UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended March 31, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
000-23019
KENDLE INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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Ohio
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31-1274091
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(State or other jurisdiction
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(IRS Employer Identification No.)
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of incorporation or organization)
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441 Vine Street, Suite 500, Cincinnati, Ohio
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45202
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code (513) 381-5550
(Former
name, former address and former fiscal year, if changed since last
report)
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 and Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 14,968,923 shares of Common Stock, no par value, as of April 29, 2011.
KENDLE INTERNATIONAL INC.
Index
2
KENDLE INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31,
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December 31,
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(in thousands, except share data)
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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18,521
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$
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21,217
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Restricted cash
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901
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881
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Accounts receivable, net
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116,895
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105,586
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Deferred tax assets current
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7,888
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7,876
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Other current assets
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25,994
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24,665
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Total current assets
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170,199
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160,225
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Property and equipment, net
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54,810
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56,898
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Goodwill
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237,337
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236,189
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Other finite-lived intangible assets, net
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11,053
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11,808
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Long-term deferred tax assets
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23,935
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17,929
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Other assets
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6,630
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6,862
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Total assets
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$
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503,964
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$
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489,911
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Current portion of obligations under capital leases
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$
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24
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$
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34
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Trade payables
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13,224
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18,187
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Advance billings
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69,632
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57,525
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Other accrued liabilities
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44,989
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42,265
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Total current liabilities
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127,869
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118,011
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Convertible notes, net
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134,543
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133,082
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Deferred tax liabilities
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3,135
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2,872
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Non-current income taxes payable
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1,110
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1,110
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Other liabilities
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3,746
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3,989
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Total liabilities
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$
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270,403
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$
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259,064
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Commitments and contingencies
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Shareholders equity:
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Preferred stock no par value; 100,000 shares authorized; none
issued and outstanding
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Common stock no par value; 45,000,000 shares authorized;
14,988,073 and 14,955,259 shares issued and 14,965,021 and 14,932,207
outstanding at March 31, 2011 and December 31, 2010, respectively
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$
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75
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$
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75
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Additional paid in capital
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181,357
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181,308
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Accumulated earnings
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26,292
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29,177
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Accumulated other comprehensive income:
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Foreign currency translation adjustment
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26,329
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20,779
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Less: Cost
of common stock held in treasury, 23,052 shares at March 31, 2011 and December 31, 2010, respectively
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(492
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)
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(492
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)
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Total shareholders equity
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233,561
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230,847
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Total liabilities and shareholders equity
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$
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503,964
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$
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489,911
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The accompanying notes are an integral part of these condensed consolidated financial
statements.
3
KENDLE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three Months Ended
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March 31,
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(in thousands, except per share data)
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2011
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2010
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Net service revenues
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$
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81,527
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$
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88,519
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Reimbursable out-of-pocket revenues
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19,546
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26,229
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Total revenues
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101,073
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114,748
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Costs and expenses:
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Direct costs
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43,166
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46,447
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Reimbursable out-of-pocket costs
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19,546
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26,229
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Selling, general and
administrative expenses
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33,080
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33,961
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Depreciation and amortization
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4,438
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3,685
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Total costs and expenses
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100,230
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110,322
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Income from operations
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843
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4,426
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Other income (expense):
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Interest income
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11
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22
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Interest expense
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(2,963
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)
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(3,228
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)
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Other
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(3,131
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)
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1,717
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Total other expense
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(6,083
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)
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(1,489
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)
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Income (loss) before income taxes
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(5,240
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)
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2,937
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Income tax provision (benefit)
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(4,050
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)
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1,609
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Income (loss) from Continuing Operations, net of tax
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$
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(1,190
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)
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$
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1,328
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Income (loss) from Discontinued Operations, net of tax
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$
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(1,695
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)
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$
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(117
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)
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Net income (loss)
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$
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(2,885
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)
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$
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1,211
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Income (loss) per share data:
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Basic income (loss) per share:
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Income (loss) from continuing operations
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$
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(0.08
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)
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$
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0.09
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Income (loss) from discontinued operations
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(0.11
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)
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(0.01
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)
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Basic income (loss)
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$
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(0.19
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)
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$
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0.08
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Diluted income (loss) per share:
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Income (loss) from continuing operations
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$
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(0.08
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)
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$
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0.09
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Income (loss) from discontinued operations
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(0.11
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)
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(0.01
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)
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Diluted income (loss)
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$
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(0.19
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)
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$
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0.08
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Weighted average shares outstanding
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Basic
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14,953
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14,893
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Diluted
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14,953
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15,036
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The accompanying notes are an integral part of these condensed consolidated financial
statements.
4
KENDLE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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For the Three Months Ended
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March 31,
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(in thousands)
|
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2011
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2010
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Net income (loss)
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$
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(2,885
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)
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$
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1,211
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Other comprehensive income (loss):
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|
|
|
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Foreign currency translation adjustment
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5,550
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(626
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)
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Comprehensive income
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$
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2,665
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$
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585
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
KENDLE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Three Months Ended
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March 31,
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(in thousands)
|
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2011
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2010
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Cash flows from operating activities:
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|
|
|
|
|
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Net income (loss)
|
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$
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(2,885
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)
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$
|
1,211
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|
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
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Depreciation and amortization
|
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5,321
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|
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3,785
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Deferred income taxes
|
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(5,640
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)
|
|
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(1,623
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)
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Income tax benefit from stock option exercises
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(5
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)
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Compensation expense on stock grants
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185
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|
526
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Debt issue cost amortization
|
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1,688
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2,318
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Foreign currency exchange loss (gain)
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2,746
|
|
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(874
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)
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Other
|
|
|
(93
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)
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|
|
379
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
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|
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|
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Restricted cash
|
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|
34
|
|
|
|
439
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Accounts receivable
|
|
|
(8,581
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)
|
|
|
12,359
|
|
Other current assets
|
|
|
1,774
|
|
|
|
(1,250
|
)
|
Other assets
|
|
|
109
|
|
|
|
(145
|
)
|
Trade payables
|
|
|
(5,412
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)
|
|
|
203
|
|
Advance billings
|
|
|
10,430
|
|
|
|
726
|
|
Accrued liabilities and other
|
|
|
(3,963
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)
|
|
|
(11,538
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)
|
|
|
|
|
|
|
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Net cash provided by (used in) operating activities
|
|
|
(4,287
|
)
|
|
|
6,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash flows from investing activities:
|
|
|
|
|
|
|
|
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Acquisitions of property and equipment and internally developed software
|
|
|
(1,873
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)
|
|
|
(5,773
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)
|
Acquisitions of businesses, less cash acquired
|
|
|
|
|
|
|
(2,400
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)
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Other
|
|
|
6
|
|
|
|
10
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,867
|
)
|
|
|
(8,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
13,500
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(13,500
|
)
|
|
|
|
|
Debt issue costs
|
|
|
|
|
|
|
(307
|
)
|
Payments on capital lease obligations
|
|
|
(10
|
)
|
|
|
(22
|
)
|
Repurchase of note hedges and warrants
|
|
|
|
|
|
|
2
|
|
Amounts payable book overdraft
|
|
|
2,739
|
|
|
|
147
|
|
Proceeds from issuance of common stock
|
|
|
2
|
|
|
|
31
|
|
Income tax benefit from stock option exercises
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,731
|
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash and cash equivalents
|
|
|
727
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,696
|
)
|
|
|
(1,823
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
21,217
|
|
|
|
52,103
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
18,521
|
|
|
$
|
50,280
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial
statements.
6
KENDLE INTERNATIONAL INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (U.S.
GAAP) for interim financial information and the instructions to the Quarterly Report on Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
notes required by U.S. GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three months ended March 31, 2011 are
not necessarily indicative of the results that may be expected for the year ending December 31,
2011. For further information, refer to the Consolidated Financial Statements and notes thereto
included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed by Kendle
International Inc. (the Company) with the Securities and Exchange Commission.
