-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H73XCCzfgdiazlF39BS+LcH73RVYwMRqwdEsLA7MkQ8uj46tPF1XA1LIcYqkyWLN Y8g0mfZkTsH5BWYg/hyfZw== 0000950116-03-002529.txt : 20030509 0000950116-03-002529.hdr.sgml : 20030509 20030509143154 ACCESSION NUMBER: 0000950116-03-002529 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERESEARCHTECHNOLOGY INC /DE/ CENTRAL INDEX KEY: 0001026650 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 223264604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29100 FILM NUMBER: 03690023 BUSINESS ADDRESS: STREET 1: 30 SOUTH 17TH STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159720420 MAIL ADDRESS: STREET 1: 30 SOUTH 17TH STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: PREMIER RESEARCH WORLDWIDE LTD DATE OF NAME CHANGE: 19961107 10-Q 1 tenq.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2003 -------------- or [ ] Transitional report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transitional period from ________________ to__________________ Commission file number 0-29100 -------- eResearchTechnology, Inc. ------------------------- (Exact name of registrant as specified in its charter)
Delaware 22-3264604 - --------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 30 South 17th Street Philadelphia, PA 19103 - --------------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code)
215-972-0420 ---------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and formal 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 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. X Yes No - --------- --------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). X Yes No - --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of Common Stock, $.01 par value, outstanding as of April 30, 2003, was 10,919,359. eResearchTechnology, Inc. and Subsidiaries INDEX -----
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated balance sheets--December 31, 2002 and March 31, 2003 (unaudited) 3 Consolidated statements of operations (unaudited)--Three Months Ended March 31, 2002 and 2003 4 Consolidated statements of cash flows (unaudited)--Three Months Ended March 31, 2002 and 2003 5 Notes to consolidated financial statements (unaudited) 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-18 Item 3. Qualitative and Quantitative Disclosures about Market Risk 18 Item 4. Controls and Procedures 18 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 19 a.) Exhibits b.) Reports on Form 8-K Signatures 20 Certifications 21-22
2 Part 1. Financial Information Item 1. Consolidated Financial Statements eResearchTechnology, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except per share and share amounts)
December 31, 2002 March 31, 2003 ----------------- -------------- (unaudited) Assets Current assets: Cash and cash equivalents $17,443 $16,876 Short-term investments 9,307 10,815 Accounts receivable, net 6,954 9,078 Prepaid expenses and other 2,542 2,722 Deferred income taxes 485 315 ------- ------- Total current assets 36,731 39,806 Property and equipment, net 12,587 13,128 Goodwill 1,212 1,212 Investments in non-marketable securities 509 509 Other assets 21 21 Deferred income taxes 2,332 2,721 ------- ------- $53,392 $57,397 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,000 $ 1,581 Accrued expenses 3,705 3,148 Income taxes payable 960 793 Current portion of capital lease obligations 599 613 Deferred revenues 4,774 4,517 ------- ------- Total current liabilities 12,038 10,652 ------- ------- Capital lease obligations, excluding current portion 774 615 ------- ------- Commitments and contingencies Stockholders' equity: Preferred stock - $10.00 par value, 500,000 shares authorized, none issued and outstanding - - Common stock - $.01 par value, 15,000,000 shares authorized, 11,462,191 and 11,788,607 shares issued, respectively 115 118 Additional paid-in capital 40,921 44,274 Accumulated other comprehensive income 410 310 Retained earnings 2,363 4,818 Treasury stock, 895,500 and 902,782 shares at cost (3,229) (3,390) ------- ------- Total stockholders' equity 40,580 46,130 ------- ------- $53,392 $57,397 ======= =======
The accompanying notes are an integral part of these statements. 3 eResearchTechnology, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share information) Three Months Ended March 31, ---------------------------- 2002 2003 ------- ------- (unaudited) Net revenues: Licenses $ 754 $ 1,189 Services 7,607 12,394 ------- ------- Total net revenues 8,361 13,583 ------- ------- Costs of revenues: Cost of licenses 134 144 Cost of services 3,401 5,187 ------- ------- Total costs of revenues 3,535 5,331 ------- ------- Gross margin 4,826 8,252 ------- ------- Operating expenses: Selling and marketing 1,475 1,823 General and administrative 1,342 1,509 Research and development 1,159 1,064 ------- ------- Total operating expenses 3,976 4,396 ------- -------- Operating income 850 3,856 Other income, net 158 56 Gain on sale of domestic CRO operation 35 - ------- -------- Income before income taxes 1,043 3,912 Income tax provision 334 1,457 ------- ------- Net income $ 709 $ 2,455 ======= ======= Basic net income per share $ 0.07 $ 0.23 ======= ======= Diluted net income per share $ 0.06 $ 0.21 ======= ======= Shares used to calculate basic net income per share 10,387 10,734 ======= ======= Shares used to calculate diluted net income per share 10,981 11,666 ======= ======= The accompanying notes are an integral part of these statements. 4 eResearchTechnology, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
