FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 under
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2006
ICON plc
(Registrant's name)
0-29714
(Commission file number)
South County Business Park, Leopardstown, Dublin 18, Ireland.
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Yes__X__ No____
Indicate by check mark whether the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Yes____ No__X__
Indicate by check mark whether the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Yes____ No__X__
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes____ No__X__
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82 N/A
ICON plc
Quarterly Period Ended September 30, 2006
CONTENTS Page
General.................................................................. 2
Condensed Consolidated Balance Sheets as at
September 30, 2006 and December 31, 2005................................. 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2006 and the
three and nine months ended August 31, 2005.............................. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2006 and the nine months
ended August 31, 2005.................................................... 5
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income................................................. 6
Notes to the Condensed Consolidated Financial
Statements............................................................... 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 14
Signature Page........................................................... 20
ICON plc
Rider A
This report on Form 6-K is hereby incorporated by reference in the registration
statement on Form F-3 (Registration No. 333-133371) of ICON plc and in the
prospectus contained therein, and this report on Form 6-K shall be deemed a part
of such registration statement from the date on which this report is filed, to
the extent not superseded by documents or reports subsequently filed or
furnished by ICON plc under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
1
GENERAL
As used herein, "ICON", the "Company" and "we" refer to ICON plc and its
consolidated subsidiaries, unless the context requires otherwise.
Business
We are a contract research organization, or CRO, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology and
medical device industries. Our focus is on supporting the conduct of clinical
trials. We have historically done so by providing such services as Phase I - IV
clinical trials management, study design, laboratory services and drug
development support. We believe that we are one of a select group of CROs with
the capability and expertise to conduct clinical trials in most major
therapeutic areas on a global basis. We have approximately 4,000 employees
worldwide, with operations in 48 locations in 30 countries, including the United
States and major markets in Europe and Rest of World. For the nine months ended
September 30, 2006, we derived approximately 60.7%, 32.3%, and 7.0% of our net
revenue in the United States, Europe and Rest of World, respectively.
Headquartered in Dublin, Ireland, we began operations in 1990 and have expanded
our business through internal growth and strategic acquisitions.
On July 27, 2005 the Board of Directors of the Company approved a change of the
Company's fiscal year-end from a twelve-month period ending on May 31 to a
twelve-month period ending on December 31. The Company made this change in order
to align its fiscal year end with the majority of other contract research
organizations. As a requirement of this change, the Company reported results for
the seven-month period from June 1, 2005 to December 31, 2005 as a separate
transition period in a Transition Report filed on Form 20-F. From January 1,
2006, the Company's fiscal quarters will end on the last day of March, June,
September and December of each year. Information set out in this report is for
the three and nine months ending September 30, 2006. Comparative income
statement and cash flow information, together with related notes, is for the
three and nine months ending August 31, 2005. Comparative balance sheet
information and related notes are stated as at December 31, 2005.
Recent Developments
On September 29, 2006, ICON's shareholders approved a bonus issue of ordinary
shares (the "Bonus Issue") to shareholders of record as of the close of business
on October 13, 2006 (the "Record Date"). The Bonus Issue provides for each
shareholder to receive one bonus ordinary share for each ordinary share held as
of the Record Date, effecting the equivalent of a 2-for-1 stock split. The Bonus
shares were issued on October 16, 2006 to Ordinary Shareholders and on October
23, 2006 to holders of American Depositary Shares ("ADSs"). NASDAQ adjusted the
trading price of ICON's ADSs to effect the Bonus Issue prior to the opening of
trading on October 24, 2006. All outstanding ordinary share amounts referenced
in the following unaudited condensed consolidated financial statements and the
notes thereto give effect to the Bonus Issue as if had occurred as of the date
referenced.
2
ICON plc
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
(Unaudited) (Audited)
September 30, December 31,
------------- ------------
2006 2005
------------- ------------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 54,888 $ 59,509
Short term investments - available for sale ............................... 39,822 22,809
Accounts receivable........................................................ 101,124 71,450
Unbilled revenue........................................................... 76,826 62,270
Other receivables.......................................................... 6,052 6,435
Deferred tax asset......................................................... 2,280 1,554
Prepayments and other current assets....................................... 14,345 11,089
------------- ------------
Total current assets....................................................... 295,337 235,116
Other Assets:
Property, plant and equipment, net......................................... 58,397 47,652
Goodwill................................................................... 77,285 65,731
Non-current deferred tax asset............................................. 97 452
Intangible assets.......................................................... 21 116
------------- ------------
Total Assets................................................................. $ 431,137 $ 349,067
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................... $ 7,661 $ 7,575
Payments on account........................................................ 71,156 50,211
Other liabilities.......................................................... 50,096 33,184
Deferred tax liability..................................................... 558 682
Bank credit lines and loan facilities...................................... 4,000 4,856
Income taxes payable....................................................... 8,334 6,296
------------- ------------
Total current liabilities.................................................. 141,805 102,804
Other Liabilities:
Long term government grants................................................ 1,166 1,160
Long term finance leases................................................... 193 152
Non-current deferred tax liability......................................... 2,632 2,499
Minority interest.......................................................... 1,015 894
------------- ------------
Total Liabilities 146,811 107,509
Shareholders' Equity:
Ordinary shares, par value 6 euro cents per share; 40,000,000 shares
authorized, 28,475,118 shares issued and outstanding at September 30,
2006 and 28,036,184 shares issued and outstanding at December 31, 2005 2,097 993
Additional paid-in capital................................................. 131,209 123,333
Accumulated other comprehensive income..................................... 10,265 3,409
Retained earnings.......................................................... 140,755 113,823
------------- ------------