The Condensed Consolidated Balance Sheet at December 31, 2010 has been derived from the audited
consolidated financial statements at that date, but does not include all of the information and
notes required by U.S. GAAP for complete financial statements.
Goodwill and Intangible Assets
The Company modified its internal management reporting effective January 1, 2011, resulting in the
identification of two operating segments; Early Stage and Late Stage. Such changes do not result
in changes to the Companys two reportable segments which continue to consist of Early Stage and
Late Stage segments. The Companys components that exist within each operating segment will be
aggregated for purposes of testing goodwill for impairment, based upon the fact that those units
maintain similar operating and economic characteristics.
Net Income Per Share Data
Net income (loss) per basic share is computed using the weighted average common shares outstanding.
Net income (loss) per diluted share is computed using the weighted average common shares and
potential common shares outstanding, unless antidilutive.
7
The following table sets forth the computation for basic and diluted earnings (loss) per share (in
thousands, except per share information):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Basic earnings per share calculation:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(1,190
|
)
|
|
$
|
1,328
|
|
Income (loss) from discontinued operations
|
|
|
(1,695
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,885
|
)
|
|
$
|
1,211
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic EPS computation
|
|
|
14,953
|
|
|
|
14,893
|
|
|
|
Earnings per share income (loss) from continuing operations
|
|
|
(0.08
|
)
|
|
|
0.09
|
|
Earnings per share income (loss) from discontinued
operations
|
|
|
(0.11
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
(0.19
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(1,190
|
)
|
|
$
|
1,328
|
|
Income (loss) from discontinued operations
|
|
|
(1,695
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,885
|
)
|
|
$
|
1,211
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
14,953
|
|
|
|
14,893
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for diluted EPS
computation
|
|
|
14,953
|
|
|
|
15,036
|
|
|
|
Earnings per share income (loss) from continuing operations
|
|
|
(0.08
|
)
|
|
|
0.09
|
|
Earnings per share income (loss) from discontinued
operations
|
|
|
(0.11
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Earnings per share assuming dilution
|
|
$
|
(0.19
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, approximately 197,000 of outstanding options were
anti-dilutive compared to approximately 128,000 for the same period of 2010.
8
Under accounting guidance related to contingently convertible instruments on diluted earnings per
share, due to the Companys obligation to settle the par value of its Convertible Notes (defined
in Note 4) in cash, the Company is not required to include any shares underlying the Convertible
Notes in its weighted average shares outstanding used in calculating diluted earnings per share
until the average price per share for the quarter exceeds the $47.71 conversion price and only to
the extent of the additional shares that the Company may be required to issue in the event that
the Companys conversion obligation exceeds the principal amount of the Convertible Notes
converted. These conditions have not been met as of the three months ended March 31, 2011 or for
the year ended December 31, 2010. At any such time in the future that these conditions are met,
only the number of shares that would be issuable (under the treasury method of accounting for
the share dilution) will be included, which is based upon the amount by which the average stock
price exceeds the conversion price. The following table provides examples of how changes in the
Companys stock price will require the inclusion of additional shares in the denominator of the
weighted average shares outstanding assuming dilution calculation. The table also reflects
the impact on the number of shares that the Company would expect to issue upon concurrent
settlement of the Convertible Notes and the bond hedges and warrants mentioned below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Due to the
|
|
|
Incremental Shares Issued
|
|
|
|
Convertible Notes
|
|
|
Warrant
|
|
|
Total Treasury Method
|
|
|
Company under Note
|
|
|
by the Company Upon
|
|
Share Price
|
|
Shares
|
|
|
Shares
|
|
|
Incremental Shares (1)
|
|
|
Hedges
|
|
|
Conversion (2)
|
|
$40.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$45.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50.00
|
|
|
136,592
|
|
|
|
|
|
|
|
136,592
|
|
|
|
(136,592
|
)
|
|
|
|
|
$55.00
|
|
|
395,683
|
|
|
|
|
|
|
|
395,683
|
|
|
|
(395,683
|
)
|
|
|
|
|
$60.00
|
|
|
611,592
|
|
|
|
|
|
|
|
611,592
|
|
|
|
(611,592
|
)
|
|
|
|
|
$65.00
|
|
|
794,284
|
|
|
|
173,820
|
|
|
|
968,104
|
|
|
|
(794,284
|
)
|
|
|
173,820
|
|
$70.00
|
|
|
950,877
|
|
|
|
374,732
|
|
|
|
1,325,609
|
|
|
|
(950,877
|
)
|
|
|
374,732
|
|
|
|
|
(1)
|
|
Represents the number of incremental shares that must be included in the calculation
of fully diluted shares.
|
|
(2)
|
|
Represents the number of incremental shares to be issued by the Company upon
conversion of the Convertible Notes, assuming concurrent settlement of the bond hedges
and warrants.
|
Accounting for Uncertainty in Income Taxes
At March 31, 2011, the total amount of unrecognized tax benefits was approximately $1.0 million all
of which would impact the effective tax rate, if recognized.
Interest and penalties associated with uncertain tax positions are recognized as components of the
income tax expense in the Companys Condensed Consolidated Statements of Operations. Tax-related
interest and penalties and the related recorded liability were not material at March 31, 2011.
The Company does not have a material amount of unrecognized tax benefits for which the statute of
limitations is expected to expire within the next 12 months. The remaining unrecognized tax
benefits primarily include potential transfer pricing exposures from allocation of income between
tax jurisdictions and potential deemed foreign dividends.
The tax years that remain subject to examination for the Companys major tax jurisdictions are
shown below:
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
|
United States
|
|
|
2007 - 2010
|
|
Germany
|
|
|
2006 - 2010
|
|
United Kingdom
|
|
|
2009 - 2010
|
|
Netherlands
|
|
|
2008 - 2010
|
|
The Company operates in various state and local jurisdictions. Open tax years for state and
local jurisdictions approximate the open years reflected above for the United States.
9
Subsequent Events
Accounting guidance related to subsequent events requires entities to evaluate events or
transactions occurring after the balance sheet date through the date of issuance of the condensed
consolidated financial statements to determine whether events require recognition or nonrecognition
and disclosure. Recognition is required for the effects of all subsequent events that provide
additional evidence about conditions that existed at the date of the balance sheet, including
estimates inherent in the process of preparing financial statements. Nonrecognized subsequent
events may require disclosure. The Company has evaluated subsequent events through the issuance
date of its Condensed Consolidated Financial Statements.
New Accounting Pronouncements
Revenue recognition under the Companys customer contracts generally involve multiple service
deliverables, where bundled service deliverables are accounted for in accordance with Accounting
Standards Codification (ASC) 605-25, Multiple-Element Arrangements. For certain unit-based
contracts the Company recognizes net service revenue based on output units, a unit could include
such things as completion of a monitoring visit, monthly site management units or case report form
pages entered. The Company tracks the units completed for each unit category included in the
contract. Each of the Companys service deliverables has standalone value.
In the first quarter of 2011, the Company adopted Accounting Standards Update (ASU) 2009-13,
Multiple-Deliverable Revenue Arrangements for new or materially modified contracts entered into
after that date, which did not have a material impact on the Companys financial statements. ASU
2009-13 requires the allocation of contract (arrangement) value based on the relative selling price
of the various separate units of accounting in the arrangement. The guidance in ASU 2009-13
requires a hierarchy of evidence be followed when determining if evidence of the selling price of
an item exists such that the best evidence of selling price of a unit of accounting is
vendor-specific objective evidence (VSOE), or the price charged when a deliverable is sold
separately. When VSOE is not available to determine selling price, relevant third-party evidence
(TPE) of selling price should be used, if available. Lastly, when neither VSOE nor TPE of selling
price for similar deliverables exists, management must use its best estimate of selling price
considering all relevant information that is available without undue cost and effort.