Three Months Ended March 31, ---------------------------- 2002 2003 ------- ------- (unaudited) Operating activities: Net income $ 709 $ 2,455 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of domestic CRO operation (35) - Gain on sale of marketable securities (2) - Depreciation and amortization 545 1,097 Stock option income tax benefits - 1,475 Changes in operating assets and liabilities: Accounts receivable 141 (2,156) Prepaid expenses and other (427) (151) Accounts payable 175 (416) Accrued expenses (334) (545) Income taxes 337 (381) Deferred revenues 1,101 (248) ------- ------- Net cash provided by operating activities 2,210 1,130 ------- ------- Investing activities: Purchases of property and equipment (1,481) (1,677) Purchases of short-term investments (883) (1,800) Proceeds from sales of short-term investments 810 292 Proceeds from sales of marketable securities 246 - ------- ------- Net cash used in investing activities (1,308) (3,185) ------- ------- Financing activities: Repayments of capital lease obligations (59) (145) Net proceeds from exercise of stock options 430 1,720 ------- ------- Net cash provided by financing activities 371 1,575 ------- ------- Effect of exchange rate changes on cash - (87) ------- ------- Net increase (decrease) in cash and cash equivalents 1,273 (567) Cash and cash equivalents, beginning of period 11,364 17,443 ------- ------- Cash and cash equivalents, end of period $12,637 $16,876 ======= =======
The accompanying notes are an integral part of these statements. 5 eResearchTechnology, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements, which include the accounts of eResearchTechnology, Inc. (the "Company") and its wholly owned subsidiaries, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Further information on potential factors that could affect the Company's financial results can be found in the Company's Report on Form 10-K filed with the Securities and Exchange Commission and in this Form 10-Q. Note 2. Summary of Significant Accounting Policies Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. Reclassifications. The consolidated financial statements for prior periods have been reclassified to conform to the current period's presentation. Management's Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment. Pursuant to SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," the Company capitalizes costs associated with internally developed and/or purchased software systems for new products and enhancements to existing products that have reached application development stage and meet recoverability tests. These costs are included in property and equipment. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software, and payroll and payroll-related expenses for employees who are directly associated with and devote time to the internal-use software project. Amortization of capitalized software development costs ($0 and $252,000 for the quarters ended March 31, 2002 and 2003, respectively) is charged to the cost of the Cardiac Safety services product. For the three months ended March 31, 2002 and 2003, the Company capitalized $640,000 and $367,000, respectively, of software development costs. All other research and development costs have been expensed as incurred. When events or circumstances so indicate, the Company assesses the potential impairment of its intangible assets and other long-lived assets based on anticipated undiscounted cash flows from the assets. Such events and circumstances include a sale of all or a significant part of the operations associated with the long-lived asset, or a significant decline in the operating performance of the asset. If an impairment is indicated, the amount of impairment charge would be calculated by comparing the anticipated discounted future cash flows to the carrying value of the long-lived asset. At March 31, 2003, no impairment was indicated. Stock-Based Compensation. In December 2002, Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123," was issued. SFAS No. 148 amended SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 related to the disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are applicable to interim or annual periods that end after December 15, 2002, and as such have been incorporated below. 6 SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and provide pro forma net income and earnings per share disclosures for employee stock option grants as if the fair value based method defined in SFAS No. 123 had been applied. The Company continues to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures in accordance with the provisions of SFAS Nos. 123 and 148 to its stock option plans. Under APB Opinion No. 25, the Company has not recorded any stock-based employee compensation cost associated with the Company's stock option plan, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on the net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plans (in thousands, except per share amounts):
