FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Report
of Foreign Private Issuer
Pursuant
to Rule 13a - 16 under
the
Securities Exchange Act of 1934
For
the
quarterly period ended November 30, 2005
ICON
plc
(Registrant’s
name)
0-29714
(Commission
file number)
South
County Business Park, Leopardstown, Dublin 18, Ireland.
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F.
Yes___X___ No_______
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
Yes______ No___X___
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
Yes______ No___X___
Indicate
by check mark whether the registrant by furnishing the information contained
in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes_______ No___X___
If
“Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82 N/A
ICON
plc
Quarterly
Period Ended November 30, 2005
|
CONTENTS
|
Page
|
|
General
|
1
|
|
Condensed
Consolidated Balance Sheets as at
November
30, 2005 and May 31, 2005
|
2
|
|
Condensed
Consolidated Statements of Operations for
the
three and six months ended November 30, 2005 and 2004
|
3
|
|
Condensed
Consolidated Statements of Cash Flows for
the
six months ended November 30, 2005 and 2004
|
4
|
|
Condensed
Consolidated Statements of Shareholders’
Equity
and Comprehensive Income
|
5
|
|
Notes
to the Condensed Consolidated Financial Statements
|
6
|
|
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
|
11
|
|
Signature
Page
|
17
|
ICON
plc
GENERAL
As
used
herein, “ICON”, the “Company” and “we” refer to ICON plc and its consolidated
subsidiaries, unless the context requires otherwise.
Business
We
are a
contract research organization, or CRO, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology
and
medical device industries. Our focus is on supporting the conduct of clinical
trials. We have historically done so by providing such services as Phase
I - IV
clinical trials management, study design, laboratory services and drug
development support. We believe that we are one of a select group of CROs
with
the capability and expertise to conduct clinical trials in most major
therapeutic areas on a global basis. We
have
approximately 3,000 employees
worldwide, with operations in 39 locations in 25 countries, including the
United
States and major markets in Europe and Rest of World and have managed clinical
trials in over 55 countries. For the six months ended November 30, 2005,
we
derived approximately 57.1%,
35.2%, and 7.7% of
our
net revenue in the United States, Europe and Rest of World, respectively.
Headquartered
in Dublin, Ireland, we began operations in 1990 and have expanded our business
through internal growth and strategic acquisitions.
On
July
27, 2005 the Board of Directors of the Company approved a change of the
Company’s fiscal year end from a twelve-month period ending on May 31 to a
twelve-month period ending on December 31. The Company is making this change
in
order to align its fiscal year end with the majority of other contract research
organizations. As a requirement of this change, the Company will report results
for the seven-month period from June 1, 2005 to December 31, 2005 as a separate
transition period in a Transition Report filed on Form 20-F. Going forward,
the
Company’s fiscal quarters will end on the last day of March, June, September and
December of each year.
1
ICON
plc
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
AT NOVEMBER 30, 2005 AND MAY 31, 2005
|
(Unaudited)
|
(Audited) | |||||
| November 30, | November 30, | |||||
| 2005 | 2005 | |||||
|
(in thousands)
|
||||||
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
56,430
|
|
$
|
56,341
|
|
|
Short
term investments - available for sale
|
|
|
25,812
|
|
|
22,034
|
|
|
Accounts
receivable
|
|
|
63,727
|
|
|
80,486
|
|
|
Unbilled
revenue
|
|
|
75,589
|
|
|
56,762
|
|
|
Other
receivables
|
|
|
6,079
|
|
|
5,662
|
|
|
Deferred
tax asset
|
|
|
2,637
|
|
|
2,637
|
|
|
Prepayments
and other current assets
|
|
|
11,093
|
|
|
10,717
|
|
|
Total
current assets
|
|
|
241,367
|
|
|
234,639
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
47,616
|
|
|
45,286
|
|
|
Goodwill
|
|
|
65,763
|
|
|
67,440
|
|
|
Intangible
assets
|
|
|
126
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
354,872
|
|
$
|
347,553
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
7,962
|
|
$
|
10,379
|
|
|
Payments
on account
|
|
|
50,926
|
|
|
52,583
|
|
|
Other
liabilities
|
|
|
37,912
|
|
|
39,890
|
|
|
Deferred
tax liability
|
|
|
310
|
|
|
310
|
|
|
Bank
creditlines and loan facilities
|
|
|
3,000
|
|
|
-
|
|
|
Income
taxes payable
|
|
|
7,851
|
|
|
6,189
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
107,961
|
|
|
109,351
|
|
|
Other
Liabilities:
|
|
|
|
|
|
|
|
|
Long
term government grants
|
|
|
1,073
|
|
|
1,257
|
|
|
Long
term finance leases
|
|
|
165
|
|
|
248
|
|
|
Non-current
deferred tax liability
|
|
|
2,840
|
|
|
2,747
|
|
|
Minority
interest
|
|
|
874
|
|
|
