1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 19, 1996
CLINTRIALS RESEARCH INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-69586 62-1406017
- ----------------------------- --------------------- -------------------
(State or Other (Commission File No.) (I.R.S. Employer
Jurisdiction of Incorporation Identification No.)
One Burton Hills Boulevard
Suite 210
Nashville, Tennessee 37215
- ---------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 665-9665
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
2
ITEM 5. OTHER EVENTS.
On May 24, 1996, the Registrant announced a definitive Asset Purchase
Agreement with Bio-Research Laboratories Ltd., of Montreal
("Bio-Research"). In connection with the pending acquisition, the Registrant
files the attached documents, which the Registrant deems of importance to
security holders.
1. Consolidated Financial Statements of Bio-Research for the years ended
December 31, 1995 and 1994, including the Notes thereto.
2. Unaudited Pro Forma Condensed Combined Financial Statements,
including the Notes thereto, reflecting the pending acquisition
of Bio-Research by the Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
2. Asset Purchase Agreement among Bio-Research, certain shareholders
thereof, and the Registrant*
23. Consent of Ernst & Young LLP
---------
* This exhibit contains a list of exhibits which are not being filed
herewith. The Registrant shall furnish supplementally a copy of any such
omitted exhibit to the Securities and Exchange Commission upon request.
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 hereunto duly authorized.
CLINTRIALS RESEARCH INC.
June 19, 1996 /s/ John W. Robbins
-------------------------
John W. Robbins
Chief Financial Officer
3
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
BIO-RESEARCH LABORATORIES LTD. FINANCIAL STATEMENTS
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1994 and 1995; and March 31, 1996
(unaudited)......................................................................... F-3
Statements of Income for the years ended December 31, 1993, 1994 and 1995; and for the
three months ended March 31, 1995 and 1996 (unaudited).............................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995; and for the three months ended March 31, 1995 and 1996 (unaudited)............ F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995; and for
the three months ended March 31, 1995 and 1996 (unaudited).......................... F-6
Notes to Financial Statements......................................................... F-7
CLINTRIALS RESEARCH INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 1996............. F-14
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet......................... F-15
Unaudited Pro Forma Condensed Combined Statements of Income for the three months ended
March 31, 1996 and year ended December 31, 1995..................................... F-16
Notes to Unaudited Pro Forma Condensed Combined Statements of Income.................. F-18
F-1
4
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ClinTrials Research Inc.
We have audited the accompanying balance sheets of Bio-Research
Laboratories Ltd. as of December 31, 1995 and 1994, and the related statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bio-Research Laboratories
Ltd. at December 31, 1995 and 1994, and the results of operations and cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
February 6, 1996,
except for Note 12, as to which the date is
May 24, 1996
F-2
5
BIO-RESEARCH LABORATORIES LTD.
BALANCE SHEETS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
DECEMBER 31, MARCH 31,
------------------ 1996
1994 1995 ------------
------- ------- (UNAUDITED --
NOTE 13)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,172 $ 5,699 $ 5,548
Accounts receivable....................................... 7,553 8,598 6,913
Tax credits receivable.................................... 2,536 1,136 1,331
Other current assets...................................... 620 676 1,422
------- ------- ------------
Total current assets.............................. 14,881 16,109 15,214
Property and equipment:
Land...................................................... 303 312 312
Buildings................................................. 13,407 13,918 14,154
Equipment................................................. 12,734 13,742 13,973
------- ------- ------------
26,444 27,972 28,439
Less accumulated depreciation............................. 10,049 11,238 11,639
------- ------- ------------
16,395 16,734 16,800
Other assets................................................ 149 238 --
------- ------- ------------
Total assets...................................... $31,425 $33,081 $ 32,014
======= ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,728 $ 3,365 $ 2,543
Advance billings.......................................... 1,887 2,940 2,189
Other current liabilities................................. 603 633 649
------- ------- ------------
Total current liabilities......................... 6,218 6,938 5,381
Stockholders' equity:
Common Stock, no par value -- unlimited shares authorized;
issued and outstanding 11,466,280 shares in 1994, 1995
and 1996, respectively................................. 3,128 3,128 3,128
Additional paid-in capital................................ 39 39 39
Retained earnings......................................... 24,225 24,403 24,941
Cumulative foreign currency translation adjustments....... (2,185) (1,427) (1,475)
------- ------- ------------
Total stockholders' equity........................ 25,207 26,143 26,633
------- ------- ------------
Total liabilities and stockholders' equity........ $31,425 $33,081 $ 32,014
======= ======= ==========
See accompanying notes.
