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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21185
APPLIED ANALYTICAL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2687849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5051 NEW CENTRE DRIVE, WILMINGTON, NC 28403
(Address of principal executive
office) (Zip code)
Registrant's telephone number, including area code: (910) 392-1606
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [ ]
The number of shares outstanding of the Registrant's common stock, as of March
19, 1999 was 17,204,490 shares. The aggregate market value for the voting stock
held by non-affiliates of the Registrant on March 19, 1999 was approximately
$113,039,189.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report to Shareholders are incorporated
by reference in Parts I, II, and IV hereof. Portions of the Registrant's 1998
Proxy Statement dated approximately April 9, 1999 are incorporated by reference
in Part III hereof.
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PART I
ITEM 1. BUSINESS.
The terms "Company", "Registrant" or "AAI" in this Form 10-K include
Applied Analytical Industries, Inc., its corporate predecessors and its
subsidiaries, except where the context may indicate otherwise. The Company was
incorporated in 1986, although its corporate predecessor was founded in 1979.
AAI operates in two business segments which include a fee-for-service business
and a product development business. Financial information by business segment is
included on pages 33 and 34 of the 1998 Annual Report to Shareholders (the
"Annual Report") and is incorporated herein by reference.
In the fee-for-service business, AAI is a leading integrated contract
research and development resource to the worldwide pharmaceutical and
biotechnology industries, offering an efficient, variable cost alternative to
its clients' internal drug development, compliance and quality control programs.
The Company provides a broad array of value-added services, including chemical
analysis, synthesis and other laboratory services; drug formulation development;
bioanalytical services; clinical supply and niche manufacturing; and regulatory
and compliance consulting.
In addition to the analytical services, AAI offers clinical trial
services on a fee-for-service basis. The clinical business allows AAI to
leverage customer relationships by offering longer term, broad scope contracts
which span from early developmental testing and formulation to post-approval
analysis. The clinical group provides customers a single source provider of
pre-clinical and clinical testing. Being a single source provider of services
can decrease the amount of knowledge transfer lost between separate vendors and
can ultimately decrease the cost of development and speed to market of a drug.
AAI has contributed to the submission, approval or continued marketing
of client products worldwide, encompassing a wide range of therapeutic
categories and technologies. The Company believes that its ability to offer an
extensive portfolio of high quality drug development and support services
enables it to effectively compete as pharmaceutical and biotechnology companies
look for integrated drug development solutions that offer cost-effective results
on an accelerated basis.
In addition to the fee-for-service business, AAI leverages its expertise
by allocating a portion of its technical resources and operating capacity to
internal drug and drug technology development. The Company generally funds the
expense of development and then participates in the benefits of any potential
commercial success through licensing and royalty arrangements. The Company does
not directly market its internally developed products. Licensing partners, who
are generally pharmaceutical companies, provide all marketing and sales service.
Internal drug development efforts encompass generic products, line extensions
and new patented technologies. Certain of these products have been licensed or
sold. The Company's proprietary technology includes patents and pending patent
applications on formulations, methods and drug delivery vehicles. The Company
has only recently begun to recognize significant license and royalty revenues
from its internal development efforts because of the significant time required
for development and regulatory approval of pharmaceutical products.
In 1994, as part of its internal development program, the Company
organized Endeavor Pharmaceuticals Inc. ("Endeavor") to develop certain hormone
pharmaceutical products, focusing initially on several such products then under
development by AAI. The Company owns approximately 40% of the fully diluted
common equity of Endeavor.
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On December 31, 1996, the Company acquired L.A.B. Gesellschaft fur
pharmakologische Untersuchungen mbH & Co. ("L.A.B."). L.A.B. was a European
contract research and development organization headquartered in Neu-Ulm, Germany
with principal operating units in Neu-Ulm and Munich, Germany; Paris, France,
and Arnheim, Netherlands as well as a sales office in London, England. The
former L.A.B. operations are now included in the organization referred to as AAI
Europe. AAI Europe focuses on both clinical and non-clinical pharmaceutical
product development and provides services that include drug formulation
development; chemical analysis; Phase I clinical trial studies; bioanalytical
testing; and European regulatory consulting. AAI Europe also provides Phase
II-IV multi-center clinical trial studies focused in niche therapeutic areas
including hepatic disease, chemotherapeutics, and hormone replacement therapy.
On September 14, 1998, the Company acquired Kansas City Analytical
Services, Inc. (KCAS) a bioanalytical services company in the Kansas City,
Kansas area. KCAS offers bioanalytical testing of products to large and small
pharmaceutical development companies. The addition of KCAS significantly
increased AAI's bioanalytical testing capacity.
On March 16, 1999, the Company merged with Medical and Technical Research
Associates, Inc., (MTRA) a clinical research organization located near Boston,
Massachusetts. MTRA offers clinical phase II - IV studies predominately in the
US market to large and small pharmaceutical companies. The addition of MTRA adds
clinical phase II - IV capabilities in the United States and will significantly
increase AAI's ability to provide clinical testing to U.S. customers and enable
the Company to compete for global clinical trial engagements.
FEE-FOR-SERVICE BUSINESS
The Company provides a broad array of drug development services,
including chemical analysis, synthesis and other laboratory services;
formulation development; bioanalytical services; clinical supply and niche
manufacturing; clinical trial services and monitoring; and regulatory and
compliance consulting. The Company assigns project management teams consisting
of customer service representatives and technical employees that meet with
clients at frequent intervals to monitor and guide projects through the
development process. Continual client interaction allows the Company to
efficiently manage the drug development process.