884
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
Ordinary
shares, par value
6
euro cents
per share; 20,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
14,017,012
shares issued and outstanding at November 30, 2005 and
|
|
|
|
|
|
|
|
|
13,899,096
shares
issued and outstanding at May 31, 2005
|
|
|
993
|
|
|
985
|
|
|
Additional
paid-in capital
|
|
|
116,296
|
|
|
114,447
|
|
|
Accumulated
other comprehensive income
|
|
|
4,929
|
|
|
11,229
|
|
|
Merger
reserve
|
|
|
47
|
|
|
47
|
|
|
Retained
earnings
|
|
|
119,694
|
|
|
106,358
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
241,959
|
|
|
233,066
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
354,872
|
|
$
|
347,553
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2005 AND 2004
(UNAUDITED)
|
Three
Months Ended
|
Six
Months Ended
|
|
November
|
November
|
November
|
November
|
|
30
|
30
|
30
|
30
|
|
2005
|
2004
|
2005
|
2004
|
|
(in
thousands except share and per share
data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross
revenue
|
$
|
120,344
|
|
$
|
117,068
|
|
|
|
|
$
|
235,696
|
|
|
|
|
$
|
234,263
|
|
||||
|
Subcontractor
costs
|
|
(32,272
|
)
|
|
(37,573
|
)
|
|
|
|
|
(61,703
|
)
|
|
|
|
|
(76,429
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net
revenue
|
|
88,072
|
|
|
79,495
|
|
|
|
|
|
173,993
|
|
|
|
|
|
157,834
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Direct
costs
|
|
48,721
|
|
|
43,671
|
|
|
|
|
|
96,031
|
|
|
|
|
|
86,124
|
|
||||
|
Selling,
general and administrative expense
|
|
26,824
|
|
|
25,520
|
|
|
|
|
|
53,633
|
|
|
|
|
|
48,859
|
|
||||
|
Depreciation
and amortization
|
|
3,509
|
|
|
3,296
|
|
|
|
|
|
6,943
|
|
|
|
|
|
6,358
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
costs and expenses
|
|
79,054
|
|
|
72,487
|
|
|
|
|
|
156,607
|
|
|
|
|
|
141,341
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income
from operations
|
|
9,018
|
|
|
7,008
|
|
|
|
|
|
17,386
|
|
|
|
|
|
16,493
|
|
||||
|
Interest
income
|
|
622
|
|
|
270
|
|
|
|
|
|
1,049
|
|
|
|
|
|
467
|
|
||||
|
Interest
expense
|
|
(19
|
)
|
|
(91
|
)
|
|
|
|
|
(31
|
)
|
|
|
|
|
(124
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income
before provision for income taxes
|
|
9,621
|
|
|
7,187
|
|
|
|
|
|
18,404
|
|
|
|
|
|
16,836
|
|
||||
|
Provision
for income taxes
|
|
(2,618
|
)
|
|
(1,310
|
)
|
|
|
|
|
(5,077
|
)
|
|
|
|
|
(3,632
|
)
|
||||
|
Minority
interest
|
|
(50
|
)
|
|
(58
|
)
|
|
|
|
|
9
|
|
|
|
|
|
(80
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net
income
|
$
|
6,953
|
|
$
|
5,819
|
|
|
|
|
$
|
13,336
|
|
|
|
|
$
|
13,124
|
|
||||
|
Net
income per Ordinary Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic
|
$
|
0.50
|
|
$
|
0.42
|
|
|
|
|
$
|
0.95
|
|
|
|
|
$
|
0.95
|
|
||||
|
Diluted
|
$
|
0.49
|
|
$
|
0.41
|
|
|
|
|
$
|
0.94
|
|
|
|
|
$
|
0.93
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted
average number of Ordinary Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic
|
|
14,005,454
|
|
13,847,689
|
|
14,027,564
|
13,839,857
|
|||||||||||||||
|
Diluted
|
|
14,261,734
|
|
14,067,079
|
|
14,234,326
|
14,088,030
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED NOVEMBER 30, 2005 AND 2004
(UNAUDITED)
|
Six
Months Ended
|
|
|
November
30,
|
November
30,
|
|
2005
|
2004
|
|
(in
thousands)
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
||||||||||||
|
Net
income
|
|
|
|
$13,336
|
$
|
13,124
|
|
||||||||||||
|
Adjustments
to reconcile net income to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
||||||||||||
|
Gain
on disposal of property, plant and equipment
|
|
|
|
2
|
|
46
|
|
||||||||||||
|
Depreciation
and amortization
|
|
|
|
6,943
|
|
6,358
|
|
||||||||||||
|
Amortization
of grants
|
|
|
|
(96)
|
|
(97
|
)
|
||||||||||||
|
Minority
interest
|
|
|
|
(9)
|
|
80
|
|
||||||||||||
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
||||||||||||
|
Decrease/(increase)
in accounts receivable
|
|
|
|
15,128
|
|
(14,141
|
)
|
||||||||||||
|
Increase
in unbilled revenue
|
|
|
|
(19,313)
|
|
(11,617
|
)
|
||||||||||||
|
(Increase)/decrease
in other receivables
|
|
|
|
(1,239)
|
|
6,115
|
|
||||||||||||
|
(Increase)/decrease
in prepayments and other current assets
|
|
|
|
(719)
|
|
632
|
|
||||||||||||
|
Increase
in payments on account
|
|
|
|
(1,417)
|
|
11,910
|
|
||||||||||||
|
Increase/(decrease)
in other liabilities
|
|
|
|
2,095
|
|
(8,825
|
)
|
||||||||||||
|
Increase
in income taxes payable
|
|
|
|
1,990
|
|
1,999
|
|
||||||||||||
|
Decrease
in accounts payable
|
|
|
|
(2,200)
|
|
(7,587
|
)
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net
cash provided by/(used in) operating activities
|
|
|
|
14,501
|
|
(2,003
|
)
|
||||||||||||
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
||||||||||||
|
Purchase
of property, plant and equipment
|
|
|
|
(11,033)
|
|
(7,491
|
)
|
||||||||||||
|
Purchase
of subsidiary undertakings and acquisition costs.