F-3
6
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF INCOME
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
(UNAUDITED --
NOTE 13)
Service revenue.................................. $22,418 $24,504 $26,342 $7,379 $6,324
Operating costs and expenses:
Direct costs................................... 12,942 13,184 14,408 3,536 3,658
Selling, general and administrative expenses... 7,176 7,804 8,024 2,135 1,954
Depreciation................................... 1,141 1,347 1,573 437 426
------- ------- ------- ------ ------
Income from operations........................... 1,159 2,169 2,337 1,271 286
Other income (expense):
Interest income................................ 110 139 325 100 75
Other income................................... 69 72 48 8 2
Interest expense............................... (47) (31) (10) (2) (1)
------- ------- ------- ------ ------
132 180 363 106 76
------- ------- ------- ------ ------
Income before income taxes....................... 1,291 2,349 2,700 1,377 362
Provision for income taxes....................... (1,117) (1,100) (1,026) (202) (176)
------- ------- ------- ------ ------
Net income....................................... $ 2,408 $ 3,449 $ 3,726 $1,579 $ 538
======= ======= ======= ====== ======
See accompanying notes.
F-4
7
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
---------- ------ ---------- -------- ----------- -------
Balance at January 1, 1993........... 11,466,280 $3,128 $ 39 $ 18,368 $(1,266) $20,269
Foreign currency translation
adjustments..................... -- -- -- 451 451
Net income......................... -- -- -- 2,408 -- 2,408
---------- ------ --- -------- ----------- -------
Balance at December 31, 1993......... 11,466,280 3,128 39 20,776 (815) 23,128
Foreign currency translation
adjustments..................... -- -- -- (1,370) (1,370)
Net income......................... -- -- -- 3,449 -- 3,449
---------- ------ --- -------- ----------- -------
Balance at December 31, 1994......... 11,466,280 3,128 39 24,225 (2,185) 25,207
Foreign currency translation
adjustments..................... -- -- -- 758 758
Payment of dividend................ -- -- -- (3,548) -- (3,548)
Net income......................... -- -- -- 3,726 -- 3,726
---------- ------ --- -------- ----------- -------
Balance at December 31, 1995
(Unaudited -- Note 13)............. 11,466,280 3,128 39 24,403 (1,427) 26,143
Foreign currency translation
adjustments..................... -- -- -- -- (48) (48)
Net income......................... -- -- -- 538 -- 538
---------- ------ --- -------- ----------- -------
Balance at March 31, 1996
(Unaudited -- Note 13)............. 11,466,280 $3,128 $ 39 $ 24,941 $(1,475) $26,633
========= ====== ======= ======= ========= =======
See accompanying notes.