Historically, the Company's laboratory services have accounted for
approximately one half of its fee-for-service revenue, although relative amounts
vary from year to year. Formulation development projects and clinical supply and
niche manufacturing generally have contributed the major portions of remaining
annual fee-for-service revenue.
LABORATORY SERVICES
In support of drug development and compliance programs, the Company
offers laboratory services to characterize and measure drug components and
impurities. The Company has more than 19 years experience in providing
analytical testing services dedicated exclusively to the drug industry and has
developed the scientific expertise, state-of-the-art equipment and broad range
of scientific methods to accurately and quickly analyze almost any compound or
product. The Company's laboratory services include method development and
validation; stability studies; raw materials and release testing; biotechnology,
microbiology and bioanalytical testing; product characterization and organic
synthesis.
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METHOD DEVELOPMENT AND VALIDATION. The Company develops and validates
methods used in a broad range of laboratory testing necessary to determine
physical or chemical characteristics of compounds. Analytical methods are
developed to demonstrate potency, purity, stability or physical attributes.
These methods are validated to ensure the data generated by these methods are
accurate, precise, reproducible and reliable and are used throughout the drug
development process and in product support testing.
STABILITY STUDIES. The Company provides stability testing and secure
storage facilities necessary to establish and confirm product purity, potency
and other shelf-life characteristics. Stability testing is required at all
phases of product development, from dosage form development through commercial
production, to confirm shelf life of each manufactured batch. The Company
maintains state-of-the-art climate-controlled facilities in the United States
and Germany to determine impact of a range of storage conditions on product. FDA
regulations and the regulations of European regulatory authorities require that
samples of clinical and commercial products placed in stability chambers be
analyzed in a timely fashion after scheduled "pull points" occur, based on the
date of manufacture. The Company's proprietary Laboratory Tracking System (LTS)
tracks client products maintained at the Company's stability storage facilities
and automatically schedules required testing as pull points occur.
RAW MATERIALS AND PRODUCT RELEASE TESTING. The Company offers testing
required by the FDA and other regulatory agencies to confirm that raw materials
used in production and resulting finished products are consistent with
established specifications. Due to the incorporation of "just in time" inventory
control systems in client production schedules, release testing for both raw
materials and the finished product often cannot be scheduled by clients in
advance, yet must be performed immediately. The Company believes that its
internal scheduling systems, analytical laboratory expertise and systems for
prompt testing provide it with a competitive advantage in providing both raw
material and batch release testing. The Company believes that this service
enhances its client's confidence in adopting cost-saving "just in time"
inventory control systems.
BIOTECHNOLOGY ANALYSIS AND SYNTHESIS. Although the types of analytical
investigations of biotechnology products are similar to those required for more
traditional pharmaceutical products, the complex molecular structure of many
biotechnology products requires different technology and expertise. The Company
provides a broad array of biotechnology services, including both analytical and
biological testing and method development and validation. AAI's breadth of
services allows the Company to rapidly deduce and characterize the complex
structure of the biotechnology product and measure the molecule or its
metabolites in human blood plasma to support clinical trial evaluation. The
Company has expertise in a broad spectrum of biochemical and immunochemical
methods for characterization and analysis of biotechnology drugs. These methods
include amino acid sequencing, amino acid analysis, peptide mapping,
carbohydrate and lipid analysis and electrophoresis. The Company also has
expertise in developing chromatographic methods that precisely evaluate the
purity and stability of biotechnology products. This service breadth and
diversity of analytical skills and technologies enable the Company to assist its
clients from early product development through the investigational new drug
application and product license application stages and commercial production.
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MICROBIOLOGICAL TESTING. Microbiological testing is an essential
indicator to ensure that a drug product, whether raw material or finished
product, does not contain harmful micro-organisms. The Company has significant
experience conducting various microbial tests to identify and quantify
micro-organisms that may be present, including limulus amebocyte lysate testing,
which measures toxic byproducts of micro-organisms, and particulate matter
testing to determine the presence of foreign matter in injectable drug products.
The Company also performs sterility testing to identify the genus and species of
any micro-organisms that are present. In addition, the Company performs tests to
determine the effectiveness of antibiotics against micro-organisms and the
minimum levels of preservatives necessary in product formulations.
The Company also assists clients with environmental monitoring, including
water and air systems testing, using an automated biochemical system to identify
micro-organisms present and determine whether such systems are within applicable
microbial limits. The Company assists clients in validating their environmental
control systems to ensure compliance with Good Manufacturing Practices (GMP)
regulations.
BIOANALYTICAL TESTING. The Company offers bioanalytical testing services
to support clinical trials, analyzing plasma samples to characterize the
metabolized forms of the drug and determine the rate of absorption.
Bioanalytical studies of new drugs often present challenging and complex issues,
with products being metabolized into multiple active and inactive forms, each of
which must be measured. The Company works with its clients to develop and
validate analytical methods to permit detection and measurement of the various
components to trace levels. The acquisition of L.A.B. in 1996 and KCAS in 1998
significantly enhanced the Company's bioanalytical capabilities.
PRODUCT CHARACTERIZATION. The Company has the expertise and instruments
required to identify and characterize a broad range of chemical entities.
Characterization analysis identifies the chemical composition, structure and
physical properties of a compound, and characterization data forms a significant
portion of a regulatory application. The Company uses numerous techniques to
characterize a compound, including spectroscopy, chromatographic analyses and
other physical chemistry techniques. Additionally, the Company uses such
information for control testing to be performed throughout development and
marketing to confirm consistent drug composition. Once appropriate test methods
are developed and validated, and appropriate reference standards are
characterized and certified, the Company can assist clients by routinely testing
compounds for clinical and commercial use.
