with the
Company's annual audited financial statements, as filed with the Securities and
Exchange Commission on Form 10-K, for the year ended December 31, 1995.
2. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation." SFAS No. 123 provides companies the
option to account for employee stock compensation awards based on their
estimated fair value at the date of grant, resulting in a charge to income in
the period the awards are granted, or to present pro forma footnote disclosure
describing the effect to the company's net income and net income per share
data. The Company has elected to adopt the disclosure provisions of SFAS
No. 123. The adoption of this standard had no effect on the Company's results
of operations.
3. 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.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated condensed
financial statements of prior periods to conform to the current period
presentation.
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
In the first quarter of 1996, the Company reported net income of $1.2
million, or $0.04 per share, compared to net income of $0.4 million, or $0.02
per share last year. The Company's improvement in net income is attributable
to the strategic decisions made by senior management over the past two years.
The divestiture of the capital-intensive toxicology business completed in
November 1995, coupled with the acquisition of the Leicester, England, Phase I
laboratory are key factors in the Company's financial improvement. In
addition, the sale-leaseback of the Company's real estate in Austin, Texas,
also completed in November 1995, provided net proceeds of approximately $11.0
million and has contributed significantly to the positive change in net
interest of $0.9 million in the quarter, as compared to last year.
The Company is continuing to evaluate the long-term strategic fit of
its life sciences and environmental sciences businesses and ways to enhance
shareholder value.
THREE MONTHS ENDED MARCH 31, 1996, VERSUS THREE MONTHS ENDED MARCH 31, 1995
Net revenues decreased 18.3% to $37.4 million in the first quarter of
1996 from $45.8 million for the same period last year, with the decrease in
revenues being attributable to the sale of the Company's toxicology operations
in November 1995. The Company's Life Sciences Group, which includes Pharmaco
and Clinix, generated total net revenues of $25.6 million, down $7.8 million or
23.4% from a year ago. Net revenues from the Company's Environmental Sciences
Group were $11.8 million, compared with $12.4 million in 1995, a decrease of
$0.6 million or 4.7%.
After elimination of the net revenues from the Company's former
toxicology operations ($10.7 million in the first quarter of last year), total
net revenues increased 6.6% as compared to 1995. Results of operations which
exclude the results of the divested businesses are considered the results of
the Company's ongoing operations.
Net revenues from the ongoing Life Sciences Group businesses increased
12.8% from 1995. The growth in the Company's ongoing Life Sciences Group was
due in part to an increase in the size and scope of contracts in the European
clinical development and biostatistics business. The net revenues from the
Company's European clinical development and biostatistics business increased
23.0% to $3.1 million. An increase in demand for the Company's analytical
chemistry services resulted in a strong net revenue increase at the Richmond,
Virginia, laboratory. Net revenues in Richmond increased 36.8% to $4.3 million
as compared to the $3.1 million in revenues for the same period last year. The
acquisitions of CCCR and the Phase I facility in Leicester, England, both
completed in the second half of 1995, contributed net revenues of $2.6 million
in the quarter.
The decrease in net revenues from ENVIRON, the Company's environmental
consulting business and the sole ongoing operation in the Environmental
Sciences Group, is due in part to a slowdown in the environmental consulting
industry due to the political uncertainties in this election year.
Direct costs decreased 23.3% to $25.1 million in 1996 from $32.7
million last year and declined as a percentage of net revenues to 67.1% from
71.5%. In the Life Sciences Group, direct costs decreased as a percentage of
net revenues to 63.8% from 72.1%. The decrease in direct costs is principally
due to the divestiture of the Company's toxicology business in the fourth
quarter last year. In the first quarter of 1995, the worldwide toxicology
business reported direct costs of $8.2 million or 76.3% of its net revenues.
