FORM 20-F
(Mark One)
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal period ended: May 31, 2004
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number:
ICON public limited company
.................................................................................
(Exact name of Registrant as specified in its charter)
Ireland
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(Jurisdiction of incorporation or organization)
South County Business Park, Leopardstown, Dublin 18, Ireland.
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
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None
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class
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American Depository Shares, representing Ordinary Shares, par value (euro)0.06
each Ordinary Shares, par value (euro)0.06 each
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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(Title of Class)
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 13,838,476 Ordinary Shares.
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 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:
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Yes.........X.......... No.....................
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17......... Item 18.........X........
TABLE OF CONTENTS
General...................................................................... 1
Cautionary Statement......................................................... 1
Part I
Item 1. Identity of Directors, Senior Management and Advisors......... 1
Item 2. Offer Statistics and Expected Timetable........................ 1
Item 3. Key Information................................................ 2
Item 4. Information on the Company..................................... 7
Item 5. Operating and Financial Review and Prospects...................18
Item 6. Directors, Senior Management and Employees.....................27
Item 7. Major Shareholders and Related Party Transactions..............31
Item 8. Financial Information..........................................32
Item 9. The Offer and the Listing......................................33
Item 10. Additional Information.........................................34
Item 11. Quantitative and Qualitative Disclosures about Market Risk.....41
Item 12. Description of Securities Other than Equity Securities.........41
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies................42
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds................................................42
Item 15. Reserved.......................................................42
Item 16. Reserved.......................................................42
Part III
Item 17. Financial Statements...........................................43
Item 18. Financial Statements...........................................43
Item 19. Financial Statements and Exhibits..............................43
General
As used herein, "ICON plc" and the "Company" refer to ICON public limited
company and its consolidated subsidiaries, unless the context requires
otherwise.
Unless otherwise indicated, ICON's financial statements and other financial data
contained in this Form 20-F are presented in United States dollars ("$") and are
prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP").
In this Form 20-F, references to "U.S. dollars," "U.S.$" or "$" are to the
lawful currency of the United States, references to "pounds sterling",
"sterling", "(pound)", "pence" or "p" are to the lawful currency of the United
Kingdom, references to "Israeli Shekels" or "ILS" are to the lawful currency of
Israel, references to "Euro" or "(euro)" are to the European single currency
adopted by twelve members of the European Union (including the Republic of
Ireland, France, Germany & the Netherlands). ICON publishes its consolidated
financial statements in U.S. dollars.
ICON prepares its consolidated financial statements on the basis of a fiscal
year beginning on June 1 and ending on May 31. References to a fiscal year in
this Form 20-F shall be references to the fiscal year ending on May 31 of that
year. In this Form 20-F, financial results and operating statistics are, unless
otherwise indicated, stated on the basis of such fiscal years.
Cautionary Statement
Statements included herein which are not historical facts are forward looking
statements. Such forward looking statements are made pursuant to the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995 (the
"PSLRA"). The forward looking statements involve a number of risks and
uncertainties and are subject to change at any time. In the event such risks or
uncertainties materialize, our results could be materially affected. The risks
and uncertainties include, but are not limited to, dependence on the
pharmaceutical industry and certain clients, the need to regularly win projects
and then to execute them efficiently, the challenges presented by rapid growth,
competition and the continuing consolidation of the industry, the dependence on
certain key executives and other factors identified in ICON's Securities and
Exchange Commission filings. ICON has no obligation under the PSLRA to update
any forward looking statements and does not intend to do so.
Part I
Item 1. Identity of Directors, Senior Management and Advisors.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
1
Item 3. Key Information.
Selected Historical Consolidated Financial Data for ICON plc
The following selected financial data set forth below are derived from ICON's
consolidated financial statements and should be read in conjunction with, and
are qualified by reference to, "Operating and Financial Review and Prospects"
and ICON's consolidated financial statements and related notes thereto included
elsewhere in this Form 20-F.
Year Ended May 31,
2000 2001 2002 2003 2004
(in thousands, except share and per share data)
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Statement of Operations Data:
Gross revenue $115,087 $151,832 $218,842 $340,971 $443,875
Subcontractor costs (1) (34,320) (35,669) (62,287) (115,246) (146,952)
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Net revenue 80,767 116,163 156,555 225,725 296,923
Costs and expenses:
Direct costs 42,007 63,800 83,371 122,373 162,562
Selling, general and administrative 27,348 36,312 48,951 71,118 88,807
Merger costs (3) 1,617 - - - -
Depreciation and amortization 3,264 4,975 6,020 7,305 11,171
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Total costs and expenses 74,236 105,087 138,342 200,796 262,540
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Income from operations 6,531 11,076 18,213 24,929 34,383
Net interest income 2,659 2,519 1,116 354 288
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Income before provision for income taxes 9,190 13,595 19,329 25,283 34,671
Provision for income taxes (3,122) (2,617) (5,129) (7,000) (8,929)
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Net income (4) $6,068 $10,978 $14,200 $18,283 $25,742
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Net income per ordinary share (2)(4):
Basic $0.55 $0.97 $1.22 $1.55 $1.94
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Diluted $0.51 $0.92 $1.16 $1.50 $1.88
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Weighted average number of ordinary shares outstanding:
Basic 11,050,556 11,292,610 11,656,153 11,813,788 13,267,531
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Diluted 11,824,359 11,943,849 12,241,820 12,181,094 13,703,163
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Pro forma information
Adjustment for pro forma income taxes (3) 537
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Pro forma net income 6,605
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Net income per ordinary share:
Basic $0.60
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Diluted $0.56
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2
As of May 31,
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 26,552 $ 11,179 $ 36,291 $ 18,311 $ 55,678
Short term investments 21,405 35,941 18,551 - 23,085
Working capital 57,962 61,147 72,923 53,827 113,813
Total assets 100,118 128,967 165,794 235,014 335,323
Total debt 2,251 11,518 11,745 7,126 -
Government grants 533 476 962 1,140 1,411
Shareholders' equity $77,053 $86,580 $107,561 $136,910 $216,760
(1) Subcontractor costs comprise investigator payments and certain other
costs reimbursed by clients under terms specific to each of ICON's
contracts. See Note 2(d) to the consolidated financial statements.
(2) Net income per ordinary share is based on the weighted average number
of outstanding ordinary shares and in the case of diluted net income
per share includes potential ordinary shares from the exercise of
options.
(3) On January 28, 2000, ICON completed a merger with Pacific Research
Associates Inc. ("PRAI"), a company specializing in data management,
statistical analysis, and medical and regulatory consulting based in
Mountain View, USA. The merger with PRAI was accounted for as a
pooling-of-interests transaction and accordingly, the historical
financial information contained within this Form 20-F reflects the
combined results of ICON and PRAI.
The adjustment for pro forma income taxes is to normalize the tax
charge in relation to PRAI. As PRAI was treated as an S-Corporation
(with no corporate tax therefore charged to income) prior to the
merger with ICON.
(4) As explained in Note 17 to our Audited Consolidated Financial
Statements, ICON adopted Statement of Financial Accounting Standards
("SFAS") No.142 effective June 1, 2001. Under SFAS No.142, goodwill
and intangible assets with indefinite lives are no longer amortized,
but instead are tested for impairment at least annually. The following
table provides a reconciliation of reported net income to adjusted net
income and earnings per ordinary share excluding amortization expense
for all periods presented:
3
Year ended May 31,
2000 2001 2002 2003 2004
(in thousands)
Reported net income $6,068 $10,978 $14,200 $18,283 $25,742
Add back goodwill amortization 38 210 - - -
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Adjusted net income $6,106 $11,188 $14,200 $18,283 $25,742
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(in dollars)
Basic net income per ordinary share reported $0.55 $0.97 $1.22 $1.55 $1.94
Add back goodwill amortization - $0.02 - - -
------------------------------------------------ ------------- ------------ -------------- -------------- -------------
Adjusted basic net income per ordinary share
reported $0.55 $0.99 $1.22 $1.55 $1.94
------------------------------------------------ ------------- ------------ -------------- -------------- -------------
(in dollars)
Diluted net income per ordinary share reported
$0.51 $0.92 $1.16 $1.50 $1.88
Add back goodwill amortization - $0.02 - - -
------------------------------------------------ ------------- ------------ -------------- -------------- -------------
Adjusted diluted net income per ordinary share
reported $0.51 $0.94 $1.16 $1.50 $1.88
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Risk Factors
You should carefully consider the following factors and any other information in
this document before deciding to purchase our American Depository Shares
("ADSs").
We are dependent on the continued outsourcing of research and development by the
pharmaceutical, biotechnology and medical device industries.
We are dependent upon the ability and willingness of the pharmaceutical,
biotechnology and medical device companies to continue to spend on research and
development and to outsource the services that we provide. We are therefore
subject to risks, uncertainties and trends that affect companies in these
industries. We have benefited to date from the tendency of pharmaceutical,
biotechnology and medical device companies to outsource clinical research
projects. Any downturn in these industries or reduction in spending or
outsourcing could adversely affect our business. For example, if these companies
expanded upon their in-house clinical or development capabilities, they would be
less likely to utilize our services. In addition, if governmental regulations
were changed, they could affect the ability of our clients to operate
profitably, which may lead to a decrease in research spending and therefore this
could have a material adverse effect on our business.
We depend on a limited number of clients and a loss of or significant decrease
in business from them could affect our business.
We have in the past and may in the future derive a significant portion of
our net revenue from a relatively limited number of clients. During the fiscal
year ended May 31, 2004, 40% of our net revenue was derived from our top five
clients. In fiscal 2004, 17% of our net revenue was from Astra Zeneca, no other
client contributed more then 10% of net revenues. During the fiscal year ended
May 31, 2003, 51% of our net revenue was derived from our top five clients. In
fiscal 2003, 21% of our net revenue was from Astra Zeneca, 11% from
Sanofi-synthelabo inc. and 10% from Pfizer. During the fiscal year ended May 31,
2002, 60% of our net revenue was derived from our top five clients. In fiscal
2002, 16% of our net revenue was from Astra Zeneca, 14% from Pfizer and 12% from
Bristol Myers Squibb. The loss of, or a significant decrease in business from,
one or more of these clients could have a material adverse effect on our
business.
4
If our clients discontinue using our services, or cancel or discontinue
projects, our revenue will be adversely affected and we may not receive their
business in the future or may not be able to attract new clients.
Our clients may discontinue using our services completely or cancel some
projects either without notice or upon short notice. The termination or delay of
a large contract or of multiple contracts could have a material adverse effect
on our revenue and profitability. Historically, clients have canceled or
discontinued projects and may in the future cancel their contracts with us for
reasons including:
o the failure of products being tested to satisfy safety or efficacy
requirements;
o unexpected or undesired clinical results of the product;
o a decision that a particular study is no longer necessary;
o insufficient patient enrollment or investigator recruitment; or
o production problems resulting in shortages of the drug.
If we lose clients, we may not be able to attract new ones, and if we lose
individual projects, we may not be able to replace them.
We compete against many companies and research institutions that may be larger
or more efficient than we are. This may preclude us from being given the
opportunity to bid, or may prevent us from being able to competitively bid on
and win new contracts.
The market for CROs is highly competitive. We primarily compete against
in-house departments of pharmaceutical companies and other CROs including
Quintiles Transnational Corporation, Covance Inc., PAREXEL International Corp.,
Kendle International Inc., Ingenix Inc. (United Health), Omnicare Inc., PRA
Inc., MDS Inc., Inveresk Research Group, Inc. and Pharmaceutical Product
Development, Inc. Some of these competitors have substantially greater capital,
research and development capabilities and human resources than we do. As a
result, they may be selected as preferred vendors of our clients or potential
clients for all projects or for significant projects, or they may be able to
price projects more competitively than us.
Any of these factors may prevent us from getting the opportunity to bid on
new projects or prevent us from being competitive in bidding on new contracts.
Our quarterly results are dependent upon a number of factors and can fluctuate
from quarter to quarter.
Our results of operations in any quarter can fluctuate depending upon,
among other things, the number and scope of ongoing client projects, the
commencement, postponement, variation and termination of projects in the
quarter, the mix of revenue, cost overruns, employee hiring and other factors.
Our net revenue in any period is directly related to the number of employees and
the percentage of these employees who were working on projects and billed to the
client during that period. We may be unable to compensate for periods of
underutilization during one part of a fiscal period by augmenting revenues
during another part of that period. We believe that operating results for any
particular quarter are not necessarily a meaningful indication of future
results.
Approximately 80% of our net revenue is earned from long-term fixed-fee
contracts. We would lose money in performing these contracts if the costs of
performance exceed the fixed fees for these projects.
Approximately 80% of our net revenue is earned from long-term fixed-fee
contracts. We have in the past and therefore will continue to bear the risk of
cost overruns under these contracts. If the costs of performing these projects
exceed the fixed fees for these projects, for example if we underprice these
contracts, if there are significant cost overruns or if there are unanticipated
delays under these contracts, our business, financial condition and operating
results could be adversely affected.
5
If we fail to attract or retain qualified staff, our performance may suffer.
Our business, future success and ability to expand operations depends upon
our ability to attract, hire, train and retain qualified professional,
scientific and technical operating staff. We compete for qualified professionals
with other CROs, temporary staffing agencies and the in-house departments of
pharmaceutical, biotechnology and medical device companies. Although we have not
had any difficulty attracting or retaining qualified staff in the past, there is
no guarantee that we will be able to continue to attract a sufficient number of
clinical research professionals at an acceptable cost.
Failure to comply with the regulations of the U.S. Food and Drug Administration
and other regulatory authorities could result in substantial penalties and/or
loss of business.
The U.S. Food and Drug Administration, or FDA, and other regulatory
authorities inspect us from time to time to ensure that we comply with their
regulations and guidelines, including environmental and health and safety
matters. In addition, we must comply with the applicable regulatory requirements
governing the conduct of clinical trials in all countries in which we operate.
If we fail to comply with any of these requirements we could suffer:
o the termination of any research;
o the disqualification of data;
o the denial of the right to conduct business;
o criminal penalties; and
o other enforcement actions.
Our exposure to exchange rate fluctuations could adversely affect our results of
operations.
We derived approximately 37.6% of our consolidated net revenue in 2004 from
our operations outside of the United States. Our financial statements are
presented in U.S. dollars. Accordingly, changes in exchange rates between the
U.S. dollar and other currencies in which we report local results, including the
pound sterling and the euro, will affect the translation of a subsidiary's
financial results into U.S. dollars for purposes of reporting our consolidated
financial results.
In addition, our contracts with our clients are sometimes denominated in
currencies other than the currency in which we incur expenses related to such
contracts. Where expenses are incurred in currencies other than those in which
contracts are priced, fluctuations in the relative value of those currencies
could have a material adverse effect on our results of operations. We regularly
review our currency exchange exposure and hedge a portion of this exposure using
forward exchange contracts.
Liability claims brought against us could result in payment of substantial
damages to plaintiffs and decrease our profitability.
We contract with physicians who serve as investigators in conducting
clinical trials to test new drugs on their patients. This testing creates the
risk of liability for personal injury to or death of the patients. Although
investigators are generally required by law to maintain their own liability
insurance, we could be named in lawsuits and incur expenses arising from any
professional malpractice actions against the investigators with whom we
contract. To date, we have not been subject to any liability claims that are
expected to have a material effect on us.
Indemnifications provided by our clients against the risk of liability for
personal injury to or death of the patients vary from client to client and from
trial to trial and may not be sufficient in scope or amount or the providers may
not have the financial ability to fulfill their indemnification obligations.
Furthermore, we would be liable for our own negligence.
In addition, we maintain an appropriate level of worldwide Professional
Liability/Error and Omissions Insurance. The amount of coverage we maintain
depends upon the nature of the trial. We may in the future be unable to maintain
or continue our current insurance coverage on the same or similar terms. If we
are liable for a claim that is beyond the level of insurance coverage, we may be
responsible for paying all or part of any award.
6
Item 4. Information on the Company.
General
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. As of May 31, 2004, we had approximately
2,450 employees and operations in 33 locations in 20 countries, including the
United States and major markets in Europe and Rest of World and have managed
clinical trials in over 50 countries. For the fiscal year ended May 31, 2004, we
derived approximately 62.4%, 34.0% and 3.6% 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.
During the fiscal year ended May 31, 2004, we commenced operations in Budapest,
Hungary, Barcelona, Spain, and Hong Kong, China.
On July 3, 2003, we entered into a creditline facility for a total of U.S.$60
million. This facility was entered into jointly with Bank of Ireland plc and
Ulster Bank Ireland Ltd, and replaced existing Allied Irish Banks plc and PNC
facilities.
On August 6, 2003, we completed a secondary offering on the NASDAQ exchange
raising approximately $44.3 million, after the deduction of costs, through the
issuance of an additional 1.5 million shares at $32.25 per share.
On September 9, 2003, we completed the acquisition of Globomax LLC, a leading US
drug development company which provides a range of development and consulting
services to the pharmaceutical, biotechnology industries and medical device.
On July 1, 2004 we acquired 70% of the outstanding share capital of Beacon
Bioscience, Inc., a leading specialist CRO, which provides a range of medical
imaging services to the pharmaceutical, biotechnology and medical device
industries.
ICON plc's principal executive office is located at: South County Business Park,
Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number of
this office is 353 (1) 291 2000.
Industry Overview
The CRO industry provides independent product development services for the
pharmaceutical, biotechnology and medical device industries. Companies in these
industries outsource product development services to CROs in order to manage the
drug development process more efficiently and cost-effectively to maximize the
profit potential of patent-protected products. The CRO industry has evolved
since the 1970s from a small number of companies that provided limited clinical
services to a larger number of CROs that offer a range of services that
encompass the entire research and development process, including pre-clinical
development, clinical trials management, clinical data management, study design,
biostatistical analysis, central laboratory and regulatory affairs services.
CROs are required to provide these services in accordance with good clinical and
laboratory practices, as governed by the applicable regulatory authorities.
7
The CRO industry is highly fragmented, consisting of several hundred small,
limited-service providers and a limited number of medium-sized and large CROs
with global operations. Although there are few barriers to entry for small,
limited-service providers, we believe there are significant barriers to becoming
a CRO with global capabilities. Some of these barriers include the
infrastructure and experience necessary to serve the global demands of clients,
the ability to manage simultaneously complex clinical trials in numerous
countries, broad therapeutic expertise and the development and maintenance of
the complex information technology systems required to integrate these
capabilities. In recent years, the CRO industry has experienced consolidation,
resulting in the emergence of a select group of CROs that have the capital,
technical resources, integrated global capabilities and expertise to conduct
multiple phases of clinical trials on behalf of pharmaceutical, biotechnology
and medical device companies. We believe that some large pharmaceutical
companies, rather than utilizing many CRO service providers, are selecting a
limited number of CROs who are invited to bid for projects. We believe that this
trend will further concentrate the market share among CROs with a track record
of quality, speed, flexibility, responsiveness, global capabilities and overall
development experience and expertise.
Trends Affecting the CRO Industry
CROs derive substantially all of their revenue from the research and development
expenditures of pharmaceutical, biotechnology and medical device companies.
Based on industry surveys and investment analyst research, we estimate that
clinical development expenditures outsourced by pharmaceutical and biotechnology
companies worldwide in 2003 was in excess of $14 billion. We believe that the
following trends create further growth opportunities for global CROs, although
there is no assurance that growth will materialize.
Increasing Drug Development Activity.
Recent improvements in drug discovery and screening technology, biotechnology
and disease pathology have reduced the time to develop new drug candidates.
These improvements, combined with the threat of patent expirations on existing
drugs, have led drug developers to increase the rate at which they are creating
new drug candidates for clinical trials. As the number of trials that need to be
performed increases, we believe that drug developers will increasingly rely on
CROs to manage these trials in order to continue to focus on drug discovery. In
addition, as many biotechnology companies do not have a clinical development
infrastructure, we believe that the services offered by CROs will continue to be
in demand from such companies.
Pressure to Accelerate Time to Markets; Globalization of the Marketplace.
Reducing product development time maximizes the client's potential period of
patent exclusivity, which in turn maximizes potential economic returns. We
believe that clients are increasingly using CROs that have the appropriate
expertise to improve the speed of product development to assist them in
improving economic returns. In addition, applying for regulatory approval in
multiple markets and for multiple indications simultaneously, rather than
sequentially, reduces product development time and thereby maximizes economic
returns. We believe that CROs with global operations and experience in a broad
range of therapeutic areas are a key resource to support a global regulatory
approval strategy.
Cost Containment Pressures.
Over the last several years, drug companies have sought more efficient ways of
conducting business due to margin pressures stemming from patent expirations,
greater acceptance of generic drugs, pricing pressures caused by the impact of
managed care, purchasing alliances and regulatory consideration of the economic
benefit of new drugs. Consequently, drug companies are centralizing research and
development, streamlining their internal structures and outsourcing certain
functions to CROs, thereby converting previously fixed costs to variable costs.
The CRO industry, by specializing in clinical trials management, is often able
to perform the needed services with greater focus and at a lower cost than the
client could perform internally.
Increasing Number of Large Long-Term Post-Marketing Studies.
We believe that to establish competitive claims and to encourage drug
prescription by physicians in some large and competitive categories, more
clients need to conduct outcome studies to demonstrate, for example, that
mortality rates are
8
reduced by certain drugs. To verify such outcomes, very large patient numbers
are required and they must be monitored over long time periods. We believe that
as these types of studies increase there will be a commensurate increase in
demand for the services of CROs who have the ability to quickly assemble large
patient populations, globally if necessary, and manage this complex process
throughout its duration.