Three Months Ended March 31, ---------------------------- 2002 2003 ----- ------ Net income, as reported $ 709 $2,455 Deduct: Net stock-based employee compensation expense determined under fair value based method (182) (212) ----- ------ Pro forma net income $ 527 $2,243 ===== ====== Earnings per share: Basic - as reported $0.07 $ 0.23 Basic - pro forma $0.05 $ 0.21 Diluted - as reported $0.06 $ 0.21 Diluted - pro forma $0.05 $ 0.19
Pro forma net income reflects only options granted through March 31, 2003 and, therefore, may not be representative of the effects for future periods. Stock Split. On July 16, 2002, the Company effected a 3-for-2 split of its common stock. The stock split has been retroactively reflected in the accompanying consolidated financial statements. Note 3. Investment Impairment Charge - Non-Marketable Securities At March 31, 2003, investments in non-marketable securities consist of an investment in AmericasDoctor.com, Inc., which is accounted for under the cost method in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." As of March 31, 2001, in accordance with APB No. 18, management determined that a decrease in value of the investment occurred which was deemed to be other than temporary, and as a result wrote down the cost basis of the investment from $2,300,000 to $1,076,000. In connection with this write-down, an investment impairment charge of $1,224,000 was recorded during the quarter ended March 31, 2001. In December 2001, management determined that an additional decrease in the value of the investment occurred which was deemed to be other than temporary, and as a result wrote down the cost basis of the investment from $1,076,000 to $509,000. In connection with this write-down, an investment impairment charge of $566,000 was recorded during the quarter ended December 31, 2001. The Company will continue to assess the fair value of this investment and whether or not any decline in fair value below the current cost basis is deemed to be other than temporary. If a decline in the fair value of this investment is judged to be other than temporary, the cost basis of this investment would be written down to fair value, and the amount of the write-down would be included in the Company's results. Given the current performance and general market conditions for technology related companies, additional write-downs of this investment may occur in the future. 7 Note 4. Net Income per Common Share The Company follows SFAS No. 128, "Earnings per Share." This statement requires the presentation of basic and diluted earnings per share. Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents, which consist primarily of stock options, using the treasury stock method. The table below sets forth the reconciliation of the numerators and denominators of the basic and diluted net income per share computations (in thousands, except per share information): Three Months Ended March 31, - ----------------------------
Per Net Share 2002 Income Shares Amount - ---- ------ ------ ------ Basic net income............................................ $ 709 10,387 $ 0.07 Effect of dilutive shares................................... - 594 (0.01) ------ ------ ------ Diluted net income.......................................... $ 709 10,981 $ 0.06 ====== ====== ====== 2003 - ---- Basic net income............................................ $2,455 10,734 $ 0.23 Effect of dilutive shares................................... - 932 (0.02) ------ ------ ------ Diluted net income.......................................... $2,455 11,666 $ 0.21 ====== ====== ======
Options to purchase 1,670,951 shares of common stock were outstanding at March 31, 2002 and were included in the computation of diluted net income per share. Options to purchase 90,000 shares of common stock were outstanding at March 31, 2002 but were not included in the computation of diluted net income per share because the exercise prices were greater than the average market price of the Company's common stock during the period. Options to purchase 1,436,512 shares of common stock were outstanding at March 31, 2003 and were included in the computation of diluted net income per share. Note 5. Comprehensive Income The Company follows SFAS No. 130, "Reporting Comprehensive Income." The Company's comprehensive income includes net income and unrealized gains and losses from foreign currency translation and marketable securities. The foreign currency translation adjustment was immaterial as of March 31, 2002. For the three months ended March 31, 2003, the Company recorded a foreign currency translation adjustment of $100,000, which reduced the accumulated foreign currency translation income to $310,000. For the three months ended March 31, 2002, the Company recorded an unrealized gain for the mark to market of $634,000 from its investment in marketable securities. Note 6. Recent Pronouncements The Financial Accounting Standards Board (FASB) recently issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," and Interpretation No. 46, "Consolidation of Variable Interest Entities." The EITF recently reached a consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." In April 2002, the FASB issued SFAS No. 145, which is effective for fiscal years beginning after May 15, 2002 for provisions related to SFAS No. 4, effective for all transactions occurring after May 15, 2002 for provisions related to SFAS No. 13 and effective for all financial statements issued on or after May 15, 2002 for all other provisions of this Statement. The Company adopted SFAS No. 145 on May 16, 2002 and the adoption did not have any impact on the Company's financial statements. 