ORGANIC SYNTHESIS. The Company develops synthesis methods for producing
experimental quantities of new compounds needed for analytical characterization,
toxicological studies, formulation development and clinical trials. Through
organic synthesis techniques, the Company can produce reference standards of the
active compound, specific impurities, degradation by-products, bioassay
reference standards or molecular analogs to permit sufficient quantities of such
compounds to be separately characterized and studied.
6
FORMULATION DEVELOPMENT SERVICES
The Company provides integrated formulation development services,
enabling the Company to take a client's compound and develop a safe and stable
product with desired characteristics. The Company believes its formulation
expertise and extensive analytical capabilities enable it to provide an
efficient, seamless development program, with a dedicated project team tracking
the product through all stages of formulation development. The Company provides
formulation development services to its clients during each phase of the drug
development process, from new compounds and modifications of existing products
to generic versions of branded products. The Company's formulation development
projects may support a small segment of critical development activities or may
last for several years going from early formulation development to optimized and
validated production-scale, packaged product.
The Company's formulation development expertise spans a broad spectrum of
therapeutic areas. The Company works with clients to develop products with
desired characteristics, including dosage form, strength, release rate,
absorption properties, stability and appearance. The Company has developed
significant product and process capabilities that enable it to efficiently solve
the complex problems that arise in developing formulations with targeted
characteristics and has developed a range of proprietary product technologies
that allow it to efficiently achieve desired results in product design and
development.
In providing formulation services, the Company works closely with clients
to design and conduct feasibility studies to chart the potential of formulating
a drug using a combination of active drug ingredients and inert materials called
excipients. Using experimental designs, initial prototype formulations are
prepared to identify potential problems in stability, bioavailability and
manufacturing. Generally, formulation development is an iterative process, with
numerous initial formulations being modified as problems are encountered. The
Company believes its experience and expertise in formulation development, as
well as certain proprietary technologies, permit it to design efficient
protocols for identifying and optimizing prototypes with the greatest potential.
Upon selection of the final product prototypes, the Company develops
protocols to scale the product batch size from development stage (hundreds to
thousands of units) to clinical scale (thousands to millions of units). During
the clinical phase the Company refines the formulation in response to clinical,
bioanalytical and stability data. The manufacturing scale-up process involves
identifying and resolving manufacturing problems to facilitate an efficient
transfer to the full-scale production equipment of the Company's clients.
Throughout the development process, the Company develops and validates the
analytical methods necessary to test the product to establish and confirm
product specifications.
In addition to new drug development, the Company offers product
modification and line extension services to clients, generally for marketed
products facing patent expiration. Modifications of existing products offer the
Company's clients an opportunity to improve product characteristics, increasing
product market viability. Improved product characteristics include enhancement
of stability, absorption profiles (e.g., quick or sustained release), taste and
appearance. Product line extensions may include new dosage forms such as solids,
liquids and chewables, as well as new dosage strengths. Product modifications
and line extensions offer clients the opportunity to target new patient
subpopulations and improve patient compliance. The Company also offers
formulation services to clients seeking to develop generic products.
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CLINICAL SUPPLY AND NICHE MANUFACTURING
The Company provides clinical trials materials for Phase I through IV
clinical trials. The Company has expertise in manufacturing tablets, capsules,
sachets, liquids and suspensions, creams, gels, lotions and ointments. The
Company believes that outsourcing of clinical supply manufacturing is
particularly attractive to pharmaceutical companies that maintain large,
commercial-quantity, batch facilities, where clinical supply manufacturing would
divert resources from revenue-producing manufacturing. Similarly, pharmaceutical
companies often seek to outsource commercial manufacturing of small quantity
products. The Company has a dedicated 20,000 square foot facility in Wilmington,
North Carolina and a similar facility in Paris, France to distribute and track
clinical trial materials used in clinical studies. In addition, the Company
provides its clients assistance in scaling up production of clinical supply
quantities to commercial quantity manufacturing, and manufactures inventory on
behalf of clients for commercial sale while client production facilities are
being built and validated.
The Company's manufacturing facilities and equipment are qualified and
validated to operate under GMP regulations.
REGULATORY AND COMPLIANCE CONSULTING
The Company assists in the preparation of regulatory submissions, audits
a client's vendors and client operations, conducts seminars, provides training
courses, and advises clients on applicable regulatory requirements. The Company
also assists clients in designing development programs for new or existing drugs
intended to be marketed in the United States and Europe. At the client's
request, the Company will either review client prepared submissions or draft
sections and assemble regulatory packages and attend FDA meetings with clients.
The Company assists clients in preparation for FDA inspections and assists them
in correcting any deficiencies noted in FDA inspections. In preparation for an
FDA inspection, the Company's regulatory affairs specialists conduct mock
inspections to anticipate FDA observations and advise clients of appropriate
remedial actions. The Company also audits manufacturers of active and excipient
ingredients used in the drug product, as well as packaging components, on behalf
of clients to ensure that the manufacturers' facilities are in compliance with
GMP regulations. Such audits generally include review of the vendor's drug
master files, analysis of written standard operating procedures ("SOP"), review
of production records, and observation of operations to ensure that written
SOP's are being followed. Audit reports include recommendations to address any
deficiencies. The Company also advises clients on validation issues concerning
their systems and processes and audits client facilities to assist them in
validating their processes, cleaning, water and air handling systems.