Increasing Regulatory Demands.
We believe that regulatory agencies are becoming more demanding with regard to
the data required to support new drug approvals and are seeking more evidence
that new drugs are safer and more effective than existing products. As a result,
the complexity of clinical trials and the size of regulatory submissions are
driving the demand for services provided by CROs.
Company Operating Procedures
We have developed a unique operating model for clinical trial projects based on
a "dedicated team approach" in which a team of full time professionals,
operating out of centralized offices, is assigned exclusively to each project.
This contrasts with the approach of many competitors whose staff typically work
on multiple projects at once, sometimes operating from non-office bases in
remote locations and some of whom may be part-time. We believe that this
operating model offers the following advantages:
o each client's project receives undivided attention and is executed
efficiently as team members do not have conflicting demands;
o the absence of conflicting demands on the project team also ensures a
high quality service;
o the dedicated team approach allows us to develop strong relationships
with our clients and to be more responsive to our clients' needs;
o focused project teams facilitate efficient supervision of the project,
enhance productivity and improve cost control; and
o less administration is required to co-ordinate assignments, leading to
a more streamlined corporate management structure.
We believe our dedicated team approach has led to repeat business and an
expanding client base.
Strategy
We believe that our operating model based on dedicated teams differentiates us
from our competition in the CRO industry and enables us to deliver high quality
services to our clients. Our strategy is to continue to grow by applying this
model to penetrate further our existing client base and add new clients. We
intend to implement our strategy by continuing to deliver high quality services,
by increasing our geographic presence and by expanding the scale and range of
our services. We intend to supplement our internal growth with strategic
acquisitions.
Continue to Deliver High Quality Services and Customer Satisfaction. We believe
that our dedicated team approach allows us to provide high quality, timely and
cost effective services that are designed to be highly responsive to our
clients' needs. We believe that the resulting customer satisfaction and enhanced
reputation in the industry will continue to enable us to penetrate our existing
client base and add new clients. In the fiscal year ended May 31, 2004,
approximately 97% of our net revenue was derived from second or subsequent
projects with clients.
Expand Geographic Presence. We believe that the capability to provide our
services on a global basis in most major and developing pharmaceutical markets
enhances our ability to compete for new business from large multinational
pharmaceutical, biotechnology and medical device companies. We have expanded
geographically through the establishment of 33 offices in 20 countries and
intend to continue expanding into regions that have the potential to increase
our client base or increase our investigator and patient populations.
9
Increase Scale and Range of Services. We seek to enhance our competitive
position by increasing the scale and range of our services. We intend to expand
our clinical trials, central laboratory, IVRS (interactive voice recognition
system), data management, statistical and consulting operations in order to
capitalize further on the outsourcing opportunities currently available from our
clients.
Services
Consistent high quality performance is what we have come to stand for with our
clients, and a large part of our continued success is due to the high quality
standards we have set and delivered on projects to date. The achievement of
these quality goals is made possible by the implementation and maintenance of an
effective quality management system, which not only ensures that our business
and quality objectives are achieved, but which is sufficiently dynamic to
rapidly respond to changes in the clinical research and regulatory environments.
We maintain an integrated quality management system, which is designed to serve
the business needs while complying with Good Corporate Practice ("GCP")
guidelines, and which is structured according to the requirements of ISO 9000
international standards. The quality management documentation includes over 700
standard operating procedures ("SOP"s), working procedures and policies that are
implemented on a global basis. In addition, our independent quality assurance
division has the responsibility for assuring that processes conform to
pre-determined quality, ethical and regulatory standards.
One of the driving forces behind our quality performance is management
commitment to ISO 9000. Since 1994 when we were first registered to ISO 9002, we
have continued to undergo several quality systems surveillance audits each year,
in order to maintain global registration. In 2003 we attained the new ISO
9001:2000 standard.
This global registration is unique in the industry and demonstrates our
commitment to providing exceptional clinical research management services. We
remain the only CRO to have ISO registration across all offices and functions.
During fiscal 2004, our Phase I unit achieved ISO 9001:2000 registration and
more new offices are scheduled to undergo the registration audits in 2005. These
include offices in South Africa and Canada. Further improvements are resulting
in a more effective internal auditing strategy, which combines the advantages
and efficiency of operational risk assessment, with a process-focused approach
on tasks that are critical to quality and customer satisfaction.
10
The range of clinical research services we provide facilitates the collection,
analysis and reporting of clinical trials data, which will ultimately become
part of a client's drug registration submission. The range of services is
outlined below:
Clinical Pharmacology
A critical step in the clinical development process is the confirmation of
safety and efficiency in new drug candiates. This is achieved through the
execution of Clinical Pharmacology or Phase I studies. These studies are
undertaken to determine the metabolic and pharmacological effects of drug
candidates in healthy volunteers.
Bioanalysis
Supporting the clinical development process, bioanalysis is carried to source
the data required for pharmacokinetic and pharmacodynamic analysis. Bioanalysis
quantifies the drug and its major metabolites in samples collected from cell
culture media, plasma, serum, and urine.
Pharmacokinetic and Pharmacodynamic analysis
Pharmacokinetic analysis is carried out to measure the effects of absorption,
distribution and elimination of a drug and its metabolites. Pharmacodynamic
analysis access the effects of new drug candidate on the physiology of the body
Study Protocol Preparation
This study protocol is the critical document provided to the investigator which
defines the study and details the procedures which must be followed for the
proper conduct of the trial. ICON has extensive experience in preparing study
protocols in a broad range of therapeutic areas.
Case Report Form ("CRF") Preparation
The CRF is a study specific document in which the investigator records all
relevant information on a trial patient in accordance with the requirements of
the protocol. ICON has the capability of producing CRFs for a wide variety of
therapeutic indications and in all required languages.
Clinical Trial Approvals
Prior to start-up, all clinical trials must be approved by the relevant
government agencies, by institutional review boards and ethics committees and by
certain other bodies in accordance with local requirements. ICON has extensive
experience in obtaining such approvals on a multinational basis.
Investigator Recruitment
The success of a clinical trial is dependent upon finding experienced
investigators who are capable of performing clinical trials in accordance with
the highest ethical and scientific standards. We have a database of several
thousand such investigators who are experienced in numerous therapeutic areas
and who have successfully completed many clinical trials for us.
Study Monitoring and Data Collection
As patients in a clinical trial are examined and tests are conducted in
accordance with the study protocol, patient data is recorded on CRFs and
laboratory reports. In order to ensure accurate results, we provide:
. Specially trained monitors who visit sites regularly to ensure that
the CRFs are completed correctly and that all data specified in the
protocol are collected.
. Personnel who review CRFs for consistency and accuracy before the data
is entered into an electronic database.
. Study monitoring and data collection services which comply with the
FDA's good clinical practice guide lines and other relevant regulatory
requirements.
Patient Safety Monitoring
In a clinical trial, patient safety is paramount. We have teams of trained
physicians and paramedical staff who review any serious adverse events which may
occur during a trial and prepare detailed reports of these events on a timely
basis for the pharmaceutical company and regulatory bodies as required.
Clinical Data Management
As the study progresses, the data from the CRFs is entered into databases that
are designed in accordance with the specifications of the project and the
particular needs of the client. We provide:
. Personnel who screen the data to detect errors, omissions or other
deficiencies prior to data entry.
. Study specific computer programs which are written in order to
validate the data.
. The creation of a final database that is electronically transferred to
a biostatistical group for subsequent analysis.
11
Biostatistical Services
Our biostatistical group primarily provides detailed analyses of data generated
from clinical trials. In addition to providing this in-house statistical
support, our biostatisticians assist clients with all phases of drug development
through biostatistical consulting, database design, data analysis and
statistical reporting.
Medical Reporting
The results of the statistical analysis of the data collected during the trial,
together with other clinical data are included in a final clinical trial report,
which may then become part of the drug registration submission. ICON's medical
reporting team prepare this report and may assist in the presentation of the
data in different formats, including for journal publication or for presentation
to international symposia.
Central Laboratory Services
An important element in monitoring patient safety during a clinical trial is the
conduct of various laboratory tests on the patient's blood, urine and other
bodily fluids at appropriate intervals during the trial. The analysis of these
samples must be standardized and the results must be promptly transmitted to the
investigator. Our central laboratory operation provides:
. A broad range of sample analyses.
. An efficient logistics system to ensure rapid receipt of samples from
the investigator. . State of the art analytical technology.
. Electronic transmission of test results to the investigator.
IVR (Interactive Voice Response)
IVR systems use the global telecommunication networks to transfer data to a
single, centrally located database. IVR systems are used in clinical studies
primarily for study site administration, enrolling and randomizing patients,
management of clinical supplies and collection of patient diaries.
Animal Health
The Animal Health division of ICON has broad capabilities in clinical research
for the development of drugs, vaccines, and devices for the global animal health
industry. The combination of expertise and geographical reach puts ICON in the
top tier of animal CROs globally. This group has been dedicated to animal health
clinical research for over 10 years and has experience in all target species and
all major pharmacological classes. Capabilities include: Complete clinical
project management, contract monitoring, data management, statistical analysis,
quality assurance services, final study reports, development consulting and
post-marketing survey management.
Regulatory Consultancy
Medicinal products are subject to strict regulatory requirements throughout
their development, testing and marketing. Authorization by drug regulatory
authorities is necessary prior to any product being marketed. The regulatory
processes and requirements are lengthy and complex. ICON's regulatory
consultancy division provides consultancy on global regulatory requirements
during development, advises on suitability of client's documentation for
regulatory approvals, prepares and submits applications for regulatory approvals
and provides post licensing regulatory support services.
Strategic Drug Development Services
The Strategic Development division of ICON has broad expertise and can offer a
full range of global services including regulatory affairs, CMC strategy and
management, product development strategy, project managemnt though all phases of
clinical development, product life cycle management, qualility, compliance,
pharmacokinetics, biopharmaceutics, biostatistics, clinical research,
preclinical research, data management, programming and biostatistics.
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Organizational Structure
Name Country of incorporation Group ownership
ICON Clinical Research (UK) Limited United Kingdom 100%
ICON Clinical Research Inc. USA 100%
ICON Clinical Research Limited Republic of Ireland 100%
ICON Japan K.K. Japan 100%
ICON Clinical Research GmbH Germany 100%
ICON Clinical Research Pty Limited Australia 100%
ICON Clinical Research S.A. Argentina 100%
ICON Clinical Research SARL France 100%
ICON Clinical Research Pte. Singapore 100%
ICON Clinical Research Israel Limited Israel 100%
Medeval Group Limited UK 100%
ICON Laboratories, Inc. USA 100%
Managed Clinical Solutions, Inc. USA 100%
ICON Clinical Research (Canada) Inc. Canada 100%
Globomax LLC USA 100%
ICON Clinical Research Espana S.L. Spain 100%
ICON Clinical Research Kft Hungary 100%
All shareholdings comprise ordinary shares.
All subsidiary undertakings are involved in the provision of contract
research services to the pharmaceutical, biotechnology and medical device
industries.
13
Information Systems
Our information technology strategy is to build systems that help in the
delivery of our business strategy. The focus is to provide ease of access to
information for our staff and clients. Our current information systems are built
around open standards and leading commercial hardware and software. All critical
business systems are formally delivered following a documented approach.
Critical clinical information systems which manage clinical data are validated
in accordance with the latest FDA regulations.
Recognizing that each client has its own requirements and systems, we seek to
ensure an entirely flexible approach to client needs. An example of this
flexibility includes linking directly to client systems or for a client to have
access to designated ICON systems. Frequently, we have established secure wide
area network, or WAN, links to the client's data systems, have trained our staff
in those systems and have delivered data on-line to the client's database. We
also provide secure remote access to our systems for clients to review their
study information.
We have deployed a suite of software applications that assist in the management
of our activities. These software applications are both internally developed and
commercially available applications from leading vendors in the industry. These
include a clinical trials management application that tracks all relevant data
in a trial and automates all management and reporting processes and an
investigator grants management application which utilizes this tracking data to
trigger payments when they become due to investigators. We have also developed
an interactive voice response system to increase the efficiency of clinical
trials. This system provides features such as centralized patient randomization,
drug inventory management, and patient diary collection and provides our clients
with a fully flexible data retrieval solution which can be utilized via
telephone, internet browser or WAP enabled device.
In our central laboratory, we utilize a comprehensive suite of software,
including a laboratory information management system (LIMS), a kit/sample
management system and a web interface system to allow clients to review results
online.
Our IT systems are operated from two centralised hubs in Philadelphia and
Dublin. Other offices are linked to these hubs through a resilient network that
is both internally managed and outsourced to a leading telecommunications
provider. Travelling staff can also access all systems via secure remote dial up
facilities. A global corporate Intranet portal provides access to all authorized
data and applications for our internal staff.
Sales and Marketing
Our global sales and marketing strategy is to focus our business development
efforts on pharmaceutical, biotechnology and medical device companies whose
development projects are advancing. By developing and maintaining close
relationships with our clients, we gain repeat business and achieve lateral
penetration into other therapeutic divisions where applicable. Simultaneously,
we are actively establishing new client relationships.
While our sales and marketing activities are carried out locally by executives
in each of our major locations, the sales and marketing process is coordinated
centrally. In addition, all of our business development professionals, senior
executives and project team leaders share responsibility for the maintenance of
key client relationships and business development activities.
Clients
In 2004 revenue was earned from over 350 clients, including all of the top 30
pharmaceutical companies as ranked by 2003 revenues.
We have expanded geographically in order to pursue larger multi-national
clinical trials in markets worldwide and have expanded through acquisition to
offer a broader range of services. In the fiscal year ended May 31, 2004, 62.4%
of our net revenue was generated in the United States, 34.0% in Europe and 3.6%
in Rest of World.
14
We have in the past and may in the future derive a significant portion of our
net revenue from a relatively limited number of major projects or clients.
During the fiscal year ended May 31, 2002, we received 16% of our net revenue
from Astra Zeneca, 14% from Pfizer and 12% from Bristol Myers Squibb. In fiscal
year 2003, we received 21% of our net revenue from Astra Zeneca, 11% from
Sanofi-Synthelabo Inc. and 10% from Pfizer. In fiscal year 2004, we received 17%
of our net revenue from Astra Zeneca. No other client contributed more than 10%
of net revenues in fiscal 2004. We believe that the importance of certain
clients reflects our success in penetrating our client base. The loss of, or a
significant decrease in business from one or more of these key clients could
result in a material adverse effect.
Contractual Arrangements
We are generally awarded contracts based upon our response to requests for
proposals received from pharmaceutical, biotechnology and medical device
industries.
Most of our revenues are earned from contracts which are fixed price, based on
certain activity and performance specifications. Consequently, although we
typically bear the cost of overruns, with certain exceptions, we benefit if our
costs are lower than anticipated. Payment terms usually provide either for
payments based on the achievement of certain identified milestones or activity
levels or monthly payments according to a fixed payment schedule over the life
of the contract. Where clients request changes in the scope of a trial or in the
services to be provided by us, we deal with these by a change order, often
resulting in additional revenue to us. We also contract on a "fee-for-service,"
"days worked" or "time and materials" basis but this accounts for approximately
20% of revenues.
Contract terms may range from one year to several years depending on the nature
of the work to be performed. In most cases, a portion of the contract fee,
typically 10% to 20%, is paid at the time the study or trial is started. The
balance of the contract fee payable is generally payable in installments over
the study or trial duration and may be based on the achievement of certain
performance targets or "milestones" or, to a lesser extent, on a fixed monthly
payment schedule. For instance, installment payments may be based on patient
enrollment or delivery of the database. Reimbursable expenses are typically
estimated and budgeted within the contract and invoiced on a monthly basis.
Reimbursable expenses include payments to investigators, travel and
accommodation costs and various other direct costs incurred in the course of the
clinical trial which are fully reimbursable by the client.
Most of our contracts are terminable immediately by the client with cause in
certain circumstances and on 30-60 days notice without cause. In the event of
termination, we are entitled to all sums owed for work performed through the
notice of termination and certain costs associated with termination of the
study. Some of our contracts provide for an early termination fee. Termination
or delay in the performance of a contract occurs for various reasons, including,
but not limited to, unexpected or undesired results, production problems
resulting in shortages of the drug, adverse patient reactions to the drug, the
client's decision to de-emphasize a particular trial or inadequate patient
enrollment or investigator recruitment.
Backlog
Our backlog consists of potential net revenue yet to be earned from projects
awarded by clients
At May 31, 2004, we had a backlog of $464 million, compared with approximately
$352 million at May 31, 2003. We believe that our backlog as of any date is not
necessarily a meaningful predictor of future results, due to the potential for
cancellation or delay of the projects underlying the backlog, and no assurances
can be given that we will be able to realize this backlog as net revenue.
15
Competition
The CRO industry is highly fragmented, consisting of several hundred small,
limited-service providers and a limited number of medium-sized and large CROs
with global operations. We primarily compete against in-house departments of
pharmaceutical companies and other CROs with global operations. Some of these
competitors have substantially greater capital, technical and other resources
than us. CROs generally compete on the basis of previous experience, the quality
of contract research, the ability to organize and manage large-scale trials on a
global basis, the ability to manage large and complex medical databases, the
ability to provide statistical and regulatory services, the ability to recruit
suitable investigators, the ability to integrate information technology with
systems to improve the efficiency of contract research, an international
presence with strategically located facilities, financial viability, medical and
scientific expertise in specific therapeutic areas and price. We believe that we
compete favorably in these areas. Our principal CRO competitors are Quintiles
Transnational Corporation, Covance Inc., PAREXEL International Corp., Kendle
International Inc., Ingenix Inc. (United Health), Omnicare, Inc., PRA Inc., MDS
Inc, Inveresk Research Group, Inc. and Pharmaceutical Product Development, Inc.
The trend toward CRO industry consolidation has resulted in heightened
competition among the larger CROs for clients and acquisition candidates.
Government Regulation
Regulation of Clinical Trials
The clinical investigation of new drugs is highly regulated by government
agencies. The standard for the conduct of clinical research and development
studies is good clinical practice, which stipulates procedures designed to
ensure the quality and integrity of data obtained from clinical testing and to
protect the rights and safety of clinical subjects. While good clinical practice
has not been formally adopted by the FDA or, with certain exceptions, by similar
regulatory authorities in other countries, some provisions of good clinical
practice have been included in regulations adopted by the FDA. Furthermore, in
practice, the FDA and many other regulatory authorities require that study
results submitted to such authorities be based on studies conducted in
accordance with good clinical practice.
Regulatory authorities, including the FDA, have promulgated regulations and
guidelines that pertain to applications to initiate trials of products, the
approval and conduct of studies, report and record retention, informed consent,
applications for the approval of drugs and post-marketing requirements. Pursuant
to these regulations and guidelines, service providers that assume the
obligations of a drug sponsor are required to comply with applicable regulations
and are subject to regulatory action for failure to comply with such regulations
and guidelines. In the United States and Europe, the trend has been in the
direction of increased regulation by the applicable regulatory authority. We
believe that many pharmaceutical companies do not have the resources to comply
with all of these regulations and standards and that this has contributed and
will continue to contribute to the growth of third-party service providers.
In providing our services in the United States, we are obligated to comply
with FDA requirements governing such activities. These include obtaining patient
informed consents, verifying qualifications of investigators, reporting
patients' adverse reactions to drugs and maintaining thorough and accurate
records. We must maintain source documents for each study for specified periods,
and such documents may be reviewed by the study sponsor and the FDA during
audits.
The services we provide outside the United States are ultimately subject to
similar regulation by the relevant regulatory authority, including the Medicines
Control Agency in the United Kingdom and the Bundesinstitut fur Arzneimittel und
Medizinprodukte in Germany. In addition, our activities in Europe are affected
by the Committee for Proprietary Medicinal Products of the European Union, and
its successor, the European Medicines Evaluation Agency, which is based in
London, England.
We must also retain records for each study for specified periods for
inspection by the client and by the applicable regulatory authority during
audits. If such audits document that we have failed to comply adequately with
applicable regulations and guidelines, it could result in a material adverse
effect. In addition, our failure to comply with applicable regulation and
guidelines, depending on the extent of the failure, could result in fines,
debarment, termination or suspension of ongoing research or the disqualification
of data, any of which could also result in a material adverse effect.
16
New Drug Development - An Overview
Before a new drug may be marketed, the drug must undergo extensive testing
and regulatory review in order to determine that the drug is safe and effective.
The following discussion primarily relates to the FDA approval process. Similar
procedures must be followed for clinical trials in other countries. The stages
of this development process are as follows:
Preclinical Research (1 to 3.5 years). "In vitro" (test tube) and animal
studies are conducted to establish the relative toxicity of the drug over a
wide range of doses and to detect any potential to cause birth defects or
cancer. If results warrant continuing development of the drug, the
manufacturer will file for an Investigational New Drug Application, or IND,
upon which the FDA may grant permission to begin human trials.
Clinical Trials (3.5 to 6 years)
Phase I (6 months to 1 year). Basic safety and pharmacology testing in
20 to 80 human subjects, usually healthy volunteers, includes studies
to determine how the drug works, if it is safe, how it is affected by
other drugs, where it goes in the body, how long it remains active and
how it is broken down and eliminated from the body.
Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose-range
testing in 100 to 200 patients to help determine the best effective
dose, confirm that the drug works as expected, and provide additional
safety data.
Phase III (2 to 3 years). Efficacy and safety studies in hundreds or
thousands of patients at many investigational sites (hospitals and
clinics). These studies can be placebo-controlled trials, in which the
new drug is compared with a "sugar pill", or studies comparing the new
drug with one or more drugs with established safety and efficacy
profiles in the same therapeutic category.