Total Shareholders' Equity................................................... 284,326 241,558
------------- ------------
Total Liabilities and Shareholders' Equity................................... $ 431,137 $ 349,067
============= ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND AUGUST 31, 2005
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ------------- ------------- -------------
2006 2005 2006 2005
------------- ------------- ------------- -------------
(in thousands except share and per share data)
Revenue:
Gross revenue............................................ $ 171,109 $ 115,352 $ 465,497 $ 350,672
Subcontractor costs...................................... (50,395) (29,431) (138,852) (95,927)
------------- ------------- ------------- -------------
Net revenue.............................................. 120,714 85,921 326,645 254,745
Costs and expenses:
Direct costs............................................. 68,428 47,310 183,146 140,847
Selling, general and administrative expense.............. 35,800 26,809 98,477 81,734
Depreciation and amortization ........................... 3,875 3,434 11,009 10,407
Other Charges - - - 11,275
------------- ------------- ------------- -------------
Total costs and expenses................................. 108,103 77,553 292,632 244,263
------------- ------------- ------------- -------------
Income from operations..................................... 12,611 8,368 34,013 10,482
Interest income............................................ 995 427 2,646 1,168
Interest expense........................................... (44) (12) (110) (117)
------------- ------------- ------------- -------------
Income before provision for income taxes................... 13,562 8,783 36,549 11,533
Provision for income taxes................................. (3,423) (2,459) (9,496) (4,679)
Minority interest.......................................... (45) 59 (121) (50)
------------- ------------- ------------- -------------
Net income................................................. $ 10,094 $ 6,383 $ 26,932 $ 6,804
============= ============= ============= =============
Net income per Ordinary Share:
Basic.................................................... $ 0.36 $ 0.23 $ 0.95 $ 0.24
============= ============= ============= =============
Diluted.................................................. $ 0.35 $ 0.23 $ 0.94 $ 0.24
============= ============= ============= =============
Weighted average number of Ordinary Shares outstanding:
Basic.................................................... 28,351,525 27,839,212 28,333,823 27,782,555
============= ============= ============= =============
Diluted.................................................. 29,085,080 28,300,424 28,709,932 28,218,814
============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND AUGUST 31, 2005
(UNAUDITED)
Nine Months Ended
-----------------
September 30, August 31,
------------- -----------
2006 2005
------------- -----------
(in thousands)
Cash flows from operating activities:
Net income........................................................... $ 26,932 $ 6,804
Adjustments to reconcile net income to net cash provided by operating
activities:.........................................................
Loss on disposal of property, plant and equipment................... 197 19
Depreciation and amortization....................................... 11,012 10,407
Amortization of grants.............................................. (85) (150)
Share compensation expense.......................................... 2,993 -
Deferred taxes...................................................... (310) (532)
Minority interest................................................... 121 50
Other charges....................................................... - 11,275
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable.......................... (26,546) 20,948
Increase in unbilled revenue........................................ (11,340) (277)
Decrease/(increase) in other receivables............................ 1,864 (6,280)
Increase in prepayments and other current assets.................... (2,617) (2,390)
Increase/(decrease) in payments on account.......................... 16,530 (22,205)
Increase in other liabilities....................................... 13,082 8,950
Increase in income taxes payable.................................... 1,658 1,271
(Decrease)/Increase in accounts payable............................. (498) 2,148
------------- -----------
Net cash provided by operating activities............................ 32,993 30,038
Cash flows from investing activities:
Purchase of property, plant and equipment........................... (19,260) (11,318)
Purchase of intangible asset........................................ - (250)
Purchase of subsidiary undertakings and acquisition costs........... (6,837) -
Purchase of short term investments.................................. (20,021) (5,011)
Sale of short term investments...................................... 3,008 17,026
Cash received on acquisition........................................ 341 -
Deferred payments in respect of prior year acquisitions............. (96) (4,958)
------------- -----------
Net cash used in investing activities................................ (42,865) (4,511)
Cash flows from financing activities:
Repayments of bank credit lines and loan facilities.................. (888) (10,000)
Proceeds from exercise of share options.............................. 6,015 2,136
Share issuance costs................................................. (28) (29)
Repayment of other liabilities....................................... (84) (164)
------------- -----------
Net cash provided by/ (used in) financing activities................. 5,015 (8,057)
Effect of exchange rate movements on cash............................ 236 (1,124)
------------- -----------
Net (decrease)/ increase in cash and cash equivalents................ (4,621) 16,346
Cash and cash equivalents at beginning of period..................... 59,509 41,975
------------- -----------
Cash and cash equivalents at end of period........................... $ 54,888 $ 58,321
============= ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income Earnings Total
------------- -------- ---------- ------------- ---------- ----------
(dollars in thousands, except share data)
*Balance at December 31, 2005 *28,036,184 *$ 2,063 *$ 122,263 $ 3,409 $ 113,823 $ 241,558
Comprehensive Income:
Net income 26,932 26,932
Currency translation adjustment 6,856 6,856
----------
Total comprehensive income 33,788
Share issuance costs (28) (28)
Exercise of share options 438,934 34 5,981 6,015
Non-cash stock compensation
expense 2,993 2,993
------------- -------- ---------- ------------- ---------- ----------
Balance at September 30, 2006 28,475,118 $ 2,097 $ 131,209 $ 10,265 $ 140,755 $ 284,326
============= ======== ========== ============= ========== ==========
* Comparative figures have been amended to reflect the Bonus Issue which
took place with an effective date of October 13, 2006
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
ICON plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2006
1. Basis of Presentation
These condensed consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles ("US
GAAP"), have not been audited. The condensed consolidated financial statements
reflect all adjustments, which are, in the opinion of management, necessary to
present a fair statement of the operating results and financial position for the
periods presented. The preparation of the condensed consolidated financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect reported amounts and disclosures in the condensed
consolidated financial statements. Actual results could differ from those
estimates. As discussed in note 5, the Company adopted Statement of Accounting
Standard ("SFAS") 123 (revised 2004) Share Based Payment ("SFAS 123R") effective
from January 1, 2006. There were no other significant change in ICON plc's
accounting policies from those outlined in ICON's Transition Report on Form 20-F
for the seven month period ended December 31, 2005.