The Company leverages its in-house laboratory training programs by
providing training to clients' employees. In addition, the Company organizes and
conducts seminars worldwide on a number of topical industry issues.
CLINICAL SERVICES
The Company has a 48-bed Phase I clinical trial facility located in the
same facility as one of the Company's analytical laboratories in Research
Triangle Park, North Carolina. With the acquisitions of L.A.B. and MTRA, the
Company expanded its Phase I clinical trial capabilities and added the ability
to conduct and monitor Phase II-IV studies and multi-center trials focused in
niche therapeutic areas, including hepatic disease, chemotherapeutics and
hormone replacement therapy. The Company's Neu-Ulm, Germany operations include a
120-bed facility for conducting certain Phase I and II clinical trial studies,
as well as bioequivalency studies. The newly expanded facility in Paris, France
allows the Company to perform as a Phase II-IV multi-center clinical trial
operation serving many European pharmaceutical companies.
8
MTRA provides a full range of Phase II-IV clinical services to customers
in the pharmaceutical, biotechnology and medical device industries for
assistance in the drug development and regulatory approval process in North
America. The clinical services include clinical trial management and monitoring,
data management and statistics.
With the addition of MTRA in 1999, the Company anticipates that clinical
services will contribute more significantly to total revenues as clinical
services will be offered on a global scale and have a significant customer base
in the United States.
PRODUCT DEVELOPMENT BUSINESS
The Company dedicates a portion of its technical resources and operating
capacity to internal drug and technology development with the objective of
licensing marketing rights to third parties. The Company does not independently
commercialize products developed internally or otherwise directly compete with
its clients in the marketing or distribution of products and, accordingly,
believes that its internal development efforts are complementary to its clients'
development needs. The Company's internal product and technology development
program has resulted in multiple product applications filed with the FDA and
European regulatory agencies. Many of these products have been licensed or sold.
The internal development program has also resulted in patents covering drug
technology and pending patent applications
Since 1993, the Company has significantly increased its investment in its
internal product development program. Because of the length of time required for
development and approval of pharmaceutical products, the Company has only
recently begun to recognize significant license revenue from its internal
development efforts. The Company anticipates that internal product development
revenues, including royalties and milestone license payments, will represent a
growing proportion of its revenue. However, there can be no assurance that
internal development projects will yield products that will be approved by the
appropriate regulatory authorities or will be attractive to potential clients.
Although there is a risk that any particular development project may not produce
revenues, the Company believes that the profit margins from successful drug and
technology development projects could potentially exceed the margins for
standard fee-for-service engagements.
In 1994, as part of its internal development program, the Company
organized Endeavor with certain financial investors and an affiliate of Schering
AG to continue the development of certain generic hormone products then under
development by AAI. The Company assigned its rights to such products to Endeavor
in return for approximately 47% of Endeavor's equity during a private placement
of Endeavor stock, and the Company entered into a contract with Endeavor to
continue product development and clinical supply manufacture. AAI currently owns
approximately 40% of the fully diluted common equity of Endeavor. The Company's
fee-for-service net sales to Endeavor were approximately $1.6 million, $3.2
million and $6.2 million in 1998, 1997 and 1996, respectively. The Company
believes that such services are provided at terms that are no less favorable
than terms that would be obtained from an unrelated third party.
Endeavor had one product approved by the FDA in 1998 and is currently
developing another product, in multiple dosage strengths; however, there can be
no assurance that such product will ultimately be approved by the FDA. Endeavor
does not directly market any products and its revenues are dependent upon
licensing fees and royalties from third parties. Continued product development
by Endeavor is dependent upon revenues from the approved product or additional
capital funding.
9
In 1995 the Company entered into an agreement with Aesgen, Inc.
("Aesgen"), a company organized by the Company with an affiliate of Mayo Clinic,
MOVA Pharmaceutical Corporation and certain financial investors, to develop
certain pharmaceutical products. AAI recognized net sales to Aesgen of $.2
million, $1.9 million and $4.7 million in 1998, 1997 and 1996 respectively. In
1996, the Company sold to Aesgen marketing rights to a product being developed
by the Company. Under the agreement, Aesgen will pay license fees and additional
royalties upon marketing the product, although there can be no assurance that
the product will be approved by the FDA or marketed. AAI continues to hold a
$1.6 million non-voting, non-convertible preferred stock investment in Aesgen.
In addition to its development work for Endeavor and Aesgen, the Company
has continued its internal development of products to be licensed to third
parties that have marketing and distribution capabilities. The Company has
entered into numerous license agreements for products that are currently in
development. The terms of the license agreements vary as to amounts of milestone
payments, as well as methods and extent of revenue participation. While the
Company anticipates that most of its product license agreements will provide
that prospective clients will ultimately sponsor the approved product, in
certain instances the Company has made submissions for internally developed
products in its own name.
Continuing to leverage its development capabilities, the Company has
moved into product line extension development and has also begun reviewing new
compounds that are chemically similar to currently marketed products with proven
therapeutic and safety profiles, and that offer improved characteristics over
the marketed product. Such improved characteristics would include enhanced or
new therapeutic indices, reduced side effects, improved bioavailability and
improved pharmacokinetics. Because considerable toxicity data already exists for
the marketed product, the Company believes that product lines extensions and
pro-drugs generally could be developed with less risk of failure and in a
shorter time frame than new chemical entity development. The Company believes
that virtual and limited-resource drug companies provide opportunities to enter
into collaborative ventures to identify and develop these types of compounds.