8 In July 2002, the FASB issued SFAS No. 146, which addresses the financial accounting and reporting of expenses related to restructurings initiated after 2002, and applies to costs associated with an exit activity (including a restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when the liability is incurred and can be measured at fair value. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FASB Interpretation No. 45 did not have any impact on the Company's financial statements. In January 2003, the FASB issued Interpretation No. 46, which addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation did not have any effect on the Company's financial statements. The EITF recently reached a consensus on EITF Issue No. 00-21, which provides accounting guidance for customer solutions where delivery or performance of products, services and/or performance may occur at different points in time or over different periods of time. Companies are required to adopt this consensus for fiscal periods beginning after June 15, 2003. The Company believes the adoption of EITF Issue No. 00-21 will not have a material impact on the Company's financial position, results of operations, or liquidity. Note 7. Operating Segments / Geographic Information Commencing in 2003, the Company considers its operations to consist of one segment. The development of the one segment corresponds to the implementation of the Company's refinement in strategic focus in late 2002, and represents management's view of the Company's operations. Prior to 2003, the Company's reportable segments were Cardiac Safety and Clinical Research Technology and Services. All prior periods have been restated to conform to the current-year presentation. The Company operates on a worldwide basis with two locations in the United States and one location in the United Kingdom, which is categorized below as North America and Europe, respectively. Geographic information is as follows: Three Months Ended March 31, 2002 ----------------------------------- North America Europe Total ------------- -------- ------ License revenues $ 740 $ 14 $ 754 Service revenues 5,697 1,910 7,607 ------------- -------- ------ Net revenues from external customers 6,437 1,924 8,361 Operating income 364 486 850 Identifiable assets 40,418 3,077 43,495 9 Three Months Ended March 31, 2003 --------------------------------- North America Europe Total ------- ------ ------- License revenues $ 1,087 $ 102 $ 1,189 Service revenues 10,180 2,214 12,394 ------- ------ ------- Net revenues from external customers 11,267 2,316 13,583 Operating income 3,203 653 3,856 Identifiable assets 51,168 6,229 57,397 Note 8. Subsequent Event On April 23, 2003, the Company announced that its Board of Directors approved a 2-for-1 split of its common stock. The shares will be distributed on May 29, 2003, to stockholders of record on May 6, 2003. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement for Forward-Looking Information The following discussion and analysis should be read in conjunction with our financial statements and the related notes to the financial statements appearing elsewhere in this report. The following includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. We use words such as anticipate, believe, expect, intend, and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to risks and uncertainties such as competitive factors, technology development, market demand and our ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues of the sponsoring client. These and other risk factors have been further discussed in our Report on Form 10-K dated December 31, 2002. Such risks and uncertainties could cause actual results to differ materially from historical results or future predictions. Further information on potential factors that could affect our financial results can be found throughout this Form 10-Q and our other reports filed with the Securities and Exchange Commission. Overview We are a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. We are a market leader in providing centralized electrocardiographic (ECG) services (Cardiac Safety services) and a leading provider of technology and services that streamline the clinical trials process by enabling our customers to evolve from traditional, paper-based methods to electronic processing that leverages the power of the Internet. We were founded in 1977 to provide a number of clinical research related services, including Cardiac Safety services, used to evaluate the safety of new drugs. In February 1997, we completed an initial public