The condensed consolidated financial statements should be read in conjunction
with the accounting policies and notes to the consolidated financial statements
included in ICON's Transition Report on Form 20-F for the seven months ended
December 31, 2005. Operating results for the nine months ended September 30,
2006 are not necessarily indicative of the results that may be expected for the
fiscal period ending December 31, 2006.
2. Acquisitions
Acquisition of Ovation
On July 10, 2006, the Company acquired 100% of the common stock of Ovation
Healthcare Research 2 Inc. ("Ovation"), based in Illinois, USA, for an initial
cash consideration of U.S.$6.6 million, excluding costs of acquisition. Working
capital provisions have been built into the acquisition contract requiring the
potential payment of additional deferred consideration up to a maximum of
U.S.$1.4 million.
The acquisition of Ovation has been accounted for as a purchase in accordance
with SFAS No. 141, "Business Combinations". The following table summarises the
fair values of the assets acquired and the liabilities assumed at the date of
acquisition.
At July 10,
-----------
2006
-----
(in thousands)
Property, Plant and Equipment $ 384
Goodwill 8,825
Cash 341
Other Current Assets 4,381
Current liabilities (6,952)
Long term liabilities (124)
----------------------------------------------------------
Purchase Price $ 6,855
Prior Period Acquisitions
On September 9, 2003, the Company acquired 100% of the outstanding shares of
Globomax LLC ("GloboMax"), based in Maryland, USA, for an initial cash
consideration of $10.9 million, excluding costs of acquisition.
On May 31, 2006, an amount of $96,131 was paid to the former shareholders of
GloboMax. This $96,131 was withheld from an earn-out payment made on the August
31, 2005 due to an outstanding customer debt arising prior to the acquisition of
GloboMax. This customer debt has subsequently been recovered and the $96,131 in
turn became due to the former shareholders of GloboMax. This payment has been
accounted for as goodwill. No further payments are anticipated.
7
3. Goodwill
September 30, December 31,
------------- ------------
2006 2005
---- ----
(in thousands)
Opening balance $ 65,731 $ 67,440
Payments made in respect of current period
acquisitions 8,825 -
Payments made in respect of prior period
acquisitions 96 -
Foreign exchange movement 2,633 (1,709)
---------------------------
Closing balance $ 77,285 $ 65,731
---------------------------
The goodwill balance relates entirely to the clinical research segment.
4. Net income per ordinary share
Basic net income per ordinary share has been computed by dividing net income
available to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the period. Diluted net income per ordinary share is
computed by adjusting the weighted average number of ordinary shares outstanding
during the period for all potentially dilutive ordinary shares outstanding
during the period and adjusting net income for any changes in income or loss
that would result from the conversion of such potential ordinary shares. There
is no difference in net income used for basic and diluted net income per
ordinary share.
The reconciliation of the number of shares, restated to reflect the Bonus Issue,
used in the computation of basic and diluted net income per ordinary share is as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
Weighted average number of
ordinary shares
outstanding for basic net
income per ordinary share 28,351,525 27,839,212 28,333,823 27,782,555
Effect of dilutive share
options outstanding 733,555 461,212 376,109 436,259
-----------------------------------------------------
Weighted average number of
ordinary shares for
diluted net income per
ordinary share 29,085,080 28,300,424 28,709,932 28,218,814
=====================================================
5. Stock Options
On January 17, 2003, the Company adopted the Share Option Plan 2003 (the "2003
Plan") pursuant to which the Compensation Committee of the Company's Board of
Directors may grant options to officers and other employees of the Company or
its subsidiaries for the purchase of ordinary shares. Each option will be either
an incentive stock option, or ISO, as described in Section 422 of the Code or an
employee stock option, or NSO, as described in Section 422 or 423 of the Code.
Each grant of an option under the 2003 Plan will be evidenced by a Stock Option
Agreement between the optionee and the Company. The exercise price will be
specified in each Stock Option Agreement, however option prices for an ISO will
not be less than 100% of the fair market value of an ordinary share on the date
the option is granted.
An aggregate of 3.0 million ordinary shares have been reserved under the 2003
Plan; in no event will the number of ordinary shares that may be issued pursuant
to options awarded under the 2003 Plan exceed 10% of the outstanding shares, as
defined in the 2003 Plan, at the time of the grant. Further, the maximum number
of ordinary shares with respect to which options may be granted under the 2003
Plan during any calendar year to any employee shall be 200,000 ordinary shares.
No options can be granted after January 17, 2013.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") 123 (revised 2004), Share Based
Payment ("SFAS 123R") which replaced SFAS 123 Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board ("APB") Opinion No. 25
Accounting for Stock Issued to Employees. SFAS 123R requires, with effect from
accounting periods beginning after June 15, 2005, that all share based payments
to employees, including stock options granted, be recognized in the financial
statements based on their grant date fair values.
8
The Company has adopted SFAS 123R with effect from January 1, 2006, with the
Black-Scholes method of valuation being used to calculate the fair value of
options granted. The Company adopted SFAS 123R using the modified-prospective
transition method. Under that transition method compensation cost recognized in
the nine months ended September 30, 2006, includes; (a) compensation cost for
all share-based payments granted prior to, but not yet vested as of, January 1,
2006, based on grant date fair value estimated in accordance with the original
provisions of SFAS 123 and (b) compensation cost for all share based payments
granted subsequent to January 1, 2006, based on grant date fair values estimated
in accordance with the provisions of SFAS 123R. Results for prior periods have
not been restated. The following table summarizes option activity for the nine
months ended September 30, 2006:
Weighted
Options Weighted Weighted Average
Outstanding Average Average Remaining
Number of Exercise Fair Contractual
Shares Price Value Life
Outstanding at December 31, 2005 2,264,292 $15.75 $7.30
--------------------------------------------
Granted 745,222 21.95 9.82
Exercised (438,934) 13.59 7.09
Forfeited (228,744) 16.33 7.67
--------------------------------------------
Outstanding at September 30, 2006 2,341,836 $17.97 $8.17 5.88
============================================
Exercisable at September 30, 2006 591,458 $16.10 $7.61 4.81
============================================
Share option awards are generally granted with an exercise price equal to the
market price of the Company's shares at date of grant. Share options typically
vest over a period of five years from date of grant and expire eight years from
date of grant. The maximum contractual term of options outstanding at September
30, 2006 is eight years.