Generally, the Company is not able to establish VSOE as its deliverables are seldom sold
separately. Consistent with its policies prior to the adoption of ASU 2009-13, the Company has
established TPE of selling price for each arrangement deliverable based on the price it charges for
equivalent services when sold to other similar customers as well as the Companys knowledge of
market-pricing from the competitive bidding process for customer contracts offering similar
services to comparably situated customers. The Company allocates arrangement consideration at the
inception of the arrangement using the relative selling prices of the deliverables within the
contract based on TPE. Consistent with its accounting prior to the adoption of ASU 2009-13, the
Company recognizes revenues for the separate elements of its contracts upon performance of actual
units of output and when all other revenue recognition criteria are met.
10
2. Discontinued Operations
As has been previously disclosed, the Company made a decision to close the Early Stage operations
of its facility located in Utrecht, The Netherlands (Utrecht), as a result of overall adverse
operating results due to volatility in the Early Stage drug development market as well as a
changing and challenging regulatory environment in the Netherlands leading to cancellations in the
Companys backlog. The
Companys plan for closure was deemed official upon receiving the approval of the Dutch Works
Council, which became effective on March 1, 2011.
The following results of the Utrecht Early Stage closure have been presented as discontinued
operations within the Companys condensed consolidated statements of operations and have been
excluded from segment operating results for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Net service revenues
|
|
$
|
468
|
|
|
$
|
1,708
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(2,275
|
)
|
|
|
(157
|
)
|
Income tax benefit
|
|
|
(580
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
$
|
(1,695
|
)
|
|
$
|
(117
|
)
|
|
|
|
|
|
|
|
The net loss from discontinued operations for the three months ended March 31, 2011 was
primarily the result of costs incurred related to the closure of the Companys Utrecht facility
(see Note 8). As of March 31, 2011, there were no material assets remaining at Utrecht related to
the discontinued operations.
The closure is not expected to have any significant effect on the Companys remaining Early Stage
operations, or the Late Stage operations that continue to be conducted at Utrecht.
3. Goodwill and Other Intangible Assets:
Goodwill at March 31, 2011 and December 31, 2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
(In thousands)
|
|
Early Stage
|
|
|
Late Stage
|
|
|
Total
|
|
|
|
Balance at December 31, 2010
|
|
$
|
11,730
|
|
|
$
|
224,459
|
|
|
$
|
236,189
|
|
Foreign currency fluctuations
|
|
|
339
|
|
|
|
809
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
$
|
12,069
|
|
|
$
|
225,268
|
|
|
$
|
237,337
|
|
|
|
|
|
|
|
|
|
|
|
11
Amortizable intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
(in thousands)
|
|
2011
|
|
|
2010
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
22,549
|
|
|
$
|
22,407
|
|
Completed technology
|
|
|
2,600
|
|
|
|
2,600
|
|
Backlog
|
|
|
6,200
|
|
|
|
6,200
|
|
Internally developed software (a)
|
|
|
18,269
|
|
|
|
18,212
|
|
|
|
|
|
|
|
|
Total carrying amount
|
|
$
|
49,618
|
|
|
$
|
49,419
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(11,825
|
)
|
|
$
|
(11,018
|
)
|
Completed technology
|
|
|
(2,369
|
)
|
|
|
(2,292
|
)
|
Backlog
|
|
|
(6,102
|
)
|
|
|
(6,089
|
)
|
Internally developed software (a)
|
|
|
(16,849
|
)
|
|
|
(16,711
|
)
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
$
|
(37,145
|
)
|
|
$
|
(36,110
|
)
|
|
|
|
|
|
|
|
Net amortizable intangible assets
|
|
$
|
12,473
|
|
|
$
|
13,309
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Internally developed software is included in Other Assets in the Companys Condensed Consolidated Balance Sheets.
|
4. Debt:
The Company is party to a credit agreement (the Facility) which is comprised of a $35 million
revolving loan commitment, with up to $10 million of such commitment available for issuance of
letters of credit and up to $5 million of such commitment available for same-day swing line loans.
At the Companys request and with the consent of the current lender or additional lenders, the
total commitment may be increased by, or incremental term loans may be obtained for, up to an
additional $15 million. At the Companys election, loans under the Facility are available either
at (i) an adjusted base rate plus an applicable margin; or (ii) an adjusted LIBOR plus an
applicable margin. The applicable margin for each interest rate is calculated in accordance with
the terms of the Facility.
The Facility, as amended on April 27, 2010, matures on March 31, 2015. The Facility was amended on
January 21, 2011 (Amendment No. 2) to increase the Total Leverage Ratio for certain periods and
also contemplates certain additional add-backs to Consolidated EBITDA for certain cash and
non-cash charges. The Facility was further amended (Amendment No. 3, dated as of April 28, 2011)
to increase the Total Leverage Ratio for certain periods and also amends in certain respects the
definition of Letter of Credit; and (Amendment No. 4, dated as of May 3, 2011) to facilitate the
Company entering into a definitive merger agreement (see Note 9 for further details).
Borrowings under the Facility are collateralized by substantially all of the Companys assets
pursuant to the terms of a Pledge and Security Agreement. The Facility contains various
affirmative and negative covenants including those regarding limitations on the Companys ability
to incur certain indebtedness, limitations on certain investments, limitations on capital
expenditures and limitations on certain acquisitions and asset sales outside the ordinary course of
business, as well as financial covenants
regarding limitations on the Companys total leverage ratio, senior secured leverage ratio and
interest coverage ratio. The Company is in compliance with all covenants as of March 31, 2011.
12
The Company also maintains an existing $5.0 million Multicurrency Facility that is renewable
annually and is used in connection with the Companys European operations.
As of March 31, 2011 and December 31, 2010, there were no amounts outstanding under the revolving
credit loan portion of the Facility or the Multicurrency Facility.
In July 2007, the Company entered into a Purchase Agreement with UBS Securities LLC (the
Underwriter) for the issuance and sale by the Company of $200 million, including a $25 million
over-allotment of the Companys Convertible Notes (Convertible Notes). The Convertible Notes have
a maturity date of July 15, 2012 and were sold to the Underwriters at a price of $1,000 per
Convertible Note, less an underwriting discount of 3% per Convertible Note. Throughout 2010 and
2009, the Company has repurchased in the open market $67.5 million of par value of its
outstanding Convertible Notes. The carrying amounts of the equity and debt components were as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Equity component, carrying amount
|
|
$
|
35,860
|
|
|
$
|
35,860
|
|
|
|
|
|
|
|
|
|
|
Principal component, at par
|
|
$
|
142,500
|
|
|
$
|
142,500
|
|
Unamortized discount
|
|
|
(7,957
|
)
|
|
|
(9,418
|
)
|
|
|
|
|
|
|
|
Principal component, carrying amount
|
|
$
|
134,543
|
|
|
$
|
133,082
|
|
|
|
|
|
|
|
|
The net carrying amounts of the Convertible Notes are classified as long-term in the
accompanying Condensed Consolidated Balance Sheets. The debt discount and adjusted debt issuance
costs are being amortized, using the effective interest rate method, over the term of the
Convertible Notes which mature on July 15, 2012. Interest expense on the Convertible Notes has
been recorded at an effective rate of 8.02%.
Interest expense recognized related to the Convertible Notes was as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Interest cost at coupon rate
|
|
$
|
1,202
|
|
|
$
|
1,303
|
|
Discount amortization
|
|
|
1,461
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
Total interest expense recognized
|
|
$
|
2,663
|
|
|
$
|
2,753
|
|
|
|
|
|
|
|
|
5. Stock Based Compensation:
In the first three months of 2011, the Company issued 21,635 shares of time vested restricted share
units (RSUs) under the 2007 Stock Incentive Plan. Of this award, 11,613 shares vest in their
entirety after 18 months and the remaining 10,022 shares vest in their entirety after 1.5 months.
Of the 21,635 shares awarded, 10,022 RSUs were issued to retirement eligible associates and
resulted in immediate vesting. The Company has therefore recorded one-third of the expense for the
retirement eligible associates in the first quarter of 2011 and will record the remaining expense
in the second quarter of 2011. The expense for the remaining RSUs will be recorded on a
straight-line basis over the vesting period.