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TECHNOLOGY DEVELOPMENT PROGRAM
As an adjunct to the internal development program, the Company has sought
to protect certain intellectual property it has developed relative to the drug
development process. The Company has established a patent committee that meets
regularly to review employee-generated submissions of possible patentable
subject matter. The patent committee reviews the novelty and usefulness of the
submission and, with input from the marketing department as to commercial
viability, determines to either pursue a patent application or designate the
submission as a trade secret.
The Company's internal development program has yielded multiple issued
patents and has several pending applications. For example, the Company's
patented Pro-Sorb(R) formulation technology has been shown to facilitate the
oral absorption of a number of non-steroidal anti-inflammatory drugs or NSAIDs,
such as diclofenac, to reduce gastric irritation and speed the onset of
therapeutic activity. In addition, the Company has patented a novel oral
delivery system for certain biotechnology compounds that may currently be
administered only by injection.
The Company has one licensing agreement for a patented technology for the
manufacture of low-dose products which are typically difficult to uniformly
blend and an additional licensing arrangement for its patented chewable
formulations to mask the otherwise bitter taste of certain ulcer drugs. The
Company is seeking licensing partners for its other recently developed
technologies.
INFORMATION TECHNOLOGY
The Company has made significant investments in information technology.
The Company's proprietary LTS system tracks laboratory workflow and enables the
Company to monitor and plan work through the Company's laboratories. The LTS
system monitors the progress of a client's project, records time expended by
laboratory personnel, tracks sample locations and controls document revisions.
The Company's customized data management system connects analytical instruments
with multiple software architectures permitting automated data capture.
The Company believes that information technology will enable it to
expedite the development process by designing innovative services for individual
client needs, providing project execution, monitoring and control capabilities
that exceed a client's internal capabilities, streamlining and enhancing data
presentation to the FDA and enhancing its own internal operational productivity
while maintaining its quality.
In 1998, the Company began implementation of an enterprise wide financial
and operational integrated management information system including significant
systems licensed from SAP. Certain financial components became operational at
year end 1998, with other operational management systems to follow later in
1999. The new system will be implemented in all subsidiaries and allows for
expansion in a consistent and controlled manner.
Disclosure regarding the impact of year 2000 is included in the section
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the Annual Report under the caption "Year 2000 Disclosure."
11
CLIENTS
The Company has provided services to most of the major pharmaceutical
companies in the world. The Company believes that concentration of business
among certain large clients is not uncommon in the contract research
organization (CRO) industry. The Company has experienced such concentration in
the past and may experience such concentration in the future. Although AAI
strives to reduce its reliance on a limited number of major clients, there can
be no assurance that the Company's business will not be dependent upon certain
major clients, the loss of which could have a material adverse effect on the
Company. In addition, due to the project nature of the Company's business, there
can be no assurance that significant clients in any one period will continue to
be significant clients in other periods.
MARKETING AND BUSINESS DEVELOPMENT
Since its inception, the Company has taken a customer-focused approach in
marketing its services, often placing the Company's technical personnel with its
clients' development teams to participate in planning meetings for the
development of a product. The Company assigns sales and technical personnel as
contacts for its larger clients, understanding that technical personnel may be
better able to identify the full scope of the client's needs and suggest
innovative approaches before the client formally develops the parameters of an
anticipated project. Generally, the Company also hosts more than ten technical
seminars per year for the pharmaceutical and biotechnology industries addressing
a variety of formulation development issues, stability testing and other topics.
CONTRACTUAL ARRANGEMENTS
The Company's fee-for-service contracts are typically evidenced by signed
service estimates establishing an estimated fee for identified services. During
the Company's performance of a project, clients often adjust the scope of
services to be provided by the Company in light of interim project results, at
which time the amount of fees is adjusted accordingly.
Generally, the Company's fee-for-service contracts are terminable by the
client upon notice of 30 days or less, although certain major formulation
development and manufacturing agreements are not unilaterally terminable by the
client. Although the contracts typically permit payment of certain fees for
winding down a project, the loss of a large contract or the loss of multiple
contracts could adversely affect the Company's future revenue and profitability.
Contracts may be terminated for a variety of reasons, including the client's
decision to forego a particular study, the failure of product prototypes to
satisfy safety requirements and unexpected or undesired results of product
testing.
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BACKLOG
Backlog consists of anticipated net sales from signed service estimates
and other fee-for-service contracts that have not been completed and provide for
a readily ascertainable price. Once contracted work begins, net sales are
recognized as the service is performed. In certain cases, the Company begins
work for a client before a contract is signed. Accordingly, backlog does not
include anticipated net sales for which the Company has begun work but for which
the Company does not have a signed service estimate, or for any variable-priced
contracts. In addition, during the course of a project the client may
substantially adjust the requested scope of services and corresponding
adjustments are made to the price of services under the contract.
The Company believes that its backlog as of any date is not a meaningful
predictor of future results because backlog can be affected by a number of
factors, including variable size and duration of contracts and adjustments in
the scope of a contracted project as interim results become available.
Additionally, contracts generally are subject to termination by clients upon 30
days notice or less. Moreover, the scope of a contract can change over the
course of a project. At December 31, 1998 and 1997 backlog was approximately
$23.9 and $31.5 million, respectively.