The weighted average fair value of stock options granted during the nine months
ended September 30, 2006, calculated using the Black-Scholes option pricing
model, was $9.82 based on the following assumptions; dividend yield - 0%, risk
free interest rate - 4.6%, expected volatility - 45% and weighted average
expected life - 4.81 years.
On January 17, 2006, 30,000 share options, with an exercise price of $20.84,
were granted to a key employee of the Company. These options will vest between
2009 and 2014, subject to the Company's diluted earnings achieving $2.10 per
share. If the Company does not achieve diluted earnings of $2.10 per share
before January 16, 2014, the option grant expires.
Expected volatility is based on historical volatility of our common stock over a
period equal to the expected term of the options; the expected life represents
the weighted average period of time that options granted are expected to be
outstanding given consideration to vesting schedules, and our historical
experience of part vesting and termination patterns. The risk-free rate is based
on the U.S. gilts zero-coupon yield curve in effect at time of grant for periods
corresponding with the expected life of the option.
Income from operations for the nine months ended September 30, 2006, is stated
after charging $3.0 million in respect of non-cash stock compensation expense.
Basic and diluted earnings per share for the nine months ended September 30,
2006, had SFAS 123R not been introduced would have been $1.06 and $1.03
respectively. Non-cash stock compensation expense for the nine months ended
September 30, 2006, has been allocated to direct costs and selling, general and
administrative expenses as follows:
9
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Direct costs $ 565 - $ 1,649 -
Selling, general and
administrative 460 - 1,344 -
----------------------------------------------------
$ 1,025 - $ 2,993 -
====================================================
Non vested shares outstanding as at September 30, 2006, are as follows:
Options Weighted Weighted
Outstanding Average Average
Number of Exercise Fair
Shares Price Value
Non vested outstanding at December 31, 2005 1,606,778 $16.60 $7.61
--------------------------------
Granted 745,222 21.95 9.82
Vested (372,877) 17.94 8.43
Forfeited (228,744) 16.33 7.67
--------------------------------
Non vested outstanding at September 30, 2006 1,750,379 $18.60 $8.36
================================
As at September 30, 2006, total unrecognized compensation cost related to
unvested options, which the Company expects to recognize over a weighted average
period of 4.3 years, amounted to $10.1 million. The Company has granted options
with fair values ranging from $5.78 to $9.82 per option or a weighted average
fair value of $7.94 per option. The Company issues new ordinary shares for all
options exercised. The total amount of fully vested share options which remained
outstanding at September 30, 2006 was 68,396. The fully vested options have an
average remaining contractual term of 1.76 years and average exercise price of
$10.27. The total intrinsic value of options exercised during the period was
$5.94 million (3 months ended September 30, 2006 was $2.34 million).
Prior to the adoption of SFAS 123R, the Company accounted for its share options
in accordance with the provisions of SFAS No. 123 which allowed entities to
continue to apply the provisions of APB 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied. The impact
on net profit and earnings per share, had SFAS 123R been applied are as follows:
Nine Months Ended
August 31, 2005
(in thousands)
Net profit as reported $6,804
Deduct: Total non-cash stock compensation expense determined
under fair value based method for all awards, net of related
tax effects ($2,090)
--------------------------------------------------------------------------------
Pro forma net profit $4,714
================================================================================
Earnings per share (in $):
Basic - as reported 0.24
Basic - pro forma 0.17
Diluted - as reported 0.24
Diluted - proforma 0.17
================================================================================
10
The weighted average fair value of stock options granted during the nine months
ended August 31, 2005, calculated using the Black-Scholes option pricing model,
was $7.54 based on the following assumptions; dividend yield - 0%, risk free
interest rate - 3.9/4.1%, expected volatility - 45% and weighted average
expected life - 4.81 years.
Expected volatility is based on historical volatility of our common stock over a
period equal to the expected term of the options; the expected life represents
the weighted average period of time that options granted are expected to be
outstanding given consideration to vesting schedules and our historical exercise
and termination patterns. The risk-free rate is based on the U.S. gilts
zero-coupon yield curve in effect at time of grant for periods corresponding
with the expected life of the option.
On February 7, 2005, 240,000 share options, with an exercise price of $17.20,
were granted to certain key employees of the Company. These options will vest
between 2008 and 2013 subject to the Company's diluted earnings achieving $2.00
per share. If the Company does not achieve diluted earnings of $2.00 per share
before February 6, 2013, the option grant expires.
6. Business Segment Information
The Company's areas of operation outside of Ireland principally include the
United Kingdom, United States, Germany, Australia, Argentina, Chile, France,
Italy, Japan, Israel, Singapore, Canada, Sweden, The Netherlands, Latvia,
Russia, Lithuania, Poland, Taiwan, Hong Kong, South Africa, Spain, Hungary,
India, Mexico, Brazil, South Korea, China and Thailand. Segment information for
the three and nine month periods ended September 30, 2006 and August 31, 2005
are as follows:
a) The distribution of net revenue by geographical area was as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Ireland* $ 11,889 $ 10,753 $ 31,199 $ 28,494
Rest of Europe 28,322 21,510 74,447 68,190
U.S. 72,471 47,625 198,331 142,665
Rest of the World 8,032 6,033 22,668 15,396
------------------------------------------------------------------------------
Total $ 120,714 $ 85,921 $ 326,645 $ 254,745
==============================================================================
* All sales shown for Ireland are export sales.