F-5
8
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF CASH FLOWS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
(UNAUDITED --
NOTE 13)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 2,408 $ 3,449 $ 3,726 $ 1,579 $ 538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 1,141 1,347 1,573 437 426
Changes in operating assets and liabilities:
Accounts receivable.......................... (1,544) (230) (1,045) (6) 1,685
Advance billings............................. 1,140 (163) 1,053 (814) (751)
Accounts payable............................. 884 886 (363) (750) (822)
Taxes receivable............................. 425 (1,202) 1,400 809 (195)
Other current assets......................... (6) 11 (56) (298) (746)
Other current liabilities.................... 71 (310) 30 155 16
Other assets................................. -- (149) (89) 149 238
------- ------- ------- ------- ------
Net cash provided by operating
activities............................ 4,519 3,639 6,229 1,261 389
CASH FLOWS FROM INVESTING ACTIVITY
Purchases of property and equipment, net.......... (1,831) (2,217) (1,912) (253) (492)
CASH FLOWS FROM FINANCING ACTIVITY
Payment of dividend............................... $ -- $ -- $(3,548) $ -- $ --
Effect of exchange rate changes on cash........... 451 (1,370) 758 54 (48)
------- ------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents..................................... 3,139 52 1,527 1,062 (151)
Cash and cash equivalents at beginning of
period.......................................... 981 4,120 4,172 4,172 5,699
------- ------- ------- ------- ------
Cash and cash equivalents at end of period........ $ 4,120 $ 4,172 $ 5,699 $ 5,234 $5,548
======= ======= ======= ======= ======
Supplemental cash flow information:
Interest paid................................... $ 47 $ 31 $ 10 $ 2 $ 1
======= ======= ======= ======= ======
Income tax payments (refunds)................... $(1,930) $ 280 $(2,480) $(1,182) $ --
======= ======= ======= ======= ======
See accompanying notes.
F-6
9
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Bio-Research Laboratories Ltd. ("Bio-Research"), located in Montreal,
Quebec, Canada, is an independent contract research laboratory providing
preclinical research services to clients in the pharmaceutical, biotechnology,
chemical and medical device industries, primarily serving the United States, the
Far East, Europe and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS
The functional currency of Bio-Research is Canadian dollars. Assets and
liabilities amounts of Bio-Research are translated into U.S. dollars at the
year-end rate of exchange, and the income statements amounts are translated at
the average rates of exchange for the period. Gains or losses from translating
financial statements are accumulated in a separate component of stockholders'
equity.
Bio-Research enters into forward exchange contracts with banks to hedge
foreign currency transactions, and not to engage in currency speculation. Gains
and losses on forward exchange contracts to hedge future transactions are
deferred and accounted for as part of the cost of these transactions.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and cash equivalents
include demand deposits and money market accounts held with a financial
institution. Bio-Research considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Revenue from contracts is recorded as costs are incurred and includes
estimated earned fees or profits calculated on the basis of the relationship
between costs incurred and total estimated costs (cost-to-cost type of
percentage-of-completion method of accounting). Certain contracts contain
provisions for price redetermination for cost overruns. Such redetermined
amounts are included in service revenue when realization is assured and the
amounts can reasonably be determined. Estimated amounts representing contract
change orders, claims or funding limitations are included in service revenue
only when realization is probable. In the period in which it is determined that
a loss will result from the performance of a contract, the entire amount of the
estimated ultimate loss is charged against income. Other changes in estimates of
service revenue, costs and profits are recognized using the cumulative catch-up
method of accounting. This method recognizes in the current period the
cumulative effect of the changes on current and prior periods. Hence, the effect
of the changes on future periods of contract performance is recognized as if the
revised estimates had been the original estimates.
UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables arise from those contracts under which billings can
only be rendered upon the achievement of certain negotiated performance
requirements or on a date-certain basis. Advance billings represent contractual
prebillings for services not yet rendered.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the respective properties, which approximate three to forty
years.