COMPETITION
The Company competes primarily with in-house research, development,
quality control and other support service departments of pharmaceutical and
biotechnology companies, as well as university research laboratories. In
addition, the Company believes that although there are numerous competitors in
its industry, there are few competitors that offer the broad array of services
that it provides. Certain of the Company's competitors may have significantly
greater resources than the Company. Competitive conditions for service areas
vary.
Competitive factors include reliability, turn-around time, reputation for
innovative and quality science, capacity to perform numerous required services,
financial viability and price. The Company believes that it competes favorably
in these areas.
GOVERNMENT REGULATION
The services performed by the Company are subject to various regulatory
requirements designed to ensure the quality and integrity of pharmaceutical
products, primarily under the Federal Food, Drug, and Cosmetic Act and
associated GMP regulations which are administered by the United States Food and
Drug Administration (FDA) in accordance with current industry standards.
Services being performed outside the United States or for products intended to
be substituted to non-U.S. jurisdictions may be subject to additional regulatory
requirements and government agencies applicable to that jurisdiction. U.S.
regulations apply to all phases of drug manufacture, testing and record keeping,
including personnel, facilities, equipment, control of materials, processes and
laboratories, packaging, labelling and distribution. Noncompliance with such
regulations by the Company in a project could result in disqualification of data
collected by the Company for such project. Material violation of regulatory
requirements could result in additional regulatory sanctions. In severe cases
violations could result in a mandated closing of the Company's facilities which
would materially and adversely affect the Company's business.
13
To help assure compliance with applicable regulations, the Company has
established quality assurance controls at its facilities that monitor ongoing
compliance by auditing test data and regularly inspecting facilities, procedures
and other regulatory compliance parameters. In addition, FDA regulations and
guidelines, as well as applicable international standards, serve as a basis for
the Company's standard operating procedures. Certain of the Company's
development and testing activities are subject to the Controlled Substances Act,
administered by the Drug Enforcement Agency (the "DEA"), which regulates
strictly all narcotic and habit-forming substances. The Company maintains
separate, restricted-access facilities and heightened control procedures for
projects involving such substances due to the level of security and other
controls required by the DEA.
The Company's activities involve the controlled use of hazardous
materials and chemicals. The Company is subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products and is insured against losses arising out
of the normal course of business operations. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by federal, state and local laws and regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result which could materially and adversely
affect the financial condition of the Company.
EMPLOYEES
At December 31, 1998, the Company had approximately 1,000 full-time
equivalent employees, of which approximately 73 hold Ph.D. or M.D. degrees, or
the foreign equivalent. The Company believes that its relations with its
employees are good. None of the Company's employees in the U.S. are represented
by a union. German and French law provide certain representative rights to
employees.
The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of competition
among employers for such skilled personnel is high. The Company believes that
its employee benefit plans enhance employee morale, professional commitment and
work productivity and provide an incentive for employees to remain with the
Company. In addition, the Company operates an employee day-care and after-school
program facility at its Wilmington, North Carolina campus as a benefit to its
employees. While the Company has not experienced any significant problems in
attracting or retaining qualified staff, there can be no assurance that the
Company will be able to avoid these problems in the future.
All employees enter into confidentiality agreements protecting the
Company's proprietary information, as well as client-confidential material. New
U.S.-based employees are generally required to sign non-competition agreements,
prohibiting the employee from engaging in activities in competition with the
Company for a period of one year after termination of employment.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth the name, age, principal occupation and
business experience for the executive officers of the Company.
14
Frederick D. Sancilio, Ph.D., 49, Chairman of the Board, President, Chief
Executive Officer and Director. Dr. Sancilio has served in his current capacity
for more than five years. Before founding the Company in 1979 Dr. Sancilio's
experience in the pharmaceutical industry included various positions with
Burroughs-Wellcome Co., Schering-Plough Corporation, and Hoffmann-LaRoche, Inc.
He has published more than 30 scientific articles discussing various aspects of
pharmaceutical chemistry and regularly makes scientific presentations at
pharmaceutical seminars and meetings worldwide.
Eugene T. Haley, 49, Executive Vice President and Chief Financial Officer. Mr.
Haley has served as Executive Vice President and Chief Financial Officer since
February 1998. Prior to joining the Company he served as the Chief Financial
Officer of Kodak Worldwide Consumer Imaging Services during 1997 and as Senior
Vice President of Qualex, Inc. (an Eastman-Kodak subsidiary) from 1993 to 1997.
Frances M. Sakers, 41, Executive Vice President and Chief Operating Officer. Ms.
Sakers has served in her current position since September 1997. Prior to joining
the Company, Ms. Sakers was Executive Director of Quality Control at Novartis
Pharmaceuticals U.S. and has held various positions in pharmaceutical operations
at CIBA-Geigy Corporation for 14 years.
Joachim Rexhaus, 45, Executive Vice President, European Operations. Mr. Rexhaus
was elected an Executive Vive President in 1998 and has served the Company since
August 1997 in a number of financial and administrative management positions in
Europe. Prior to joining the Company, Mr. Rexhaus held a number of financial and
administrative management positions, most recently at Hoechst AG, Syntax and
IBM.
William J. Blank, 48, Executive Vice President, Marketing and Sales. Mr. Blank
has served as Executive Vice President, Marketing and Sales since January 1999.
Prior to joining the Company, he served as Vice President of Client Relations at
Parexel International Corp. and has held various sales and marketing positions
in the healthcare services industry.