b) The distribution of net revenue by business segment was as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Central laboratory $ 12,888 $ 7,235 $ 33,693 $ 19,729
Clinical research 107,826 78,686 292,952 235,016
------------------------------------------------------------------------------
Total $ 120,714 $ 85,921 $ 326,645 $ 254,745
==============================================================================
11
c) The distribution of income from operations by geographical area was as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Ireland $ 2,331 $ 462 $ 6,263 $ 265
Rest of Europe 3,676 4,623 10,047 15,347
U.S. 5,612 1,640 14,517 (7,104)
Rest of the World 992 1,643 3,186 1,974
------------------------------------------------------------------------------
Total $ 12,611 $ 8,368 $ 34,013 $ 10,482
==============================================================================
d) The distribution of income from operations by business segment was as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Central laboratory $ 639 $ (1,615) $ 305 $ (14,145)
Clinical research 11,972 9,983 33,708 24,627
------------------------------------------------------------------------------
Total $ 12,611 $ 8,368 $ 34,013 $ 10,482
==============================================================================
e) The distribution of property, plant and equipment, net, by geographical area
was as follows:
September 30, December 31,
------------- ------------
2006 2005
---- ----
(in thousands)
Ireland $ 26,774 $ 22,538
Rest of Europe 8,728 6,669
U.S. 19,814 16,720
Rest of the World 3,081 1,725
------------------------------------------------------------------------------
Total $ 58,397 $ 47,652
==============================================================================
f) The distribution of property, plant and equipment, net, by business segment
was as follows:
September 30, December 31,
------------- ------------
2006 2005
---- ----
(in thousands)
Central laboratory $ 4,304 $ 3,380
Clinical research 54,093 44,272
------------------------------------------------------------------------------
Total $ 58,397 $ 47,652
==============================================================================
12
g) The distribution of depreciation and amortization by geographical area was as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Ireland $ 1,318 $ 1,353 $ 3,844 $ 4,035
Rest of Europe 637 521 1,806 1,671
U.S. 1,690 1,409 4,771 4,203
Rest of the World 230 151 588 498
------------------------------------------------------------------------------
Total $ 3,875 $ 3,434 $ 11,009 $ 10,407
==============================================================================
h) The distribution of depreciation and amortization by business segment was as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, August 31, September 30, August 31,
------------- ---------- ------------- ----------
2006 2005 2006 2005
---- ---- ---- ----
(in thousands) (in thousands)
Central laboratory $ 360 $ 286 $ 982 $ 801
Clinical research 3,515 3,148 10,027 9,606
------------------------------------------------------------------------------
Total $ 3,875 $ 3,434 $ 11,009 $ 10,407
==============================================================================
i) The distribution of total assets by geographical area was as follows:
September 30, December 31,
------------- ------------
2006 2005
---- ----
(in thousands)
Ireland $ 101,369 $ 91,826
Rest of Europe 88,739 80,700
U.S. 224,676 169,799
Rest of the World 16,353 6,742
------------------------------------------------------------------------------
Total $ 431,137 $ 349,067
==============================================================================
j) The distribution of total assets by business segment was as follows:
September 30, December 31,
------------- ------------
2006 2005
---- ----
(in thousands)
Central laboratory $ 24,622 $ 17,150
Clinical research 406,515 331,917
------------------------------------------------------------------------------
Total $ 431,137 $ 349,067
==============================================================================
13
ICON plc
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and accompanying notes
included elsewhere herein and the Consolidated Financial Statements and related
notes thereto included in our Transition Report on Form 20-F for the seven
months ended December 31, 2005. The Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States.
Overview
We are a contract research organization, or CRO, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology and
medical device industries. Our focus is on supporting the conduct of clinical
trials. We have historically done so by providing such services as Phase I - IV
clinical trials management, study design, laboratory services and drug
development support. We believe that we are one of a select group of CROs with
the capability and expertise to conduct clinical trials in most major
therapeutic areas on a global basis. We have approximately 4,000 employees
worldwide, with operations in 48 locations in 30 countries including the United
States and major markets in Europe and Rest of World. For the nine months ended
September 30, 2006, we derived approximately 60.7%, 32.3%, and 7.0% of our net
revenue in the United States, Europe and Rest of World, respectively.
We earn revenues by providing a number of different services to our clients.
These services include clinical trials management, biometric activities,
consulting and laboratory services. We recognize biometric, consulting and
laboratory revenues on a fee-for-service basis. Our laboratory service contracts
are multiple element arrangements, with laboratory kits and laboratory testing
representing the contractual elements. We determine the fair values for these
elements, each of which can be sold separately, based on objective and reliable
evidence of their respective fair values. Our laboratory contracts entitle us to
receive non-refundable set up fees and we allocate such fees as additional
consideration to the contractual elements based on the proportionate fair values
of the elements. We recognize revenues for the elements on the basis of the
number of deliverable units completed in a period.
We recognize clinical trials revenue on the basis of the relationship between
time incurred and the total estimated duration of the contract, as this
represents the most accurate pattern over which our contractual obligations are
fulfilled. We invoice our customers upon achievement of specified contractual
milestones. This mechanism, which allows us to receive payment from our
customers throughout the duration of the contract, is not reflective of revenue
earned. We recognize revenues over the period from the awarding of the
customer's contract to study completion and acceptance. This requires us to
estimate total expected revenue, time inputs, contract costs, profitability and
expected duration of the clinical trial. These estimates are reviewed
periodically and, if any of these estimates change or actual results differ from
expected results, an adjustment is recorded in the period in which they become
readily estimable.
As is customary in the CRO industry, we subcontract with third party
investigators in connection with clinical trials. All subcontractor costs, and
certain other costs where reimbursed by clients, are, in accordance with
industry practice, deducted from gross revenue to arrive at net revenue. As no
profit is earned on these costs, which vary from contract to contract, we view
net revenue as our primary measure of revenue growth.