|
|
|
|
-
|
|
(10,010
|
)
|
||||||||||||
|
Cash
acquired with subsidiary undertakings
|
|
|
|
-
|
|
1,658
|
|
||||||||||||
|
Purchase
of short term investments
|
|
|
|
(11,787)
|
|
(5,960
|
)
|
||||||||||||
|
Sale
of short term investments
|
|
|
|
8,009
|
|
-
|
|
||||||||||||
|
Deferred
payments in respect of prior year acquisitions
|
|
|
|
(3,374)
|
|
(972
|
)
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net
cash used
in investing
activities
|
|
|
|
(18,185)
|
|
(22,775
|
)
|
||||||||||||
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
||||||||||||
|
Proceeds
from bank
creditlines and loan facilities
|
|
|
|
3,000
|
|
10,000
|
|
||||||||||||
|
Proceeds
from exercise of share options
|
|
|
|
1,879
|
|
488
|
|
||||||||||||
|
Share
issuance costs
|
|
|
|
(22)
|
|
(168
|
)
|
||||||||||||
|
Repayment
of other liabilities
|
|
|
|
(83)
|
|
(152
|
)
|
||||||||||||
|
Net
cash provided by financing activities
|
|
|
|
4,774
|
|
10,168
|
|
||||||||||||
|
Effect
of exchange rate movements on cash
|
|
|
|
(1,001)
|
|
907
|
|
||||||||||||
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
|
89
|
|
(13,703
|
)
|
||||||||||||
|
Cash
and cash equivalents at beginning of period
|
|
|
|
56,341
|
|
55,678
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Cash
and cash equivalents at end of period
|
|
|
|
$56,430
|
$
|
41,975
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
|||||||||||||||||||
4
ICON
plc
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(UNAUDITED)
|
Accumulated
|
|||||||
|
Additional
|
Other
|
||||||
|
Paid-in
|
Comprehensive
|
Retained
|
Merger
|
||||
|
Shares
|
Amount
|
Capital
|
Income
|
Earnings
|
Reserve
|
Total
|
|
|
(dollars
in thousands, except share
data)
|
|||||||
|
Balance
at May 31, 2005
|
13,899,096
|
$985
|
$114,447
|
$11,229
|
$106,358
|
$47
|
$233,066
|
|||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
13,336
|
-
|
13,336
|
||||||||||||||||
|
Currency
translation adjustment
|
-
|
-
|
(6,300
|
)
|
-
|
-
|
(6,300
|
)
|
||||||||||||||
|
Total
comprehensive income
|
7,036
|
|||||||||||||||||||||
|
Share
issuance costs
|
-
|
(22
|
)
|
-
|
-
|
-
|
(22
|
)
|
||||||||||||||
|
Exercise
of share options
|
117,916
|
8
|
1,871
|
-
|
-
|
-
|
1,879
|
|||||||||||||||
|
_________
|
____
|
______
|
_______
|
______
|
______
|
______
|
||||||||||||||||
|
Balance
at November 30, 2005
|
14,017,012
|
$
|
993
|
$
|
116,296
|
$
|
4,929
|
$
|
119,694
|
$
|
47
|
$
|
241,959
|
|||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ICON
plc
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER
30, 2005
1.
Basis of Presentation
These
condensed consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles (“US
GAAP”), have not been audited. The condensed consolidated financial statements
reflect all adjustments, which are, in the opinion of management, necessary
to
present a fair statement of the operating results and financial position
for the
periods presented. The preparation of the condensed consolidated financial
statements in conformity with US GAAP requires management to make estimates
and
assumptions that affect reported amounts and disclosures in the condensed
consolidated financial statements. Actual results could differ from those
estimates. There has been no significant change in ICON plc’s accounting
policies from those outlined in ICON’s annual report on Form 20-F for the year
ended May 31, 2005.
Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with the United States generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”). The condensed consolidated
financial statements should be read in conjunction with the accounting policies
and notes to the consolidated financial statements included in ICON’s 2005
annual report on Form 20-F. Operating results for the six months ended November
30, 2005 are not necessarily indicative of the results that may be expected
for
the fiscal period ending December 31, 2005.
2.
Acquisitions
Prior
Period Acquisitions
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£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£4.3 million (U.S.$6.9
million) depending on the performance of Medeval over the period to May 31,
2004. Such additional consideration is accounted for as goodwill.
On
September 30, 2004, cash consideration of Stg£0.54 million (U.S.$0.97 million)
was paid to a number of the former shareholders of Medeval and guaranteed
loan
notes with a value of Stg£1.08 million (U.S.$1.93 million) were issued to the
remaining selling shareholders. At May 31, 2004, Stg£1.37 million (U.S.$2.5
million) of this amount had been provided, therefore an additional Stg£0.253
million (U.S.$0.452 million) was provided in fiscal 2005. These guaranteed
loan
notes had a repayment date of three years from the date of issue but were
exercisable nine months from the date of issue. The guaranteed loan note
holders
issued redemption notices to the Company, which required the Company to redeem
all the guaranteed loan notes on June 30, 2005, in consideration of a cash
payment of Stg£1.08 million (U.S.$1.97 million), the total amount of which was
accrued for at May 31, 2005.
On
September 9, 2003, the Company acquired 100% of the outstanding shares of
Globomax LLC (“GloboMax”), based in Maryland, USA, for an initial cash
consideration of 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.
On
May
31, 2005, an amount of U.S.$1.4 million was accrued as the first earn-out
target
in the acquisition contract was reached on this date. This amount of U.S.$1.4
million was paid to the former shareholders GloboMax on August 31, 2005.
On
July
1, 2004, the Company acquired 70% of the common stock of Beacon Biosciences,
Inc. (“Beacon”), based in Pennsylvania, USA, for an initial cash consideration
of U.S.$9.9 million, excluding costs of acquisition.
6
3.