F-7
10
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARDS
Bio-Research has considered the impact of newly issued financial accounting
pronouncements, principally Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and does not believe that adoption of this and any other newly
issued pronouncements would have a significant impact on Bio-Research's
financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
DECEMBER 31,
---------------
1994 1995
------ ------
Trade:
Billed............................................................. $4,618 $5,491
Unbilled........................................................... 2,969 2,657
Reserve for doubtful accounts...................................... (814) (73)
------ ------
6,773 8,075
Other................................................................ 780 523
------ ------
$7,553 $8,598
====== ======
4. UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables and advance billings on contracts were as follows (in
thousands):
DECEMBER 31,
-------------------
1994 1995
-------- --------
Gross revenue recognized on uncompleted projects................. $ 17,691 $ 19,580
Less billings to date............................................ (16,609) (19,863)
-------- --------
$ 1,082 $ (283)
======== ========
Included in accompanying balance sheets under the following
captions:
Accounts receivable............................................ $ 2,969 $ 2,657
Advance billings............................................... (1,887) (2,940)
-------- --------
$ 1,082 $ (283)
======== ========
5. LONG-TERM DEBT
Bio-Research has a credit facility in the amount of up to the lesser of
$3.7 million or the sum of 75% of trade accounts receivable and 25% of unbilled
receivables. On December 31, 1994 and 1995, there were no amounts outstanding on
the above credit facility.
Interest on any outstanding portion of the credit facility is at the bank's
prime lending rate (8.5% at December 31, 1995). The credit facility is
collateralized by all accounts receivable of Bio-Research.
At December 31, 1994 and 1995, Bio-Research was in compliance with all
covenants of the credit facility.
F-8
11
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASES
Bio-Research leases various equipment items under operating leases.
Minimum rental commitments payable in future years under operating leases
having an initial or remaining noncancelable term of one year or more are as
follows (in thousands):
1996.......................................................................... $201
1997.......................................................................... 198
1998.......................................................................... 183
1999.......................................................................... 161
2000.......................................................................... 161
----
Total minimum rentals............................................... $903
====
Total rent expense for all operating leases was approximately $210,000,
$211,000 and $182,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
7. INCOME TAXES
Significant components of Bio-Research's deferred tax liabilities and
assets as of December 31, 1994 and 1995 are as follows (in thousands):
DECEMBER 31,
-----------------
1994 1995
------- -------
Deferred tax assets:
Research and development credit carryforward..................... $10,592 $10,036
Undeducted research and development expenditures................. 1,854 2,328
Other.............................................................. 399 327
------- -------
Total deferred tax assets................................ 12,845 12,691
Valuation allowance for deferred tax assets........................ (6,868) (6,758)
------- -------
Net deferred tax assets............................................ 5,977 5,933
Deferred tax liability:
Depreciation and amortization.................................... (5,487) (5,778)
Other............................................................ (490) (155)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
At December 31, 1995, Bio-Research had unrealized research and development
tax credits, net of income tax effect, of $10,036. These credits expire in years
1997 through 2005. For financial reporting purposes, a valuation allowance of
$6,758 has been recognized to offset the deferred tax assets related to those
carryforwards. The net deferred tax asset reflects a decrease in the valuation
allowance of approximately $110.
Significant components of the provision for income taxes attributable to
income before income taxes, extraordinary item and cumulative effect of
accounting change are as follows (in thousands):
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
Current:
Federal................................................. $ 314 $ 73 $ --
Provincial.............................................. (1,431) (1,173) (1,026)
Deferred.................................................. -- -- --
------- ------- -------
Provision for income taxes................................ $(1,117) $(1,100) $(1,026)
======= ======= =======
F-9
12
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Bio-Research's effective tax rate differed from the federal statutory rate
in Canada as set forth below (in thousands):
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
Federal statutory rate.................................... $ 372 $ 677 $ 785
Provincial income taxes................................... 151 322 246
Federal Research & Development Tax Credit, net of taxes... (419) (1,203) (987)
Quebec Research & Development Tax Credit, net of taxes.... (1,075) (970) (917)
Other..................................................... (146) 74 (153)
------- ------- -------
$(1,117) $(1,100) $(1,026)
======= ======= =======
8. STOCK OPTION PLAN
During 1992, Bio-Research adopted a stock option plan for certain key
employees and outside directors to purchase common shares. The options issued
under this plan vest over a period of five years for key employees and over a
period of three years for outside directors.
The 1992 Stock Option Plan provides for the grant of options to purchase up
to 802,640 shares of Common Stock to directors, officers and other key persons.