Direct costs consist primarily of compensation and associated fringe benefits
for project-related employees and other direct project driven costs. Selling,
general and administrative expenses consist of compensation and related fringe
benefits for selling and administrative employees, professional services,
advertising costs and all costs related to facilities and information systems.
As the nature of our business involves the management of projects having a
typical duration of one to three years, the commencement, completion,
curtailment or early termination of projects in a fiscal year can have a
material impact on revenues earned with the relevant clients in such years. In
addition, as we typically work with some, but not all, divisions of a client,
fluctuations in the number and status of available projects within such
divisions can also have a material impact on revenues earned from such clients
from year to year.
Although domiciled in Ireland, we report our results in U.S. dollars. As a
consequence, the results of our non-United States based operations, when
translated into U.S. dollars, could be materially affected by fluctuations in
exchange rates between the U.S. dollar and the currency of those operations.
14
In addition to translation exposures, we are also subject to transaction
exposures because the currency in which contracts are priced can be different
from the currencies in which costs relating to those contracts are incurred. We
have 17 operations operating in U.S. dollars, 6 in Euros, 3 in pounds Sterling,
and 1 each in Australian dollars, Singapore dollars, Yen, Israeli New Shekels,
Latvian Lats, Swedish Krona, Argentine Peso, South African Rand, Indian Rupee,
Russian Rouble, Canadian dollar, Hungarian Forint, Polish Zloty, Lithuanian
Litas, Hong Kong dollar, Taiwan dollar, Mexican Peso, Brazilian Real, Chilean
Peso, South Korean Won, Chinese Yuan Renminbi and Thai Baht. Our operations in
the United States are not materially exposed to such currency differences as the
majority of our revenues and costs are in U.S. dollars. However, outside the
United States the multinational nature of our activities means that contracts
are usually priced in a single currency, most often pounds Sterling, U.S.
dollars or Euros, while costs arise in a number of currencies, depending, among
other things, on which of our offices provide staff for the contract, and the
location of investigator sites. Although many such contracts benefit from some
degree of natural hedging due to the matching of contract revenues and costs in
the same currency, where costs are incurred in currencies other than those in
which contracts are priced, fluctuations in the relative value of those
currencies could have a material effect on our results of operations. We
regularly review our currency exposures and hedge a portion of these, using
forward exchange contracts, where natural hedges do not cover them.
We have received capital and revenue grants from Enterprise Ireland, an Irish
government agency. We record capital grants as deferred income, which are
credited to income on a basis consistent with the depreciation of the relevant
asset. Grants relating to operating expenditures are credited to income in the
period in which the related expenditure is charged. The capital grant agreements
provide that in certain circumstances the grants received may be refundable in
full. These circumstances include sale of the related asset, liquidation of the
Company or failing to comply in other respects with the grant agreements. The
operating expenditure grant agreements provide for repayment in the event of
downsizing of the Company calculated by reference to any reduction in employee
numbers. We have not recognized any loss contingency having assessed as remote
the likelihood of these events arising. Up to September 30, 2006, we have
received $2,477,579 and $1,841,504 under the capital grants and operating
grants, respectively. Pursuant to the terms of the grant agreements, we are
restricted from distributing some of these amounts by way of dividend or
otherwise.
As we conduct operations on a global basis, our effective tax rate has depended
and will depend on the geographic distribution of our revenue and earnings among
locations with varying tax rates. Our results of operations therefore may be
affected by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of our results of operations among various tax
jurisdictions changes, our effective tax rate may vary significantly from period
to period.
Results of Operations
Three Months Ended September 30, 2006 compared with Three Months Ended August
31, 2005
The following table sets forth for the periods indicated certain financial data
as a percentage of net revenue and the percentage change in these items compared
to the prior comparable period. The trends illustrated in the following table
may not be indicative of future results.
Three Months Ended
-------------------
September 30, August 31, 2005
------------- ---------- ----------
2006 2005 to 2006
---- ---- -------
Percentage
----------
Increase/
----------
Percentage of Net Revenue (decrease)
--------------------------- ----------
Net revenue............................ 100.0% 100.0% 40.5%
Costs and expenses:
Direct costs........................... 56.7% 55.1% 44.6%
Selling, general and administrative.... 29.7% 31.2% 33.5%
Depreciation and amortization.......... 3.2% 4.0% 12.8%
Income from operations................. 10.4% 9.7% 50.7%
Net revenue increased by $34.8 million, or 40.5%, from $85.9 million for the
three months ended August 31, 2005, to $120.7 million for the three months ended
September 30, 2006. This improvement arose through a combination of increased
business from existing clients, business won from new clients and revenues of
$2.6 million from acquisitions not included in the comparative period.
15
Revenues in the United States, Europe and the Rest of World grew by 52.2%, 24.6%
and 33.1% respectively. In the three months ended September 30, 2006, net
revenue from our central laboratory business increased by 78.1%, from $7.2
million, to $12.9 million, while our clinical research segment grew by 37.0%,
from $78.7 million, to $107.8 million, in each case over the period ended August
31, 2005. The increase in net revenue in our central laboratory segment is
primarily due to higher testing volumes over the comparative period. The growth
in net revenue in our clinical research segment is due to the expansion of our
services to both existing and new clients, increased use of outsourcing by the
pharmaceutical, biotechnology and medical device industries, an underlying
increase in research and development spending, consolidation in the CRO industry
and revenues from acquisitions not included in the comparative period.
Direct costs increased by $21.1 million, or 44.6%, from $47.3 million for the
three months ended August 31, 2005 to $68.4 million for the three months ended
September 30, 2006, primarily due to increased staff numbers needed to support
increased project related activity, the inclusion of $0.57 million non-cash
stock compensation expense for the quarter ended September 30, 2006 and the
direct costs from acquisitions of $1.5 million not included in the comparative
period. Direct costs as a percentage of net revenue increased from 55.1% for the
three months ended August 31, 2005, to 56.7% for three months ended September
30, 2006.