Goodwill
|
Six
months ended
|
Year
ended
|
||
|
November
30,
|
May
31,
|
||
|
2005
|
2005
|
||
|
(in
thousands)
|
(in
thousands)
|
||
|
Opening
balance
|
$67,440
|
$64,226
|
|
|
Arising
during the year
|
-
|
8,463
|
|
|
Arising
on earn-out (prior year acquisitions)
|
-
|
1,856
|
|
|
Goodwill
impairment
|
-
|
(7,017)
|
|
|
Foreign
exchange movement
|
(1,677)
|
(88)
|
|
|
Closing
balance
|
$65,763
|
$67,440
|
The
goodwill balance relates completely to the clinical research
segment.
4.
Net income per ordinary share
Basic
net
income per ordinary share has been computed by dividing net income available
to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted net income per ordinary share is computed
by adjusting the weighted average number of ordinary shares outstanding during
the period for all potentially dilutive ordinary shares outstanding during
the
period and adjusting net income for any changes in income or loss that would
result from the conversion of such potential ordinary shares.
There
is
no difference in net income used for basic and diluted net income per ordinary
share. The reconciliation of the number of shares used in the computation
of
basic and diluted net income per ordinary share is as follows:
|
Three
Months Ended
|
Six
Months Ended
|
|||
|
November
30
|
November
30 |
November
30
|
November
30 |
|
|
2005
|
2004
|
2005
|
2004
|
|
|
Weighted
average number of ordinary shares outstanding for basic net income
per
ordinary share
|
14,005,454
|
13,847,689
|
14,027,564
|
13,839,857
|
|
Effect
of dilutive share options outstanding
|
256,280
|
219,390
|
206,762
|
248,173
|
|
Weighted
average number of ordinary shares for diluted net income per ordinary
share
|
14,261,734
|
14,067,079
|
14,234,326
|
14,088,030
|
5.
Business Segment Information
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, Russia, Taiwan, Hong
Kong,
South Africa, Spain, Hungary, India, Mexico, Brazil, Korea, China and Thailand.
Segment
information for the three and six month periods ended November 30, 2005 and
2004
are as follows:
7
a)
The
distribution of net revenue by geographical area was as follows:
|
Three
Months Ended
|
Six
Months Ended
|
|||
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
|
(in
thousands)
|
(in
thousands)
|
|||
|
Ireland*
|
$7,909
|
$8,863
|
$18,662
|
$19,501
|
|
Rest
of Europe
|
21,153
|
20,246
|
42,663
|
37,460
|
|
U.S.
|
51,694
|
46,095
|
99,319
|
91,879
|
|
Rest
of the World
|
7,316
|
4,291
|
13,349
|
8,994
|
|
Total
|
$88,072
|
$79,495
|
$173,993
|
$157,834
|
|
*
All sales shown for Ireland are export sales.
|
||||
b)
The
distribution of net revenue by business segment was as follows:
|
Three
Months Ended
|
Six
Months Ended
|
|||
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
|
(in
thousands)
|
(in
thousands)
|
|||
|
Central
laboratory
|
$8,058
|
$6,455
|
$15,293
|
$13,005
|
|
Clinical
research
|
80,014
|
73,040
|
158,700
|
144,829
|
|
Total
|
$88,072
|
$79,495
|
$173,993
|
$157,834
|
c)
The
distribution of income from operations by geographical area was as follows:
|
Three
Months Ended
|
Six
Months Ended
|
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
(in
thousands)
|
(in
thousands)
|
|||
|
Ireland
|
$(1,448)
|
$3,609
|
$(986)
|
$6,420
|
|
Rest
of Europe
|
5,172
|
971
|
9,795
|
3,309
|
|
U.S.
|
2,922
|
1,915
|
4,562
|
4,614
|
|
Rest
of the World
|
2,372
|
513
|
4,015
|
2,150
|
|
Total
|
$9,018
|
$7,008
|
$17,386
|
$16,493
|
8
d)
The
distribution of income from operations by business segment was as
follows:
| Three Months Ended Six Months Ended | ||||
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
| (in thousands) (in thousands) | ||||
|
Central
laboratory
|
$(1,194)
|
$(1,893)
|
$(2,809)
|
$(2,754)
|
|
Clinical
research
|
10,212
|
8,901
|
20,195
|
19,247
|
|
Total
|
$9,018
|
$7,008
|
$17,386
|
$16,493
|
e)
The
distribution of property, plant and equipment, net, by geographical area
was as
follows:
|
November
30,
2005
|
May
31,
2005
|
||||||
|
(in
thousands)
|
|||||||
|
Ireland
|
$
|
22,584
|
$
|
20,471
|
|||
|
Rest
of Europe
|
6,731
|
7,273
|
|||||
|
U.S.
|
16,733
|
15,927
|
|||||
|
Rest
of the World
|
1,568
|
1,615
|
|||||
|
Total
|
$
|
47,616
|
$
|
45,286
|
|||
f)
The
distribution of property, plant and equipment, net, by business segment was
as
follows:
|
November
30,
2005
|
May
31,
2005
|
||||||
|
(in
thousands)
|
|||||||
|
Central
laboratory
|
$
|
3,609
|
$
|
2,940
|
|||
|
Clinical
research
|
44,007
|
42,346
|
|||||
|
Total
|
$
|
47,616
|
$
|
45,286
|
g)
The
distribution of depreciation and amortization by geographical area was as
follows:
| Three Months Ended Six Months Ended | ||||
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
| (in thousands) (in thousands) | ||||
|
Ireland
|
$1,337
|
$1,290
|
$2,690
|
$2,409
|
|||||||||
|
Rest
of Europe
|
519
|
514
|
1,040
|
1,007
|
|||||||||
|
U.S.
