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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 SEPTEMBER 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 October 31, 1996, there were 11,907,978 shares of ClinTrials Research Inc.
common stock outstanding.
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CLINTRIALS RESEARCH INC.
TABLE OF CONTENTS
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 Conditions and Results of Operations.......................... 8
PART II. OTHER INFORMATION.......................................................... 15
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES........................................................................... 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ClinTrials Research Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
December 31, September 30,
1995 1996
Assets (Note) (Unaudited)
------------ -------------
Current assets:
Cash, cash equivalents and held-to-maturity securities $ 17,031 $ 31,024
Accounts receivable 22,248 39,760
Advanced payments to investigators 3,932 607
Supply inventories -- 1,471
Deferred income taxes 644 460
Other current assets 499 1,108
--------- ---------
Total current assets 44,354 74,430
Equipment, furniture & fixtures:
Equipment 9,042 13,335
Furniture, fixtures and leasehold improvements 3,022 3,834
--------- ---------
12,064 17,169
Less accumulated depreciation and amortization 4,947 6,820
--------- ---------
7,117 10,349
Other assets:
Unallocated purchase price from acquisition of Bio-Research -- 55,055
Excess of purchase price over net assets acquired 7,088 6,948
Other assets 67 62
--------- ---------
7,155 62,065
--------- ---------
$ 58,626 $ 146,844
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,579 $ 5,370
Advance billings 19,976 12,109
Payables to investigators 3,490 2,849
Accrued expenses 2,352 2,935
Other current liabilities 90 922
--------- ---------
Total current liabilities 27,487 24,185
Deferred income taxes 188 229
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
11,904,992 in 1995 and 1996, respectively 88 119
Additional paid-in capital 40,100 126,528
Retained earnings (deficit) (9,342) (4,925)
Cumulative foreign currency translation adjustments 105 708
--------- ---------
Total stockholders' equity 30,951 122,430
--------- ---------
$ 58,626 $ 146,844
========= =========
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.
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ClinTrials Research Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except for share data)
Three Months
Ended September 30,
-------------------
1995 1996
-------- --------
Revenues:
Service revenue $ 23,763 $ 29,872
Less subcontract costs 7,779 4,510
-------- --------
Net service revenue 15,984 25,362
Operating costs:
Direct costs 9,901 14,922
Selling, general and administrative costs 3,894 6,956
Depreciation and amortization 597 1,134
-------- --------
Income from operations 1,592 2,350
Other income (expense):
Interest income 163 315
Interest expense (21) (16)
-------- --------
Income before income taxes 1,734 2,649
Provision for income taxes 755 621
-------- --------
Net income $ 979 $ 2,028
======== ========
Earnings per common and common equivalent share:
Net income $ 0.11 $ 0.18
======== ========
Weighted average shares outstanding (see exhibit 11) 9,124 11,209
See notes to condensed consolidated financial statements
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ClinTrials Research Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except for share data)
Nine Months
Ended September 30,
-------------------
1995 1996
-------- --------
Revenues:
Service revenue $ 61,700 $ 82,887
Less subcontract costs 20,442 20,461
-------- --------
Net service revenue 41,258 62,426
Operating costs:
Direct costs 24,835 36,930
Selling, general and administrative costs 10,894 16,903
Depreciation and amortization 1,689 2,586
-------- --------
Income from operations 3,840 6,007
Other income (expense):
Interest income 588 709
Interest expense (61) (43)
-------- --------
Income before income taxes 4,367 6,673
Provision for income taxes 1,850 2,256
-------- --------
Net income $ 2,517 $ 4,417
======== ========
Earnings per common and common equivalent share:
Net income $ 0.28 $ 0.42
======== ========
Weighted average shares outstanding (see exhibit 11) 9,067 10,467
See notes to condensed consolidated financial statements
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ClinTrials Research Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months
Ended September 30,
1995 1996
-------- --------
Net income $ 2,517 $ 4,417
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,689 2,731
Change in operating assets and liabilities (7,949) (15,139)
Other operating activities 40 217
-------- --------
Net cash provided by (used in) operating activities (3,703) (7,774)
Cash flows from investing activities:
Purchasing of property, plant and equipment (net) (2,929) (5,472)
Investment in Subsidiary -- (59,220)
-------- --------
Net cash used in investing activities (2,929) (64,692)
Cash flows from financing activities:
Proceeds from issuance of common stock 328 86,459
-------- --------
Net cash provided by (used in) financing activities 328 86,459
Net increase (decrease) in cash and cash equivalents (6,304) 13,993
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 $ 14,741 $ 31,024
======== ========
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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 nine-month
periods ended September 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
September 30, 1996 are based on 10,885,382 weighted average shares outstanding
plus 324,041 common stock equivalent shares related to the 1989 Stock Option
Plan. The earnings per share calculations for the nine-month period ending
September 30, 1996 are based on 10,128,690 weighted average shares outstanding
plus 338,237 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".