William H. Underwood, 51, Executive Vice President and Director. Mr. Underwood
has served in his current position since 1992 and has been a Director since
1996. He also served as Chief Operating Officer from 1995 to May 1997. He has
held various positions in the pharmaceutical and cosmetic industries, prior to
joining the Company in 1986, with Mary Kay Cosmetics, Inc. and
Burroughs-Wellcome Co.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in Wilmington,
North Carolina, in a 22,000-square foot leased facility. The Company's primary
U.S. facilities are located in Wilmington, North Carolina; Research Triangle
Park, North Carolina; New Brunswick, New Jersey; Natick, Massachusetts; and
Shawnee, Kansas constituting approximately 278,000 square feet of total
operational and administrative space. The Company's primary European facilities
are located in Neu-Ulm, Germany and include approximately 120,000 square feet of
operational and administrative space. This facility is leased under renewable
leases expiring in 2001. The Company maintains other operating units at leased
facilities in San Bruno, California; Munich, Germany; Paris, France; and
Arnheim, Netherlands. The Company maintains sales offices in Chicago, Illinois;
Boston, Massachusetts; San Diego and San Francisco, California; Copenhagen,
Denmark; London, England; Milan, Italy and Tokyo, Japan. The Company also has
joint operations with Shangai Second Medical University located in Shangai,
China and Tonji University in Wuhan, China. The Company believes that its
facilities are adequate for the Company's operations and that suitable
additional space will be available when needed.
15
ITEM 3. LEGAL PROCEEDINGS.
The Company may be party to lawsuits and administrative proceedings
incidental to the normal course of its business which are not considered
material. Management does not believe that any liabilities related to such
lawsuits or proceedings will have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market and other related information required by Item 5 is included in
the section titled "Financial Results by Quarter" of the Annual Report and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is included in the section titled
"Selected Financial Data" of the Annual Report and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is included in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company, as a result of global operating activities, is exposed to
risks associated with changes in foreign exchange rates. As foreign exchange
rates change, the U. S. Dollar equivalent of revenues and expensed denominated
in foreign currencies change and can have an adverse impact on the Company's
operating results. To seek to minimize its risk from foreign exchange movement,
the Company uses local debt to fund its foreign operations. If foreign exchange
rates were to change 10%, operating results would have changed by $60,000 in
1998.
The Company is also exposed to changes in interest rates on its
variable rate debt instruments. If interest rates were to change 1%, based on
year end debt amounts subject to variable interest rates, annual interest
expense on variable rate debt would change $40,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included in the "Consolidated
Statements of Income, Consolidated Balance Sheets, Consolidated Statements of
Cash Flows, Consolidated Statement of Stockholders' Equity and Notes to
Consolidated Financial Statements", of the Annual Report and is incorporated
herein by reference.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On April 30, 1998, the Audit Committee and Board of Directors dismissed
PricewaterhouseCoopers LLP (formerly Price Waterhouse LLP) as its independent
public accountants. The reports of Price Waterhouse on the consolidated
financial statements of the Company for the years ended December 31, 1997 and
1996 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertaintity, audit scope or accounting principle.
This event was reported in detail in a Form 8-K filed on April 30, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors of the Company and their business experience are set
forth on page 2 of the Company's Notice of Annual Meeting of Stockholders, dated
approximately April 9, 1999 (the "Proxy Statement") and are incorporated herein
by reference. The discussion of executive officers of the Company is included in
Part I under "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
A description of the compensation of the Company's executive officers
is set forth on pages 5 through 8 of the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
A description of the security ownership of certain beneficial owners
and management is set forth on pages 3 and 4 of the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain relationships and related transactions with management are
described on pages 9 and 10 of the Proxy Statement and in Items 11 and 12, and
are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
EXHIBITS:
A list of the exhibits required to be filed as part of this Report on
Form 10-K is set forth in the "Exhibit Index", which immediately precedes such
exhibits, and is incorporated herein by reference.
17
FINANCIAL STATEMENT SCHEDULES:
The consolidated balance sheet as of December 31, 1998, and
related consolidated statements of income, cash flows and stockholders' equity
for the year ended December 31, 1998 and related notes to financial statements,
together with the report of independent auditors thereon of Ernst & Young LLP,
dated February 12, 1999, except Note 11, as to which the date is March 16, 1999;
and the consolidated balance sheet as of December 31, 1997, and related
consolidated statements of income, cash flows and stockholders' equity for each
of the two years in the period ended December 31, 1997 and related notes to
financial statements, together with the report of independent accountants
thereon of Price Waterhouse LLP, dated March 18, 1998, appearing in the Annual
Report, are incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated by reference in
Items 1, and 5 through 8, the Annual Report is not to be deemed filed as part of
this report. The additional financial data listed below should be read in
conjunction with the financial statements in the Annual Report. Schedules not
included with this additional financial data have been omitted because they are
not applicable or the required information is shown in the financial statements
or notes thereto.
REPORTS ON FORM 8-K:
The Company has recently filed the following Form 8-Ks:
Dated February 16, 1999, to file a press release reporting the
Company's agreement to merge with Medical and Technical Research Associates,
Inc.
Dated March 2, 1999, to file a press release reporting the Company's
audited consolidated financial results for the year ended December 31, 1998.
ADDITIONAL FINANCIAL DATA
Page
----
Applied Analytical Industries, Inc., for years ended December 31,
1998, 1997 and 1996:
Report of Ernst & Young LLP, Independent Auditors F-1
Report of PricewaterhouseCoopers LLP, Independent
Accountants F-2
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-3
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ FREDERICK D. SANCILIO Chairman of the Board, March 31, 1999
- -------------------------------- President and Chief Executive
Frederick D. Sancilio, Ph.D. Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, or in their behalf by their duly
appointed attorney-in-fact, on behalf of the Registrant in the capacities and on
the date indicated.