|
1,502
|
1,397
|
2,911
|
2,758
|
|||||||||
|
Rest
of the World
|
151
|
95
|
302
|
184
|
|||||||||
|
Total
|
$
|
3,509
|
$
|
3,296
|
$
|
6,943
|
$
|
6,358
|
|||||
9
h)
The
distribution of depreciation and amortization by business segment was as
follows:
| Three Months Ended Six Months Ended | ||||
|
November
|
November
|
November
|
November
|
|
|
30
|
30
|
30
|
30
|
|
|
2005
|
2004
|
2005
|
2004
|
|
| (in thousands) (in thousands) | ||||
|
Central
laboratory
|
$
|
303
|
$
|
244
|
$
|
589
|
$
|
480
|
|||||
|
Clinical
research
|
3,206
|
3,052
|
6,354
|
5,878
|
|||||||||
|
Total
|
$
|
3,509
|
$
|
3,296
|
$
|
6,943
|
$
|
6,358
|
i)
The
distribution of total assets by geographical area was as follows:
|
November
30,
2005 |
May
31,
2005
|
||||||
|
(in thousands)
|
|||||||
|
Ireland
|
$
|
104,480
|
$
|
109,596
|
|||
|
Rest
of Europe
|
72,706
|
79,878
|
|||||
|
U.S.
|
171,346
|
153,577
|
|||||
|
Rest
of the World
|
6,340
|
4,502
|
|||||
|
Total
|
$
|
354,872
|
$
|
347,553
|
|||
j)
The
distribution of total assets by business segment was as follows:
|
November
30,
2005 |
May
31,
2005
|
||||||
|
(in thousands)
|
|||||||
|
Central
laboratory
|
$
|
20,561
|
$
|
18,083
|
|||
|
Clinical
research
|
334,311
|
329,470
|
|||||
|
Total
|
$
|
354,872
|
$
|
347,553
|
|||
10
ICON
plc
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and accompanying notes
included elsewhere herein and the Consolidated Financial Statements and related
notes thereto included in our Annual Report on Form 20-F for the fiscal year
ended May 31, 2005. The Consolidated Financial Statements have been prepared
in
accordance with accounting principles generally accepted in the United
States.
Overview
We
are a
contract research organization, or CRO, providing clinical research and
development services on a global basis to the pharmaceutical, biotechnology
and
medical device industries. Our focus is on supporting the conduct of clinical
trials. We have historically done so by providing such services as Phase
I - IV
clinical trials management, study design, laboratory services and drug
development support. We believe that we are one of a select group of CROs
with
the capability and expertise to conduct clinical trials in most major
therapeutic areas on a global basis. We
have
approximately 3,000 employees
worldwide, with operations in 39 locations in 25 countries including the
United
States and major markets in Europe and Rest of World and have managed clinical
trials in over 55 countries. For the six months ended November 30, 2005,
we
derived approximately 57.1%, 35.2%, and 7.7% of our net revenue in the United
States, Europe and Rest of World, respectively.
We
earn
revenues by providing a number of different services to our clients. These
services include clinical trials management, biometric activities, consulting
and laboratory services. We recognize biometric, consulting and laboratory
revenues on a fee-for-service basis. Our laboratory service contracts are
multiple element arrangements, with laboratory kits and laboratory testing
representing the contractual elements. We determine the fair values for these
elements, each of which can be sold separately, based on objective and reliable
evidence of their respective fair values. Our laboratory contracts entitle
us to
receive non-refundable set up fees and we allocate such fees as additional
consideration to the contractual elements based on the proportionate fair
values
of the elements. We recognize revenues for the elements on the basis of the
number of deliverable units completed in a period.
We
recognize clinical trials revenue on the basis of the relationship between
time
incurred and the total estimated duration of the contract as this represents
the
most accurate pattern over which our contractual obligations are fulfilled.
We
invoice our customers upon achievement of specified contractual milestones.
This
mechanism, which allows us to receive payment from our customers throughout
the
duration of the contract, is not reflective of revenue earned. We recognize
revenues over the period from the awarding of the customer’s contract to study
completion and acceptance. This requires us to estimate total expected revenue,
time inputs, contract costs, profitability and expected duration of the clinical
trial. These estimates are reviewed periodically and, if any of these estimates
change or actual results differ from expected results, then an adjustment
is
recorded in the period in which they become readily estimable.
As
is
customary in the CRO industry, we subcontract with third party investigators
in
connection with clinical trials. All subcontractor costs, and certain other
costs where reimbursed by clients, are, in accordance with industry practice,
deducted from gross revenue to arrive at net revenue. As no profit is earned
on
these costs, which vary from contract to contract, we view net revenue as
our
primary measure of revenue growth.
Direct
costs consist primarily of compensation and associated fringe benefits for
project-related employees and other direct project driven costs. Selling,
general and administrative expenses consist of compensation and related fringe
benefits for selling and administrative employees, professional services,
advertising costs and all costs related to facilities and information
systems.
As
the
nature of our business involves the management of projects having a typical
duration of one to three years, the commencement, completion, curtailment
or
early termination of projects in a fiscal year can have a material impact
on
revenues earned with the relevant clients in such years. In addition, as
we
typically work with some, but not all, divisions of a client, fluctuations
in
the number and status of available projects within such divisions can also
have
a material impact on revenues earned from such clients from year to year.
Although
domiciled in Ireland, we report our results in U.S. dollars. As a consequence,
the results of our non-United States based operations, when translated into
U.S.
dollars, could be materially affected by fluctuations in exchange rates between
the U.S. dollar and the currency of those operations.
11
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
thirteen operations operating in U.S. dollars, five trading in Euros, three
in
pounds Sterling, and one each in Australian dollars, Indian Rupee, Singapore
dollars, Yen, Israeli New Shekels, Latvian Lats, Swedish Krona, Argentine
Peso,
South African Rand, Russian Rouble, Canadian dollar, Hungarian Forint, Taiwan
dollar, Hong Kong dollar, Mexican Peso, Brazilian Real, Thai Baht and Chinese
Yuan Renminbi. Our
operations in the United States are not materially exposed to such currency
differences as the majority of our revenues and costs are in U.S. dollars.