13
In the first three months of 2011, the Company issued 51,723 shares of performance-based restricted
stock units. The vesting of these shares is dependent upon a performance condition, the Company
meeting a certain EPS target for 2011, and a service condition, as 33% vest in March 2012, 33% vest
in January 2013, and 33% vest in January 2014. If the performance condition is not met at least at
the 74% of target level, the award does not vest. If the performance condition is met at greater
than 74% of target level but below 100% of target level, the number of shares is adjusted to
between 50% and 98% of the original award based upon the target tier level achieved. Expense is
being recorded over the vesting period (33 months) assuming achievement of the performance
condition.
The following is a summary of stock based compensation expense recorded by the Company for the
following periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(in thousands)
|
|
2011
|
|
|
2010
|
|
Stock options
|
|
$
|
36
|
|
|
$
|
41
|
|
Non-vested restricted common stock
|
|
|
117
|
|
|
|
454
|
|
|
|
|
|
|
|
|
Total stock based compensation
|
|
$
|
153
|
|
|
$
|
495
|
|
|
|
|
|
|
|
|
As of March 31, 2011, there was approximately $1,278,000 of total unrecognized compensation
cost, approximately $361,000 of which relates to options and $917,000 of which relates to
non-vested common stock. The cost is expected to be recognized over a weighted-average period of 2
years for options and 1.6 years for non-vested common stock.
Stock Options:
The following table summarizes information regarding stock option activity in the first three
months of 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
($ in thousands)
|
|
Options outstanding at December 31, 2010
|
|
|
397,150
|
|
|
$
|
15.60
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,000
|
|
|
|
9.00
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(5,256
|
)
|
|
|
14.43
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(300
|
)
|
|
|
8.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2011
|
|
|
394,594
|
|
|
|
15.57
|
|
|
|
4.93
|
|
|
$
|
526
|
|
Exercisable at March 31, 2011
|
|
|
328,494
|
|
|
|
15.98
|
|
|
|
4.14
|
|
|
$
|
448
|
|
Substantially all of the outstanding options are expected to vest.
Under the provisions of accounting guidance pertaining to Stock Compensation, the Company is
required to estimate on the date of grant the fair value of each option using an option-pricing
model. Accordingly, the Black-Scholes pricing model is used with the following weighted-average
assumptions:
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
66.8
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
Expected term
|
|
|
3.2
|
|
14
The expected volatility is based on the Companys stock price over a historical period which
approximates the expected term of the option as well as a comparison to volatility for other
companies in the Companys industry and expectations of future volatility. The risk free interest
rate is based on the implied yield in U.S Treasury issues with a remaining term approximating the
expected term of the option. The expected option term is calculated as the historic weighted
average life of similar awards.
The total intrinsic value of stock options exercised was approximately $1,000 in the three months
ended March 31, 2011 compared to approximately $53,000 in the three months ended March 31, 2010.
Non-Vested Common Stock:
A summary of non-vested common stock activity during the first three months of 2011 is as follows:
Non-Vested Stock
|
|
|
|
|
|
|
Shares
|
|
Shares outstanding at December 31, 2010
|
|
|
80,109
|
|
Granted
|
|
|
73,358
|
|
Vested
|
|
|
(30,482
|
)
|
Canceled
|
|
|
(10,352
|
)
|
|
|
|
|
Shares outstanding at March 31, 2011
|
|
|
112,633
|
|
The weighted-average per share fair value of non-vested shares that were granted in the first three
months of 2011 was $9.48 per share.
The weighted-average per share fair value (as of grant date) of non-vested shares that vested
during the first three months of 2011 was $12.84 per share.
6. Fair Value of Financial Instruments:
Accounting guidance related to fair value measurements enables the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for
ranking the quality and reliability of the information used to determine fair values. This guidance
requires that assets and liabilities carried at fair value be classified and disclosed in one of
the following three categories:
|
|
Level 1: Quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2: Observable market based inputs or unobservable inputs that are corroborated by
market data.
|
|
|
|
Level 3: Unobservable inputs that are not corroborated by market data.
|
The Company generally applies fair value techniques on a non-recurring basis associated with
valuing potential impairment loss related to goodwill and other long-lived assets.
15
The following table summarizes the carrying amounts and fair values of certain financial assets and
liabilities at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Amount
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
Money Market Accounts
|
|
$
|
72
|
|
|
$
|
72
|
|
|
$
|
|
|
|
$
|
|
|
The following table summarizes the carrying amounts and fair values of certain financial
assets and liabilities at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Amount
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
Money Market Accounts
|
|
$
|
6,509
|
|
|
$
|
6,509
|
|
|
$
|
|
|
|
$
|
|
|
The Company elected not to apply the fair value option to any eligible financial instruments.
The carrying amounts of cash, accounts receivable, accounts payable and accruals approximate fair
value. The fair value of the Companys Convertible Notes was approximately 95% and 94% of the par
value at March 31, 2011 and December 31, 2010, respectively. The bond hedges and warrants
associated with the Convertible Notes currently have no value.
7. Segment Information:
The Company operates its business in two reportable segments, Early Stage and Late Stage. The
Early Stage business currently focuses on the Companys Phase I operations, while Late Stage is
comprised of contract services related to Phase II through IV clinical trials, regulatory affairs
and biometrics offerings. Support and Other consists of unallocated corporate expenses, primarily
information technology, marketing and communications, human resources, finance and legal.
Segment information, excluding discontinued operations (see Note 2) for the three months ended
March 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early
|
|
|
Late
|
|
|
Support
|
|
|
|
|
(in thousands)
|
|
Stage
|
|
|
Stage
|
|
|
& Other
|
|
|
Total
|
|
|
|
Three months ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service revenues
|
|
$
|
5,117
|
|
|
$
|
75,645
|
|
|
$
|
765
|
|
|
$
|
81,527
|
|
Reimbursable out-of-pocket revenues
|
|
|
767
|
|
|
|
18,779
|
|
|
|
|
|
|
|
19,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,884
|
|
|
$
|
94,424
|
|
|
$
|
765
|
|
|
$
|
101,073
|
|
Operating income (loss)
|
|
$
|
(399
|
)
|
|
$
|
16,174
|
|
|
$
|
(14,932
|
)
|
|
$
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service revenues
|
|
$
|
5,663
|
|
|
$
|
82,104
|
|
|
$
|
752
|
|
|
$
|
88,519
|
|
Reimbursable out-of-pocket revenues
|
|
|
633
|
|
|
|
25,596
|
|
|
|
|
|
|
|
26,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
6,296
|
|
|
$
|
107,700
|
|
|
$
|
752
|
|
|
$
|
114,748
|
|
Operating income (loss)
|
|
$
|
218
|
|
|
$
|
16,988
|
|
|
$
|
(12,780
|
)
|
|
$
|
4,426
|
|
16
Identifiable assets by segment as of March 31, 2011 and December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
Early Stage
|
|
$
|
28,538
|
|
|
$
|
32,528
|
|
Late Stage
|
|
$
|
404,771
|
|
|
$
|
390,608
|
|
Support & Other (a)
|
|
$
|
70,655
|
|
|
$
|
66,775
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
503,964
|
|
|
$
|
489,911
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Primarily comprised of cash and tax-related assets.
|
8. Restructuring Expenses:
At December 31, 2010, the Company accrued approximately $3.0 million for anticipated severance
costs related to the closure of the Early Stage portion of operations at its Utrecht location. In
the three months ended March 31, 2011, the Company officially closed its Utrecht location and
terminated most employees. During the three months ended March 31, 2011, the Company paid
severance costs of $1.8 million and recorded additions to the accrual of $0.9 million, primarily
related to managements estimate of the expected costs of terminating the Companys lease
obligation. The remaining accrual at March 31, 2011 is approximately $2.1 million; these amounts
are anticipated to be paid during 2011.
Additional expenses related to accelerated amortization of leasehold improvements and equipment
totaling $0.8 million were incurred in the three months ended March 31, 2011 and are reported
within the loss from discontinued operations (see Note 2).