Note 3 - Acquisition
On July 31, 1996, the Company purchased for $65 million in cash all of
the assets and assumed certain liabilities (the "Acquisition") of Bio-Research
Laboratories Ltd. of Montreal, Quebec ("Bio-Research"). The Acquisition was
financed with the proceeds of a public offering of 2,990,000 shares of the
Company's common stock at $30 per share on July 24, 1996. Net proceeds to the
Company from the offering were approximately $84.7 million, $65 million of which
was used to fund the Acquisition.
The Acquisition was accounted for under the purchase method of
accounting. The purchase price allocation reflected below is preliminary and,
among other things, reflects no allocation to land, building, equipment, and
identifiable intangibles, pending final results of an appraisal.
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Current assets $ 16,725
Current liabilities assumed (6,348)
Long-term liabilities assumed 0
Unallocated excess of purchase price
over net assets acquired 54,623
--------
$ 65,000
========
Operations of the acquired business are included in the Company's
results of operations from the date of Acquisition.
The following represents the unaudited pro forma results of operations
as if the Acquisition had occurred as of January 1 of the respective periods (in
thousands, except for earnings per share):
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
Net service revenue ........................... $22,097 $27,933
Income before tax ............................. 1,753 2,466
Net income .................................... 1,231 2,001
Earnings per common and
common equivalent share ..................... $ 0.11 $ 0.17
Weighted average shares outstanding ........... 11,440 11,569
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
Net service revenue ........................... $61,592 $78,304
Income before tax ............................. 5,968 6,918
Net income .................................... 4,797 5,329
Earnings per common and
common equivalent share ..................... $ 0.42 $ 0.46
Weighted average shares outstanding ........... 11,383 11,535
The pro forma operating results include each company's results of
operations for the indicated periods with increased amortization of intangible
assets as if the Acquisition had occurred as of January 1, 1995. The pro forma
information given above does not purport to be indicative of the results that
actually would have been obtained if the operations were combined during the
periods presented, and is not intended to be a projection of future results or
trends.
Note 4 - Stock Split
On October 25, 1996, the Board of Directors declared a 3-for-2 stock
split to be effected in the form of a stock dividend of one-half share for each
share of Company common stock outstanding as of the record date, November 11,
1996. The dividend will be distributed to shareholders on
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November 25, 1996. The following reflects net income per share and shares
outstanding as if the stock split had occurred as of January 1 of the respective
periods (in thousands, except for earnings per share):
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
Earnings per common and common equivalent share $ 0.07 $ 0.12
Weighted average shares outstanding 13,686 16,814
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
Earnings per common and common equivalent share $ 0.19 $ 0.28
Weighted average shares outstanding 13,601 15,701
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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 and the prospectus dated July 28, 1996 filed pursuant to
Rule 424(b) of the Securities Act of 1933, as amended.
The information set forth and discussed below for the three and
nine-month periods ended September 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)
considered 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 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 usually 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 and facilities are 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
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with industry practice, are included in service revenue. Subcontractor services
may vary significantly from 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, foreign exchange fluctuations, 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 September 30, 1996, backlog was approximately $145.3 million, as
compared to approximately $84.8 million at September 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 of projects under management. Prior to 1992, the
Company's European operation primarily performed services required by contracts
generated by United States operations. In late 1992, the Company began expanding
its core European operation, which consists of offices in Maidenhead, UK and
Brussels, Belgium, which contributed significantly to operating losses incurred
in 1993 and 1994 in Europe. The core European operation eliminated its operating
loss in 1995, and is expected to be profitable in 1996 and 1997. Recently, the
Company expanded its international operations by opening offices in Australia,
Israel, Chile, and France. 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. Currently, the Company anticipates each new
office will incur losses through its first twelve months of operations.
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Contracts between the Company's subsidiaries (primarily in Canada and
to a lesser extent in the United Kingdom) and their clients may be denominated
in a currency other than the local currency of the subsidiary. Because
substantially all of the subsidiaries' expenses are paid in the local currency
of the subsidiary, such subsidiaries' earnings related to these contracts could
be affected by fluctuations in exchange rates. Generally, the Company attempts
to contractually limit its future foreign exchange risks with its clients. In
addition, the Company may use future foreign exchange contracts to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the client in another currency. The Company expects its subsidiaries
located outside the United States to generate approximately 40% of its net
revenue beginning in the fourth quarter of 1996, approximately half of which
will be generated by the Company's Canadian subsidiary. Therefore, fluctuations
in exchange rates may have a material affect on the earnings of the Company.