TIND (May span late Phase II, Phase III, and FDA review). When results from
Phase II or Phase III show special promise in the treatment of a serious
condition for which existing therapeutic options are limited or of minimal
value, the FDA may allow the manufacturer to make the new drug available to
a larger number of patients through the regulated mechanism of a Treatment
Investigational New Drug, or TIND. Although less scientifically rigorous
than a controlled clinical trial, a TIND may enroll and collect a
substantial amount of data from tens of thousands of patients.
NDA Preparation and Submission. Upon completion of Phase III trials, the
manufacturer assembles the statistically analyzed data from all phases of
development into a single large submission, the New Drug Application, or
NDA, which today comprises, on average, approximately 100,000 pages.
FDA Review & Approval (1 to 1.5 years). Data from all phases of development
(including a TIND) is scrutinized to confirm that the manufacturer has
complied with regulations and that the drug is safe and effective for the
specific use (or "indication") under study.
Post-Marketing Surveillance and Phase IV Studies. Federal regulation
requires the manufacturer to collect and periodically report to the FDA
additional safety and efficacy data on the drug for as long as the
manufacturer markets the drug (post-marketing surveillance). If the drug is
marketed outside the U.S., these reports must include data from all
countries in which the drug is sold. Additional studies (Phase IV) may be
undertaken after initial approval to find new uses for the drug, to test
new dosage formulations, or to confirm selected non-clinical benefits,
e.g., increased cost-effectiveness or improved quality of life.
Potential Liability and Insurance
We contract with physicians who serve as investigators in conducting
clinical trials to test new drugs on their patients. Such testing creates a risk
of liability for personal injury to or death of the patients resulting from
adverse reactions to the drugs administered. In addition, although we do not
believe we are legally accountable for the medical care rendered by third party
investigators, it is possible that we could be subject to claims and expenses
arising from any professional malpractice of the investigators with whom we
contract. We also could be held liable for errors or omissions in connection
with the services we perform.
17
We believe that the risk of liability to patients in clinical trials is
mitigated by various regulatory requirements, including the role of
institutional review boards and the need to obtain each patient's informed
consent. The FDA requires each human clinical trial to be reviewed and approved
by the institutional review board at each study site. An institutional review
board is an independent committee that includes both medical and non-medical
personnel and is obligated to protect the interests of patients enrolled in the
trial. After the trial begins, the institutional review board monitors the
protocol and measures designed to protect patients, such as the requirement to
obtain informed consent.
We further attempt to reduce our risks through contractual indemnification
provisions with clients and through insurance maintained by clients,
investigators and us. However, the contractual indemnifications generally do not
protect us against certain of our own actions such as negligence, the terms and
scope of such indemnification vary from client to client and from trial to
trial, and the financial performance of these indemnities is not secured.
Therefore, we bear the risk that the indemnity may not be sufficient or that the
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. We maintain worldwide professional liability
insurance. We believe that our insurance coverage is adequate. There can be no
assurance, however, that we will be able to maintain such insurance coverage on
terms acceptable to us, if at all. We could be materially adversely affected if
we were required to pay damages or bear the costs of defending any claim outside
the scope of or in excess of a contractual indemnification provision or beyond
the level of insurance coverage or in the event that an indemnifying party does
not fulfill its indemnification obligations.
Description of Property
We lease all but one of our facilities under operating leases.
Our principal executive offices are located in South County Business Park,
Leopardstown, Dublin, Republic of Ireland, where we own an office facility of
approximately 42,000 square feet on approximately two acres which includes an
extension completed in August 1999. We have also leased an additional office
facility of approximately 25,000 square feet in the same business park.
We also maintain U.S. offices in Chicago, Philadelphia, Nashville, Irvine, San
Francisco, Houston, Wilmington, Raleigh, Baltimore, Tampa and two offices in New
York. Our European subsidiaries maintain offices are Southampton, Frankfurt,
Paris, Moscow, Amsterdam, Marlow, Manchester, Tel Aviv, Stockholm, Riga,
Budapest and Barcelona. Our Rest of World offices are located in Tokyo,
Singapore, Sydney, Bangalore, Buenos Aires, Johannesburg, Montreal, and Hong
Kong.
Item 5. Operating and Financial Review and Prospects.
The following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements, accompanying notes and other financial
information, appearing in Item 18. The Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in the
United States.
Overview
ICON plc is a contract research organization, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology and
medical device industries. We specialize in the management, execution and
analysis of complex multi-national clinical trials. Headquartered in Dublin,
Ireland, we began operations in 1990 and, to date, have expanded our business
through internal growth and strategic bolt-on acquisitions. As of May 31, 2004,
we had approximately 2,450 employees and operations in 33 locations in 20
countries, including the United States and major markets in Europe and Rest of
World. In fiscal 2004, 62.4%, 36.0% and 3.6% of our net revenue was derived in
the United States, Europe and Rest of World, respectively. See Note 15 to the
Consolidated Financial Statements.
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Revenue consists primarily of fees earned under contracts with third-party
clients. In most cases, a portion of the contract fee is paid at the time the
study or trial is started, often upon the signing of a letter of intent, and the
balance of the contract fee is generally payable in installments over the study
or trial duration, based on the achievement of certain performance targets or
"milestones." Revenue for contracts is recognized on the basis of the
relationship between time incurred and the total estimated duration of the trial
or on a fee-for service basis according to the particular circumstances of the
contract. 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
these costs 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.
Our backlog consists of potential net revenue yet to be earned from projects
awarded by clients. At May 31, 2004, we had a backlog of $464 million, compared
with approximately $352 million at May 31, 2003. We believe that our backlog as
of any date is not necessarily a meaningful predictor of future results, due to
the potential for cancellation or delay of the projects underlying the backlog,
and no assurances can be given that we will be able to realize this backlog as
net revenue.
As the nature of ICON's business involves the management of projects having a
typical duration of one to three years, the commencement or completion 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.
ICON, although domiciled in Ireland, reports its results in U.S. dollars. As a
consequence, the results of our non-U.S. based operations, when translated into
U.S. dollars, could be materially affected by fluctuations in exchange rates
between the U.S. dollar and the currencies of those operations.
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 twelve operations operating in U.S. dollars, five trading in Euros, three
in pounds Sterling, and one 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 and Hong
Kong dollar. 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 ICON's
results of operations. We regularly review our currency exposures and hedge a
portion of these, using forward exchange contracts, where they are not covered
by natural hedges.
We have received capital and revenue grants from Forbairt, 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 ICON or failing
to comply in other respects with the grant agreements. The operating expenditure
grant agreements provide for repayment in the event of a downsizing 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 May 31, 2004, we have received $2,506,507 and $1,863,006 under
capital grants and operating grants,
19
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. ICON's 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.
Operating Results
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.
2002 2003 2004 2002 2003
to 2003 to 2004
Percentage of Net Revenue Percentage Increase/
(Decrease)
Net revenue 100.0% 100.0% 100.0% 44.2% 31.5%
Costs and expenses:
Direct costs 53.3% 54.2% 54.7% 46.8% 32.8%
Selling, general and administrative 31.3% 31.5% 29.9% 45.3% 24.9%
Depreciation 3.8% 3.3% 3.8% 21.3% 52.9%
Income from operations 11.6% 11.0% 11.6% 36.9% 37.9%
Fiscal Year Ended May 31, 2004 Compared to Fiscal Year Ended May 31, 2003
Net revenue increased by $71.2 million, or 31.5%, from $225.7 million to $296.9
million. This improvement arose through a combination of increased business from
existing clients, business won from new clients and revenues from acquisitions
not included in the comparative period. The additional revenues from these
acquisitions (BPA, MCS, Medeval and GloboMax) amounted to $24.5 million for the
fiscal year ended May 31, 2004. Including the impact of acquisitions, revenues
in the United States, Europe and the Rest of World grew by 16.8%, 65.6% and
76.4% respectively. In the twelve months to May 31, 2004, net revenue from our
central laboratory business grew by 2.8% from $26.2 million to $26.9 million
while our clinical research segment grew by 35.3% from $199.6 million to $270.0
million over the comparable period. The growth in net revenue in our clinical
research segment and central laboratory 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 and consolidation in the CRO
industry.
Direct costs increased by $40.2 million, or 32.8%, from $122.4 million to $162.6
million, primarily due to increased staff numbers needed to support increased
project related activity and increased costs arising from the acquisitions
amounting to $13.2 million. Direct costs as a percentage of net revenue
increased from 54.2% in the twelve months to May 31, 2003 to 54.7% in fiscal
2004.
Selling, general and administrative expenses increased by $17.7 million, or
24.9%, from $71.1 million to $88.8 million. The increase in costs is due to the
continued expansion of our operations and additional selling, general and
administrative costs from acquisitions of $9.5 million not included in the
comparative period. As a percentage of net revenue, selling, general and
administrative expenses, decreased from 31.5% in the twelve months to May 31,
2003 to 29.9% for the fiscal year ended May 31, 2004.
20
Depreciation expense increased by $3.9 million, or 52.9%, from $7.3 million to
$11.2 million. 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 increased cost arising from acquisitions of $0.6
million. As a percentage of net revenue, depreciation increased from 3.3% of net
revenues in the twelve months to May 31, 2003 to 3.8% for the fiscal year ended
May 31, 2004.
Income from operations increased by $9.5 million, or 37.9%, from $24.9 million
to $34.4 million, including acquisitions. This improvement is due to increased
levels of activity carried out across the Company together with the acquisitions
of BPA, MCS, Medeval and GloboMax. As a percentage of net revenue, income from
operations increased from 11.0% for the twelve months to May 31, 2003 to 11.6%
of net revenues for the fiscal year ended May 31, 2004. For the fiscal year
2004, income from operations, as a percentage of net revenue for the central
laboratory fell to (12.2)% from 0.4% in fiscal 2003 due to an expanded cost
base. The central laboratory constitutes approximately 9% of our business.
Operating margins for our clinical research segment increased from 12.4% in the
twelve months to May 31, 2003, to 13.9% for the fiscal year ended May 31, 2004
due principally to improved staff utilization and enhanced leverage of our
overhead costs.
Net interest income for the year ended May 31, 2004, was $0.3 million, a
decrease of $0.1 million on the equivalent period last year due primarily to
lower then average interest rates during the current fiscal year.
ICON's effective tax rate for the year ended May 31, 2004, was 25.8% compared
with 27.7% for the comparable period last year. The decrease in the effective
rate was primarily due to a change in the geographic distribution of pre-tax
earnings.
Fiscal Year Ended May 31, 2003 Compared to Fiscal Year Ended May 31, 2002
Net revenue increased by $69.1 million, or 44.2%, from $156.6 million to $225.7
million. This improvement arose through a combination of increased business from
existing clients, business won from new clients and revenues from acquisitions
not included in the comparative period. The additional revenues from these
acquisitions (BPA, MCS and Medeval) amounted to $18.1 million for the fiscal
year ended May 31, 2003. Including the impact of acquisitions, revenues in the
United States and Europe/Rest of World grew by 47.6% and 36.7%, respectively. In
the twelve months to May 31, 2003, net revenue from our central laboratory
business grew by 1.1% from $25.9 million to $26.2 million while our clinical
research segment grew by 52.7% from $130.7 million to $199.6 million over the
comparable period. The growth in net revenue in our clinical research segment
and central laboratory is due to the expansion of our services to both existing
and new clients, increased use of outsourcing by the Pharmaceutical and
Biotechnology industries, an underlying increase in research and development
spending and consolidation in the CRO industry.
Direct costs increased by $39.0 million, or 46.8%, from $83.4 million to $122.4
million, primarily due to increased staff numbers needed to support increased
project related activity and increased costs arising from the acquisitions
amounting to $11.1 million. Direct costs as a percentage of net revenue
increased from 53.3% in the twelve months to May 31, 2002 to 54.2% in the fiscal
2003.
Selling, general and administrative expenses increased by $22.2 million, or
45.3%, from $48.9 million to $71.1 million. The increase in costs is due to the
continued expansion of our operations and additional selling, general and
administrative costs from acquisitions of $5.4 million not included in the
comparative period. As a percentage of net revenue, selling, general and
administrative expenses, increased from 31.3% in the twelve months to May 31,
2002 to 31.5% for the fiscal year ended May 31, 2003.
Depreciation expense increased by $1.3 million, or 21.3%, from $6.0 million to
$7.3 million. 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 increased cost arising from acquisitions of $0.2 million. As
a percentage of net revenue, depreciation and amortization decreased from 3.8%
of net revenues in the twelve months to May 31, 2002 to 3.3% for the fiscal year
ended May 31, 2003.
Income from operations increased by $6.7 million, or 36.9%, from $18.2 million
to $24.9 million, including acquisitions. This improvement is due to increased
levels of activity carried out across the Company together with the acquisition
of BPA,
21
MCS and Medeval. As a percentage of net revenue, income from operations
decreased from 11.6% for the twelve months to May 31, 2002 to 11.0% of net
revenues for the fiscal year ended May 31, 2003. For the fiscal year 2003,
income from operations, as a percentage of net revenue for the central
laboratory fell to 0.4% from 14.1% in fiscal 2002, due principally to a higher
than normal level of project cancellations in the first quarter of fiscal 2003.
Operating margins for our clinical research segment increased from 11.1% in the
twelve months to May 31, 2002, to 12.4% for the fiscal year ended May 31, 2003
due principally to improved staff utilization.
Net interest income for the year ended May 31, 2003, was $0.4 million, a
decrease of $0.8 million on the equivalent period last year due primarily to
reduced cash on deposit and lower interest rates during the current fiscal year
as cash was used to fund expansion and acquisition.
ICON's effective tax rate for the year ended May 31, 2003, was 27.7% compared
with 26.5% for the comparable period last year. The increase in the effective
rate was primarily due to a change in the geographic distribution of pre-tax
earnings.
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 secondary offering
in August 2003. Our principal cash needs are payment of salaries, office rents,
travel expenditures and payments to investigators. The aggregate amount of
employee compensation, excluding stock compensation expense, paid by us and our
subsidiaries in the three fiscal years ended May 31, 2002, 2003 and 2004,
amounted to $88.2 million, $135.2 million, and $174.5 million, respectively.
Investing activities primarily reflect capital expenditures for facilities,
information systems enhancements, the 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 installments over the contract's
duration, in some cases on the achievement of certain milestones. Accordingly,
cash receipts do not correspond to costs incurred and revenue recognized on
contracts.
As of May 31, 2004, our working capital was $113.8 million, compared to $53.8
million at May 31, 2003. The most 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 60 days at May 31, 2004, 64 days at May
31, 2003 and 67 days at May 31, 2002. The decrease from May 31, 2003 to May 31,
2004, was due primarily to increased cash collections, as a result of a more
stringent application of our trading terms with respect to our accounts
receivable.
Net cash provided by operating activities was $43.6 million in the year ended
May 31, 2004, compared with $21.5 million in fiscal 2003 and $17.3 million in
the fiscal year ended May 31, 2002. The increase in cash provided in fiscal 2004
was due primarily to improved cash collections and increased profitability.
Net cash used in investing activities was $47.3 million in the year ended May
31, 2004, compared with $35.3 million in the year ended May 31, 2003 and net
cash provided by investing activities of $4.8 million in the year ended May 31,
2002. This increase in net cash used is due principally to acquisition activity
in the current fiscal year and purchase of short-term investments.
Net cash provided by financing activities was $42.5 million in the year ended
May 31, 2004, compared with net cash used in financing activities of $4.6
million in fiscal 2003 and net cash provided by financing activities of $2.7
million in the fiscal year ended May 31, 2002. The main reason for this increase
is the receipt of the net proceeds of $44.3 million, following the issue of
1,500,000 American Depositary Shares by the Company in August 2003.
22
As a result of these cash flows, cash and cash equivalents increased by $37.4
million in the year ended May 31, 2004, compared to a net decrease of $18.0
million in the year ended May 31, 2003 and a net increase of $25.1 million in
the year ended May 31, 2004.
The Company entered into an overdraft agreement with Allied Irish Banks, plc
("AIB") whereby the company guarantees any overdraft of the subsidiary ICON
Clinical Research GmbH up to an amount (euro)120,000 (U.S.$146,604). As of May
31, 2004, the full facility was available to be drawn down.
The Company also entered into an overdraft agreement with AIB, whereby the
company guaranteed any overdraft of the subsidiary ICON Clinical Research Israel
Ltd. up to an amount of U.S.$250,000. This facility was terminated on April 20,
2004.
On November 17, 1998, we entered into an overdraft facility (the "AIB facility")
for (euro)2,539,000 ($3,101,896) with AIB. This facility bore an annual interest
rate equal to AIB Bank's Prime Rate plus one-quarter of one percent. The full
sum of the unpaid principal and interest was repayable on demand. This facility
was terminated on July 3, 2003.
On July 29, 2002, we entered into an additional AIB facility for
STG(pound)50,000 ($91,664) This facility bore interest at an annual rate equal
to AIB Bank's Prime Rate plus two percent. The full sum of the unpaid principal
and interest was repayable on demand. This facility was terminated on July 3,
2003.
Our U.S. subsidiary, ICON Clinical Research, Inc. (the "Borrower"), had a $12
million secured line of credit (the "PNC Facility") with PNC Bank N.A. ("PNC").
The PNC Facility bore interest at an annual rate equal to PNC's Prime Rate less
three-quarters of one percent. The full sum of the unpaid principal and interest
was payable on demand. The PNC Facility was secured by a first priority security
interest in certain assets of the Borrower. This facility was terminated on July
3, 2003.
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 a term loan
facility of $40 million and a multi currency overdraft facility of $5 million.
As at May 31, 2004, the full amount of these facilities were available to be
drawn down. ICON Clinical Research, Inc. (a subsidiary of ICON plc) is entitled
to make borrowings under a revolving credit facility of $15 million. As at May
31, 2004, the full amount of this facility was available to be drawn down.
On September 9, 2003, we completed the acquisition of Globomax LLC, for an
initial cash consideration of $10.9 million. Earn-out provisions have been built
into the acquisition contract requiring the potential payment of additional
deferred consideration up to a maximum of U.S.$4.0 million depending on the
performance of Globomax over the period from date of acquisition to May 31,
2006.
23
Contractual obligations table
The following table represents the contractual obligations and commercial
commitments of ICON plc as of May 31, 2004:
Payments due by period
Contractual obligations
Total Less than 1 1 to 3 3 to 5 More
year years years than 5
years
Long-Term Debt Obligations
Capital Lease Obligations $0.4 $0.3 $0.1 - -
Operating lease Obligations 147.9 21.9 33.7 26.3 66.0
Purchase Obligations (1) 4.5 - 4.5 - -
----------------------------------------------- --------- -------------- ----------- -------- ---------
Total (U.S.$ in millions) $152.8 $22.2 $38.3 $26.3 $66.0
----------------------------------------------- --------- -------------- ----------- -------- ---------
(1) This figure consists of $2.0 million payable under earn out clauses
included in acquisitions undertaken in fiscal 2004 and the remaining $2.5
million relating to prior period acquisitions. Of the $4.5 million, $2.5
million of the earn out targets have been reached at May 31, 2004 and has
been recorded in other liabilities.
We expect to spend approximately $15 million in the next twelve months on
further investments in information technology, the expansion of existing
facilities and the addition of new offices and expect to increase this level of
spending in subsequent years. We believe that we will be able to fund our
additional foreseeable cash needs for the next twelve months from cash flow from
operations and existing cash balances. In the future, we will consider acquiring
businesses to enhance our service offerings and global presence. Any such
acquisitions may require additional external financing and we may from time to
time seek to obtain funds from public or private issues of equity or debt
securities. There can be no assurance that such financing will be available on
terms acceptable to ICON.
Critical Accounting Policies
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period.
We base our estimates and judgements on historical experience and on the
other factors that we believe are reasonable under current circumstances. Actual
results may differ from these estimates if these assumptions prove to be
incorrect or if conditions develop other than as assumed for the purposes of
such estimates. The following is a discussion of the accounting policies used by
us, which we believe are critical in that they require estimates and judgements
by management.
Revenue Recognition
Significant management judgements and estimates must be made and used in
connection with the recognition of revenue in any accounting period. Material
differences in the amount of revenue in any given period may result if these
judgements or estimates prove to be incorrect or if management's estimates
change on the basis of development of the business or market conditions. To date
there has been no material differences arising from these judgements and
estimates.
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
24
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, then an adjustment is recorded in the period in which they
become readily estimable.
If we do not accurately estimate the resources required or the scope of the
work to be performed, or do not manage our projects properly within the planned
cost or satisfy our obligations under the contracts, then future results may be
significantly and negatively affected.
Goodwill
The principal judgements and uncertainties affecting our accounting for
goodwill relate to carrying values. The carrying values of purchased goodwill
are assessed annually, using discounted cash flows and net realisable values.
The estimates and judgements used to assess carrying values include those
relating to commercial risk, revenue and cost projections, our intention with
respect to the acquired goodwill, the impact of competition, the impact of any
reorganisation or change of our business focus, the level of third party
interest in our operations and market conditions.
If the implied fair value of reporting unit goodwill is lower then its carring
amount, goodwill is impaired and written down to its implied fair value. If we
were to use different estimates or judgements, particularly with respect to
expected revenue and cost projections or the impact of any reorganisation or
change of business focus, a material impairment charge to the statement of
operations could arise. We believe that we have used reasonable estimates and
judgements in assessing the carrying value of our goodwill.
Inflation
We believe that the effects of inflation generally do not have a material
adverse impact on our operations or financial conditions.