9.
Subsequent Event:
On May 4, 2011 the Company entered into a definitive merger agreement with INC Research, LLC, under
which INC will acquire all of the outstanding shares of the Company. The Companys Board of
Directors unanimously approved the transaction which is expected to close in the third quarter of
2011, subject to approval by the Companys shareholders, satisfaction of customary closing
conditions, and regulatory approvals.
17
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The information discussed below is derived from the Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q for the three months ended March 31, 2011 and should
be read in conjunction therewith. The Companys results of operations for a particular quarter may
not be indicative of results expected during subsequent quarters or for the entire year.
The results of operations herein have been adjusted for the presentation of discontinued operations
for all periods presented.
Company Overview
Kendle International Inc. (the Company or Kendle) is a global clinical research organization (CRO)
that delivers integrated clinical development services, including clinical trial management,
clinical data management, statistical analysis, medical writing, regulatory consulting and
organizational meeting management and publications services, among other services, on a contract
basis to the biopharmaceutical industry. The Company operates in North America, Europe,
Asia/Pacific, Latin America and Africa. The Company operates its business in two reportable
operating segments, Early Stage and Late Stage. The Early Stage business currently focuses on the
Companys Phase I operations while Late Stage is comprised of clinical development services related
to Phase II through IV clinical trials, regulatory affairs and biometrics and statistics offerings.
The Company has aggregated its Clinical and Data Monitoring operating unit, Regulatory, Site and
Medical affairs operating unit, Biostatistics and Statistical Programming operating unit and its
Project Management and Late Phase operating unit into the Late Stage segment under the aggregation
criteria in accounting guidance related to disclosures about segments of an enterprise and related
information. The aggregation criteria met include a similar nature of services provided, a similar
type of customer, similar methods used to distribute services, similar economic characteristics and
a similar regulatory environment. In addition, the Company reports support functions primarily
composed of unallocated corporate expenses for information technology, marketing and
communications, human resources, finance and legal under the Support and Other category for
purposes of segment reporting. A portion of the costs incurred by the support units are allocated
to the Early and Late Stage reportable operating segments.
The Company primarily earns net service revenues through performance under Late Stage segment
full-service contracts. The Company also recognizes revenues through limited or functional
service contracts, consulting contracts, and Early Stage segment contracts. For a detailed
discussion regarding the Companys Late Stage segment contracts, Early Stage segment contracts,
revenue recognition process and other Critical Accounting Policies and Estimates, please see
Managements Discussion and Analysis of Financial Condition and Results of Operations included in
the Annual Report on Form 10-K for the year ended December 31, 2010.
The CRO industry in general continues to be dependent on the research and development efforts of
the principal pharmaceutical and biotechnology companies as major customers, and the Company
believes this dependence will continue. The loss of business from any of its major customers could
have a material adverse effect on the Company.
18
Early Stage Developments
As has been previously disclosed, the Company made a decision to close the Early Stage operations
of its facility located in Utrecht, The Netherlands (Utrecht), as a result of overall adverse
operating results due to volatility in the Early Stage drug development market as well as a
changing and challenging regulatory environment in the Netherlands leading to cancellations in the
Companys backlog. The Companys plan for closure was deemed official upon receiving the approval
of the Dutch Works Council, which became effective on March 1, 2011.
The results of the Utrecht Early Stage closure have been presented as discontinued operations
within the Companys condensed consolidated statements of operations and have been excluded from
segment operating results for all periods presented.
The closure is not expected to have any significant effect on the Companys remaining Early Stage
operations, or the Late Stage operations that continue to be conducted at Utrecht.
New Business Awards and Backlog
Backlog consists of anticipated net service revenue from contracts, letters of intent and other
forms of commitments (collectively defined as backlog) that either have not started but are
anticipated to begin in the near future, or are in process and have not been completed. Amounts
included in backlog represent anticipated future net service revenue and exclude net service
revenue that has been recognized previously in the Consolidated Statements of Operations. Once
contracted work begins, net service revenue is recognized in the Consolidated Statements of
Operations. Awards can vary significantly from quarter to quarter and contracts generally have
terms ranging from several months to several years. The Companys new business awards for the
three months ended March 31, 2011 and 2010 were approximately $164 million and $89 million,
respectively.
The majority of the Companys backlog is from large established biopharmaceutical firms with annual
revenues greater than $1 billion. Backlog arising from contracts with small biotech firms with no
revenues or large biopharmaceutical partner are not material to the Company. The Company continues
to experience high levels of cancellations and delays between proposals and awards due to budget
reductions and pipeline reprioritizations at large pharmaceutical companies, drug failures due to
efficacy and safety, and regulatory actions related to drugs in development among other things.
The average duration of the contracts in backlog fluctuates from quarter to quarter based on the
contracts constituting backlog at any given time. The Company generally experiences a longer
period of time between contract award and revenue recognition with respect to large contracts
covering global services. Additionally, as a result of biopharmaceutical companies starting to
award trials earlier in the cycle than they have historically, we are seeing the time duration
between award and revenue recognition elongate as study designs continue to be reviewed and
revised.
As the Company competes for and enters into large contracts that are global in nature, the Company
expects the average duration of the contracts in backlog to increase and may be affected by changes
in foreign exchange rates. Fluctuations in foreign exchange rates caused backlog to increase by
approximately $3.9 million as of March 31, 2011, primarily as a result of the strengthening of the
Euro throughout the three months ended March 31, 2011. Based on its 2010 experience, quarterly
revenue as a percentage of the beginning of the quarter backlog averaged approximately 10%.
19
Results of Continuing Operations
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
|
(in thousands)
|
|
Net service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Late stage
|
|
$
|
75,645
|
|
|
$
|
82,104
|
|
|
|
-7.9
|
%
|
Early stage
|
|
|
5,117
|
|
|
|
5,663
|
|
|
|
-9.6
|
%
|
Support & other
|
|
|
765
|
|
|
|
752
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Total net service revenues
|
|
|
81,527
|
|
|
|
88,519
|
|
|
|
-7.9
|
%
|
Reimbursable out-of-pocket revenues*
|
|
|
19,546
|
|
|
|
26,229
|
|
|
|
-25.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
101,073
|
|
|
$
|
114,748
|
|
|
|
-11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Reimbursable out-of-pocket revenues and expenses fluctuate from period to period, primarily due to
the level of investigator activity in a particular period.
|
Net
service revenues declined approximately $7.0 million for the three months ended March 31,
2011.
Net service revenues in the Late Stage segment for the three month period in 2011 decreased from
the prior year by approximately $6.5 million, primarily as result of reduced volume. The Companys
backlog has increased from December 31, 2010, however the lengthening of the timeframe from awarded
status to signature status inhibits the Company from commencing projects and revenue generating
activities. These delays are in large part attributable to pharmaceutical companies awarding work
earlier in the process and taking longer to finalize significant study related terms.
Net service revenues from the Early Stage segment decreased from the same periods of the prior year
by approximately $0.5 million as a result of lower sales volumes and continued project delays
similar to those discussed in the Late Stage segment.
Net service revenues from the Companys top five customers accounted for approximately 30% and 26%
of net service revenues for the periods ended March 31, 2011 and 2010, respectively. No customer
accounted for more than 10% of total net service revenues for 2011 or 2010.