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. Such adjustments may in
the future be material to the Company's financial statements.
RECENT ACQUISITION OF BIO-RESEARCH LABORATORIES LTD.
On July 31, 1996, the Company purchased for $65 million in cash all of
the assets and assumed certain liabilities of Bio-Research Laboratories Ltd. of
Montreal, Quebec. Bio-Research is a leading contract research organization which
provides services to clients in the pharmaceutical, biotechnology, chemical and
medical device industries. Bio-Research designs and conducts preclinical trials,
based primarily upon animal models, that produce the data required to assess and
evaluate efficacy in and potential risks to humans. The operations of
Bio-Research are included in the Company's results of operations from the date
of Acquisition.
RESULTS OF OPERATIONS
Quarter Ended September 30, 1996 Compared to Quarter Ended September
30, 1995
Net service revenue increased 58.7% to $25.4 million in the third
quarter of 1996 from $16.0 million in the same period of 1995. Excluding $5.1
million of revenue recognized in the third quarter of 1996 related to
Bio-Research (acquired July 31, 1996) and $1.2 million of revenue recognized in
the third quarter of 1995 related to special client requests to accelerate
services, net service revenue increased 37.1%. This increase resulted primarily
from an increase in the number of contracts under management and in the number
of clients served. The backlog at September 30, 1996 was $145.3 million,
representing 423 contracts from 115 clients, as compared to $84.8 million at
September 30, 1995, representing 147 contracts from 45 clients.
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Direct costs increased 50.7% to $14.9 million in the third quarter of
1996 from $9.9 million in the same period of 1995, and declined as a percentage
of net service revenue to 58.8% from 61.9%. The decrease as a percentage of net
revenue is primarily attributable to the Company's utilization of temporary
labor to meet special client requests to accelerate services during the third
quarter of 1995. 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 and
facility utilization resulting from the growth the Company has experienced.
Selling, general and administrative costs increased 78.6% to $7.0
million in the third quarter of 1996 from $3.9 million in the same period of
1995, and increased as a percentage of net service revenue to 27.4% from 24.4%.
The increase as a percentage of net revenue is primarily attributable to the
inclusion of Bio-Research (acquired July 31, 1996). Selling, general and
administrative costs, which primarily includes compensation for administrative
employees, facilities costs, and marketing costs, are relatively fixed in the
near term and generally will increase at a lower rate than revenue. In addition,
the Company has incurred and will continue to incur costs related to expanded
infrastructure required to open new offices as described previously.
Depreciation and amortization expense increased 89.9% to $1.1 million
in the third quarter of 1996 compared to $597,000 in the same period of 1995.
Interest income, net of interest expense, increased to $299,000 in the
third quarter of 1996 from $142,000 in the same period of 1995.
Consolidated income before income taxes increased to $2.6 million in
the third quarter of 1996 from $1.7 million in the same period of 1995. The
provision for income taxes was $621,000 in the third quarter of 1996 as compared
to $755,000 in the same period of 1995 resulting in effective tax rates of 23%
and 44%, respectively. The significant items that create the difference between
the Company's federal statutory and effective tax rates are state and local
taxes, research and development tax credits generated by the Company's Canadian
subsidiary, tax-exempt interest income, nondeductible amortization of goodwill,
and foreign net operating losses not previously recognized. The Company, in
general, will not 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 recognize a tax benefit for
losses incurred in its foreign operations as the subsidiary generates taxable
income to the extent of the cumulative losses.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Net service revenue increased 51.3% to $62.4 million in the first nine
months of 1996 from $41.3 million in the same period of 1995. Excluding $5.1
million of revenue recognized in the third quarter of 1996 related to
Bio-Research (acquired July 31, 1996) and $1.2 million of revenue recognized in
the third quarter of 1995 related to special client requests to accelerate
services, net
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service revenue increased 43.1%. This increase resulted primarily from an
increase in the number of contracts under management and in the number of
clients served. The backlog at September 30, 1996 was $145.3 million,
representing 423 contracts from 115 clients, as compared to $84.8 million at
September 30, 1995, representing 147 contracts from 45 clients.
Direct costs increased 48.7% to $36.9 million in the first nine months
of 1996 from $24.8 million in the same period of 1995, and decreased as a
percentage of net service revenue to 59.2% from 60.2%. The decrease as a
percentage of net revenue is primarily attributable to the Company's utilization
of temporary labor to meet special client requests to accelerate services during
the third quarter of 1995. 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 and facility utilization resulting from the growth the Company
has experienced.