New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46, revised--Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN 46R"). FIN
46R addresses the consolidation of variable interest entities ("VIEs"), which
include entities that have one or more of the following characteristics: (1) The
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support; (2) The equity
investors lack essential characteristics of a controlling financial interest (as
defined by FIN 46R); and (3) The equity investors have voting rights that are
not proportionate to their economic interests, and the activities of the entity
involve or are conducted on behalf of an investor with a disproportionally small
voting interest. In addition, FIN 46R provides for certain scope exceptions to
its application. Adoption of this Interpretation is required in financial
statements that have interests in VIEs or potential VIEs, commonly referred to
as special-purpose entities, for periods ending after 15 December 2003.
Application for all other types of entities is required in financial statements
for periods ending after 15 March 2004. The adoption of FIN 46R has not had a
material impact on the Company's Consolidated Financial Statements.
25
On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. Statement 149 has multiple effective date provisions depending on
the nature of the amendment to Statement 133. Under SFAS No. 133, our foreign
exchange contracts do not qualify for hedge accounting treatment. The adoption
of SFAS No.149 did not have a significant impact on our financial statements.
On May 15, 2003, the FASB issued FASB Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for certain mandatorily redeemable
financial instruments. It is to be implemented by reporting the cumulative
effect of a change in an accounting principle for financial instruments created
before the issuance date of the Statement and still existing at the beginning of
the interim period of adoption. Restatement is not permitted. The adoption of
SFAS No.150 did not have a significant impact on our financial statements.
The Emerging Issues Task Force (EITF) has reached a final consensus on EITF
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. This Issue
addresses certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities, specifically how
to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. The Issue also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. The guidance in this Issue is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003, with a possible alternative means of adoption by applying the new rules to
existing contracts and recording the effect of adoption as a cumulative effect
of a change in accounting principle. Early adoption is permitted. We adopted
EITF Issue No. 00-21 on June 1, 2003. The adoptions of EITF Issue No. 00-21did
not have a significant impact on our financial statements.
In December 2003, the FASB issued SFAS Statement No. 132 (revised), "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132
(revised)"). SFAS No. 132 (revised) will revise employers' disclosures about
pension plans and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. SFAS No. 132 (revised) will retain
and revise the disclosure requirements contained in the original SFAS No. 132.
It also requires additional disclosures about the assets, obligations, cash
flows, and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The Statement generally is effective for fiscal
years ending after December 15, 2003. SFAS No. 132 did not have a material
impact on the Company's Consolidated Financial Statements.
26
Item 6. Directors, Senior Management and Employees.
Directors and Senior Management
The following table and accompanying biographies set forth certain information
concerning each of ICON plc directors, officers and other key employees as of
May 31, 2004.
Name Age Position
- --------------------------------------------------------------------------------
Dr. John Climax(1)(2)(5) 51 Chairman of the Board
Peter Gray(1) 49 Chief Executive Officer, Director
Sean Leech(1) 33 Chief Financial Officer
Dr. Ronan Lambe(1) 64 Director
Thomas Lynch(2)(3)(4) 47 Director
Edward Roberts(2)(3)(4) 69 Director
Lee Jones(3)(4)(6) 48 Director
Shuji Higuchi 64 Director
William Taaffe 55 President & Chief Executive Officer
of ICON Clinical Research - U.S.
Dr. Peter Sowood 51 President of ICON Clinical Research
- Europe
Edward Caffrey 50 President of ICON Laboratories
Dr. Dan Weng 41 President of ICON Clinical Research
- Rest of World
Dr. John Hubbard 47 Chief Operating Officer, ICON
Clinical Research - U.S.
Dr. Thomas Frey 51 Chief Operating Officer, ICON
Clinical Research - Europe
Josephine Coyle 46 Vice President for Corporate Quality
Assurance
(1) Executive Officer of the Company.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Member of Nomination Committee.
(5) Resigned from the Compensation Committee on July 22, 2004. (6) Joined the
Compensation Committee on July 22, 2004.
Dr. John Climax, one of the Company's co-founders, has served as a director of
the Company and its subsidiaries since June 1990. Dr. Climax served as Chief
Executive Officer from June 1990 to October 2002 and was appointed Chairman of
the Board in November 2002. Dr. Climax has over 19 years of experience in the
contract research industry in both Europe and the United States. Dr. Climax
received his primary degree in pharmacy in 1977 from the University of
Singapore, his masters in applied pharmacology in 1979 from the University of
Wales and his Ph.D. in pharmacology from the National University of Ireland in
1982.
Peter Gray has served as the Chief Executive Officer of ICON and its
subsidiaries since November 2002. He served as the Group Chief Operating Officer
of ICON and its subsidiaries from June 2001, and was Chief Financial Officer
from June 1997 to June 2001. He has been a director of the Company since June
1997. Mr. Gray has over 13 years experience in the pharmaceutical services
industry and has also worked in the engineering and food sectors. Mr. Gray
received a degree in Law from Trinity College Dublin in 1977 and became a
chartered accountant in 1980.
Sean Leech has served as Chief Financial Officer of ICON and its subsidiaries
since June 2001 and previously as Group Vice President of Finance from June
1999. Mr. Leech was Group Financial Controller of Jones Group plc, a shipping,
manufacturing and fuel distribution company based in Ireland, from 1997 to 1999.
Mr. Leech is an Associate member of the Chartered Institute of Management
Accountants.
Dr. Ronan Lambe, one of the Company's co-founders, served as Chairman of the
Board of the Company from June 1990 to November 2002. Dr. Lambe has over 22
years of experience in the contract research industry in Europe. Dr. Lambe
attended
27
the National University of Ireland where he received his bachelor of science
degree in chemistry in 1959, his masters in biochemistry in 1962 and his Ph.D.
in pharmacology in 1976. Dr. Lambe continues to serve as a director of the
Company.
Thomas Lynch has served as an outside director of the Company since January
1996. Since May 1993, Mr. Lynch has held several senior positions in Elan
Corporation, plc, a specialty pharmaceutical company, including Executive Vice
President, Chief Financial Officer and Deputy Chairman. He is currently Senior
Advisor to the Chairman of the Board of Elan Corporation plc. Mr. Lynch is a
director of Nanogen, Inc. and Chairman of Amarin Corporation plc. Mr. Lynch was
a partner at KPMG from May 1990 to May 1993.
Edward Roberts has served as an outside director of the Company since February
1998. Mr. Roberts was Managing Director of the Pharmaceutical Division of Merck
KGaA from 1990 to 1998. Prior to that, he held a number of senior management
positions with Eli Lilly International in Europe and the United States. Mr.
Roberts has over 39 years of experience in the pharmaceutical industry. He has
been a partner in Global Health Care Partners since June 1998, and also serves
as Chairman of Biopartners and Chairman of the Advisory Board of Merz & Co.
GmbH.
Lee Jones has served as an outside director of the Company since June 1, 2001.
Since March 2000, he has been Chairman and Chief Executive Officer of Americas
Doctor, a pharmaceutical services company. Previously, he was Divisional
Vice-President of Information Management and Technology in the Pharmaceutical
Product Division of Abbott Laboratories. He has held various senior positions
with Abbott Laboratories and the Upjohn Company.
Mr. Shuji Higuchi has served as an outside Director of the Company since
September 2004. Dr. Higuchi has over 39 years of experience in the
pharmaceutical industry. Dr. Higuchi is currently Director of R&D and Business
Integration, Kyoto University Hospital, Japan. Prior to this Dr. Higuchi has
served as President of Takeda Pharma GmbH from 1983 to 1992, President of Takeda
Europe R&D Centre, Frankfurt / London from 1992 to 2002, and served as a
Corporate Officer of Takeda Chemical Industries Limited, Japan from 1999 to
2002.
William Taaffe has served as President of ICON Clinical Research - U.S. since
November 1993 and now also holds the title of Chief Executive Officer of ICON
Clinical Research - U.S. Mr. Taaffe has over 28 years of experience in the
contract research and the pharmaceutical industries in Ireland, Canada and the
United States. Mr. Taaffe received his bachelor of science degree in 1970 from
the University College Dublin.
Dr. Peter Sowood, has served the company as President of ICON Clinical Research
Europe since November 2003. Prior to joining the Company, Dr. Sowood held
various positions at Covance Clinical and Periapproval Services, Ltd., including
the position of Vice-president Clinical Research. Dr. Sowood was educated at the
University of Cambridge in Medical Sciences and followed on to Oxford University
where he took Medical Degrees before joining the RAF as a Medical Officer. Dr.
Sowood obtained his PhD in 1988 and MBA in 1993.
Edward Caffrey has served as President of ICON Laboratories since June 2000. Mr.
Caffrey has over 22 years experience in the contract research industry. From
January 1998 until joining ICON, Mr. Caffrey was Senior Vice President of
Clinical Operations at Covance North America; he also served as a Managing
Director at Covance from January 1990 to January 1998. Mr. Caffrey is a fellow
of the Institute of Biomedical Sciences in London and holds an MSc from Dublin
City University.
Dr. Dan Weng, has served as President of ICON Clinical Research Rest of World
since April 2004, having previously held the position of Senior Vice President -
Rest of World since joining the Company in January 2003. Dr. Weng previously
worked in the Asia Pacific region for both Pharmanet and Quintiles. Prior to
joining the CRO industry in 1997, Dr. Weng worked in the US at the Harvard
Medical School and at UCSF. Educated as a physician in China, Dr. Weng
subsequently obtained an MBA and a PhD in the UK.
Dr. John W. Hubbard has served as Chief Operating Officer of ICON Clinical
Research - U.S. since October 1999. Dr. Hubbard has more than 19 years of
experience in pharmaceutical research and development. From July 1997 until
joining ICON, he held the position of Senior Vice President of Clinical Research
Operations at Clinical Studies, a division of
28
Innovative Clinical Solutions, Ltd. Dr. Hubbard received a Ph.D. in
Cardiovascular Physiology from the University of Tennessee and a B.S. in
Psychology/Biology from the University of Santa Clara.
Dr. Thomas Frey has served as Chief Operating Officer for ICON Clinical Research
Europe since June 2001 and previously served as Vice President of ICON Clinical
Operations Europe from January 2000 to May 2001. Dr. Frey has 16 years of
experience in pharmaceutical research and development. He started his career in
1987 with Hoechst Pharmaceuticals. From 1995 to the end of 1999 he was Senior
Director of Clinical Development Europe at Hoechst Marion Roussel. Dr. Frey
received his medical degree in 1980 from the University of Heidelberg.
Josephine Coyle has served as Vice President for Corporate Quality Assurance
since April 2000. Ms. Coyle has held positions of increasing responsibility in
ICON since August 1992 and previously held the position of director of Quality
Assurance.
Board of Directors
ICON's Articles of Association provide that, unless otherwise determined by ICON
at a general meeting, the number of directors shall not be more than 15 nor less
than 3. At each annual general meeting, one third of the directors who are
subject to retirement by rotation, rounded down to the next whole number if it
is a fractional number, shall retire from office. The directors to retire shall
be those who have been longest in office, but as between persons who became or
were last re-appointed on the same day, those to retire shall be determined,
unless otherwise agreed, by lot. Accordingly, at the annual general meeting of
ICON to be held in 2005, it is anticipated that three directors will retire by
rotation and offer themselves for re-election, such directors to be determined,
unless otherwise agreed, by lot. Any additional director appointed by us shall
hold office until the next annual general meeting and will be subject to
re-election at that meeting.
Board committees
We established a compensation committee and an audit committee in 1998 and the
nominating committee in 2004, all of which are committees of the Board of
Directors and are composed mainly of non-executive directors of ICON plc.
Compensation committee
The compensation committee comprises Thomas Lynch (Chairman), Edward Roberts and
Lee Jones. It deals with all aspects of senior executive remuneration. The
committee aims to ensure that remuneration packages are competitive so that
individuals are appropriately rewarded relative to their responsibility,
experience and value to ICON.
Annual bonuses for executive directors are determined by the committee based on
the achievement of ICON's objectives.
Audit committee
The audit committee comprises Edward Roberts (Chairman), Thomas Lynch and Lee
Jones. It reviews the annual report, the quarterly earnings releases, the
effectiveness of the system of internal controls, reviews the compliance with
our ethical code and legal requirements and approves the appointment and removal
of the external auditors. It also addresses all issues raised and
recommendations made by the external auditors and pre-approve all auditor
services.
Nomination committee
The Nominating Committee comprises Thomas Lynch, Edward Roberts and Lee Jones.
On an ongoing basis it reviews the membership of the board of directors, board
committees and the performance of the directors and management. It identifies
and recommends individuals to fill any vacancy that is anticipated or arises on
the board of directors. It reviews and recommends the corporate governance
principles of the Company. The nominating committee held one formal meeting
during 2004.
The aggregate compensation paid by ICON to all persons who served in the
capacity of director or executive officer in fiscal 2004 (8 persons) was
approximately $2.2 million, but does not include expenses reimbursed to officers
(including business travel, professional and business association dues and
expenses). As of May 31, 2004, options granted to directors and executive
officers of ICON to purchase an aggregate of 82,400 of our ordinary shares were
outstanding. The options are exercisable at prices between $18.00 and $42.15 and
expire between May 15, 2006 and February 4, 2012.
29
In addition, our officers are eligible to participate in ICON's Incentive Share
Option Scheme. See Note 9 to the Consolidated Financial Statements.
Employees
We employed 2,432, 2,280 and 1,637 people for the years ending May 31, 2004,
2003 and 2002, respectively. Our employees are not unionized and we believe that
our relations with our employees are good.
Share Ownership
The following table sets forth certain information regarding beneficial
ownership of ICON's ordinary shares (including ADSs) as of July 23, 2004 by all
of our current directors and executive officers. Unless otherwise indicated
below, to our knowledge, all persons listed below have sole voting and
investment power with respect to their ordinary shares, except to the extent
authority is shared by spouses under applicable law.
Name of Owner or Identity of Group No. of Shares (1) Options
- ---------------------------------------------------------------------------
Dr. Ronan Lambe 1,107,170 6,000
Dr. John Climax 1,556,892 15,000
Mr. Peter Gray 54,220 15,000
Mr. Sean Leech - 18,400
Mr. Thomas Lynch 40,001 12,500
Mr. Edward Roberts 1 8,500
Mr. Lee Jones - 5,500
Mr. Shugi Higuchi - 1,500
(1) As used in this table, each person has the sole or shared power to
vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e. the power to
dispose, or direct the disposition, of a security). A person is deemed
as of any date to have "beneficial ownership" of any security if that
such person has the right to acquire such security within 60 days
after such date.
Employee Share Option Schemes
On January 17, 2003, we adopted the Share Option Plan 2003, or the 2003 Plan,
pursuant to which the Compensation Committee of the Board may grant options to
employees of the Company or its subsidiaries for the purchase of ordinary
shares. Each option will be either an incentive stock option, or ISO, described
in Section 422 of the Code or an employee stock option, or NSO, not 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 1.5 million ordinary shares have been reserved under the 2003
Plan; and, 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 100,000
ordinary shares.
No options can be granted after January 17, 2013.
30
Executive officers and Directors remuneration
For the year ended May 31, 2004, the total remuneration paid to our directors
and executive officers including salary, bonus, pension and benefits-in-kind
(2003: $2,437,294), was as follows:
U.S.$
- --------------------------------------------------------------------------------
Dr. John Climax 734,470
Dr. Ronan Lambe 284,111
Mr. Peter Gray 578,550
Mr. Sean Leech 308,367
Mr. Lee Jones 28,750
Mr. Edward Roberts 43,750
Mr. Thomas Lynch 32,500
Mr. Shugi Higuchi 25,000
Total $2,035,499
Item 7. Major Shareholders and Related Party Transactions.
(a) ICON plc, is not directly or indirectly, owned or controlled by
another corporation or by any government.
(b) The following table sets forth certain information regarding
beneficial ownership of ICON's ordinary shares (including ADS's) as of
July 23, 2004 (i) by each person that beneficially owns more than 5%
of the outstanding ordinary shares, based upon publicly available
information; and (ii) by all of our current directors and executive
officers as a group. Unless otherwise indicated below, to our
knowledge, all persons listed below have sole voting and investment
power with respect to their ordinary shares, except to the extent
authority is shared by spouses under applicable law.
Name of Owner or Identity of Group No. of Shares (1) Percent of Class
- ------------------------------------------------------------------------------------------------------------------------------------
Wasatch Group Companies (3) 2,201,659 15.9%
Dr. John Climax (2) 1,571,892 11.4%
Fidelity Group Companies (3) 1,404,294 10.1%
Dr. Ronan Lambe 1,113,170 8.0%
Morgan Stanley Group Companies (3) 851,500 6.2%
All officers and executive officers as a group (4) 2,969,014 21.5%
(1) As used in this table, each person has the sole or shared power to
vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to
dispose, or direct the disposition, of a security). A person is deemed
as of any date to have "beneficial ownership" of any security if that
such person has the right to acquire such security within 60 days
after such date.
(2) Includes 1,556,852 ADSs held by Poplar Limited, a Jersey company
controlled by Dr. Climax.
(3) Neither the Company nor any of its officers, directors or affiliates
hold any voting power in this entity.
(4) Includes 210,730 ordinary shares issuable upon the exercise of stock
options granted by the Company.
31
Related Parties
On February 6, 1998, ICON entered into an Option Agreement ("The Put Option")
with Rosa Investment Limited ("Rosa"). Rosa's sole activity was to hold an
investment in Clear Investments Limited ("Clear"), the sole activity of which
was to hold Mr. Gray's option to exercise 54,000 ordinary shares. Mr. Gray is a
director of Rosa and Clear. Rosa is owned by a trust of which Mr. Gray is a
beneficiary. On April 21, 2004, Mr. Gray acquired Clear from Rosa and exercised
the Put Option in accordance with the terms of the Option Agreement. On April
22, 2004, pursuant to the Option Agreement, ICON purchased the outstanding share
capital in Clear from Mr. Gray, the consideration for the acquisition being the
issuance of 54,000 fully paid up ordinary shares in ICON, to Mr. Gray, such a
sale being the economic equivalent of Mr. Gray exercising his stock options.
Item 8. Financial Information.
Financial Statements
See item 18.
Legal Proceedings
ICON is 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.
Dividends
We have not paid cash dividends on our ordinary shares and do not intend to pay
cash dividends on our ordinary shares in the foreseeable future.
32
Item 9. The Offer and the Listing.
ICON's ADSs are traded on the Nasdaq National Market under the symbol "ICLR".
Our Depository for the ADSs is The Bank of New York. ICON also has a secondary
listing on the Official List of the Irish Stock Exchange. No securities of ICON
are traded in any other market. The following table sets forth the trading price
for the dates indicated for ICON plc ADSs as reported by Nasdaq.
High Sales Price Low Sales Price
Year Ending During Period During Period
- ---------------------------------- --------------------- -------------------
May 31, 1999 $36.75 $10.00
May 31, 2000 $29.00 $11.87
May 31, 2001 $29.75 $15.00
May 31, 2002 $39.58 $22.93
May 31, 2003 $32.87 $14.88
May 31, 2004 $46.05 $25.87
High Sales Price Low Sales Price
Quarter Ending During Period During Period
- ---------------------------------- --------------------- -------------------
May 31, 2001 $27.55 $18.38
Aug 31, 2001 $39.58 $26.74
Nov 30, 2001 $35.69 $22.93
Feb 28, 2002 $32.79 $25.13
May 31, 2002 $34.49 $23.87
Aug 31, 2002 $30.50 $14.88
Nov 30, 2002 $26.00 $18.99
Feb 28, 2003 $32.87 $22.35
May 31, 2003 $30.85 $21.36
Aug 31, 2003 $36.80 $25.87
Nov 30, 2003 $45.04 $31.20
Feb 29, 2004 $46.05 $33.03
May 31, 2004 $43.49 $29.74
High Sales Price Low Sales Price
Month Ending During Period During Period
- ---------------------------------- --------------------- -------------------
Dec 31, 2003 $45.17 $40.30
Jan 31, 2004 $46.05 $34.55
Feb 29, 2004 $38.95 $33.03
March 31, 2004 $37.20 $29.74
April 30, 2004 $43.49 $35.44
May 31, 2004 $42.03 $36.71
33
Item 10. Additional Information.
Memorandum and Articles of Association
On January 12, 2004, at ICON's Annual General Meeting, the Articles of
Association of ICON plc were amended to accommodate the electronic communication
with shareholders. The following amendments were made:
(a) The Amendment of Article 1 through the deletion of the definition of
"the Acts" and the insertion of the following new definitions:
"the Acts" the Companies Acts, 1963 to 2003 and
every statutory modification or
re-enactment thereof for the time being
in effect;
"Address" includes any number or address used for
the purposes of communication by way of
electronic mail or other Electronic
Communication;
"Advanced Electronic has the same meaning as under the
Signature" Electronic Commerce Act, 2000 (as
amended or supplemented from time to
time);
"Electronic has the same meaning as under the
Communication" Electronic Commerce Act, 2000 (as
amended or supplemented from time to
time);
"Electronic Signature" has the same meaning as under
the Electronic Commerce Act, 2000 (as
amended or supplemented from time to
time);
"in writing" written, printed, photographed or
lithographed or visibly expressed in
all or any of those or any other modes
of representing or reproducing words
provided that it shall not include
writing in electronic form except as
provided in these Articles and/or where
it constitutes writing in electronic
form sent to either the Company
or a member of the Company, the Company
or member of the Company has agreed to
receipt in such form;
(b) by the insertion of the following words in the fourth line of Article
33, after the words "in writing" :
"(including writing in electronic form)"
(c) by the insertion of the following words in the last line of Article
105, after the word "documents":
"(including by means of Electronic Communication)"
(d) by the insertion of the following words in the second line of Article
125, after the words "in writing":
"or by sending the same by electronic mail or other form of Electronic
Communication approved by the Directors to the address of any Member
notified to the Company by the Member for such purpose."