The Companys results of operations are subject to volatility due to a variety of factors. The
cancellation or delay of contracts and cost overruns could have adverse effects on the Condensed
Consolidated Financial Statements. Fluctuations in the Companys sales cycle and the ability to
maintain large customer contracts or to enter into new contracts could negatively affect the
Companys long-term growth. For a more detailed discussion regarding the risk factors associated
with the Companys results of operations, among other things, see Item 1A Risk Factors, included
in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
20
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
|
(in thousands)
|
|
Direct costs
|
|
$
|
43,166
|
|
|
$
|
46,447
|
|
|
|
-7.1
|
%
|
Reimbursable out-of-pocket costs*
|
|
|
19,546
|
|
|
|
26,229
|
|
|
|
-25.5
|
%
|
SG&A expenses
|
|
|
33,080
|
|
|
|
33,961
|
|
|
|
-2.6
|
%
|
Depreciation and amortization
|
|
|
4,438
|
|
|
|
3,685
|
|
|
|
20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
100,230
|
|
|
$
|
110,322
|
|
|
|
-9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Reimbursable out-of-pocket revenues and expenses fluctuate from period to period, primarily
due to the level of investigator activity in a particular period.
|
Direct costs decreased from the same period last year by approximately $3.3 million or 7.1%
which is line with the decrease in overall net service revenues. Direct costs as a percentage of
net service revenues have remained steady at approximately 52.9% and 52.5% for the three months
ended March 31, 2011 and 2010, respectively as a result of managements effort to align resources
with revenues.
Selling, general and administrative expenses (SG&A) decreased approximately $0.9 million for the
three months ended March 31, 2011. The decrease in selling, general and administrative expenses
relates primarily to the Companys ongoing cost reduction and workforce optimization initiatives to
reduce operating expenses. These benefits were partially offset by the Companys continued
investment in its new business development and global sales organization. SG&A expenses expressed
as a percentage of net service revenues were 40.6% and 38.4% for the three months ended March 31,
2011 and 2010, respectively. The increase indicates that a significant portion of these costs are
more fixed in nature and do not fluctuate in proportion to net service revenues.
Depreciation and amortization expense increased approximately $0.8 million or 20.4% primarily as a
result of the Companys implementation of its new ERP system and the resultant amortization related
to these systems.
Income from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
|
(in thousands)
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Late stage
|
|
$
|
16,174
|
|
|
$
|
16,988
|
|
|
|
-4.8
|
%
|
Early stage
|
|
|
(399
|
)
|
|
|
218
|
|
|
|
-283.0
|
%
|
Support & other
|
|
|
(14,932
|
)
|
|
|
(12,780
|
)
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
843
|
|
|
$
|
4,426
|
|
|
|
-81.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income from operations declined for the three months ended March 31, 2011 as a result of the
overall decline in net service revenues and the relatively fixed nature of SG&A. Total operating
margins for the three month period ended March 31, 2011 and 2010 were approximately 1.0% and 5.0%,
respectively.
21
Late Stage segment income from operations decreased by $0.8 million for the three months ended
March 31, 2011 compared to the same period of the prior year. The decrease is attributable to the
segments decline in net service revenues, partially offset by the Companys cost reduction
initiatives. Operating margin for the three months ended March 31, 2011 and 2010 for the Late
Stage segment were approximately 21.4% and 20.7%, respectively.
Early Stage operating results declined for the three months ended March 31, 2011 from the same
period in 2010. Early Stage operations generally have higher fixed costs than the Late Stage
segment, making a decline in revenues more difficult to absorb. The Early Stage segment incurred
operating losses of $0.4 million for the three months ended March 31, 2011 as compared to operating
income of $0.2 million for same period of the prior year.
Support and other costs increased approximately $2.2 million from the same period in the prior year
as a result of the implementation of the Companys ERP system which was placed into service in the
second half of 2010. For the three months ended March 31, 2011, the Company is now recognizing
amortization expense on this software asset. Additionally the Company continues to incur
implementation-related expenses; however they are no longer being capitalized as they were in the
development stage of the project, which was ongoing in the same period of the prior year.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
|
(in thousands)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
11
|
|
|
$
|
22
|
|
|
$
|
(11
|
)
|
Interest expense
|
|
|
(2,963
|
)
|
|
|
(3,228
|
)
|
|
|
(265
|
)
|
Foreign currency gains / (losses)
|
|
|
(3,131
|
)
|
|
|
1,870
|
|
|
|
(5,001
|
)
|
Other expenses
|
|
|
0
|
|
|
|
(153
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(6,083
|
)
|
|
$
|
(1,489
|
)
|
|
$
|
(4,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
The primary component of interest expense is interest on the Companys 3.375% Convertible Notes
issued in 2007. Interest expense on the Convertible Notes was recorded at an effective rate of
8.02%. The decline is primarily the result of the Companys repurchase of $12 million of its par
value Convertible Notes subsequent to the three months ended March 31, 2010. An additional
decrease from the prior year resulted from the write-off of unamortized debt issuance costs when
the Company terminated its former credit facility in March of 2010. These decreases were
partially offset by interest paid on the Companys short-term borrowings under the revolving
credit loan portion of its Facility during the three months ended March 31, 2011. The remainder
of interest expense relates to interest on capital lease obligations and amortization of debt
issuance costs, net of capitalized interest.
Foreign Currency
The Company incurs foreign currency exchange gains and losses as part of the normal course of
business as it has subsidiaries in many countries outside the U.S. The exchange rate transaction
gains and losses
typically occur when the Company holds assets in a currency other than the functional currency of
the reporting location or as a result of regional cash pooling arrangements.
22
In the three month period ended March 31, 2011 these foreign exchange transactions resulted in a
net loss of $3.1 million as compared to a net gain of $1.9 million for the same period of 2010.
The foreign exchange result for the three months ended March 31, 2011 is primarily due to the
weakening of the U.S. dollar against the Euro, the British Pound and the Mexican peso. The 2010
result for this same period was due to the strengthening of the U.S. dollar against both the
British Pound and the Euro and to a lesser extent the strengthening of the British Pound against
the Euro.
Income Taxes
The
effective income tax rate was 77.3% for the three months ended
March 31, 2011, compared to 54.8% for the three months ended
March 31, 2010. The effective tax rate for the first quarter of
2011 reflects the Companys expectation that taxable income will
exceed book income in 2011 because of the impact of estimated 2011
foreign deemed dividends.
Tax expense for the quarter ended March 31, 2010 included approximately $350,000 resulting from the
December 31, 2009 expiration of certain tax legislation in the U.S. related to the U.S. tax
treatment of certain foreign earnings. The Company continues to maintain full valuation allowances
against the net operating losses incurred in some of its subsidiaries. The Company also maintains
valuation allowances for portions of its foreign tax credits that are not expected to be
realizable. Because Kendle operates on a global basis, the effective tax rate varies from quarter
to quarter based on the relative mix of pretax earnings or losses at the various locations.
Discontinued Operations
As has been previously disclosed, the Company made a decision to close the Early Stage operations
of its facility located in Utrecht, The Netherlands (Utrecht), as a result of overall adverse
operating results due to volatility in the Early Stage drug development market as well as a
changing and challenging regulatory environment in the Netherlands leading to cancellations in the
Companys backlog. The Companys plan for closure was deemed official upon receiving the approval
of the Dutch Works Council, which became effective on March 1, 2011. For the three months ended
March 31, 2011, discontinued operations accounted for a pre-tax loss of $2.3 million and a
corresponding tax benefit of $0.6 million. For the three months ended March 31, 2010, the pre-tax
loss from discontinued operations was $157 thousand and a tax benefit of $40 thousand.
The net loss from discontinued operations for the three months ended March 31, 2011 was primarily
the result of costs incurred related to the closure of the Companys Utrecht facility. As of March
31, 2011 there were no material assets remaining at Utrecht related to the discontinued operations.
The closure is not expected to have any significant effect on the Companys remaining Early Stage
operations, or the Late Stage operations that continue to be conducted at Utrecht.
Net Income (Loss)
Net loss for the three months ended March 31, 2011 was approximately $2.9 million, or $0.19 per
both basic and diluted share. Net income for the three months ended March 31, 2010 was
approximately $1.2 million, or $0.08 per both basic and diluted share.
23
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents decreased by $2.7 million at March 31, 2011 when compared with December
31, 2010, which was the net result of cash used by operating activities of $4.3 million, and
investing activities of $1.9 million, partially offset by $2.7 million of cash provided from
financing activities. Foreign exchange rates had a positive impact on cash and cash equivalents of
$0.7 million for the three months ended March 31, 2011. At March 31, 2011 cash and cash
equivalents were $18.5 million. In addition, the Company has approximately $0.9 million in
restricted cash which represents cash received from customers that is segregated in separate
Company bank accounts and available for use only for specific project expenses.