However, outside the United States the multinational nature of our activities
means that contracts are usually priced in a single currency, most often
pounds
Sterling, U.S. dollars or Euros, while costs arise in a number of currencies,
depending, among other things, on which of our offices provide staff for
the
contract, and the location of investigator sites. Although many such contracts
benefit from some degree of natural hedging due to the matching of contract
revenues and costs in the same currency, where costs are incurred in currencies
other than those in which contracts are priced, fluctuations in the relative
value of those currencies could have a material effect on our results of
operations. We regularly review our currency exposures and hedge a portion
of
these, using forward exchange contracts, where natural hedges do not cover
them.
We
have
received capital and revenue grants from Enterprise Ireland, an Irish government
agency. We record capital grants as deferred income, which are credited to
income on a basis consistent with the depreciation of the relevant asset.
Grants
relating to operating expenditures are credited to income in the period in
which
the related expenditure is charged. The capital grant agreements provide
that in
certain circumstances the grants received may be refundable in full. These
circumstances include sale of the related asset, liquidation of the Company
or
failing to comply in other respects with the grant agreements. The operating
expenditure grant agreements provide for repayment in the event of downsizing
of
the Company calculated by reference to any reduction in employee numbers.
We
have not recognized any loss contingency having assessed as remote the
likelihood of these events arising. Up to November 30, 2005, we have received
$2,418,697 and $1,797,739 under the capital grants and operating grants,
respectively. Pursuant to the terms of the grant agreements, we are restricted
from distributing some of these amounts by way of dividend or otherwise.
As
we
conduct operations on a global basis, our effective tax rate has depended
and
will depend on the geographic distribution of our revenue and earnings among
locations with varying tax rates. Our results of operations therefore may
be
affected by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of our results of operations among various
tax
jurisdictions changes, our effective tax rate may vary significantly from
period
to period.
Results
of Operations
Three
Months Ended November 30, 2005 Compared with Three Months Ended November
30,
2004
The
following table sets forth for the periods indicated certain financial data
as a
percentage of net revenue and the percentage change in these items compared
to
the prior comparable period. The trends illustrated in the following table
may
not be indicative of future results.
|
Three Months Ended
|
|
November
30,
|
November
30,
|
2004
|
|
|
2005
|
2004
|
|
to
2005
|
|
|
|
|
Percentage
|
|
Percentage
of Net Revenue
|
|
Increase/(decrease)
|
|
|
Net
revenue
|
100.0%
|
100.0%
|
10.8%
|
|||||||||||
|
Costs
and expenses:
|
||||||||||||||
|
Direct
costs
|
55.3%
|
54.9%
|
11.6%
|
|||||||||||
|
Selling,
general and administrative
|
30.5%
|
32.1%
|
5.1%
|
|||||||||||
|
Depreciation
and
amortization
|
4.0%
|
4.2%
|
6.5%
|
|||||||||||
|
Income
from operations
|
10.2%
|
8.8%
|
28.7%
|
|||||||||||
Net
revenue increased by $8.6 million, or 10.8%, from $79.5 million to $88.1
million. This
improvement arose through a combination of increased business from existing
clients and business won from new clients. Revenues in the United States,
Europe
and the Rest of
12
World
grew by 12.1%, (0.2)% and 70.5% respectively. In the three months ended November
30, 2005, net revenue from our central laboratory business increased by 24.8%
from $6.5 million to $8.1 million, while our clinical research segment grew
by
9.5% from $73.0 million to $80.0 million over the comparable period. The
increase in net revenue in our central laboratory segment is primarily due
to
higher testing volumes in fiscal 2006. The growth in net revenue in our clinical
research segment is due to the expansion of our services to both existing
and
new clients, increased use of outsourcing by the pharmaceutical, biotechnology
and medical device industries, an underlying increase in research and
development spending and consolidation in the CRO industry.
Direct
costs increased by $5.0 million, or 11.6%, from $43.7 million to $48.7 million,
primarily due to increased staff numbers needed to support increased project
related activity. Direct costs as a percentage of net revenue increased from
54.9% in the three months to November 30, 2004 to 55.3% in the three months
to
November 30, 2005.
Selling,
general and administrative expenses increased by $1.3 million, or 5.1%, from
$25.5 million to $26.8 million. This
increase is due to the continued expansion of our operations. As
a
percentage of net revenue, selling, general and administrative expenses,
decreased from 32.1% in the three months ended November 30, 2004, to 30.5%
in
the three months ended November 30, 2005.
Depreciation
and amortization expense increased by $0.2 million, or 6.5%, from $3.3 million
to $3.5million. This increase is due to the continued investment in facilities
and information technology to support the growth in activity and in providing
for future capacity. As a percentage of net revenue, depreciation and
amortization decreased from 4.2% in the three months ended November 30, 2004
to
4.0% in the three months ended November 30, 2005.
Income
from operations increased by $2.0 million, or 28.7%, from $7.0 million to
$9.0
million. As a percentage of net revenue, income from operations increased
from
8.8% for the three months to November 30, 2004 to 10.2% of net revenues for
the
three months ended November 30, 2005. As a percentage of net revenue, losses
from operations for the central laboratory decreased from 29.3% for the second
quarter of fiscal 2005, to 14.8% for the second quarter of fiscal 2006 due
to
the efficiencies gained in the higher testing volumes in fiscal 2006. The
central laboratory constitutes approximately 9% of our business revenues.
Operating margins for our clinical research segment increased from 12.2%
in the
three months ended November 30, 2004, to 12.8% for the three months ended
November 30, 2005.