(e) by the insertion of the following sub-paragraph (a)(iv) in Article
126:
"if by sending the same by electronic mail or by other form of
Electronic Communication approved by the Directors to the address of a
Member notified to the Company by the Member for such purpose."
34
(f) by the insertion of the following additional sentence at the end of
sub-section (c) of Article 126:
"Where a notice or document is given, served or delivered pursuant to
sub-paragraph (iv) of this Article, the giving, service or delivery
thereof shall be deemed to have been effected at the expiration of
forty-eight (48) hours after the dispatch of the Electronic
Communication and a transaction report shall be conclusive evidence
thereof."
(g) by the amendment of sub paragraph (e) of Article 126 so that the first
two lines now read as follows:
"Without prejudice to the provisions of sub-paragraph (a)(i), (ii) and
(iv) of this..."
(h) by the insertion of the following into Article 127, between the words
"address" and "but":
"or shall be entitled to receive notices by electronic mail, or other
formal Electronic Communication approved by the Directors, to be sent
to an address notified to the Company by the Member for such purpose"
(i) by the insertion of the following into Article 128, between the words
"Share" and "and":
"or, in the case of a notice sent by electronic mail or other form of
Electronic Communication approved by the Directors, to the address in
respect of the Joint Holding notified to the Company by the Joint
Holders for such purpose,"
(j) by the insertion of the following into Article 129(b), between the
words "address" and "if":
"(inclusive of an electronic address)"
(k) by the inclusion of the following words at the end of Article 130:
"or, in the case of a notice in electronic form the signature may be
an Electronic Signature, Advanced Electronic Signature or otherwise as
the Directors may approve."
Exchange Controls and Other Limitations Affecting Security Holders.
Irish exchange control regulations ceased to apply from and after December 31,
1992. Except as indicated below, there are no restrictions on non-residents of
Ireland dealing in domestic securities, which includes shares or depository
receipts of Irish companies such as ICON. Except as indicated below, dividends
and redemption proceeds also continue to be freely transferable to non-resident
holders of such securities.
The Financial Transfers Act, 1992 gives power to the Minister for Finance of
Ireland to make provision for the restriction of financial transfers between
Ireland and other countries. Financial transfers are broadly defined, and
include all transfers, which would be movements of capital or payments within
the meaning of the treaties governing the European Communities. The acquisition
or disposal of ADRs representing shares issued by an Irish incorporated company
and associated payments may fall within this definition. In addition, dividends
or payments on redemption or purchase of shares and payments on a liquidation of
an Irish incorporated company would fall within this definition. At present, the
Financial Transfers Act, 1992 prohibits financial transfers only to, or by the
order of, or on behalf of, listed terrorist organizations, also listed residents
and entities of Zimbabwe and Burma/Myanmar without the prior permission of the
Central Bank of Ireland.
35
Any transfer of, or payment in respect of an ADS involving the government of any
country which is currently the subject of United Nations sanctions, any person
or body controlled by any of the foregoing, or by any person acting on behalf of
the foregoing, may be subject to restrictions pursuant to such sanctions as
implemented into Irish law. There are no restrictions under ICON's Articles of
Association, or under Irish Law, that limit the right of non-residents or
foreign owners to hold or vote the ordinary shares.
Taxation
General
The following discussion is based on existing Irish tax law, Irish court
decisions and the practice of the Revenue Commissioners of Ireland, and the
convention between the United States and Ireland for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect to income and capital
gains (the "Treaty"). This discussion does not purport to deal with the tax
consequences of owning the ordinary shares for all categories of investors, some
of which may be subject to special rules. Prospective purchasers of ordinary
shares are advised to consult their own tax advisors concerning the overall tax
consequences arising in their own particular situations under Irish law. Each
prospective investor should understand that future legislative, administrative
and judicial changes could modify the tax consequences described below, possibly
with retroactive effect.
As used herein, the term "U.S. Holder" means a beneficial owner of ordinary
shares that (i) owns the ordinary shares as capital assets; (ii) is a U.S.
citizen or resident, a U.S. corporation, an estate the income of which is
subject to U.S. federal income taxation regardless of its source or a trust that
meets the following two tests: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and (B) one or more U.S.
persons have the authority to control all substantial decisions of the trust;
and for purposes of the discussion under Irish Taxation of U.S. Holders (A) is
not a resident of, or ordinarily resident in, Ireland for the purposes of Irish
tax; and (B) is not engaged in trade or business in Ireland through a permanent
establishment.
AS USED HEREIN, REFERENCES TO THE ORDINARY SHARES SHALL INCLUDE ADSs
REPRESENTING SUCH ORDINARY SHARES AND ADRs EVIDENCING OWNERSHIP OF SUCH ADSs.
Irish Taxation
ICON is a public limited company incorporated and resident for tax purposes in
Ireland.
For Irish tax purposes, the residence of a company is in the jurisdiction where
the central management and control of the company is located. Subject to certain
exceptions, all Irish incorporated companies are deemed to be Irish tax
resident. Companies which are resident in the Republic of Ireland are subject to
Irish corporation tax on their total profits (wherever arising and, generally,
whether or not remitted to the Republic of Ireland). The question of residence,
by virtue of management and control, is essentially one of fact. It is the
present intention of the company's management to continue to manage and control
the company from the Republic of Ireland, so that the company will continue to
be resident in the Republic of Ireland.
The standard rate of Irish corporation tax on trading income (with certain
exceptions) is currently 12.5%.
Patent exemption is available to Irish resident companies whose income derives
from qualifying royalties or license fees paid in respect of qualifying patents.
The main requirement to qualify for the exemption is that the research,
planning, processing, experimentation, testing, devising, designing, developing
or similar activity leading to the invention which is the subject of the patent
is carried out in Ireland. Under Irish law, income from such qualifying patents
is disregarded for taxation purposes. There is no termination date for this
relief specified in the legislation.
36
To the extent that the company is involved in the "manufacture" of goods in
Ireland, income from this activity, in respect of its data processing operations
carried out in Ireland, can qualify for a 10% rate of tax. This relief is
available until December 31, 2010.
Corporation tax is charged at the rate of 25% on a company's non-trading income
and certain types of trading income not eligible for the lower rates discussed
above.
Irish capital duty, a tax on the issuance of share capital by companies, is
payable at the rate of 1% of proceeds received by the company in consideration
of such issuance.
Taxation of Dividends
Unless exempted, all dividends paid by ICON, other than dividends paid entirely
out of exempt patent income (subject to conditions), will be subject to Irish
withholding tax at the standard rate of income tax in force at the time the
dividend is paid, currently 20%. An individual shareholder who is neither
resident nor ordinarily resident for tax purposes in Ireland, but is resident in
a country with which Ireland has a double tax treaty, which includes the United
States, or in a member state of the European Union, other than Ireland (together
a "Relevant Territory"), will be exempt from withholding tax provided he or she
makes the requisite declaration. No dividend withholding tax will apply on the
payment of a dividend from an Irish resident company to its Irish resident 51%
parent company. Where the Irish company receiving the dividend does not hold at
least 51% of the shares of the paying company, the dividend will be exempt if
the Irish corporate shareholder makes the requisite declaration.
Non-Irish resident corporate shareholders that:
o are ultimately controlled by residents of a Relevant Territory;
o are resident in a Relevant Territory and are not controlled by Irish
residents;
o have the principal class of their shares, or shares of a 75% parent,
substantially and regularly traded on one or more recognized stock
exchanges in a Relevant Territory or Territories; or
o are wholly owned by two or more companies, each of whose principal
class of shares is substantially and regularly traded on one or more
recognized stock exchanges in a Relevant Territory or Territories;
will be exempt from withholding tax on the production of the appropriate
certificates and declarations.
U.S. Holders of ordinary shares (as opposed to ADSs: see below) should note,
however, that these documentation requirements may be burdensome. As described
below, these documentation requirements do not apply in the case of ADSs.
Special arrangements are available in the case of shares held in Irish companies
through American depositary banks using ADSs. The depositary bank will be
allowed to receive and pass on a dividend from the Irish company without any
deduction for withholding tax in the following circumstances:
o the depositary has been authorized by the Irish Revenue Commissioners
as a qualifying intermediary and such authorization has not expired or
revoked; and either
o the depositary bank's ADS register shows that the beneficial owner has
a U.S. address on the register; or
o if there is a further intermediary between the depositary bank and the
beneficial owner, where the depositary bank receives confirmation from
the intermediary that the beneficial owner's address in the
intermediary's records is in the U.S.
Income Tax
Under certain circumstances, non-Irish resident shareholders will be subject to
Irish income tax on dividend income. This liability is limited to tax at the
standard rate and therefore, where withholding tax has been deducted, this will
satisfy the tax
37
liability.
However, a U.S. Holder will not have an Irish income tax liability on dividends
from the company if the U.S. Holder is neither resident nor ordinarily resident
in the Republic of Ireland and the U.S. Holder is:
o an individual resident in the U.S. (or several other countries);
o a corporation that is ultimately controlled by persons resident in the
U.S. (or several other countries);
o a corporation whose principal class of shares (or its 75% or greater
parent's principal class of shares) is substantially and regularly
traded on a recognized stock exchange in an EU country or a country
with which Ireland has concluded a double taxation treaty;
o a corporation resident in another EU member state or in a country with
which Ireland has concluded a double taxation treaty, which is not
controlled directly or indirectly by Irish residents; or
o a corporation that is wholly owned by two or more corporations each of
whose principal class of shares is substantially and regularly traded
on a recognized stock exchange in an EU country or a country with
which Ireland has concluded a double taxation treaty.
U.S. Holders that do not fulfill the documentation requirements or otherwise do
not qualify for the withholding tax exemption may be able to claim treaty
benefits under the treaty. U.S. Holders that are entitled to benefits under the
treaty will be able to claim a partial refund of the 20% withholding tax from
the Irish Revenue Commissioners.
Taxation of Capital Gains
A person who is not resident or ordinarily resident in Ireland, has not been an
Irish resident within the past five years and who does not carry on a trade in
Ireland through a branch or agency will not be subject to Irish capital gains
tax on the disposal of ordinary shares or ADSs, so long as the ordinary shares
or ADSs, as the case may be, are either quoted on a stock exchange or do not
derive the greater part of their value from Irish land or mineral rights. There
are provisions to subject a person who disposes of an interest in a company
while temporarily non-resident in the Republic of Ireland, to Irish capital
gains tax. This treatment will apply to individuals who:
o cease to be Irish resident;
o own the shares when they cease to be resident;
o resume their Irish residence within five years;
o dispose of an interest in a company during this temporary
non-residence; and
o the interest disposed of represents 5% or greater of the share capital
of the company or is worth at least (euro)500,000.
In these circumstances the person will be deemed, for Irish capital gains tax
purposes, to have sold and immediately reacquired the interest in the company on
the date of his or her departure and will be subject to tax at 20% of the
taxable gain.
Irish Capital Acquisitions Tax
Irish capital acquisitions tax (referred to as CAT) applies to gifts and
inheritances.
Where a gift or inheritance is taken under a disposition made after December 1,
1999, it will be within the charge to CAT:
o to the extent that the property of which the gift or inheritance
consists is situated in the Republic of Ireland at the date of the
gift or inheritance;
o where the person making the gift or inheritance is or was resident or
ordinarily resident in the Republic of Ireland at the date of the
disposition under which the gift or inheritance is taken;
38
o in the case of a gift taken under a discretionary trust where the
person from whom the gift is taken was resident or ordinarily resident
in the Republic of Ireland at the date he made the settlement, or at
the date of the gift or, if he is dead at the date of the gift, at his
death; or
o where the person receiving the gift or inheritance is resident or
ordinarily resident in the Republic of Ireland at the date of the gift
or inheritance.
Where a gift or an inheritance is taken under a disposition made prior to
December 1, 1999, CAT is chargeable in the following circumstances:
o to the extent that the property of which the gift or inheritance
consists is situated in the Republic of Ireland at the date of the
gift or inheritance;
o where the person making the gift or inheritance is or was domiciled in
Ireland at the date of the disposition under which the gift or
inheritance is taken;
o in the case of a gift taken under a discretionary trust, where the
disponer, who is usually the settlor, in relation to that trust was
domiciled in Ireland at the date he made the settlement, or at the
date of the gift or, where the gift is taken after his death, at the
date of his death.
The person who receives the gift or inheritance is primarily liable for CAT. A
person is secondarily liable if he is the donor, his personal representative or
an agent, trustee or other person in whose care the property constituting the
gift or inheritance or the income therefrom is placed. Taxable gifts or
inheritances received by an individual since December 5, 1991 from donors in the
same threshold class are aggregated and only the excess over a specified
tax-free threshold is taxed. The tax-free threshold is dependent on the
relationship between the donor and the donees and the aggregation since December
5, 1991 of all previous gifts and inheritances, within the same tax threshold.
The tax-free threshold amounts currently in force are:
o (euro)22,822 in the case of persons who are not related to one
another;
o (euro)45,644 in the case of gifts or inheritances received from inter
alia a brother or sister or from a brother or sister of a parent or
from a grandparent; and
o (euro)456,438 in the case of gifts and inheritances received from a
parent (or from a grandparent by a minor child of a deceased child)
and specified inheritances received by a parent from a child.
Gifts and inheritances passing between spouses are exempt from CAT.
A gift or inheritance of ordinary shares or ADSs will be within the charge to
Irish capital acquisitions tax, notwithstanding that the person from whom or by
whom the gift or inheritance is received is domiciled or resident outside
Ireland.
The Estate Tax Convention between Ireland and the United States generally
provides for Irish capital acquisitions tax paid on inheritances in Ireland to
be credited against U.S. federal estate tax payable in the United States and for
tax paid in the United States to be credited against tax payable in Ireland,
based on priority rules set forth in the Estate Tax Convention. The Estate Tax
Convention does not apply to Irish capital acquisitions tax paid on gifts.
Irish Probate Tax
Irish probate tax was abolished under the Finance Act, 2001. No probate tax will
arise on any assets passing in respect of a death occurring on or after December
6, 2000.
Irish Stamp Duty - Ordinary Shares
Irish stamp duty, which is a tax on certain documents, including CREST operator
instructions, is payable on all transfers of the ordinary shares (other than
between spouses) whenever a document of transfer is executed. Where the transfer
is attributable to a sale, stamp duty will be charged at a rate of 1%, rounded
to the nearest Euro. The stamp duty is calculated on the amount or value of the
consideration (i.e. purchase price) or, if the transfer is by way of a gift
(subject to certain exceptions) or for consideration less than the market value,
on the market value of the shares. Where the consideration for the sale is
expressed in a currency other than Euro, the duty will be charged on the Euro
equivalent calculated at the rate of exchange prevailing on the date of the
transfer.
39
Transfers of ordinary shares between associated companies (broadly, companies
within a 90% group relationship, and subject to the satisfaction of certain
conditions) are exempt from stamp duty in the Republic of Ireland. In the case
of transfers of ordinary shares where no beneficial interest passes (e.g. a
transfer of shares from a beneficial owner to his nominee), no stamp duty arises
where the transfer contains the appropriate certificate and, in the absence of
such certificate, a flat rate of (euro)12.70 (the nominal rate) will apply.
Irish Stamp Duty - ADSs Representing Ordinary Shares
A transfer by a shareholder to the depositary or custodian of ordinary shares
for deposit under the deposit agreement in return for ADSs and a transfer of
ordinary shares from the depositary or the custodian upon surrender of ADSs for
the purposes of the withdrawal of the underlying ordinary shares in accordance
with the terms of the deposit agreement will be stampable at the ad valorem rate
if the transfer relates to a sale or contemplated sale or any other change in
the beneficial ownership of such ordinary shares. However, it is not certain
whether the mere withdrawal of ordinary shares in exchange for ADSs or ADSs for
ordinary shares would be deemed to be a transfer of or change in the beneficial
ownership which would be subject to stamp duty at the ad valorem rate. Where the
transfer merely relates to a transfer where no change in the beneficial
ownership in the underlying ordinary shares is effected or contemplated, no
stamp duty arises where the transfer contains the appropriate certificate and,
in the absence of such certificate, the nominal rate stamp duty of (euro)12.70
applies.
Transfers of ADSs are exempt from Irish stamp duty as long as the ADSs are dealt
in on the Nasdaq National Market or any recognized stock exchange in the United
States or Canada.
The person accountable for payment of stamp duty is the transferee or, in the
case of a transfer by way of gift, or for a consideration less than the market
value, all parties to the transfer. A late or inadequate payment of stamp duty
will result in a liability to pay interest, penalties and fines.
Documents on Display
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, and file reports and other information with the SEC. You
may read and copy any of our reports and other information at, and obtain copies
upon payment of prescribed fees from, the Public Reference Room maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
SEC's regional office at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661. In addition, the SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
We "incorporate by reference" information that we file with the SEC, which means
that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this report and more recent information automatically updates and supersedes
more dated information contained or incorporated by reference in this report.
Our SEC file number is 333-8704.
As a foreign private issuer, we are exempt from the rules under the Securities
Exchange Act of 1934, as amended, prescribing the furnishing and content of
proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner,
on the written or oral request of such person, a copy of any or all documents
referred to above which have been or may be incorporated by reference in this
report (not including exhibits to such incorporated information that are not
specifically incorporated by reference into such information). Requests for such
copies should be directed to us at the following address: ICON plc, South County
Business Park, Leopardstown, Dublin 18, Ireland, Attention: Brian O'Dwyer,
telephone number: (353) 1 291 2000.
40
Item 11. Quantitative and Qualitative Disclosures about Market Risk.
Qualitative Disclosure of Market Risk. The principal market risks (i.e. risk of
loss arising from adverse changes in market rates and prices) to which we are
exposed are:
o Interest rate changes on short term investments (available for sale)
in the form of floating rate notes and medium term minimum "A" rated
corporate securities, and
o Foreign currency risk on non-U.S. dollar denominated cash and non-U.S.
dollar denominated debt.
We use derivative financial instruments solely to hedge exposure to these market
risks and we do not enter into these instruments for trading or speculative
purposes.
Our primary foreign currency exchange risk relates to movements in rates between
the U.S. dollar, Sterling and the Euro. At May 31, 2004, we had cash denominated
in non-U.S. dollar denominated currencies. In order to reduce the foreign
currency exchange risk during the year, we entered into certain derivative
instruments to reduce our exposure to adverse changes in exchange rates. These
financial instruments comprised of a series of foreign exchange forward
contracts all of which were settled during the 2004 fiscal year. At May 31,
2004, we held no foreign exchange forward contracts.
Quantitative disclosure of Market Risk. The analysis below presents the
sensitivity of the market value, or fair value of our financial instruments to
selected changes in market rates and prices. The changes chosen represent our
view of changes that are reasonable over a one year period. The estimated fair
value of the foreign exchange forward contracts is based on quotations from
independent third party financial institutions.
The hypothetical changes in fair value are estimated based on the same
methodology used by the third party financial institutions to calculate the fair
value of the original instruments, keeping all variables constant except the
relevant exchange rate, as the case may be, which has been adjusted to reflect
the hypothetical change. Fair value estimates by their nature are subjective and
involve uncertainties and matters of significant judgment and therefore cannot
be determined precisely.
Foreign Currency Exchange Risk
The sensitivity analysis below represents the hypothetical change in fair value
based on an immediate 10% movement in the exchange rates.
Fair value Change +10% Fair value Change -10%
Fair value at movement in foreign exchange movement in foreign
May 31, 2004 rate exchange rate
(in thousands) (in thousands) (in thousands)
Non-U.S. Dollar denominated cash $17,877 $1,788 $ (1,788)
Non-U.S. Dollar denominated - - -
short term debt
Item 12. Description of Securities Other than Equity Securities.
Not applicable.
41
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
None.
Item 15. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
At the end of the fiscal year, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls.
The CEO and CFO have concluded there were no significant changes in the
Company's internal controls or in the other factors that could significantly
affect those controls subsequent to the date of their evaluation.
Item 16. Reserved.
A. Audit Committee Financial Expert
During fiscal year 2004 the Company named Mr. Thomas Lynch, as an audit
committee financial expert serving on its audit committee and board of
directors. Mr. Lynch is independent and serves as one of the company's
non-executive directors.
B. Code of Ethics
The Company's Board of Directors adopted a code of ethics in 2003 that applies
to the Chief Executive Officer, the Chief Financial Officer and any persons
performing similar functions, if any, of the Company.
There are no material modifications to, or waivers from, the provisions of such
code, which are required to be disclosed.
This code is available on the Company's website at the following address:
http://www.iconclinical.com/index.asp?getpage=true&sid=1&ssid=0&sssid=0&page=17
C. Principal Accountant Fees and Services
The Company's principal accountants for the years 2003 and 2004 were KPMG.
The table below summarizes the fees for professional services rendered by KPMG
for the audit of the Company's annual financial statements for 2003 and 2004 and
fees billed for other services rendered by KPMG.
42
Year ended May 31st
2003 2004
(in thousands) % (in thousands) %
Audit fees (1) $554 51% $647 60%
Audit related fees (2) 119 11% 40 4%
Tax fees (3) 392 36% 369 34%
All other fees (4) 17 2% 19 2%
- ------------------------ -------------- ---------- --------------- -------
Total $1,082 100% $1,075 100%
- ------------------------ -------------- ---------- --------------- -------
(1) Audit fees include annual audit fees for ICON plc and its subsidiaries as
well as an audit for the registration statement filed in 2003.