Net cash used by operating activities for the three months ended March 31, 2011 consisted primarily
of the Companys net loss of $2.9 million, adjusted for noncash expenses of $4.2 million primarily
related to depreciation and amortization, debt issuance cost amortization, and unrealized losses in
foreign exchange, partially offset by the noncash changes in deferred income taxes. Additional
uses of operating cash resulted from increases in accounts receivable and decreases in accounts
payable and accrued liabilities, which were offset by cash provided by the increases in advance
billings. Fluctuations in accounts receivable and advance billings occur on a regular basis as
services are performed, milestones or other billing criteria are achieved, invoices are sent to
customers, and payments for outstanding accounts receivable are collected from customers. Such
activity varies by individual customer and contract. The Company has been and continues to be
vigilant in monitoring and collecting its accounts receivable.
Investing activities for the three months ended March 31, 2011 consisted primarily of $1.9 million
used for capital expenditures, the majority of which relates to the implementation of the Companys
ERP software.
Financing activities for the three months ended March 31, 2011 consisted primarily of $2.7 million
of proceeds from the Companys accounts payable overdrafts. Additionally, proceeds of $13.5
million were received by accessing the revolving line of credit and were all promptly repaid.
Capital Resources
The Company is party to a credit agreement (the Facility) which is comprised of a $35 million
revolving loan commitment, with up to $10 million of such commitment available for issuance of
letters of credit and up to $5 million of such commitment available for same-day swing line loans.
At the Companys request and with the consent of the current lender or additional lenders, the
total commitment may be increased by, or incremental term loans may be obtained for, up to an
additional $15 million. At the Companys election, loans under the Facility are available either
at (i) an adjusted base rate plus an applicable margin; or (ii) an adjusted LIBOR plus an
applicable margin. The applicable margin for each interest rate is calculated in accordance with
the terms of the Facility.
The Facility, as amended on April 27, 2010, matures on March 31, 2015. The Facility was amended on
January 21, 2011 (Amendment No. 2) to increase the Total Leverage Ratio for certain periods and
also contemplates certain additional add-backs to Consolidated EBITDA for certain cash and
non-cash charges. The Facility was further amended (Amendment No. 3, dated as of April 28, 2011)
to increase the Total Leverage Ratio for certain periods and also amends in certain respects the
definition of Letter
of Credit; and (Amendment No. 4, dated as of May 3, 2011) in order to facilitate the Company
entering into a definitive merger agreement (see Note 9 to the Condensed Consolidated Financial
Statements for further details).
24
Borrowings under the Facility are collateralized by substantially all of the Companys assets
pursuant to the terms of a Pledge and Security Agreement. The Facility contains various
affirmative and negative covenants including those regarding limitations on the Companys ability
to incur certain indebtedness, limitations on certain investments, limitations on capital
expenditures and limitations on certain acquisitions and asset sales outside the ordinary course of
business, as well as financial covenants regarding limitations on the Companys total leverage
ratio, senior secured leverage ratio and interest coverage ratio. The Company is in compliance
with all covenants as of March 31, 2011.
The Company also maintains an existing $5.0 million Multicurrency Facility that is renewable
annually and is used in connection with the Companys European operations.
As of March 31, 2011 and December 31, 2010, there were no amounts outstanding under the revolving
credit loan portion of the Facility or the Multicurrency Facility. The Company did draw on the
Facility for short periods of time during the three months ended March 31, 2011 to cover temporary
operational cash flow needs, promptly repaying each advance. The maximum amount outstanding at any
point was $3.5 million and the average daily amount outstanding for the period was approximately
$794,000. The weighted average interest rate paid on these advances was 6.00%.
In July 2007, the Company entered into a Purchase Agreement with UBS Securities LLC (the
Underwriter) for the issuance and sale by the Company of $200 million, including a $25 million
over-allotment of the Companys Convertible Notes (Convertible Notes). The Convertible Notes have
a maturity date of July 15, 2012 and were sold to the Underwriters at a price of $1,000 per
Convertible Note, less an underwriting discount of 3% per Convertible Note. Throughout 2010 and
2009, the Company has repurchased in the open market $67.5 million of par value of its
outstanding Convertible Notes. At March 31, 2011 the par value of the outstanding Convertible
Notes was $142.5 million.
The net carrying amounts of the Convertible Notes are classified as long-term in the accompanying
Condensed Consolidated Balance Sheets. The debt discount and adjusted debt issuance costs are
being amortized, using the effective interest rate method, over the term of the Convertible Notes
which mature on July 15, 2012. Interest expense on the Convertible Notes has been recorded at an
effective rate of 8.02%.
The Companys primary cash needs on both a short-term and long-term basis are for the payment of
salaries and fringe benefits, business development costs, capital expenditures, hiring and
recruiting expenses, acquisitions and facility-related expenses. The Company believes that its
existing cash balances, together with cash flows from operations and borrowing capacity under the
Facility and the Multicurrency Facility, will be sufficient to meet its foreseeable cash needs for
the short term.
Longer term the Company will need to retire its Convertible Notes upon maturity on July 15, 2012.
The Company believes it could obtain sufficient resources to meet this obligation. There
can be no such reassurance that future financings will be available on terms as economically
favorable as the Companys existing terms.
The Company has not historically experienced regular liquidity or collections issues with the large
majority of its customers. However, the Company does have contracts with biotechnology and small
pharmaceutical companies, some of which are dependent upon external financing to fund their
contractual commitments. The Company is continuing to monitor the financial status of its
customers.
25
As more of the Companys revenues are generated in locations other than the U.S., repatriation of
those cash flows in a tax efficient manner is increasingly challenging. The Company is in the
process of revising its internal transfer pricing methodologies to align with its current
operational model.
Market Risk and Derivative Instruments
Interest Rates
The Company is exposed to changes in interest rates on any amounts outstanding under the Facility
and Multicurrency Facility. No amounts were outstanding under either the Facility or the
Multicurrency Facility as of March 31, 2011.
Foreign Currency
The Company operates on a global basis and is therefore exposed to various types of currency risks.
There are specific transaction risks which arise from the nature of the contracts the Company
executes with its customers. From time to time contracts are denominated in a currency different
than the particular local currency. This contract currency denomination issue is applicable only
to a portion of the contracts executed by the Company.
The first risk occurs as revenue recognized for services rendered is denominated in a currency
different from the currency in which the subsidiarys expenses are incurred. As a result, the
subsidiarys net service revenues and resultant net income or loss can be affected by fluctuations
in exchange rates.
The second risk results from the passage of time between the invoicing of customers under these
contracts and the ultimate collection of customer payments against such invoices. Because the
contract is denominated in a currency other than the subsidiarys local currency, the Company
recognizes a receivable at the time of invoicing at the local currency equivalent of the foreign
currency invoice amount. Changes in exchange rates from the time the invoice is prepared until the
payment from the customer is received will result in the Company receiving either more or less in
local currency than the local currency equivalent of the invoice amount at the time the invoice was
prepared and the receivable established. This difference is recognized by the Company as a foreign
currency transaction gain or loss, as applicable, and is reported in Other Income (Expense) in the
Condensed Consolidated Statements of Operations.
A third type of transaction risk arises from transactions denominated in multiple currencies
between any two of the Companys various subsidiary locations. For each subsidiary, the Company
maintains an intercompany receivable and payable, which is denominated in multiple currencies.
Changes in exchange rates from the time the intercompany receivable/payable balance arises until
the balance is settled or measured for reporting purposes, results in exchange rate gains and
losses. This intercompany receivable/payable arises when work is performed by a Kendle location in
one country on behalf of a Kendle location in a different country under contract with the customer.