Net
interest income for the three months ended November 30, 2005 was $0.6 million,
an increase of $0.4 million over the amount of net interest income for the
three
months ended November 30, 2004. Higher average level of funds invested and
higher interest rates over fiscal 2005 contributed to the increased interest
income.
ICON's
effective tax rate for the three months ended November 30, 2005 was 27.2%
compared with 18.2% 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.
Six
Months Ended November 30, 2005 Compared with Six Months Ended November 30,
2004
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.
|
Six Months Ended
|
|
November
30,
|
November
30,
|
2004
|
|
|
2005
|
2004
|
|
to
2005
|
|
|
|
|
Percentage
|
|
Percentage
of Net Revenue
|
|
Increase/(decrease)
|
|
|
Net
revenue
|
100.0%
|
100.0%
|
10.2%
|
|||||||||||
|
Costs
and expenses:
|
||||||||||||||
|
Direct
costs
|
55.2%
|
54.6%
|
11.5%
|
|||||||||||
|
Selling,
general and administrative
|
30.8%
|
31.0%
|
9.8%
|
|||||||||||
|
Depreciation
and
amortization
|
4.0%
|
4.0%
|
9.2%
|
|||||||||||
|
Income
from operations
|
10.0%
|
10.4%
|
5.4%
|
|||||||||||
13
Net
revenue increased by $16.2 million, or 10.2%, from $157.8 million to $174.0
million. This
improvement arose through a combination of increased business from existing
clients, business won from new clients and revenues from acquisition not
included in the comparative period. The additional revenues relating to the
Beacon acquisition amounted to $0.6 million not included in the comparative
period. Revenues in the United States, Europe and the Rest of World grew
by
8.1%, 7.7% and 48.4% respectively. In the six months ended November 30, 2005,
net revenue from our central laboratory business increased by 17.6% from
$13.0
million to $15.3 million, while our clinical research segment grew by 9.6%
from
$144.8 million to $158.7 million over the comparable period. The increase
in net
revenue in our central laboratory segment is primarily due to higher testing
volumes in fiscal 2006. The growth in net revenue in our clinical research
segment is due to the expansion of our services to both existing and new
clients, increased use of outsourcing by the pharmaceutical, biotechnology
and
medical device industries, an underlying increase in research and development
spending and consolidation in the CRO industry.
Direct
costs increased by $9.9 million, or 11.5%, from $86.1 million to $96.0 million,
primarily due to increased staff numbers needed to support increased project
related activity and increased costs arising from the Beacon acquisition
amounting to $0.3 million. Direct costs as a percentage of net revenue increased
from 54.6% in the six months to November 30, 2004 to 55.2% in the three months
to November 30, 2005.
Selling,
general and administrative expenses increased by $4.7 million, or 9.8%, from
$48.9 million to $53.6 million. This
increase is due to the continued expansion of our operations and additional
selling, general and administrative costs of $0.2 million from the Beacon
acquisition not included in the comparative period. As
a
percentage of net revenue, selling, general and administrative expenses,
decreased from 31.0% in the six months ended November 30, 2004 to 30.8% in
the
six months ended November 30, 2005.
Depreciation
and amortization expense increased by $0.5 million, or 9.2%, from $6.4 million
to $6.9 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. As a percentage of net revenue, depreciation and
amortization was unchanged at 4.0% in the six months ended November 30, 2005
over the comparative period in fiscal 2005.
Income
from operations increased by $0.9 million, or 5.4%, from $16.5 million to
$17.4
million. As a percentage of net revenue, income from operations decreased
from
10.4% for the six months to November 30, 2004 to 10.0% of net revenues for
the
six months ended November 30, 2005. As a percentage of net revenue losses
from
operations for the central laboratory decreased from 21.2% for the six months
ended November 30, 2004, to 18.4% for the comparable period in 2005 due to
the
efficiencies gained in the higher testing volumes in fiscal 2006. The central
laboratory constitutes approximately 9% of our business revenues. Operating
margins for our clinical research segment decreased from 13.3% in the six
months
ended November 30, 2004 to 12.7% for the six months ended November 30,
2005.
Net
interest income for the six months ended November 30, 2005 was $1.0 million,
an
increase of $0.7 million over the amount of net interest income for the six
months ended November 30, 2004. Higher average level of funds invested and
higher interest rates over fiscal 2005 contributed to the increased interest
income.
ICON's
effective tax rate for the six months ended November 30, 2005 was 27.6% compared
with 21.6% 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.
14
Liquidity
and Capital Resources
The
CRO
industry generally is not capital intensive. Since our inception, we have
financed our operations and growth primarily with cash flows from operations,
net proceeds of $49.1 million raised in our initial public offering in May
1998
and net proceeds of $44.3 million raised in our public offering in August
2003.
Our principal cash needs are payment of salaries, office rents, travel
expenditures and payments to subcontractors. The aggregate amount of employee
compensation paid in the six months ended November 30, 2004 and November
30,
2005 amounted to $92.7 million and $104.8 million, respectively. Investing
activities primarily reflect capital expenditures for facilities and for
information systems enhancements, the sale and purchase of short-term
investments and acquisitions.
Our
clinical research and development contracts are generally fixed price with
some
variable components and range in duration from a few months to several years.
Revenue from contracts is generally recognized as income on the basis of
the
relationship between time incurred and the total estimated contract duration
or
on a fee-for-service basis. The cash flow from contracts typically consists
of a
down payment of between 10% and 20% paid at the time the contract is entered
into, with the balance paid in instalments over the contract's duration,
in some
cases on the achievement of certain milestones. Accordingly, cash receipts
do
not necessarily correspond to costs incurred and revenue recognized on
contracts.