offering of our common stock. In October 1997, we acquired the assets and business of a provider of clinical research technology and consulting services to the pharmaceutical, biotechnology and medical device industry. Starting in 2000, we concentrated our products and services offerings on providing premier Cardiac Safety services and clinical research technology and consulting services. Our solutions improve the collection, analysis and distribution of cardiac safety and clinical data in order to safely accelerate new drug and device development processes. We globally offer the following products and services: Cardiac Safety. Cardiac Safety / EXPeRT(TM) ECG services provide intelligent, workflow-enabled data handling and distribution of digital and paper-based ECG data and images as well as analysis and physician electrocardiographer interpretation of ECGs performed on research subjects in connection with our customers' clinical trials. eResNet(TM). The eResearch Network(TM) (eResNet) technology provides an integrated end-to-end clinical research solution that includes trials, data and safety management modules. eDE(TM). eData Entry(TM) (eDE) technology provides a comprehensive electronic data capture (EDC) capability comprised of technology formulated to deliver rapid time to market benefit for electronic trial initiatives. eResCom(TM). eResCom is a central command and control Web portal that provides real-time information related to monitoring clinical trial activities, data quality and safety. Consulting. We provide a full spectrum of consulting services for all of our products that augment the implementation and execution efforts of customers. Our license revenues consist of license fees for upfront license sales and monthly and annual license sales. Our services revenues consist of Cardiac Safety services, technology consulting and training services and software maintenance services. 11 We recognize software revenues in accordance with Statement of Position 97-2, Software Revenue Recognition, as amended by Statement of Position 98-9. Accordingly, we recognize up-front license fee revenues under the residual method when a formal agreement exists, delivery of the software and related documentation has occurred, collectibility is probable and the license fee is fixed or determinable. We recognize monthly and annual license fee revenues over the term of the arrangement. Hosting service fees are recognized evenly over the term of service. Cardiac Safety service revenues consist of revenues from services that we provide on a fee-for-service basis and we recognize such revenues as the services are performed. We recognize revenues from software maintenance contracts on a straight-line basis over the term of the maintenance contract, which is typically twelve months. We provide consulting and training services on a time and materials basis and recognize revenues as we perform the services. Cost of licenses consists primarily of application service provider (ASP) fees for those customers that choose hosting, the cost of producing compact disks and related documentation and royalties paid to third parties in connection with their contributions to our product development. Cost of services includes the cost of Cardiac Safety services and the cost of technology consulting, training and maintenance services. Cost of Cardiac Safety services consists primarily of direct costs related to our centralized Cardiac Safety services and includes wages, fees paid to outside consultants, depreciation, shipping expenses and other direct operating costs. Cost of technology consulting, training and maintenance services consists primarily of wages, fees paid to outside consultants and other direct operating costs related to our consulting and customer support functions. Selling and marketing expenses consist primarily of wages and commissions paid to sales personnel, travel expenses and advertising and promotional expenditures. General and administrative expenses consist primarily of wages and direct costs for our finance, administrative, corporate information technology and executive management functions, in addition to professional service fees. Research and development expenses consist primarily of wages paid to our product development staff, costs paid to outside consultants and direct costs associated with the development of our technology products. We conduct our operations through offices in the United States and the United Kingdom (UK). Our international net revenues represented 23.0% and 17.1% of total net revenue for the three months ended March 31, 2002 and 2003, respectively. 12 Results of Operations The following table presents certain financial data as a percentage of total net revenues:
Three Months Ended March 31, ---------------------------- 2002 2003 ----- ----- Net revenues: Licenses 9.0% 8.8% Services 91.0% 91.2% ----- ----- Total net revenues 100.0% 100.0% ----- ----- Costs of revenues: Cost of licenses 1.6% 1.0% Cost of services 40.7% 38.2% ----- ----- Total costs of revenues 42.3% 39.2% ----- ----- Gross margin 57.7% 60.8% ----- ----- Operating expenses: Selling and marketing 17.6% 13.4% General and administrative 16.0% 11.1% Research and development 13.9% 7.9% ----- ----- Total operating expenses 47.5% 32.4% ----- ----- Operating income 10.2% 28.4% Other income, net 1.9% 0.4% Gain on sale of domestic CRO operation 0.4% 0.0% ----- ----- Income before income taxes 12.5% 28.8% Income tax provision 4.0% 10.7% ----- ----- Net income 8.5% 18.1% ===== =====