(2) Audit related fees principally consisted of fees for financial due diligence
services and fees for audit of financial statements of employee benefit plans.
(3) Tax fees are fees for tax compliance and tax consultation services.
(4) All other fees are fees for secretarial assistance and grant certifications
rendered by the Company's auditors.
The Audit Committee pre-approves on an annual basis the audit and non-audit
services provided to the Company by its auditors.
Such annual pre-approval is given with respect to particular services. The Audit
Committee, on a case-by-case basis, may approve additional services not covered
by the annual pre-approval, as the need for such services arises.
Part III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
Reference is made to pages 45 to 77 of this Form 20-F.
Item 19. Financial Statements and Exhibits.
Financial statements of ICON plc and subsidiaries
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at May 31, 2003, and May 31, 2004
Consolidated Statements of Operations for the years ended May 31, 2002,
2003 and 2004
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended May 31, 2002, 2003 and 2004.
Consolidated Statements of Cash Flows for the years ended May 31, 2002,
2003 and 2004
43
Notes to the Consolidated Financial Statements
Exhibits of ICON plc and subsidiaries
Significant subsidiaries
Section 906 certifications
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Shareholders of ICON plc
We have audited the accompanying consolidated balance sheets of ICON plc
and subsidiaries as of May 31, 2003 and 2004 and the related consolidated
statements of operations, shareholders' equity and comprehensive income and
cash flows for each of the years in the three-year period ended May 31,
2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Ireland and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of ICON plc and subsidiaries as of May 31, 2003 and 2004, and the
consolidated results of their operations and their cash flows for each of
the years in the three-year period ended May 31, 2004 in conformity with
accounting principles generally accepted in the United States.
KPMG
Public Accounting Firm
Dublin, Ireland
July 23, 2004
45
ICON plc
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
May 31,
2003 2004
(in thousands) (in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $18,311 $55,678
Short term investments - available for sale (Note 3) - 23,085
Accounts receivable 74,645 74,079
Unbilled revenue 44,783 59,861
Other receivables 4,385 4,306
Deferred tax asset (Note 12) 32 1,684
Prepayments and other current assets 8,326 9,468
- --------------------------------------------------------------------------- ------------------ ----------------------
Total current assets 150,482 228,161
Other Assets:
Property, plant and equipment, net (Note 5) 39,503 42,936
Goodwill (Note 4) 45,029 64,226
- --------------------------------------------------------------------------- ------------------ ----------------------
Total Assets $235,014 $335,323
- --------------------------------------------------------------------------- ------------------ ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $11,092 $12,801
Payments on account 45,763 61,960
Other liabilities (Note 6) 28,289 35,091
Income taxes payable 4,385 4,496
Bank overdraft and loan facilities (Note 7) 7,126 -
- --------------------------------------------------------------------------- ------------------ ----------------------
Total current liabilities 96,655 114,348
Other Liabilities:
Long term government grants (Note 10) 1,140 1,411
Long term finance leases 309 167
Non-current deferred tax liability (Note 12) - 2,637
Shareholders' Equity:
Ordinary shares, par value 6 Euro cents per share; 20,000,000 shares
authorized, 11,841,557 shares issued and outstanding at May 31, 2003 and
13,838,476 shares issued and outstanding at May 31, 2004 (Note 11) 841 980
Additional paid-in capital 61,164 112,936
Accumulated other comprehensive income 7,787 9,984
Merger reserve 47 47
Retained earnings 67,071 92,813
- --------------------------------------------------------------------------- ------------------ ----------------------
Total Shareholders' Equity 136,910 216,760
- --------------------------------------------------------------------------- ------------------ ----------------------
Total Liabilities and Shareholders' Equity $235,014 $335,323
- --------------------------------------------------------------------------- ------------------ ----------------------
The accompanying notes are an integral part of these consolidated financial
statements.
46
ICON plc
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended May 31,
2002 2003 2004
(in thousands, except share and per share data)
Revenue:
Gross revenue $218,842 $340,971 $443,875
Subcontractor costs (62,287) (115,246) (146,952)
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Net revenue 156,555 225,725 296,923
Costs and expenses:
Direct costs 83,371 122,373 162,562
Selling, general and administrative 48,951 71,118 88,807
Depreciation and amortization 6,020 7,305 11,171
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Total costs and expenses 138,342 200,796 262,540
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Income from operations 18,213 24,929 34,383
Interest income 1,603 633 490
Interest expense (487) (279) (202)
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Income before provision for income taxes 19,329 25,283 34,671
Provision for income taxes (Note 12) (5,129) (7,000) (8,929)
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Net income $14,200 $18,283 $25,742
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Net income per ordinary share:
Basic $1.22 $1.55 $1.94
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Diluted $1.16 $1.50 $1.88
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Weighted average number of ordinary shares outstanding:
Basic 11,656,153 11,813,788 13,267,531
- ---------------------------------------------------------------- -------------------- ---------------- --------------
Diluted 12,241,820 12,181,094 13,703,163
- ---------------------------------------------------------------- -------------------- ---------------- --------------
The accompanying notes are an integral part of these consolidated financial
statements.
47
ICON plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
Accumulated
Additional Other
Paid-in Comprehensive Retained Merger
Shares Amount Capital Income Earnings Reserve Total
(in thousands, except share and per share data)
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Balance at May 31, 2001 11,429,629 $819 $56,537 $(5,411) $34,588 $47 $86,580
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Comprehensive Income:
Net income - - - - 14,200 - 14,200
Currency translation adjustment - - - 2,950 - - 2,950
--------------
Total comprehensive income 17,150
Exercise of share options 358,100 19 2,655 - - - 2,674
Shares issued 10,772 1 364 - - - 365
Tax benefit on exercise of options
- - 792 - - - 792
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Balance at May 31, 2002 11,798,501 $839 $60,348 $(2,461) $48,788 $47 $107,561
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Comprehensive Income:
Net income - - - - 18,283 - 18,283
Currency translation adjustment - - - 10,248 - - 10,248
--------------
Total comprehensive income 28,531
Exercise of share options 39,360 2 726 - - - 728
Shares issued 3,696 - 77 - - - 77
Share issue costs - - (35) - - - (35)
Tax benefit on exercise of options
- - 48 - - - 48
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Balance at May 31, 2003 11,841,557 $841 $61,164 $7,787 $67,071 $47 $136,910
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Comprehensive Income:
Net income - - - - 25,742 - 25,742
Currency translation adjustment - - - 2,197 - - 2,197
--------------
Total comprehensive income 27,939
Exercise of share options 496,919 35 5,323 - - - 5,358
Shares issued 1,500,000 104 45,601 - - - 45,705
Share issue costs - - (1,428) - - - (1,428)
Tax benefit on exercise of options
- - 2,276 - - - 2,276
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
Balance at May 31, 2004 13,838,476 $980 $112,936 $9,984 $92,813 $47 $216,760
- ------------------------------------ ------------- --------- ------------- ---------------- ----------- ---------- --------------
The accompanying notes are an integral part of these consolidated financial
statements.
48
ICON plc
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended May 31,
2002 2003 2004
(in thousands)
Cash flows from operating activities:
Net income $14,200 $18,283 $25,742
Adjustments to reconcile net income to net cash
(used in)/ provided by operating activities:
Loss on disposal of fixed assets 46 - 222
Depreciation 6,020 7,305 11,171
Amortization of grants (46) (36) (569)
Deferred taxes 19 376 985
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (10,873) (23,232) 4,089
Increase in unbilled revenue (5,376) (14,480) (15,329)
Decrease in other receivables 2,062 7,515 4,307
Increase in prepayments and other current assets (2,697) (1,965) (778)
Increase in payments on account 8,655 25,485 14,228
Increase/(decrease) in other liabilities 731 (1,787) (1,654)
Increase in income taxes payable 2,897 253 2,237
Increase/(decrease) in accounts payable 1,631 3,768 (1,009)
- ------------------------------------------------------------------ --------------- ---------------- ----------------
Net cash provided by operating activities 17,269 21,485 43,642
Cash flows from investing activities:
Purchase of property, plant and equipment (10,425) (15,788) (13,097)
Purchase of subsidiary undertakings and acquisition costs - (36,873) (11,258)
Cash acquired with subsidiary undertakings - 1,910 891
Deferred payments in respect of prior year acquisitions (2,615) (3,078) (1,733)
Sale of short term investments 29,868 18,551 -
Purchase of short term investments (12,478) - (23,085)
Receipt of government grant 464 - 945
- ------------------------------------------------------------------ --------------- ---------------- ----------------
Net cash provided by/(used in) investing activities 4,814 (35,278) (47,337)
Cash flows from financing activities:
Proceeds from / (repayment of) bank overdraft 547 (5,319) (7,126)
Repayment of long term debt (338) - -
Proceeds from exercise of share options 2,674 693 5,358
Proceeds from the issuance of share capital - - 45,705
Share Issuance Costs - - (1,182)
Repayment of other liabilities (165) - (230)
- ------------------------------------------------------------------ --------------- ---------------- ----------------
Net cash provided by /(used in) financing activities 2,718 (4,626) 42,525
Effect of exchange rate movements on cash 311 439 (1,463)
- ------------------------------------------------------------------ --------------- ---------------- ----------------
Net increase/(decrease) in cash and cash equivalents 25,112 (17,980) 37,367
Cash and cash equivalents at beginning of year 11,179 36,291 18,311
- ------------------------------------------------------------------ --------------- ---------------- ----------------
Cash and cash equivalents at end of year $36,291 $18,311 $55,678
- ------------------------------------------------------------------ --------------- ---------------- ----------------
The accompanying notes are an integral part of these consolidated financial
statements.
49
ICON plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
ICON plc and subsidiaries ("The Company") is a Contract Research Organization
("CRO") providing clinical research and development services on a global basis
to the pharmaceutical, biotechnology and medical device industries. The Company
specializes in the management, execution and analysis of complex, multinational
clinical trials in most major therapeutic areas. The Company believes that it is
one of a select group of CROs with the capability and expertise to conduct
clinical trials on a global basis. As of May 31, 2004, the Company had
approximately 2,450 employees and operations in 35 locations in 21 countries,
including the United States and major markets in Europe and Rest of World and
has managed clinical trials in over 50 countries. For the fiscal year ended May
31, 2004, we derived approximately 62.4%, 34.0% and 3.6% of our net revenue in
the United States, Europe and Rest of World, respectively.
2. Significant Accounting Policies
The accounting policies noted below were applied in the preparation of the
accompanying financial statements of the Company and are in conformity with
accounting principles generally accepted in the United States.
(a) Basis of consolidation
The consolidated financial statements include the financial statements of ICON
plc and all of its subsidiaries. All significant intercompany profits,
transactions and account balances have been eliminated. The results of
subsidiary undertakings acquired in the year are included in the consolidated
statement of operations from the date of acquisition.
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
(c) Revenue recognition
The Company primarily earns revenues by providing a number of different services
to its customers. These services include clinical trials management, biometric
activities, consulting and laboratory services. Contracts range in duration from
a number of months to several years.
Clinical trials management revenue is earned on the basis of the relationship
between time incurred and the total estimated duration of the trial. Biometrics
revenue is recognized on a fee-for-service method on the basis of the number of
units completed in a period as a percentage of the total number of contracted
units. Consulting revenue is recognized on a fee-for-service basis as the
related service is performed. Laboratory service revenue is recognized on a
fee-for-service basis. The Company accounts for laboratory service contracts as
multiple element arrangements, with contractual elements comprising laboratory
kits and laboratory testing, each of which can be sold separately. Fair values
for contractual elements are determined by reference to objective and reliable
evidence of their fair values. Non-refundable set-up fees are allocated as
additional consideration to the contractual elements based on the proportionate
fair values of each of these elements. Revenues for contractual elements are
recognized on the basis of the number of deliverable units completed in the
period.
Contracts generally contain provisions for renegotiation in the event of changes
in the scope, nature, duration, volume of services or conditions of the
contract. Renegotiated amounts are recognized as revenue by revision to the
total contract value arising as a result of an authorized customer change order.
Provisions for losses to be incurred on contracts are recognized in full in the
period in which it is determined that a loss will result from performance of the
contractual arrangement.
50
The difference between the amount of revenue recognized and the amount billed on
a particular contract is included in the balance sheet as unbilled revenue.
Normally, amounts become billable upon the achievement of certain milestones, in
accordance with pre-agreed payment schedules included in the contract or on
submission of appropriate billing detail. Such cash payments are not
representative of revenue earned on the contract as revenues are recognized over
the period in which the specified contractual obligations are fulfilled. Amounts
included in unbilled revenue are expected to be collected within one year and
are included within current assets. Advance billings to customers, for which
revenue has not been recognized, are recognized as payments on account within
current liabilities.
In the event of contract termination, if the value of work performed and
recognized as revenue is greater than aggregate milestone billings at the date
of termination, cancellation clauses ensure that the Company is paid for all
work performed to the termination date.
(d) Subcontractor costs
Subcontractor costs comprise investigator payments and certain other costs which
are reimbursed by clients under terms specific to each contract and are deducted
from gross revenue in arriving at net revenue. Investigator payments are accrued
based on patient enrollment over the life of the contract. Investigator payments
are made based on predetermined contractual arrangements, which may differ from
the accrual of the expense. Payments to investigators in excess of the accrued
expense are classified as prepaid expenses and accrued expense in excess of
amounts paid are classified as accounts payable.
(e) Direct costs
Direct costs consist of compensation and associated employee benefits for
project-related employees and other direct project-related costs.
(f) Advertising costs
All costs associated with advertising and promotion are expensed as incurred.
The advertising and promotion expense was U.S.$988,000, U.S.$1,336,000 and
U.S.$1,596,000 for the years ended May 31, 2002, 2003 and 2004 respectively.
(g) Foreign currencies and translation of subsidiaries
The Company's financial statements are prepared in United States dollars.
Transactions in currencies other than United States dollars are recorded at the
rate ruling at the date of the transactions. Monetary assets and liabilities
denominated in currencies other than United States dollars are translated into
United States dollars at exchange rates prevailing at the balance sheet date.
Adjustments resulting from these translations are charged or credited to income
and where material are separately disclosed. For the years ended May 31, 2002,
2003 and 2004 amounts charged/(credited) to income amounted to U.S.$1,412,000,
U.S.$1,968,000 and (U.S.$2,445,000) respectively.
The financial statements of subsidiaries with other functional currencies are
translated at year end rates for the balance sheet and average rates for the
income statement. Translation gains and losses arising are reported as a
movement on accumulated other comprehensive income.
During the year, the Company entered into foreign exchange currency contracts to
manage its exposure against currency fluctuations on anticipated Euro
denominated cashflows. Currency gains and losses arising in the year under these
arrangements are recorded in the statement of operations.
(h) Disclosure about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of
each material class of financial instrument:
Cash, cash equivalents, unbilled revenue, other receivables, short term
investments, prepayments and other current assets, accounts receivable, accounts
payable, investigator payments, payments received on account, accrued
liabilities, accrued
51
bonuses, bank overdraft and taxes payable carrying amount
approximates fair value due to the short term maturities of these instruments.
Long-term debt and other liabilities carrying amounts approximate fair value
based on net present value of estimated future cash flows.
(i) Leased Assets
Costs in respect of operating leases are charged to the statement of operations
on a straight line basis over the lease term.
Assets acquired under capital finance leases are included in the balance sheet
at the present value of the future minimum lease payments and are depreciated
over the shorter of the lease term and their remaining useful lives. The
corresponding liabilities are recorded in the balance sheet and the interest
element of the capital lease rental is charged to interest expense.
(j) Goodwill
In July 2001, the Financial Accounting Standards Board (FASB) issued two new
statements: SFAS No. 141, "Business Combinations", and Statement No. 142,
"Goodwill and Other Intangible Assets". Those Statements changed the accounting
for business combinations and goodwill in two significant ways. First, SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is prohibited. Second, SFAS No.142 changes the accounting for goodwill
from an amortization method to an impairment-only approach.
The Company adopted SFAS No.142 effective June 1, 2001 and ceased amortization
of goodwill as of June 1, 2001. The Company does not have any intangible assets.
SFAS No.142 requires a two step impairment test for goodwill. The first step is
to compare the carrying amount of the reporting units' assets to the fair value
of the reporting unit. If the carrying amount exceeds the fair value then a
second step is required to be completed which involves the fair value of the
reporting unit being allocated to each asset and liability with the excess being
implied goodwill. The impairment loss is the amount by which the recorded
goodwill exceeds the implied goodwill. The Company has completed its
transitional and annual assessments of goodwill impairment and concluded that no
indication of goodwill impairment existed at May 31, 2002, May 31, 2003 or 2004.
(k) Cash and cash equivalents
Cash and cash equivalents include cash and highly liquid investments with
initial maturities of three months or less and is stated at cost, which
approximates market value.
(l) Short term investments - available for sale
The Company has classified short-term investments as available for sale in
accordance with the terms of SFAS No.115 "Accounting for Certain Investments in
Debt and Equity Securities". Realized gains and losses are determined using
specific identification. The investments are reported at fair value, with
unrealized gains or losses reported in a separate component of shareholders'
equity. Any differences between the cost and fair value of the investments are
represented by accrued interest.
(m) Inventory
Inventory is valued at the lower of cost and net realizable value and after
provisions for obsolescence. Cost in the case of raw materials comprises the
purchase price and attributable costs, less trade discounts. Cost in the case of
work in progress and finished goods, comprises fixed labor, raw materials costs
and attributable overheads.
52
(n) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation of property, plant and equipment is computed using the straight
line method based on the estimated useful lives of the assets as listed below:
Years
Building 40
Computer equipment and software 4
Office furniture and fixtures 8
Laboratory equipment 5
Motor vehicles 5
Leasehold improvements are amortized using the straight-line method over the
estimated useful life of the asset or the lease term, whichever is shorter.
(o) Income taxes
The Company applies Statement of Financial Accounting Standard ("SFAS") No. 109,
"Accounting for Income Taxes," which requires the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognised in income in the period that includes the
enactment date.
(p) Government grants
Government grants received relating to capital expenditure are shown as deferred
income and credited to income on a basis consistent with the depreciation policy
of the relevant assets.
Grants relating to categories of operating expenditures are credited to income
in the period in which the expenditure to which they relate is charged.
Under the grant agreements amounts received may become repayable in full should
certain circumstances specified within the grant agreements occur, including
downsizing by the Company, disposing of the related assets, ceasing to carry on
its business or the appointment of a receiver over any of its assets.
The Company has not recognized any loss contingency having assessed as remote
the likelihood of these events arising.
(q) Pension costs
The Company contributes to defined contribution plans covering all eligible
employees. The Company contributes to these plans based upon various fixed
percentages of employee compensation and such contributions are expensed as
incurred.
The Company operates, through a subsidiary, a defined benefit plan for certain
of its United Kingdom employees. The Company accounts for the costs of this plan
using actuarial models required by SFAS No.87, "Employers Accounting for
Pensions". Disclosures are presented in accordance with the requirements of SFAS
No.132(R), "Employees' Disclosures about Pensions and Other Post-retirement
Benefits".
53
(r) 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 used in the
computation of basic and diluted net income per ordinary share is as follows:
Year Ended May 31,
2002 2003 2004
Weighted average number of ordinary shares
outstanding for basic net income per
ordinary share 11,656,153 11,813,788 13,267,531
Effect of dilutive share options outstanding 582,908 367,306 435,632
Effect of dilutive shares to be issued as part of
deferred consideration 2,759 - -
--------------------------------------------------------- -------------------- --------------- ----------------
Weighted average number of ordinary shares for
diluted net income per ordinary share 12,241,820 12,181,094 13,703,163
--------------------------------------------------------- -------------------- --------------- ----------------
54
(s) Stock-based compensation
The Company accounts for its share options in accordance with the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 allows
entities to continue to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", 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. APB No. 25 permits entities to recognize as expense, over the
vesting period, the fair value of all stock- based awards on the date of grant.
The Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
The following table illustrates the effect on net income and earnings per share
as if the fair value method of SFAS No. 123 had been applied to all outstanding
and unvested stock options in each period.
Year Ended May 31,
2002 2003 2004
(in thousands)
(except per share data)
Net income, as reported $14,200 $18,283 $25,742
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects
- - -
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (1,609) (2,096) (2,358)
--------------------------------------------------------- -------------------- --------------- ----------------
Pro forma net income $12,591 $16,187 $23,384
--------------------------------------------------------- -------------------- --------------- ----------------
Earnings per share (in $):
Basic - as reported $1.22 $1.55 $1.94
Basic - pro forma 1.08 1.37 1.76
Diluted - as reported 1.16 1.50 1.88
Diluted - pro forma 1.03 1.33 1.71
--------------------------------------------------------- -------------------- --------------- ----------------
(t) Impairment of long-lived assets
Long lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
selling costs.
3. Short term investments - available for sale
The Company has classified its entire investment portfolio comprising floating
rate and medium term minimum "A" rated corporate securities, as available for
sale. The investments are reported at fair value, with unrealized gains or
losses reported in a separate component of shareholder equity. In the years to
May 31, 2002, 2003 and 2004 no unrealized gains or losses arose. Any differences
between the cost and fair value of the investments are represented by accrued
interest.