As
of
November 30, 2005, our working capital amounted to $133.4 million, compared
to
$125.3 million at May 31, 2005. The other significant influence on our
operating cash flow is revenue outstanding, which comprises accounts receivable
and unbilled revenue, less payments on account. The dollar values of these
amounts and the related days revenue outstanding can vary due to the achievement
of contractual milestones, including contract signing, and the timing of
cash
receipts. The number of days revenue outstanding was 67 days at November
30,
2005, compared to 70 days at August 31, 2005 and 63 days at May 31,
2005.
Net
cash
provided by operating activities was $14.5 million in the six months ended
November
30,
2005,
compared to $2.0 million used in the six months ended November
30, 2004.
Net
cash
used in investing activities was $18.2 million in the six months ended
November
30,
2005,
compared to $22.8 million in the six months ended November
30, 2004.
The
decrease in cash used in investing activities is due principally to the
acquisition of Beacon in July 2004.
Net
cash
provided by financing activities was $4.8 million in the six months ended
November
30,
2005,
compared to $10.2 million in the six months ended November
30,
2004.
This decrease is principally due to the funds drawdown from a bank overdraft
in
the first quarter of fiscal 2005 over the funds drawn in the comparable period
in fiscal 06.
As
a
result of these cash flows, cash and cash equivalents increased by less that
$0.1 million in the six months ended November
30,
2005,
compared to a decrease of $13.7 million in the six months ended November
30,
2004.
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
November 30, 2005, 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
November 30, 2005, $12 million of this facility was available to be drawn
down.
The
Company entered into an overdraft agreement with Allied Irish Banks, plc
(“AIB”)
whereby the company guarantees any overdraft of its subsidiary ICON Clinical
Research GmbH up to an amount €120,000 (U.S.$141,468). As November 30, 2005, the
full facility was available to be drawn down.
Inflation
We
believe the effects of inflation generally do not have a material adverse
impact
on our operations or financial conditions.
15
New
Accounting Pronouncements not yet adopted
In
March
2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 47. In accordance with FASB Interpretation 47 companies must recognise
a liability for the fair value of a legal obligation to perform asset-retirement
activities that are conditional on a future event if the amount can be
reasonably estimated. The Interpretation provides guidance on whether the
fair value is reasonably estimable. The premise underlying the
Interpretation is a need for more uniform application of Statement 143
"Accounting for Asset Retirement Obligations". Companies must adopt the
Interpretation no later than the end of the fiscal year ending after December
15, 2005. The company does not expect the impacts of adopting FASB
Interpretation No 47 to be material.
In
December 2004, the FASB issued Statement No. 123R, "Share-Based Payment -
An
Amendment of FASB Statements No. 123 and 95 (“SFAS No.123R”), which is effective
for public companies in periods beginning after June 15, 2005. We will implement
the proposed standard no later than the year that begins January 1, 2006.
The
cumulative effect of adoption, if any, applied on a modified prospective
basis,
would be measured and recognized on March 31, 2006. SFAS No. 123R addresses
the
accounting for transactions in which an enterprise receives goods and services
in exchange for: (a) equity instruments of the enterprise; or (b) liabilities
that are based on the fair value of the enterprise’s equity instruments or that
may be settled by the issuance of such equity instruments. SFAS No. 123R
eliminates the ability to account for share-based compensation transactions
using APB 25, and generally would require instead that such transactions
be
accounted for using a fair-value based method. Equity classified awards are
measured at grant date at fair value and are not subsequently re-measured.
Liability classified awards are re-measured at fair value at each balance
sheet
date until the awards are settled. We are currently evaluating option valuation
methodologies and assumptions in light of SFAS No. 123R related to employee
stock options. Current estimates of option values using the Black-Scholes
method
(as reported) may not be indicative of results from valuation methodologies
ultimately adopted.
In
November 2004, the FASB issued statement No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4" (“SFAS No. 151”), which is effective for public
companies prospectively for inventory costs incurred in periods beginning
after
June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter
4
“Inventory Pricing”, to clarify that accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material (spoilage)
should
be recognized as a current period change and to require the allocation of
fixed
production overhead to the costs of conversion based on normal capacity of
the
production facilities. We do not expect that the adoption of SFAS No. 151
will
have a material impact on our financial position or results of operations.
In
December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary
assets - an amendment of APB Opinion No. 29” (“SFAS No. 153”), which is
effective for public companies in periods beginning after June 15, 2005.
The
guidance in APB opinion No. 29, Accounting for Nonmonetary Transactions,
is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This statement amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. We do not expect that the
adoption of SFAS No. 153 will have a material impact on our financial position
or results of operations.
In
November 2003 and March 2004, the Emerging Issues Task Force (EITF) reached
partial consensus on EITF 03-1, “The Meaning of Other-Than-Temporary Impairment
and its Application to Certain Investments,” (“EITF 03-1”). EITF 03-1 addresses
the meaning of other then temporary impairment and its application to
investments classified as either available-for-sale or held-to-maturity under
SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” and
investments accounted for under the cost method. The EITF agreed on certain
quantitative and qualitative disclosures about unrealised losses pertaining
to
securities classified as available-for-sale or held-to-maturity. In addition,
EITF 03-1 requires certain disclosures about cost method investments. The
recognition and measurement provisions of EITF 03-1 have been deferred until
additional guidance is issued.
Legal
Proceedings
We
are
not party to any litigation or other legal proceedings that we believe could
reasonably be expected to have a material adverse effect on our business,
results of operations and financial condition.
16
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ICON
plc
|
|
|
January
9, 2006
|
|
|
____________________________
|
/s/
Ciaran Murray
|
|
Date
|
Ciaran
Murray
|
|
Chief
Financial Officer
|
17