Signatures Title Date
---------- ----- ----
/s/ FREDERICK D. SANCILIO Chairman of the Board, March 31, 1999
- ------------------------------------- President, Chief Executive
Frederick D. Sancilio, Ph.D. Officer and Director
(Principal Executive Officer)
/s/ EUGENE T. HALEY Executive Vice President March 31, 1999
- ------------------------------------- and Chief Financial Officer
Eugene T. Haley
/s/ GEORGE W. BECKWITH Controller (Principal March 31, 1999
- ------------------------------------- Accounting Officer)
George W. Beckwith
/s/ WILLIAM H. UNDERWOOD Executive Vice President March 31, 1999
- ------------------------------------- and Director
William H. Underwood
/s/ JOSEPH H. GLEBERMAN Director March 31, 1999
- -------------------------------------
Joseph H. Gleberman
/s/ JOHN M. RYAN Director March 31, 1999
- -------------------------------------
John M. Ryan
/s/ JAMES L. WATERS Director March 31, 1999
- -------------------------------------
James L. Waters
/s/ JAMES G. MARTIN Director March 31, 1999
- -------------------------------------
James G. Martin, PhD.
19
Report of Independent Auditors
We have audited the consolidated financial statements of Applied Analytical
Industries, Inc. and subsidiaries as of December 31, 1998, and for the year
ended December 31, 1998, and have issued our report thereon dated February 12,
1999 (except for Note 11, as to which the date is March 16, 1999), (included
elsewhere in this Annual Report on Form 10-K). Our audit also included the
financial statement schedule listed in Item 14 of this Annual Report on Form
10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 12, 1999
F-1
20
To the Board of Directors
of Applied Analytical Industries, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 18, 1998 appearing in the 1998 Annual Report to Shareholders of
Applied Analytical Industries, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14 of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Raleigh, North Carolina
March 18, 1998
F-2
21
SCHEDULE II
APPLIED ANALYTICAL INDUSTRIES, INC.
Valuation and Qualifying Accounts
(In thousands)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts Deductions end of
Description of period expenses - describe - describe period
------------ ---------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts
1996 $ 70 4 1 (1) $ 73
1997 $ 73 36 - (1) $109
1998 $109 290 48 (2) 7 (1) $440
(1) Represents amounts written off as uncollectible accounts receivable. (2)
Represents allowance on accounts assumed in acquisition.
F-3
22
APPLIED ANALYTICAL INDUSTRIES, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1 - Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
3.2 - Restated By-laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-5535))
4.1 - Articles Fourth, Seventh, Eleventh and Twelfth of the form
of Amended and Restated Certificate of Incorporation of the
Company (included in Exhibit 3.1)
4.2 - Article II of the form of Restated By-laws of the Company
(included in Exhibit 3.2)
4.3 - Specimen Certificate for shares of Common Stock, $.001 par
value, of the Company (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-5535))
10.1 - Employment Agreement dated November 17, 1995 between the
Company and Frederick D. Sancilio (incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
10.2 - Applied Analytical Industries, Inc. 1995 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.3 - Applied Analytical Industries, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.4 - Applied Analytical Industries, Inc. 1997 Stock Option Plan,
as amended on May 8, 1998, (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998)
10.5 - Stockholder Agreement dated as of November 17, 1995 among the
Company, GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone
Street Fund 1995, L.P., Bridge Street Fund 1995, L.P.,
Noro-Moseley Partners III, L.P., Wakefield Group Limited
Partnership, James L. Waters, Frederick D. Sancilio and the
parties listed on Schedule 1 thereto (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-5535))
23
10.6 - Lease Agreement dated as of March 7, 1994 between 5051 New
Centre Drive, L.L.C., as landlord, and the Company, as tenant
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
10.7 - Development Agreement dated as of April 25, 1994 between the
Company and Endeavor Pharmaceuticals Inc. (formerly, GenerEst,
Inc.) (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (Registration No.
333-5535))
10.8 - Development Agreement dated as of April 4, 1995 between the
Company and Aesgen, Inc. (incorporated by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1
(Registration No. 333-5535))
10.9 - Loan Agreement dated as of December 30, 1996 between
NationsBank, N.A. and the Company (incorporated by reference
to Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.10 - Amendment No. 1, dated as of February 13, 1998, to the Loan
Agreement dated as of December 30, 1996 between NationsBank,
N.A. and the Company, (incorporated by reference to exhibit
10.10 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)
10.11 - Underwriting Agreement dated September 19, 1996 between the
Company and Goldman Sachs & Co., Cowen & Company and Lehman
Brothers, Inc., as representatives of the underwriters listed
on Schedule 1 thereto (incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)
10.12 - Partnership Agreement dated as of October 2, 1998 between the
Company, First Security Bank, N. A. and the Various Banks and
Other Lending Institutions Which are Parties Hereto from time
to time, as the Holders and as the Lenders and NationsBank, N.
A.
10.13 - Security Agreement dated as of October 2, 1998 between First
Security Bank, N. A., and NationsBank, N. A.
13 - Portions of the 1998 Annual Report to Shareholders
21 - Subsidiaries of Applied Analytical Industries, Inc.
23.1 - Consent of Ernst & Young LLP
23.2 - Consent of PricewaterhouseCoopers LLP
27 - Financial Data Schedule (for SEC use only)