Information with respect to the 1992 Stock Option Plan is as follows:
1993 1994 1995
-------------- -------------- --------------
Options outstanding at January 1.......... 599,820 634,820 664,820
Granted................................. 35,000 30,000 55,500
Exercised............................... -- -- --
Canceled................................ -- -- --
-------------- -------------- --------------
Outstanding at December 31................ 634,820 664,820 720,320
============ ============ ============
Option price range at December 31......... $2.04 to $2.97 $2.04 to $2.97 $2.04 to $5.23
============ ============ ============
Options exercisable at December 31........ 153,455 281,669 448,674
============ ============ ============
At December 31, 1993, 1994 and 1995, there were 167,820, 137,820 and 82,320
shares, respectively, available for grant.
9. EMPLOYEE BENEFITS
Bio-Research sponsors various noncontributory defined benefit plans
covering substantially all employees, including plans covering executive
administrative employees and all executive administrative employees who are
covered by a special top-hat pension agreement. Pension plan benefits are based
primarily on participants' compensation and years of service. Total pension
expense for 1993, 1994 and 1995 was approximately $278,000, $281,000 and
$167,000, respectively, and consists of the following (in thousands):
1993 1994 1995
----- ----- -----
Service cost on benefits earned during the year................ $ 253 $ 246 $ 197
Interest cost on projected benefit obligation.................. 244 266 246
Actual return on plan assets................................... (217) (228) (261)
Net amortization and deferral.................................. (2) (3) (15)
----- ----- -----
$ 278 $ 281 $ 167
===== ===== =====
F-10
13
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial present value of benefit obligations and funded status for
Bio-Research's defined benefit plans were as follows (in thousands):
1994 1995
------ ------
Projected benefit obligation......................................... $3,425 $3,627
Plan assets at fair value............................................ 3,119 3,799
------ ------
Projected benefit obligation (in excess) less than plan assets....... (306) 172
Unrecognized net loss (gain)......................................... 54 (389)
Unrecognized net transition obligation............................... (302) (277)
Unrecognized prior service cost...................................... 305 287
------ ------
Net pension liability................................................ $ (249) $ (207)
====== ======
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
1993 1994 1995
---- ---- ----
Discount rate..................................................... 8.0 % 8.0 % 8.0 %
Rate of increase in compensation.................................. 6.5 % 6.5 % 5.0 %
Rate of return on plan assets..................................... 8.0 % 8.0 % 8.0 %
10. MAJOR CLIENTS
For the year ended December 31, 1993, one client accounted for 12% of
Bio-Research's service revenue. No single client accounted for more than 10% of
Bio-Research's service revenue for the year ended 1994 or 1995.
11. COMMITMENTS AND CONTINGENCIES
During 1995, Bio-Research entered into foreign exchange contracts to
deliver United States currency for the purpose of hedging its United States
currency cash flow. These contracts call for the delivery of $750,000 United
States Dollars per month for the period January 1996 through January 1997 at
exchange rates averaging $1.3821 Canadian Dollar per United States Dollar.
During 1993, Bio-Research undertook a project to upgrade its computer
systems, which it expects to implement in phases through 1997 at a cost of
approximately $4.8 million. Approximately $2.6 million of this amount was
incurred as of December 31, 1995.
In 1991, a customer commenced legal action against Bio-Research claiming
damages in the amount of $5.2 million, plus interest and costs, resulting from
statistical errors in carrying out two clinical research studies. An amount of
$220,000 has been provided for in the accounts with respect to this claim. Based
on applicable insurance coverage and an indemnification agreement from a former
stockholder in favor of Bio-Research in respect of any liability in excess of
the amount provided for, management is of the opinion that the outcome of this
matter will not have any further impact upon the financial position of
Bio-Research.
Also, in the ordinary course of business, Bio-Research is involved in
certain claims and litigation. Management is of the opinion, based on
information presently available to it, that the eventual outcome of these
matters will not have a material adverse effect upon the financial position of
Bio-Research.