Selling, general and administrative expenses increased by $9.0 million, or
33.5%, from $26.8 million for the three months ended August 31, 2005, to $35.8
million for the three months ended September 30, 2006. This increase is due to
the continued expansion of our operations, the inclusion of $0.47 million
non-cash stock compensation expense and the costs from acquisitions of $0.6
million not included in the comparative period. As a percentage of net revenue,
selling, general and administrative expenses, decreased from 31.2% in the three
months ended August 31, 2005, to 29.7% in the three months ended September 30,
2006.
Depreciation and amortization expense increased by $0.4 million, or 12.8%, from
$3.4 million for the three months ended August 31, 2005, to $3.8 million for the
three months ended September 30, 2006. This increase is due to the continued
investment in facilities and information technology to support the growth in
activity and in providing for future capacity and costs from acquisition of
$0.03 million included in the comparative period. As a percentage of net
revenue, depreciation and amortization decreased from 4.0% in the three months
ended August 31, 2005, to 3.2% in the three months ended September 30, 2006.
Income from operations increased by $4.2 million, or 50.7%, from $8.4 million
for the three months ended August 31, 2005, to $12.6 million for the three
months ended September 30, 2006. The operating income for the quarter is derived
after the recognition of the non cash stock compensation charge of $1.03
million. There was no such charge in the comparable period. As a percentage of
net revenue, income from operations increased from 9.7% for the three months
ended August 31, 2005, to 10.4% of net revenues for the three months ended
September 30, 2006.
The three months ended September 30, 2006, saw a continued improvement in the
performance of the central laboratory business, from a loss from operations, as
a percentage of net revenue of 22.3% for the three months ended August 31, 2005,
to an operating profit of 5.0% for the three months ended September 30, 2006.
The central laboratory constitutes approximately 10.7% of our business revenues
for the three months ended September 30, 2006. Operating margins for our
clinical research segment decreased from 12.7% for the three months ended August
31, 2005, to 11.1% for the three months ended September 30, 2006.
Interest income for the three months ended September 30, 2006 was $1.0 million,
an increase of $0.6 million over the amount of interest income for the three
months ended August 31, 2005. Higher average level of funds invested and higher
interest rates over the prior period contributed to the increased interest
income.
ICON's effective tax rate for the three months ended September 30, 2006 was
25.2% compared with 28.0% for the three months ended August 31, 2005. The
decrease is due mainly to the changes in the geographic distribution of pre-tax
earnings.
16
Nine Months Ended September 30, 2006 compared with Nine Months Ended August 31,
2005
The following table sets forth for the periods indicated certain financial data
as a percentage of net revenue and the percentage change in these items compared
to the prior comparable period. The trends illustrated in the following table
may not be indicative of future results.
Nine Months Ended
-----------------
September 30, August 31, 2005
------------- ---------- ----------
2006 2005 to 2006
---- ---- -------
Percentage
----------
Increase/
----------
Percentage of Net Revenue (decrease)
--------------------------- ----------
Net revenue............................ 100.0% 100.0% 28.2%
Costs and expenses:
Direct costs........................... 56.1% 55.3% 30.0%
Selling, general and administrative.... 30.1% 32.1% 20.5%
Depreciation and amortization.......... 3.4% 4.1% 5.8%
Other Charges.......................... - 4.4% (100%)
Income from operations................. 10.4% 4.1% 224.5%
Net revenue increased by $71.9 million, or 28.2%, from $254.7 million for the
nine months ended August 31, 2005, to $326.6 million for the nine months ended
September 30, 2006. This improvement arose through a combination of increased
business from existing clients and business won from new clients. Revenues in
the United States, Europe and the Rest of World grew by 39.0%, 9.3% and 47.2%
respectively. In the nine months ended September 30, 2006, net revenue from our
central laboratory business increased by 70.8%, from $19.7 million for the nine
months ended August 31, 2005, to $33.7 million for the nine months ended
September 30, 2006, while our clinical research segment grew by 24.7%, from
$235.0 million, to $292.9 million over the comparable period. The increase in
net revenue in our central laboratory segment is primarily due to higher testing
volumes in 2006. The growth in net revenue in our clinical research segment is
due to the expansion of our services to both existing and new clients, increased
use of outsourcing by the pharmaceutical, biotechnology and medical device
industries, an underlying increase in research and development spending, revenue
from acquisitions and consolidation in the CRO industry.
Direct costs increased by $42.3 million, or 30.0%, from $140.8 million for the
nine months ended August 31, 2005, to $183.1 million for the nine months ended
September 30, 2006, primarily due to increased staff numbers needed to support
increased project related activity and the inclusion of $1.65 million non-cash
stock compensation. Direct costs as a percentage of net revenue increased from
55.3% in the nine months ended August 31, 2005, to 56.1% in the nine months
ended September 30, 2006.
Selling, general and administrative expenses increased by $16.7 million, or
20.5%, from $81.7 million for the nine months ended August 31, 2005, to $98.5
million for the nine months ended September 30, 2006. This increase is due to
the continued expansion of our operations and the inclusion of $1.34 million
non-cash stock compensation expense. As a percentage of net revenue, selling,
general and administrative expenses, decreased from 32.1% in the nine months
ended August 31, 2005, to 30.1% in the nine months ended September 30, 2006.
Depreciation and amortization expense increased by $0.6 million, or 5.8%, from
$10.4 million for the nine months ended August 31, 2005, to $11.0 million for
the nine months ended September 30, 2006. This increase is due to the continued
investment in facilities and information technology to support the growth in
activity and in providing for future capacity. As a percentage of net revenue,
depreciation and amortization, decreased from 4.1% in the nine months ended
August 31, 2005, to 3.4% in the nine months ended September 30, 2006.