55
4. Goodwill
Year Ended May 31,
2003 2004
(in thousands)
Opening Goodwill ...................................................... $10,093 $45,029
Arising during the year ............................................... 32,302 13,134
Arising on earn-out (current and prior year acquisitions).............. 2,003 3,215
Foreign exchange movement.............................................. 631 2,848
- ------------------------------------------------------------------------------------------------------
Closing Goodwill....................................................... $45,029 $64,226
- ------------------------------------------------------------------------------------------------------
The distribution of goodwill by business segment was as follows:
Year Ended May 31,
2003 2004
(in thousands)
Central laboratory $ 6,596 $ 7,017
Clinical research 38,433 57,209
- ------------------------------------------ -------------- ---------------
Total $45,029 $64,226
- ------------------------------------------ -------------- ---------------
(a) Acquisition of YRCR Ltd.
On January 27, 2000, the Company acquired YRCR Limited ("YRCR"), a U.K. based
regulatory consultancy company. The Company acquired YRCR in exchange for cash
of Stg(pound)500,000 (U.S.$819,000) and 51,387 ordinary shares, the fair market
value of which was Stg(pound)500,000 (U.S.$819,000) on the date the contract
terms were agreed, excluding costs of acquisition. The acquisition of YRCR has
been accounted for as a purchase.
Earn-out provisions were built into the contract, over the period to May 2003 up
to a maximum additional consideration of Stg(pound)2.0 million (U.S.$2.9
million), with additional purchase consideration to be recorded as goodwill.
On April 3, 2000, an additional cash payment of Stg(pound)250,000 (U.S.$393,043)
was made to YRCR as part of the earn-out provision. On May 31, 2000, an
additional 24,272 ordinary shares were issued to YRCR with a fair market value
of Stg(pound)250,000 (U.S.$367,500).
As part of the earn-out provisions, on August 31, 2001, an additional 10,772
ordinary shares were issued to YRCR with a fair market value of
Stg(pound)250,000 (U.S.$365,400), and, on September 3, 2001, an additional cash
payment of Stg(pound)250,000 (U.S.$365,400) was made. Of these amounts
Stg(pound)400,000 (U.S.$590,800) was provided at May 31, 2001, as the earn-out
target had been reached, with the balance of Stg(pound)100,000 (U.S.$140,000)
accounted for during the year ended May 31, 2002.
On August 30, 2002, an additional cash payment of Stg(pound)50,000 (U.S.$77,526)
was made to YRCR and on October 8, 2002, an additional 3,696 ordinary shares
were issued to YRCR with a fair market value of Stg(pound)50,000 (U.S.$77,440)
as part of the earn-out provisions. Both these earn out payments were accrued
for at May 31, 2002 and paid for during the year ended May 31, 2002.
On December 30, 2003, a cash payment of Stg(pound)100,000 (U.S.$176,897) was
made to the former shareholders of YRCR Limited. This represents the final
payment due to the former shareholders of YRCR under the acquisition contract.
56
The initial purchase price of U.S.$1,838,000 including costs of acquisition
together with subsequent additional consideration of U.S.$1,823,206 for YRCR was
allocated as follows:
(in thousands)
Property, plant and equipment............. $125
Goodwill.................................. 3,346
Current assets............................ 879
Accounts payable.......................... (689)
- ----------------------------------------------------------------
Purchase price............................ $3,661
- ----------------------------------------------------------------
(b) Acquisition of Protocole
On March 14, 2000, the Company acquired Protocole ("Protocole"), a Paris based
veterinary CRO. The Company acquired Protocole for initial cash consideration of
French Francs 4,000,000 (U.S.$586,240), excluding costs of acquisition. Earn-out
provisions have been built into the acquisition contract requiring the potential
payment of additional deferred consideration up to a maximum of French Francs
4,000,000 depending on the performance of Protocole over the period to May 31,
2003. None of the earn-out provisions had been reached at May 31, 2003 and there
are no further payments due under this agreement. The acquisition of Protocole
has been accounted for as a purchase.
The purchase price of U.S.$732,000 for Protocole was allocated as follows:
(in thousands)
Property, plant and equipment............ $12
Goodwill................................. 731
Current assets........................... 114
Current liabilities...................... (125)
- ---------------------------------------------------------
Purchase price........................... $732
- ---------------------------------------------------------
(c) Acquisition of UCT (U.S.) Inc.
On June 8, 2000, the Company acquired UCT (U.S.) Inc. ("UCT"), subsequently
renamed ICON Laboratories Inc., a central laboratory company based in New York,
USA. The Company acquired UCT in exchange for cash of U.S.$1,200,000. Earn-out
provisions were built into the acquisition contract requiring the potential
payment of additional deferred consideration of U.S.$18 million depending on the
performance of UCT over the period to May 31, 2003. The acquisition of UCT has
been accounted for as a purchase. Additional consideration paid was in the form
of cash and was accounted for as goodwill.
On September 1, 2001, an additional cash payment of U.S.$2,250,000 was made to
UCT as part of the earn-out provisions. The first earn-out target was reached as
at May 31, 2001 and this consideration has been included in the purchase price
below.
On August 30, 2002 the Company made a cash payment of U.S.$3,000,000 to the
former shareholders of UCT (U.S.) Inc., under the terms of an earn out provision
entered into on the acquisition of UCT on June 8, 2000. The earn-out target was
reached at May 31, 2002 and this consideration was recorded at that date in the
financial statements.
On October 2, 2003, a cash payment of U.S.$421,000 was made to the former
shareholders of UCT (U.S.) Inc. as part of the earn-out provisions in the
contract. This represents the final payment due to the former shareholders of
UCT under the acquisition contract.
57
The purchase price of U.S.$7,424,000 including total earn-out provisions of
U.S.$5,671,000 and acquisition costs of U.S.$553,000 was allocated as follows:
(in thousands)
Property, plant and equipment................ $1,415
Goodwill..................................... 7,088
Current assets............................... 4,276
Accounts payable............................. (5,355)
- ------------------------------------------------------------
Purchase price............................... $7,424
- ------------------------------------------------------------
(d) Acquisition of Barton & Polansky Associates, Inc. and Managed Clinical
Solutions, Inc.
On October 9, 2002, the Company acquired 100% of the outstanding shares of
Barton & Polansky Associates, Inc. ("BPA") and its sister company Managed
Clinical Solutions, Inc. ("MCS"), both based in New York, USA, for an initial
cash consideration of U.S.$15.7 million, excluding costs of acquisition which
amounted to U.S.$0.8 million. Earn-out and 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.$18 million depending
on the performance of MCS over the period to May 31, 2006. Such potential
additional consideration will be accounted for as goodwill. The total amount of
goodwill is expected to be tax deductible.
On December 20, 2002, and April 15, 2003, additional cash payments of U.S.$3.7
million and U.S.$0.3 million respectively were made to the former shareholders
of BPA and MCS as part of the working capital provisions in the contract. The
acquisitions of BPA and MCS have been accounted for as a purchase in accordance
with SFAS No.141 "Business Combinations".
On July 25, 2003, August 20, 2003, August 29, 2003 and September 11, 2003,
additional cash payments totaling U.S.$110,897 were made to the former
shareholders of Barton & Polansky Associates, Inc. ("BPA") and Managed Clinical
Solutions, Inc. ("MCS"), as part of the working capital provisions in the
applicable acquisition contract.
The purchase price of U.S.$16.5 million including costs of acquisition together
with subsequent additional consideration of U.S.$4.1 million was allocated as
follows:
(in thousands)
Property, plant & equipment $2
Goodwill 14,550
Current assets 9,533
Bank overdraft (700)
Current liabilities (2,795)
-----------------------------------------------------------
Purchase Price $20,590
-----------------------------------------------------------
The results of BPA and MCS have been included in the consolidated financial
statements from October 1, 2002.
58
(e) Acquisition of Medeval Group Ltd
On January 24, 2003, the Company acquired 100% of the outstanding shares of
Medeval Group Limited ("Medeval"), a company based in Manchester, England, for
an initial cash consideration of Stg(pound)9.5 million (U.S.$15.5 million),
excluding costs of acquisition which amounted to U.S.$1.0 million. Earn-out
provisions have been built into the acquisition contract requiring the potential
payment of additional deferred consideration up to a maximum of Stg(pound)4.3
million (U.S.$6.9 million) depending on the performance of Medeval over the
period to May 31, 2004. Such additional consideration has been accounted for as
goodwill.
On May 31, 2003, an amount of Stg(pound)1.4 million (U.S.$2.0 million) was
accrued in relation to the Medeval acquisition, as the first earn-out target
identified in the acquisition contract was reached on this date. It was provided
in the applicable acquisition agreement that the form of the earn-out would
consist of cash payable to one specific named selling shareholder, with the
balance due to the other selling shareholders being in the form of guaranteed
loan notes. These guaranteed loan notes have a repayment date of three years
from the date of issue but are exercisable six months from that date. On
September 30, 2003, Stg(pound)0.472 million (U.S.$0.8 million) was paid in cash
to the specific named selling shareholder. On the same date, Stg(pound)0.753
million (U.S.$1.403 million) of guaranteed loan notes were issued to the
remaining selling shareholders and were included in other liabilities. The
guaranteed loan note holders issued redemption notices to the Company, which
will require the Company to redeem all the guaranteed loan notes on June 30,
2004, in consideration for a cash payment of Stg(pound)0.753 million (U.S.$1.380
million), the total amount of which was accrued at May 31, 2004.
Stg(pound)1.367 million (U.S.$2.5 million) was accrued at 31 May, 2004 in
relation to the second earn-out target provided for in the contract and has been
included in the purchase price below.
The acquisition of Medeval 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.
(in thousands)
Property, plant and equipment $1,632
Goodwill 22,372
Current assets 2,738
Pension liabilities (note 6) (2,588)
Other current liabilities (3,113)
------------------------------------------------------------------------
Purchase Price $21,041
------------------------------------------------------------------------
The results of Medeval have been included in the consolidated financial
statements from January 24, 2003.
(f) Acquisition of GloboMax LLC
On September 9, 2003, the Company acquired 100% of the outstanding shares of
Globomax LLC, based in Maryland, USA, for an initial cash consideration of
U.S.$10.9 million, excluding costs of acquisition. Earn-out provisions have been
built into the acquisition contract requiring the potential payment of
additional deferred consideration up to a maximum of U.S.$4.0 million depending
on the performance of Globomax over the period from date of acquisition to May
31, 2006. Such potential additional consideration will be accounted for as
goodwill. The total amount of goodwill is expected to be tax deductible.
The acquisition of Globomax 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.
59
At September 9,
2003
(in thousands)
Property, Plant and Equipment 352
Goodwill 13,134
Cash 891
Other Current Assets 2,487
Current liabilities (5,539)
------------------------------------------------------------
------------------------------------------------------------
Purchase Price $11,325
------------------------------------------------------------
The results of Globomax have been included in the consolidated financial
statements from September 9, 2003.
The proforma effect of the BPA, MCS, Medeval and Globomax acquisitions if
completed on June 1, 2002 would have resulted in net revenue, net income and
earnings per share for the fiscal years ended May 31, 2003 and 2004 as follows:
Year Ended May 31,
2003 2004
---- ----
(in thousands, except per share data)
Net Revenue $254,694 $299,948
Net Income $20,276 $25,918
Basic Earnings per Share $1.72 $1.95
Diluted Earnings Per Share $1.66 $1.89
In August 2002, prior to the date of acquisition, a U.S.$900,000 distribution
was made by BPA and MCS, to the former shareholders of BPA and MCS, which was
recorded as other expenses. In July 2002, distributions were paid to the former
shareholders of Medeval by Medeval of Stg(pound)109,700 (U.S.$168,134)
respectively which were also recorded as other expenses. These payments are
included in the proforma results above.
60
5. Property, Plant and Equipment
May 31,
2003 2004
(in thousands)
Cost
Land............................................ $717 $748
Building........................................ 7,874 9,502
Computer equipment and software................. 33,558 42,469
Office furniture and fixtures................... 13,418 17,071
Laboratory equipment............................ 3,685 5,009
Motor vehicles................................... 38 37
Leasehold improvements.......................... 6,921 6,116
- --------------------------------------------------------------------------------
66,211 80,952
Less accumulated depreciation................... (26,708) (38,016)
- --------------------------------------------------------------------------------
Property, plant and equipment (net)............. $39,503 $42,936
- --------------------------------------------------------------------------------
Total cost above at May 31, 2004 includes U.S.$1,580,127 (2003: U.S.$524,632)
which relates to assets held under capital finance leases. Related accumulated
depreciation amounted to U.S.$252,039 (2003: U.S.$36,272).
6. Other Liabilities
May 31,
2003 2004
(in thousands)
Accrued liabilities................................... $13,562 18,483
Accrued bonuses....................................... 8,542 8,828
Accrued social welfare costs.......................... 1,301 1,899
Contingent purchase consideration payable............. 2,003 2,506
Short term government grants.......................... 34 195
Accrued pension liability (note 8) ................... 2,632 2,927
Short term finance leases (note 14)................... 215 253
- --------------------------------------------------------------------------------
$28,289 $35,091
- --------------------------------------------------------------------------------
7. Bank Loans
The Company has short-term bank loan facilities as follows:
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"). The obligations of the
borrowers 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. As at May 31, 2004, the full amount of these facilities were
available to be drawn down. ICON Clinical Research, Inc. (a subsidiary of ICON
plc) is entitled to make borrowings under a revolving credit facility of $15
million. As at May 31, 2004, the full amount of this facility was available to
be drawn down.
61
The Company entered into an overdraft agreement with Allied Irish Banks, plc
("AIB") whereby the company guarantees any overdraft of the subsidiary ICON
Clinical Research GmbH up to an amount (euro)120,000 (U.S.$146,604). As of May
31, 2004, the full facility was available to be drawn down.
The Company also entered into an overdraft agreement with AIB, whereby the
company guaranteed any overdraft of the subsidiary ICON Clinical Research Israel
Ltd. up to an amount of U.S.$250,000. This facility was terminated on April 20,
2004.
On November 17, 1998, the Company entered into an overdraft facility (the "AIB
facility") for (euro)2,539,000 ($3,101,896) with AIB. This facility bore an
annual interest rate equal to AIB Bank's Prime Rate plus one-quarter of one
percent. The full sum of the unpaid principal and interest was repayable on
demand. This facility was terminated on July 3, 2003.
On July 29, 2002, the Company entered into an additional AIB facility for
Stg(pound)50,000 ($91,664) This facility bore interest at an annual rate equal
to AIB Bank's Prime Rate plus two percent. The full sum of the unpaid principal
and interest was repayable on demand. This facility was terminated on July 3,
2003.
Our U.S. subsidiary, ICON Clinical Research, Inc. (the "Borrower"), had a $12
million secured line of credit (the "PNC Facility") with PNC Bank N.A.
("P.N.C."). The PNC Facility bore interest at an annual rate equal to PNC's
Prime Rate less three-quarters of one percent. The full sum of the unpaid
principal and interest was payable on demand. The PNC Facility was secured by a
first priority security interest in certain assets of the Borrower. This
facility was terminated on July 3, 2003.
8. Employee Benefits
Certain Company employees are eligible to participate in a defined contribution
plan (the "Plan"). Participants in the Plan may elect to defer a portion of
their pre-tax earnings into a pension plan, which is run by an independent
party. The Company matches each participant's contributions up to 6% of the
participant's annual compensation. Contributions to this plan are recorded, as
expense in the Consolidated Statement of Operations. Contributions for the years
ended May 31, 2002, 2003 and 2004 were U.S.$1,265,000, and U.S.$1,649,793, and
U.S.$2,297,928 respectively.
The Company's United States operations maintain a retirement plan (the "U.S.
Plan") that qualifies as a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a
portion of their pre-tax earnings, up to the Internal Revenue Service annual
contribution limit. The Company matches 50% of each participant's contributions,
each participant can contribute up to 6% of their annual compensation.
Contributions to this U.S. Plan are recorded, in the year contributed, as an
expense in the Consolidated Statement of Operations. Contributions for the years
ended May 31, 2002, 2003 and 2004 were U.S.$ 1,320,000, U.S.$ 1,811,156, and
U.S.$2,389,757 respectively.
One of the Company's subsidiaries which was acquired during the 2003 fiscal
year, Medeval Group Limited, operates a defined benefit pension plan in the
United Kingdom for its employees. The plan is managed externally and the related
pension costs and liabilities are assessed in accordance with the advice of a
professionally qualified actuary. Plan assets at May 31, 2003 and 2004 consist
of units held in independently administered funds. The pension costs of this
plan are presented in the following tables in accordance with the requirements
of SFAS No.132(R), "Employees' Disclosures about Pensions and Other
Post-retirement Benefits".
62
Change in benefit obligation May 31, 2003 May 31, 2004
(in thousands)
Benefit obligation at acquisition date/ beginning of year $6,759 $7,207
Service cost 186 714
Interest cost 127 388
Plan participants' contributions 96 267
Benefits paid - (62)
Actuarial loss (22) (385)
Foreign currency exchange rate changes 61 927
- ----------------------------------------------------------- ---------------------- ------------------
Benefit obligation at end of year $7,207 $9,056
- ----------------------------------------------------------- ---------------------- ------------------
Change in plan assets May 31, 2003 May 31, 2004
(in thousands)
Fair value of plan assets at acquisition date/ beginning
of year $4,171 $4,378
Actual return on plan assets (148) 291
Employer contributions 221 657
Plan participants' contributions 96 267
Benefits paid - (62)
Foreign currency exchange rate changes 38 598
- ----------------------------------------------------------- ---------------------- ------------------
Fair value of plan assets at end of year $4,378 $6,129
- ----------------------------------------------------------- ---------------------- ------------------
Funded status May 31, 2003 May 31, 2004
(in thousands)
Funded status $(2,829) $(2,927)
Unrecognized net gain/(loss) 197 (110)
- ----------------------------------------------------------- ---------------------- ------------------
Pension liability $(2,632) $(3,037)
- ----------------------------------------------------------- ---------------------- ------------------
The net periodic pension cost was comprised of the May 31, 2003 May 31, 2004
following: (in thousands)
Service cost $186 $714
Interest cost 127 388
Expected return on plan assets (99) (329)
- ----------------------------------------------------------- ---------------------- ------------------
Net periodic pension costs $214 $773
- ----------------------------------------------------------- ---------------------- ------------------
The weighted average assumptions used in the calculation of the pension cost
were a discount rate of 5.1% (date of acquisition: 5.25%), an expected return on
plan assets of 6.5% (date of acquisition: 6.50%) and a 3.75% (date of
acquisition: 3.75%) rate of compensation increase.
The assets of the scheme are invested in a unitised with profits policy. The
expected long-term rate of return on assets of 6.5% was calculated as the value
of the unitised with profits fund after application of a market value reduction
factor. The underlying asset split of the fund is shown below.
63
Asset Category May 31, 2003 May 31, 2004
Equity 31% 29%
Bonds 48% 50%
Property 17% 18%
Cash/ other 4% 3%
- ------------------------------------- ---------------------- ------------------
100.0% 100.0%
- ------------------------------------- ---------------------- ------------------
Weighted average assumptions to determine benefit
obligation
May 31, 2003 May 31, 2004
Discount rate 5.25% 5.1%
Rate of compensation increase 3.75% 4.5%
- ------------------------------------- ----------------------- ------------------
The accumulated benefit obligation for all defined pension plans was $9.1
million at May 31, 2004 (2003: $7.2 million). With effect from July 1, 2003, the
scheme was closed to new entrants. The company expects to contribute $0.75
million to its pension fund in fiscal 2005.
64
9. Share Options
On January 17, 2003, the Company adopted the Share Option Plan 2003 (the "2003
Plan") pursuant to which the Compensation Committee of the Board 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 1.5 million ordinary shares have been reserved under the 2003
Plan; and, 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 100,000
ordinary shares.
No options can be granted after January 17, 2013.
The following table summarizes the transactions for the Company's share option
plans for the three year period ended May 31, 2004:
Options
Granted Weighted
Prior to Options Granted Number of Average
Jan 15, 1998 Under Plans Shares Exercise Price
Outstanding at May 31, 2001 502,660 740,760 1,243,420 $11.45
Granted - 223,540 223,540 $28.57
Exercised (210,630) (147,470) (358,100) $7.47
Canceled - (89,240) (89,240) $19.96
----------------------------------- ------------------- ------------------------- ------------------ ----------------
Outstanding at May 31, 2002 292,030 727,590 1,019,620 $15.85
----------------------------------- ------------------- ------------------------- ------------------ ----------------
Granted - 283,445 283,445 $27.96
Exercised - (39,360) (39,360) $18.51
Canceled - (78,060) (78,060) $22.22
----------------------------------- ------------------- ------------------------- ------------------ ----------------
Outstanding at May 31, 2003 292,030 893,615 1,185,645 $18.24
----------------------------------- ------------------- ------------------------- ------------------ ----------------
Granted - 372,926 372,926 $35.53
Exercised (244,960) (251,959) (496,919) $10.78
Canceled - (68,080) (68,080) $26.51
----------------------------------- ------------------- ------------------------- ------------------ ----------------
Outstanding at May 31, 2004 47,070 946,502 993,572 $27.90
----------------------------------- ------------------- ------------------------- ------------------ ----------------
None of the share option grants summarized in the above table resulted in
compensation expense as the option exercise price was equal to or greater than
the estimated fair value of ordinary shares on the date of the grant.