12. SUBSEQUENT EVENT
On May 24, 1996, Bio-Research announced the signing of a definitive
agreement to sell the assets of Bio-Research to ClinTrials Research Inc., a
Nashville, Tennessee based clinical research organization, for approximately $65
million plus the assumption of certain liabilities.
F-11
14
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. UNAUDITED INTERIM FINANCIAL INFORMATION
The balance sheet as of March 31, 1996, the related statements of income
and cash flows for the three months ended March 31, 1995 and 1996, and the
statement of stockholders' equity for the three months ended March 31, 1996
(interim financial statements) have been prepared by Bio-Research and are
unaudited. The interim financial statements include all adjustments consisting
of only normal recurring adjustments necessary for a fair statement of the
results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with Bio-Research's
December 31, 1995 audited financial statements appearing herein. The results for
the three months ended March 31, 1996 may not be indicative of operating results
for the full year.
F-12
15
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. The
consolidated financial statements of the Company are incorporated herein by
reference. See "Incorporation of Certain Documents By Reference."
F-13
16
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
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
----------- ------------ ----------- -------- ----------- ---------
Assets
Current assets:
Cash and cash
equivalents............. $16,831 $ 5,548 $ -- $ 22,379 $ 103,149(2) $ 60,528
(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 38,149 100,116
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 $ 38,149 $170,182
=========== ============ =========== ========= =========== =========
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) 40,180 103,123(2) 143,303
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) 32,108 103,149 135,257
----------- ------------ ----------- -------- ----------- ---------
$61,652 $ 32,014 $ 38,367 $132,033 $ 38,149 $170,182
=========== ============ =========== ========= =========== =========
See notes to unaudited pro forma condensed combined balance sheet.
F-14
17
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 2,600,000
shares of ClinTrials Common Stock at an assumed price of $42.00 per share.
Gross proceeds of $109.2 million, less estimated issuance costs of $6.1
million, provides net proceeds of $103.1 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-15
18
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)
AS REPORTED AS REPORTED PRO FORMA COMBINED PRO
CLINTRIALS BIO-RESEARCH ADJUSTMENTS FORMA(1)
----------- ------------ ----------- ------------
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 1,692(5) 10,877
========= ========= ==========
Earnings per common and common equivalent
share.................................... $ 0.12 $ 0.13
========= ==========
See notes to unaudited pro forma condensed combined statement of income.
F-16
19
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
AS REPORTED AS REPORTED PRO FORMA COMBINED
CLINTRIALS BIO-RESEARCH ADJUSTMENTS PRO FORMA(1)
----------- ------------ ----------- ------------
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 1,692(5) 10,780
========= ========= ==========
Earnings per common and common equivalent
share......................................... $ 0.40 $ 0.59
========= ==========
See notes to unaudited pro forma condensed combined statement of income.
F-17
20
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.
YEAR ENDED THREE MONTHS
DECEMBER 31, 1995 ENDED MARCH 31, 1996
----------------- --------------------
Excess cash invested.................................. $38,149 $ 38,149
============= ================
Pro forma income, as stated........................... 6,368 1,411
Estimated tax exempt interest income.................. 1,568 392
----------------- ----------
Pro forma income with excess cash invested............ $ 7,936 $ 1,803
============= ================
Pro forma weighted average shares outstanding for
entire offering..................................... 11,688 11,785
============= ================
Pro forma earnings per share after consideration of
investment of excess funds.......................... $ 0.68 $ 0.15
============= ================
(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 1,692,000 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 $42.00 per share, net of
offering costs.
F-18
21
EXHIBIT INDEX
Exhibit Sequential
Number Description Numbered Page
------- ----------- -------------
2. Asset Purchase Agreement among Bio-Research,
certain shareholders thereof, and the Registrant*
23. Consent of Ernst & Young LLP
---------
* This exhibit contains a list of exhibits which are not being filed
herewith. The Registrant shall furnish supplementally a copy of any such
omitted exhibit to the Securities and Exchange Commission upon request.