Additionally, there are occasions when funds are transferred between subsidiaries for working
capital purposes. The foreign currency
transaction gain or loss is reported in Other Income (Expense) in the Condensed Consolidated
Statements of Operations.
26
The Company does not currently have hedges in place to mitigate exposure due to foreign exchange
rate fluctuations. Due to uncertainties regarding the timing of and currencies involved in the
majority of the Companys foreign exchange rate transactions; it is impracticable to implement
hedging instruments to match the Companys foreign currency inflows and outflows. The Company has
implemented procedures intended to mitigate the impact of foreign currency exchange rate
fluctuations including an intercompany procedure to allow for regular settlement of intercompany
balances where practical. The Company will continue to evaluate ways to mitigate the risk of this
impact in the future.
The Companys Condensed Consolidated Financial Statements are denominated in U.S. dollars.
Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar
will affect the translation of each foreign subsidiarys financial results into U.S. dollars for
purposes of reporting Condensed Consolidated Financial Statements. The Companys foreign
subsidiaries translate their financial results from local currency into U.S. dollars as follows:
income statement accounts are translated at average exchange rates for the period; balance sheet
asset and liability accounts are translated at end of period exchange rates; and equity accounts
are translated at historical exchange rates. Translation of the balance sheet in this manner
affects the shareholders equity account referred to as the foreign currency translation adjustment
account. This account exists only in the foreign subsidiaries U.S. dollar balance sheet and is
necessary to keep the foreign subsidiaries balance sheet stated in U.S. dollars in balance.
Foreign currency translation adjustments, which are reported as a separate component of
Shareholders Equity, were approximately $26.3 million at March 31, 2011 and $20.8 million at
December 31, 2010.
Use of Non-GAAP Financial Measures
The Results of Operations section of this Quarterly Report on Form 10-Q may, from time to time,
contain adjustments to amounts calculated in accordance with generally accepted accounting
principles (GAAP) in the United States. The Companys management believes that investors
understanding of the Companys performance is enhanced by disclosing these non-GAAP financial
measures as a reasonable basis for comparison of ongoing results of operations. Non-GAAP measures
should not be considered a substitute for GAAP-based measures and results. The Companys non-GAAP
measures may not be comparable to non-GAAP measures of other companies.
Cautionary Statement for Forward-Looking Information
Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts
constitute forward-looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995, and are intended to be covered by the safe harbors created by that Act.
Reliance should not be placed on forward-looking statements because they involve known and unknown
risks, uncertainties and other factors that may cause actual results, performance or achievements
to differ materially from those expressed or implied. Any forward-looking statement speaks only as
of the date made. The Company undertakes no obligation to update any forward-looking statements to
reflect events or circumstances arising after the date on which they are made.
27
Statements concerning expected financial performance, on-going business strategies and possible
future action which the Company intends to pursue to achieve strategic objectives constitute
forward-looking information. Implementation of these strategies and the achievement of such financial performance
are each subject to numerous conditions, uncertainties and risk factors.
Factors that could cause actual performance to differ materially from these forward-looking
statements include those risk factors set forth in Item 1A of the Companys Annual Report on Form
10-K for the year ended December 31, 2010, which risk factors may be updated from time to time by
the Companys Quarterly Reports on Form 10-Q.
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosure About Market Risk
|
See Managements Discussion and Analysis of Financial Condition and Results of Operations included
in this Quarterly Report on Form 10-Q and in the Companys Annual Report on Form 10-K for the year
ended December 31, 2010.
|
|
|
Item 4.
|
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
The Companys Chief Executive Officer and Chief Financial Officer have reviewed and evaluated
the effectiveness of the Companys disclosure controls and procedures (as defined in the Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that the Companys disclosure controls and procedures are effective and designed to
ensure that material information relating to the Company and the Companys consolidated
subsidiaries are made known to them by others within those entities.
Changes in Internal Control
In addition, the Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, has determined that there were no changes in the Companys internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
these internal controls over financial reporting during the period covered by this report.
The Company is in the process of implementing a new enterprise resource planning (ERP) system. The
Company expects the transition from its legacy systems to the new ERP system to continue throughout
2011. The Company is evaluating, and will continue to evaluate, the impact of the implementation
on its internal controls related to financial reporting. At this juncture, the Company does not
anticipate any adverse impact.
28
Part II. Other Information
|
|
|
Item 1.
|
|
Legal Proceedings
|
|
|
The Company is party to lawsuits and administrative proceedings incidental to the
normal course of business. The Company currently is not a party to any pending
material proceedings under Item 103 of Regulation S-K.
|
|
|
There have been no material changes from the information previously reported under
Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2010.
|
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
Item 3.
|
|
Defaults upon Senior Securities
|
|
|
|
Item 4.
|
|
Removed and Reserved
|
|
|
|
Item 5.
|
|
Other Information
|
29
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filing
|
Number
|
|
Description of Exhibit
|
|
Status
|
|
2.3
|
|
|
Agreement and Plan of Merger, dated as of May 4, 2011, by and
among INC Research, LLC, Triangle Two Acquisition Corp.
and Kendle International Inc.
|
|
A
|
|
4.1
|
(a)
|
|
Amendment No. 1 to Stockholder Rights Agreement, dated as of
May 4, 2011, between Kendle International Inc. and American
Stock Transfer & Trust Company, LLC
|
|
B
|
|
10.20
|
|
|
Amendment No. 3 to Credit Agreement with various lenders and
JPMorgan Chase Bank N.A., as Administrative Agent dated
as of April 28, 2011
|
|
C
|
|
10.21
|
|
|
Amendment No. 4 to Credit Agreement with various lenders and
JPMorgan Chase Bank N.A., as Administrative Agent dated
as of May 3, 2011
|
|
C
|
|
31.1
|
|
|
Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
C
|
|
31.2
|
|
|
Certificate of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
C
|
|
32.1
|
|
|
Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
C
|
|
32.2
|
|
|
Certificate of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
C
|
|
|
|
Filing
|
|
|
Status
|
|
Description of Filing Status
|
|
|
A
|
|
Incorporated by reference to Exhibit 2.1 to the Companys Form 8-K filed with the
Commission on May 5, 2011.
|
B
|
|
Incorporated by reference to Exhibit 4.2 to the Companys Form 8-A (Amendment No. 1)
filed with the Commission on May 5, 2011.
|
C
|
|
Filed herewith
|
30
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.
|
|
|
|
|
|
KENDLE INTERNATIONAL INC.
|
|
Date: May 10, 2011
|
By:
|
/s/ Dr. Stephen Cutler
|
|
|
|
Dr. Stephen Cutler
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: May 10, 2011
|
By:
|
/s/ Keith A. Cheesman
|
|
|
|
Keith A. Cheesman
|
|
|
|
Senior Vice President - Chief Financial Officer
|
|
31
KENDLE INTERNATIONAL INC.
Exhibit Index
|
|
|
|
|
Exhibits
|
|
Description
|
|
|
|
2.3
|
|
|
Agreement and Plan of Merger, dated as of May 4, 2011, by and among INC
Research, LLC, Triangle Two Acquisition Corp. and Kendle International Inc.
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K filed with
the Commission on May 5, 2011).
|
|
4.1
|
(a)
|
|
Amendment No. 1 to Stockholder Rights Agreement, dated as of May 4, 2011,
between Kendle International Inc. and American Stock Transfer & Trust
Company, LLC (incorporated by reference to Exhibit 4.2 to the Companys Form
8-A (Amendment No. 1) filed with the Commission on May 5, 2011).
|
|
10.20
|
|
|
Amendment No. 3 to Credit Agreement with various lenders and JPMorgan
Chase Bank N.A., as Administrative Agent dated as of April 28, 2011
|
|
10.21
|
|
|
Amendment No. 4 to Credit Agreement with various lenders and JPMorgan
Chase Bank, N.A., as Administrative Agent dated as of May 4, 2011
|
|
31.1
|
|
|
Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
|
|
31.2
|
|
|
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
|
|
32.1
|
|
|
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
|
|
32.2
|
|
|
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
|
32
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