Other charges of $11.3 million were recognised in the nine months ended August
31, 2005. These charges related to the recognition of an impairment in the
carrying value of our investment in the central laboratory, a write down of
certain fixed assets and the lease termination and exit costs associated with
the consolidation of some of our office facilities in the U.S.
17
Income from operations increased by $23.5 million, or 224.5%, from $10.5 million
for the nine months ended August 31, 2005, to $34.0 million for the nine months
ended September 30, 2006. As a percentage of net revenue, income from operations
increased from 4.1% for the nine months ended August 31, 2005, to 10.4% of net
revenues for the nine months ended September 30, 2006. The operating income for
the nine months is derived after the recognition of the non cash stock
compensation charge of $3.0 million. There was no such charge in the comparable
period. As a percentage of net revenue, losses from operations for the central
laboratory decreased from 71.7% for the nine months ended August 31, 2005, to a
profit from operations percentage of 1.0% for the nine months ended September
30, 2006, due to the efficiencies gained in the higher testing volumes in fiscal
2006. For the nine months ended September 30, 2006, the central laboratory
constituted approximately 10.3% of our business revenues. Operating margins for
our clinical research segment increased from 10.5% in the nine months ended
August 31, 2005, to 11.5% for the nine months ended September 30, 2006.
Interest income for the nine months ended September 30, 2006 was $2.6 million,
an increase of $1.5 million over the amount of interest income for the nine
months ended August 31, 2005. Higher average level of funds invested and higher
interest rates over the prior period contributed to the increased interest
income.
ICON's effective tax rate for the nine months ended September 30, 2006 was 26.0%
compared with 40.6% for the nine months ended August 31, 2005. The decrease in
the effective rate was primarily due to the inclusion of once-off other charged
for the nine months ended August 31, 2005.
Liquidity and Capital Resources
The CRO industry generally is not capital intensive. Since our inception, we
have financed our operations and growth primarily with cash flows from
operations, net proceeds of $49.1 million raised in our initial public offering
in May 1998 and net proceeds of $44.3 million raised in our public offering in
August 2003. Our principal cash needs are payment of salaries, office rents,
travel expenditures and payments to subcontractors. The aggregate amount of
employee compensation paid in the nine months ended September 30, 2006 amounted
to $196.0 million, compared to $152.9 million for the nine months ended August
31, 2005. Investing activities primarily reflect capital expenditures for
facilities and for information systems enhancements, the sale and purchase of
short-term investments and acquisitions.
Our clinical research and development contracts are generally fixed price with
some variable components and range in duration from a few months to several
years. Revenue from contracts is generally recognized as income on the basis of
the relationship between time incurred and the total estimated contract duration
or on a fee-for-service basis. The cash flow from contracts typically consists
of a down payment of between 10% and 20% paid at the time the contract is
entered into, with the balance paid in instalments over the contract's duration
and in some cases upon the achievement of certain milestones. Accordingly, cash
receipts do not necessarily correspond to costs incurred and revenue recognized
on contracts.
As of September 30, 2006, our working capital amounted to $153.5 million,
compared to $132.3 million at December 31, 2005. The other significant influence
on our operating cash flow is revenue outstanding, which comprises accounts
receivable and unbilled revenue, less payments on account. The dollar values of
these amounts and the related days revenue outstanding can vary due to the
achievement of contractual milestones, including contract signing, and the
timing of cash receipts. The number of days revenue outstanding was 57 days at
September 30, 2006, compared to 65 days at December 31, 2005.
Net cash provided by operating activities was $33.0 million in the nine months
ended September 30, 2006, compared to $30.0 million in the nine months ended
August 31, 2005.
Net cash used in investing activities was $42.9 million in the nine months ended
September 30, 2006, compared to $4.5 million in the nine months ended August 31,
2005, due to purchase of short term investments and acquisitions during the
period.
Net cash provided by financing activities was $5.0 million in the nine months
ended September 30, 2006, compared to $8.1 million used in the nine months
ended, August 31, 2005, primarily due to repayment of bank credit lines in the
comparative period ended September 30, 2006.
As a result of these cash flows, cash and cash equivalents decreased by $4.6
million in the nine months ended September 30, 2006, compared to an increase of
$16.3 million in the nine months ended August 31, 2005.
18
On July 3, 2003, ICON entered into a facility agreement (the "Facility
Agreement") for the provision of a term loan facility of U.S.$40 million,
multi-currency overdraft facility of $5 million and revolving credit facility of
$15 million (the "Facilities") with The Governor and Company of the Bank of
Ireland and Ulster Bank Ireland Limited (the "Banks"). Our obligations under the
Facilities are secured by certain composite guarantees and indemnities and
pledges in favour of each of the Banks. This facility bears interest at an
annual rate equal to the Banks' Prime Rate plus three quarters of one percent.
ICON plc and its subsidiaries are entitled to make borrowings under the term
loan facility of $40 million and the multi currency overdraft facility of $5
million. As at September 30, 2006, the full amounts of the term loan facility
and the multi currency overdraft were available to be drawn down. As at
September 30, 2006, $11 million of the $15 million revolving credit facility was
available to be drawn down.
The Company also entered into an overdraft agreement with Allied Irish Banks,
plc ("AIB") whereby the company guarantees any overdraft of its subsidiary ICON
Clinical Research GmbH up to an amount (euro)120,000 (U.S.$152,532). As of
September 30, 2006, the full facility was available to be drawn down.
Inflation
We believe the effects of inflation generally do not have a material adverse
impact on our operations or financial conditions.
Legal Proceedings
We are not party to any litigation or other legal proceedings that we believe
could reasonably be expected to have a material adverse effect on our business,
results of operations and financial condition.
19
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.
ICON plc
/s/ Ciaran Murray
--------------------- -----------------------
Date October 26, 2006 Ciaran Murray
Chief Financial Officer
20