Selling, general and administrative costs increased 55.2% to $16.9
million in the first nine months of 1996 from $10.9 million in the same period
of 1995, and increased as a percentage of net service revenue to 27.1% from
26.4%. The increase as a percentage of net revenue is primarily attributable to
the inclusion of Bio-Research (acquired July 31, 1996). Selling, general and
administrative costs, which primarily includes compensation for administrative
employees, facilities costs, and marketing costs, are relatively fixed in the
near term and generally will increase at a lower rate than revenue. In addition,
the Company has incurred and will continue to incur costs related to expanded
infrastructure required to open new offices as described previously.
Depreciation and amortization expense increased 53.1% to $2.6 million
in the first nine months of 1996 compared to $1.7 million in the same period of
1995.
Interest income, net of interest expense, increased to $666,000 in the
first nine months of 1996 from $527,000 in the same period of 1995.
Consolidated income before income taxes increased to $6.7 million in
the first nine months of 1996, from $4.4 million in the same period of 1995. The
provision for income taxes was $2.3 million in the first nine months of 1996 as
compared to $1.9 million in the same period of 1995 resulting in effective tax
rates of 34% and 42%, respectively. The significant items that create the
difference between the Company's federal statutory and effective tax rates are
state and local taxes, research and development tax credits generated by the
Company's Canadian subsidiary, tax-exempt interest income, nondeductible
amortization of goodwill, and foreign net operating losses not previously
recognized. The Company, in general, will not 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
recognize a tax benefit for losses incurred in its foreign operations as the
subsidiary generates taxable income to the extent of the cumulative losses.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary operating cash needs on both a short-term and
long-term basis are the payment of salaries, office rent, travel expenses, as
well as capital expenditures. 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, $3.8 million in 1995, and
approximately $5.5 million through September 30, 1996. 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.
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 place less emphasis on prepayments and greater emphasis on negotiated
performance requirements. This has increased and may continue 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, and historically has received
significant cash receipts from its clients in the fourth quarter. The number of
days sales outstanding in accounts receivable was 91 days at September 30, 1996,
90 days at December 31, 1995, and 78 days at September 30, 1995. The number of
days sales outstanding in accounts receivable net of advanced billings was 55
days at September 30, 1996, 26 days at December 31, 1995, and 30 days at
September 30, 1995. The Company believes its days sales outstanding in accounts
receivable to be comparable to the average for the CRO industry.
During the nine months ended September 30, 1996, net cash used by
operating activities totaled $7.8 million, primarily due to an increase in
accounts receivable of $8.6 million and a decrease in advance billings of $9.7
million, which was partially offset by net income, net of non-cash expenses, of
$7.1 million and a decrease in net advanced payments to investigators of $2.7
million.
Cash used in investing activities of $64.7 million during the nine
months ended September 30, 1996 consisted principally of the Acquisition of
Bio-Research Laboratories Ltd., as previously described, and capital
expenditures. Cash provided by financing activities of $86.5 million for the
same period resulted principally from issuance of common stock.
The Company had cash, cash equivalents and held-to-maturity securities
of $31.0 million at September 30, 1996 as compared to $14.7 million at September
30, 1995.
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The Company has domestic and foreign lines of credit ("Credit
Facility") with banks totaling approximately $15.0 million. The lines are
collateralized by the Company's assets and bear interest at the respective
banks' prime interest rates. There were no borrowings outstanding under the
lines of credit at September 30, 1996. Borrowings available under the lines of
credit are subject to certain financial and operating covenants.
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, 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.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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.
On October 25, 1996, the Company announced that its Board of Directors
declared a 3-for-2 stock split to be effected in the form of a stock dividend
by issuance of one-half share for each one share of ClinTrials Research common
stock owned by a shareholder as of the record date. The stock split will have a
record date at the close of trading on November 11, 1996 and will be distributed
to shareholders on November 25, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits furnished with this report are listed in
the Exhibit Index located elsewhere.
(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, relating to
the acquisition of Bio-Research, certain consolidated
financial statements of Bio-Research, and certain
unaudited pro forma condensed combined financial
statements.
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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.
CLINTRIALS RESEARCH INC.
Date: November 13, 1996 By: /s/ William C. O'Neil, Jr.
--------------------------
William C. O'Neil, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Date: November 13, 1996 By: /s/ John W. Robbins
-------------------
John W. Robbins
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No.
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11 Computation of Earnings Per Common and Common Equivalent Share
27 Financial Data Schedule (SEC use only)
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