On an ongoing basis, which excludes the impact of the toxicology business, Life
Sciences direct costs of 63.8% compare favorably to 70.1% last year, due to
higher labor utilization and a focused effort to control costs across all
business segments. In the Environmental Sciences Group, direct costs as a
percentage of net revenues increased to 74.3% from 70.0% last year. The
increase in direct costs as a percentage of net revenues is attributable to
lower consultant utilization. In the first quarter of 1996, ENVIRON's
consultant utilization was 72.0% compared to a utilization rate of 79.0%, for
the same period last year.
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Selling, general, and administrative expenses decreased 10.4% to $10.4
million from $11.6 million in 1995. As a percentage of net revenues, selling,
general, and administrative expenses increased to 27.7% from 25.3% last year.
After factoring out the selling, general, and administrative expenses
associated with the divested toxicology business ($3.0 million in the first
quarter of 1995), selling, general, and administrative expenses increased
approximately 21.0% or $1.8 million in the first quarter this year as compared
to the first quarter of 1995. Selling, general, and administrative expenses
from the Chicago Center for Clinical Research and the Leicester Phase I
laboratory comprise $0.9 million of the increase and the Company has incurred
incremental rent expense of $0.3 million associated with the sale-leaseback of
its real estate in Austin, Texas, (this increase is partially offset by lower
interest expense). The remaining increase of $0.6 million is primarily
attributable to the recent investment in Pharmaco's business development and
marketing groups. During the later half of 1995, Pharmaco expanded its
business development group by sixteen people.
Operating income increased $0.4 million (32.0%) to $1.9 million in the
first three months of 1996 as compared to $1.5 million for the first three
months of 1995. As a percentage of net revenues, operating income increased to
5.2% in 1996 compared to 3.2% in 1995.
The Company reported net interest income of $0.1 million compared to
net interest expense of $0.8 million last year. In the first quarter this
year, the Company had approximately $9.0 million cash invested with no long-
term bank debt. At the end of the first quarter last year, the Company had $35
million of debt outstanding at an annual interest rate of approximately 9.25%.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1996, the Company experienced
a net decrease in cash from operating activities of $3.8 million, primarily due
to decreases in accounts payable and accrued expenses, offset by increases in
advance billings. Capital expenditures totaled $1.5 million. The Company
experienced an increase in cash from financing activities of $2.5 million,
caused primarily by proceeds received from the exercise of stock options. Most
of such proceeds were received from employees of the Company's former
toxicology operations, who generally had until February 1996 to exercise stock
options which were exercisable at the date those operations were sold in
November 1995.
The Company has a $20.0 million revolving line-of-credit term-loan
facility which accrues interest on amounts borrowed at a floating rate equal to
prime plus 1.0% per annum. The rate is adjusted on a quarterly basis and is
subject to reduction if certain covenants related to financial performance are
met. Based on the first and second quarters of 1995, the variable rate was
reduced from 1.5% to 1.0% over prime. The unused portion of the loan is
available to provide working capital and for general corporate purposes. As of
March 31, 1996, the Company has $8.7 million of cash and cash equivalents on
hand and has no amounts outstanding under its line of credit. The
line-of-credit loan agreement provides an additional $5.0 million for letters
of credit to back guarantees or insurance policies. At March 31, 1996, open
letters of credit were issued for $0.7 million.
As of March 31, 1996, the Company has $1.5 million available under a
master lease agreement to provide a means to lease rather than acquire certain
equipment for use in the United States without drawing on its principal credit
facility.
The Company believes that cash flow generated by its own operating
activities, together with its current borrowing capacity, is sufficient to
finance its world-wide operations and normal growth of its business at least
through 1996. 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.
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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 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
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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.
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(Registrant)
By /s/ Kenneth H. Harper
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President, Chief Executive Officer
and Chairman of the Board
By /s/ Carol P. Hanna
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Controller
(Chief Accounting Officer)
Date: May 13, 1996
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INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Number
- - ------ ------
11 Computation of Earnings Per Share 12
27 Financial Data Schedule
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