65
The following table summarizes information concerning outstanding and
exercisable share options as of May 31, 2004:
Options Outstanding Options Exercisable
Weighted
Weighted Weighted
Range Average Weighted
Exercise Number of Remaining Average Number of
Price Shares Contractual Life Exerciee Price Shares Exercise Price
$0.07 47,070 2.5 $0.07 47,070 $0.07
$15.63 7,000 4.0 $15.63 2,000 $15.63
$17.00 1,600 4.0 $17.00 - $17.00
$18.00 109,240 3.0 $18.00 87,110 $18.00
$21.25 70,460 5.0 $21.25 26,220 $21.25
$23.80 8,000 5.0 $23.80 4,800 $23.80
$26.50 8,000 5.5 $26.50 2,000 $26.50
$27.39 4,000 4.0 $27.39 3,000 $27.39
$29.00 136,760 5.6 $29.00 44,060 $29.00
$28.00 238,666 6.5 $28.00 40,070 $28.00
$42.71 1,798 7.4 $42.71 1,798 $42.71
$35.50 360,978 7.7 $35.50 11,500 $35.50
------------------- -------------------- -------------------- -------------------- -------------------- --------------------
$0.07 - 42.71 993,572 6.1 $27.83 269,628 $19.63
------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Substantially all of the options granted at exercise prices from $15.63 to
$42.71 vest over a five year period from the date of grant. All other options
have fully vested as of May 31, 2004.
The weighted average fair value of stock options granted during fiscal 2002,
calculated using the Black-Scholes option pricing model, was $16.07 using the
following assumptions; expected dividend yield - 0%, risk free interest rate -
5.57%, expected volatility - 50% and expected life - 8 years.
The weighted average fair value of stock options granted during fiscal 2003,
calculated using the Black-Scholes option pricing model, was $15.84 using the
following assumptions; expected dividend yield - 0%, risk free interest rate -
3.39%, expected volatility - 50% and expected life - 8 years.
The weighted average fair value of stock options granted during fiscal 2004,
calculated using the Black-Scholes option pricing model, was $24.58 using the
following assumptions; expected dividend yield - 0%, risk free interest rate -
4.87%, expected volatility - 50% and expected life - 8 years.
Had the Company determined compensation expense based on the fair value at the
grant date for these options under SFAS No.123, "Accounting for Stock-Based
Compensation", the Company's net income for fiscal 2002, 2003 and 2004 would
have been reduced to the pro-forma amounts indicated below.
2002 2003 2004
(in thousands, except per share data)
Net Income as reported $14,200 $18,283 25,742
pro-forma 12,591 16,187 23,384
Net Income per ordinary share
Basic as reported $1.22 $1.55 $1.94
pro-forma 1.08 1.37 1.76
Diluted as reported 1.16 1.50 1.88
pro-forma 1.03 1.33 1.71
66
10. Government Grants
May 31,
2003 2004
(in thousands)
Received and receivable $1,280 $2,225
Less accumulated amortization (280) (849)
Foreign exchange translation adjustment 174 230
---------------------------------------------------- -------------------
1,174 1,606
Less current portion (34) (195)
---------------------------------------------------- -------------------
$1,140 $1,411
---------------------------------------------------- -------------------
Government grants amortized to the profit and loss account amounted to
U.S.$46,000, U.S.$36,000 and U.S.$569,000 for the years ended May 31, 2002, 2003
and 2004, respectively.
As of May 31, 2004 the Company had U.S.$1,351,000 in restricted retained
earnings, pursuant to the terms of the grant agreements.
11. Share Capital
Ordinary Shares
Holders of ordinary shares will be entitled to receive such dividends as may be
recommended by the board of directors of the Company and approved by the
shareholders and/or such interim dividends as the board of directors of the
Company may decide. On liquidation or a winding up of the Company, the par value
of the ordinary shares will be repaid out of the assets available for
distribution among the holders of the Company's ADSs and ordinary shares not
otherwise represented by ADRs. Holders of ordinary shares have no conversion or
redemption rights. On a show of hands, every holder of an ordinary share present
in person at a general meeting of shareholders, and every proxy, shall have one
vote, for each ordinary share held with no individual having more than one vote.
On November 22, 2000, the ordinary share capital of the Company was
redenominated from IR5p per share to (euro)0.06 per share. The renominalization
generated a capital conversion reserve fund of (euro)39,499 (U.S.$47,277) which
was recorded within additional paid in capital.
On January 28, 2000, the Company merged with Pacific Research Associates Inc.
("PRAI") in a transaction accounted for as a pooling-of-interests transaction.
The Company issued 838,828 ordinary shares of (euro)0.06 each to PRAI
shareholders for this transaction. These shares have been treated as outstanding
for all periods presented.
On January 27, 2000, the Company acquired YRCR for cash and shares. The Company
issued 51,387 ordinary shares of (euro)0.06 each to YRCR shareholders for this
transaction. At May 31, 2000, pursuant to an earn-out clause contained in the
purchase agreement with YRCR, a further 24,272 ordinary shares of (euro)0.06
each were issued to the YRCR shareholders and on August 31, 2001, a further
10,772 ordinary shares of (euro)0.06 were issued. On October 8, 2002, a further
3,696 ordinary shares of (euro)0.06 were issued (see note 4).
During the year to May 31, 2002, a further 358,100 options were exercised by
employees at an average exercise price of U.S.$7.47 per share.
During the year to May 31, 2003, a further 39,360 options were exercised by
employees at an average exercise price of U.S.$18.51 per share for total
proceeds of U.S.$728,554.
67
During the year to May 31, 2004, a further 496,919 options were exercised by
employees at an average exercise price of U.S.$10.78 per share for total
proceeds of U.S.$5,357,787.
On August 8, 2003 the Company issued 1,500,000 ordinary shares in a public
offering at $30.47 (net of underwriting discount) per share. The proceeds of
this offering were U.S.$44.3 million (after deducting U.S.$1.4 million in
costs).
68
12. Income Taxes
The U.S. based and Irish-based subsidiaries file tax returns in the United
States and Ireland, respectively. The other foreign subsidiaries are taxed
separately under the laws of their respective countries.
The components of income before provision for income tax expense are as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Ireland $7,702 $6,556 $12,674
Other 11,627 18,727 21,997
--------------------------------------------------------- ------------- ----------------- ------------------
Income before provision for income taxes $19,329 $25,283 $34,671
--------------------------------------------------------- ------------- ----------------- ------------------
The components of total income tax expense are as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Provision for income taxes
Current:
Ireland $1,164 $1,158 $1,365
United States 3,684 4,334 3,339
Other 262 1,132 3,209
--------------------------------------------------------- ------------- ----------------- ------------------
5,110 6,624 7,913
Deferred expenses/(benefit):
Ireland - 31 -
United States 19 345 1,016
--------------------------------------------------------- ------------- ----------------- ------------------
Provision for income taxes 5,129 7,000 8,929
Shareholders' equity for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes (792) (48) (2,276)
--------------------------------------------------------- ------------- ----------------- ------------------
Total $4,337 $6,952 $6,653
--------------------------------------------------------- ------------- ----------------- ------------------
69
On January 1,2001, Ireland's statutory income tax rate decreased from 24% to
20%, on January 1, 2002 from 20% to 16% and on January 1, 2003, from 16% to
12.5%. Certain activities carried out by the Irish company, principally data
processing services, are taxed at a reduced rate of 10%. The Company's
consolidated effective tax rate differed from the blended statutory rate as set
forth below;
Year Ended May 31,
2002 2003 2004
(in thousands)
Taxes at Irish statutory rate of 12.50% (14.54% in
2003; 18.33% in 2002) $3,543 $3,676 $4,334
Foreign and other income taxed at higher/(reduced) rates
589 1,874 3,333
United States state tax net of United States Federal
benefit 468 556 403
Movement in valuation allowance (127) 374 1,445
Current year under-provision in respect of foreign taxes - - (547)
Reversal of prior year over-provision in respect of - - (444)
foreign taxes
Non deductible expenses 161 35 531
Other 495 485 (126)
--------------------------------------------------------- ------------- ----------------- ------------------
Total provision for income taxes $5,129 $7,000 $8,929
--------------------------------------------------------- ------------- ----------------- ------------------
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are presented below:
Year Ended May 31,
2003 2004
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $764 $2,180
Goodwill and related assets 828 1,023
Other 172 -
------------------------------------------------ ------------- -------------------
Total deferred tax liabilities 1,764 3,203
Deferred tax assets:
Net operating loss carryforwards 2,292 3,880
Accrued expenses and payments on account 946 1,565
Deferred compensation expense 474 166
------------------------------------------------ ------------- -------------------
Total deferred tax assets 3,712 5,611
Valuation allowance for deferred tax assets (1,916) (3,361)
------------------------------------------------ ------------- -------------------
Deferred tax assets recognized $1,796 $2,250
------------------------------------------------ ------------- -------------------
Net deferred tax asset / (liability) $32 $(953)
------------------------------------------------ ------------- -------------------
70
U.S.$566,000 of the deferred tax asset of U.S.$2,250,000 above is non-current.
This amount has been offset against the deferred tax liabilities of
U.S.$3,203,000 above (all of which are non-current) resulting in a net
non-current deferred tax liability of U.S.$2,637,000 and a net current deferred
tax asset of U.S.$1,684,000.
At May 31, 2004, European subsidiaries had operating loss carryforwards for
income tax purposes that may be carried forward indefinitely, available to
offset against future taxable income, if any, of approximately U.S.$5.0 million
At May 31, 2004, a U.S. subsidiary had a net operating loss carryforwards for
U.S. Federal and State income tax purposes, available to offset against future
taxable income if any of approximately U.S.$5.8 million for U.S. Federal and
U.S.$7.2 million for State income tax, which expire between 2009 and 2024.
Of the U.S.$5.8 million U.S. Federal and U.S.$7.2 million State net operating
losses, approximately U.S.$4.0 million and U.S.$5.7 million respectively will be
available for offset against future taxable income, if any, of future accounting
periods. The subsidiary's ability to use the remaining net operating loss
carryforward of U.S.$1.8 million for Federal and U.S.$1.5 million for State
taxes is limited to U.S.$113,000 per year due to the subsidiary experiencing a
change of ownership in 2000, as defined by Section 382 of the Internal Revenue
Code of 1986, as amended.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
provided a valuation allowance for the years ended May 31, 2004 and 2003 of
U.S.$3,361,000 and U.S.$1,916,000 respectively. This valuation allowance is
based on management's belief that it is more likely than not that the European
and US entities' losses and other deferred tax assets will not be utilized given
their history of operating losses. The valuation allowance was U.S.$1.8 million
as of June 1, 2001 and decreased by U.S.$184,000 for year ended May 31, 2002 and
increased by U.S.$298,000 and U.S.$1.4 million for the years ended 31 May 2003
and 2004 respectively.
Subsequent recognized tax benefits relating to the valuation allowance for
deferred tax assets in the amount of U.S.$800,000 as of May 31, 2004 will be
allocated to goodwill and other non-current intangible assets.
13. Significant Concentrations
The Company does business with most major international pharmaceutical companies
(see note 15). The Company provided $355,000 during the year ended May 31, 2004
for doubtful debts.
14. Commitments and Contingencies
The Company is not party to any litigation or other legal proceedings that the
Company believes could reasonably be expected to have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company has several non-cancelable operating leases, primarily for
facilities, that expire over the next 10 years. These leases generally contain
renewal options and require the Company to pay all executory costs such as
maintenance and insurance. The Company paid U.S.$10,963,000, U.S.$15,743,000 and
U.S.$22,179,000 in rental expense for the fiscal years ended May 31, 2002, 2003
and 2004, respectively. Future minimum rental commitments for operating leases
with non-cancelable terms in excess of one year are as follows:
Minimum rental payments
(in thousands)
2005 $21,845
2006 19,049
2007 14,698
2008 13,364
2009 12,949
Thereafter $65,998
----------------------- -----------------------------------
71
The Company has a number of finance leases, primarily over furniture and
equipment, that expire over the next four years. Future commitments are as
follows:
Lease payments
(in thousands)
2005 $310
2006 109
2007 64
2008 27
Thereafter 3
Less future finance charges (94)
The Company made a number of acquisitions in recent years with earn-out
provisions built into the purchase contracts, which may require cash payments of
U.S.$2,506,000 to be made during fiscal 2005.
72
15. Business Segment Information
The Company operates predominantly in the contract clinical research industry
providing a broad range of clinical research and integrated product development
services on a global basis for the pharmaceutical and biotechnology industries.
On June 8, 2000, the Company acquired for cash UCT (U.S.), Inc. ("UCT"),
subsequently renamed ICON Laboratories Inc., a central laboratory company based
in New York, USA. This, together with laboratory services based in Dublin, form
the central laboratory information disclosed below.
The Company's areas of operation outside of Ireland principally include the
United Kingdom, United States, Germany, Australia, Argentina, France, Japan,
Israel, Singapore, Canada, Sweden, The Netherlands, Latvia, South Africa and
India. Segment information for the fiscal years ended May 31, 2002, 2003 and
2004 is as follows:
a) The distribution of net revenue by geographical area was as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Ireland* $20,406 $26,293 $35,109
Rest of Europe 24,605 34,727 65,930
U.S. 107,520 158,707 185,301
Other 4,024 5,998 10,583
------------------- -------------- ----------------- ------------------
Total $156,555 $225,725 $296,923
------------------- -------------- ----------------- ------------------
* All sales shown for Ireland are export sales.
b) The distribution of net revenue by business segment was as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Central laboratory $25,887 $26,168 $26,905
Clinical research 130,668 199,557 270,018
------------------------ ------------- ----------------- ----------------
Total $156,555 $225,725 $296,923
------------------------ ------------- ----------------- ----------------
c) The distribution of income from operations by geographical area was as
follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Ireland $7,706 $6,532 $9,363
Rest of Europe (3,397) 1,192 10,209
U.S. 13,398 17,091 13,023
Other 506 114 1,788
------------------ ----------------- ----------------- ------------------
Total $18,213 $24,929 $34,383
------------------ ------------------ ----------------- -----------------
73
d) The distribution of income from operations by business segment was as
follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Central laboratory $3,660 $115 ($3,274)
Clinical research 14,553 24,814 37,657
----------------------- ------------- ----------------- -----------------
Total $18,213 $24,929 $34,383
----------------------- ------------- ----------------- -----------------
e) The distribution of property, plant and equipment, net, by
geographical area was as follows:
Year Ended May 31,
2003 2004
(in thousands)
Ireland $17,003 $18,799
Rest of Europe 6,316 7,202
U.S. 15,066 15,935
Other 1,118 1,000
-------------------- ------------------- ------------------
Total $39,503 $42,936
-------------------- ------------------- ------------------
f) The distribution of property, plant and equipment, net, by business
segment was as follows:
Year Ended May 31,
2003 2004
(in thousands)
Central laboratory $3,560 $3,989
Clinical research 35,943 38,947
-------------------------- ------------------ ------------------
Total $39,503 $42,936
-------------------------- ------------------ ------------------
g) The distribution of depreciation by geographical area was as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Ireland $1,302 $2,330 $3,710
Rest of Europe 975 1,138 1,842
U.S. 3,513 3,535 5,271
Other 230 302 348
------------------ ---------- ----------------- ------------------
Total $6,020 $7,305 $11,171
------------------ ---------- ----------------- ------------------
74
h) The distribution of depreciation by business segment was as follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Central laboratory $591 $732 $1,014
Clinical research 5,429 6,573 10,157
----------------------- ------------- ----------------- -----------------
Total $6,020 $7,305 $11,171
----------------------- ------------- ----------------- -----------------
i) The distribution of total assets by geographical area was as follows:
Year Ended May 31,
2003 2004
(in thousands)
Ireland $59,838 $76,165
Rest of Europe 60,982 115,056
U.S. 110,602 141,104
Other 3,592 2,998
---------------------------- ----------------- ----------------
Total $235,014 $335,323
---------------------------- ----------------- ----------------
j) The distribution of total assets by business segment was as follows:
Year Ended May 31,
2003 2004
(in thousands)
Central laboratory $19,175 $20,343
Clinical research 215,839 314,980
------------------------ ----------------- ----------------
Total $235,014 $335,323
------------------------ ----------------- ----------------
k) The distribution of capital expenditures by geographical area was as
follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Ireland $3,158 $6,375 $4,812
Rest of Europe 2,563 1,686 2,167
U.S. 4,938 7,274 5,826
Other 291 658 160
------------------ ------------- ----------------- ------------------
Total $10,950 $15,993 $12,965
------------------ ------------- ----------------- ------------------
75
l) The distribution of capital expenditures by business segment was as
follows:
Year Ended May 31,
2002 2003 2004
(in thousands)
Central laboratory $1,965 $1,520 $1,552
Clinical research 8,985 14,473 11,413
----------------------- ---------------- ----------------- --------------
Total $10,950 $15,993 $12,965
----------------------- ---------------- ----------------- --------------
m) The following table sets forth the clients which represented 10% or
more of the Company's net revenue in each of the periods set out
below.
Year Ended May 31,
2002 2003 2004
Client A 14% 10% *
Client B 16% 21% 17%
Client C 13% * *
Client D * 11% *
* Net Revenue did not exceed 10%
16. Supplemental Disclosure of Cash Flow Information
Year Ended May 31,
2002 2003 2004
(in thousands)
Cash paid for interest $462 $279 $202
------------------------------------------- ----------------- -----------
Cash paid for income taxes $2,514 $7,186 $5,731
------------------------------------------- ----------------- -----------
17. New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46, revised--Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN 46R"). FIN
46R addresses the consolidation of variable interest entities ("VIEs"), which
include entities that have one or more of the following characteristics: (1) The
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support; (2) The equity
investors lack essential characteristics of a controlling financial interest (as
defined by FIN 46R); and (3) The equity investors have voting rights that are
not proportionate to their economic interests, and the activities of the entity
involve or are conducted on behalf of an investor with a disproportionally small
voting interest. In addition, FIN 46R provides for certain scope exceptions to
its application. Adoption of this Interpretation is required in financial
statements that have interests in VIEs or potential VIEs, commonly referred to
as special-purpose entities, for periods ending after 15 December 2003.
Application for all other types of entities is required in financial statements
for periods ending after 15 March 2004. The adoption of FIN 46R has not had a
material impact on the Company's Consolidated Financial Statements.
On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. Statement 149 has
76
multiple effective date provisions depending on the nature of the amendment to
Statement 133. Under SFAS No. 133, the Company's foreign exchange contracts do
not qualify for hedge accounting treatment. The impact of adopting Statement 149
did not have a significant impact on our financial statements.
On May 15, 2003, the FASB issued FASB Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for certain mandatorily redeemable
financial instruments. It is to be implemented by reporting the cumulative
effect of a change in an accounting principle for financial instruments created
before the issuance date of the Statement and still existing at the beginning of
the interim period of adoption. Restatement is not permitted. The adoption of
SFAS No.150 did not have a significant impact on our financial statements.
The Emerging Issues Task Force (EITF) has reached a final consensus on EITF
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. This Issue
addresses certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities, specifically how
to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. The Issue also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. The guidance in this Issue is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003, with a possible alternative means of adoption by applying the new rules to
existing contracts and recording the effect of adoption as a cumulative effect
of a change in accounting principle. Early adoption is permitted. We adopted
EITF Issue No. 00-21 on June 1, 2003. The adoptions of EITF Issue No. 00-21did
not have a significant impact on our financial statements.
18. Related Parties
On February 6, 1998, ICON entered into an Option Agreement ("The Put Option")
with Rosa Investment Limited ("Rosa"). Rosa's sole activity was to hold an
investment in Clear Investments Limited ("Clear"), the sole activity of which
was to hold Mr. Gray's option to exercise 54,000 ordinary shares. Mr. Gray is a
director of Rosa and Clear. Rosa is owned by a trust of which Mr. Gray is a
beneficiary. On the April 21, 2004, Mr. Gray subsequently acquired Clear from
Rosa and exercised the Put Option in accordance with the terms of the Option
Agreement. On April 22, 2004, pursuant to the Option Agreement, ICON purchased
the outstanding share capital in Clear from Mr. Gray, the consideration for the
acquisition being the issuance of 54,000 fully paid up ordinary shares in ICON,
to Mr. Gray, such a sale being the economic equivalent of Mr. Gray exercising
his stock options.
77
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned thereunto duly authorized.
ICON public limited company
July 23, 2004 /s/ Sean Leech
- ---------------------------- ----------------------------
Date Sean Leech
Chief Financial Officer
78
Certification of Chief Executive Officer
Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
I, Peter Gray, certify that:
1. I have reviewed this annual report on Form 20-F of ICON plc ("the
registrant").
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Dated: August 30, 2004
/s/ Peter Gray
- ---------------------------
Peter Gray
Chief Executive Officer
79
Certification of Chief Financial Officer
Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
I, Sean Leech, certify that:
1. I have reviewed this annual report on Form 20-F of ICON plc ("the
registrant").
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Dated: August 30, 2004
/s/ Sean Leech
- ---------------------------
Sean Leech
Chief Financial Officer
80
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ICON plc (the "Company") on Form 20-F
for the period ending May 31, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Peter Gray, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: August 30, 2004
/s/ Peter Gray
- -----------------------
Peter Gray
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
63 of title 18, United States Code) and is not being filed as part of the report
or as a separate disclosure document. A signed original of this written
statement required by section 906 has been provided to ICON plc and will be
retained by ICON plc and furnished to the Securities and Exchange Commission or
its staff upon request.
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ICON plc (the "Company") on Form 20-F
for the period ending May 31, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Sean Leech, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: August 30, 2004
/s/ Sean Leech
- -----------------------
Sean Leech
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
63 of title 18, United States Code) and is not being filed as part of the report
or as a separate disclosure document. A signed original of this written
statement required by section 906 has been provided to ICON plc and will be
retained by ICON plc and furnished to the Securities and Exchange Commission or
its staff upon request.
81