13 Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002 The following table presents statements of operations with product line detail (in thousands):
Three Months Ended March 31, ---------------------------- 2002 2003 Increase (Decrease) ------ ------- ------------------- Licenses: Net revenues $ 754 $ 1,189 $ 435 57.7% Costs of revenues 134 144 10 7.5% ------ ------- ------ Gross margin 620 1,045 425 68.5% Services: Cardiac Safety Net revenues 6,288 10,536 4,248 67.6% Costs of revenues 2,698 4,323 1,625 60.2% ------ ------- ------ Gross margin 3,590 6,213 2,623 73.1% Technology consulting and training Net revenues 366 852 486 132.8% Costs of revenues 377 604 227 60.2% ------ ------- ------ Gross margin (11) 248 259 2,354.5% Software maintenance Net revenues 953 1,006 53 5.6% Costs of revenues 326 260 (66) (20.2%) ------ ------- ------ Gross margin 627 746 119 19.0% Total services Net revenues 7,607 12,394 4,787 62.9% Costs of revenues 3,401 5,187 1,786 52.5% ------ ------- ------ Gross margin 4,206 7,207 3,001 71.4% Total Net revenues 8,361 13,583 5,222 62.5% Costs of revenues 3,535 5,331 1,796 50.8% ------ ------- ------ Gross margin 4,826 8,252 3,426 71.0% Operating expenses: Selling and marketing 1,475 1,823 348 23.6% General and administrative 1,342 1,509 167 12.4% Research and development 1,159 1,064 (95) (8.2%) ------ ------- ------ Total operating expenses 3,976 4,396 420 10.6% ------ ------- ------ Operating income 850 3,856 3,006 353.6% Other income, net 158 56 (102) (64.6%) Gain on sale of domestic CRO operation 35 - (35) (100.0%) ------ ------- ------ Income before income taxes 1,043 3,912 2,869 275.1% Income tax provision 334 1,457 1,123 336.2% ------ ------- ------ Net income $ 709 $ 2,455 $1,746 246.3% ====== ======= ======
14 The following table presents costs of revenues as a percentage of related net revenues and operating expenses as a percentage of total net revenues:
Three Months Ended March 31, ---------------------------- Increase 2002 2003 (Decrease) ------ ------ ---------------- Cost of licenses 17.8% 12.1% (5.7%) Cost of services: Cardiac Safety 42.9% 41.0% (1.9%) Technology consulting and training 103.0% 70.9% (32.1%) Software maintenance 34.2% 25.8% (8.4%) Total cost of services 44.7% 41.9% (2.8%) Total costs of revenues 42.3% 39.2% (3.1%) Operating expenses: Selling and marketing 17.6% 13.4% (4.2%) General and administrative 16.0% 11.1% (4.9%) Research and development 13.9% 7.9% (6.0%)
Total net revenues increased 62.5% to $13.6 million for the three months ended March 31, 2003 compared to $8.4 million for the three months ended March 31, 2002. License revenues increased 57.7% to $1.2 million for the three months ended March 31, 2003 from $754,000 for the three months ended March 31, 2002. The increase in license revenues was primarily due to an increase in software licensed on a monthly and annual basis. Total service revenues increased 62.9% to $12.4 million for the three months ended March 31, 2003 from $7.6 million for the three months ended March 31, 2002. Cardiac Safety service revenues increased 67.6% to $10.5 million for the three months ended March 31, 2003 compared to $6.3 million for the three months ended March 31, 2002. The increase in Cardiac Safety service revenues was primarily due to increased sales volume with both new and existing clients, including an increase in revenue from the rental of cardiac safety equipment, which our clients use to perform cardiac safety procedures. Additionally, the average revenue per transaction has increased with a shift to digital ECG processing. Technology consulting and training service revenues increased 132.8% to $852,000 for the three months ended March 31, 2003 compared to $366,000 for the three months ended March 31, 2002. The increase in technology consulting and training service revenues was primarily due to increased consulting activity for new clients as well as increases in implementation fees from new licenses. Software maintenance service revenues increased 5.6% to $1.0 million for the three months ended March 31, 2003 compared to $953,000 for the three months ended March 31, 2002. Software maintenance service revenues did not increase proportionately with license revenues due to a low level of license sales that included maintenance as a separate component of revenue. Annual licenses do not contain a separate maintenance component. Total cost of revenues increased 50.8% to $5.3 million for the three months ended March 31, 2003 compared to $3.5 million for the three months ended March 31, 2002. As a percentage of total net revenues, total cost of revenues decreased to 39.2% for the three months ended March 31, 2003 from 42.3% for the three months ended March 31, 2002. The cost of licenses increased 7.5% to $144,000 for the three months ended March 31, 2003 from $134,000 for the three months ended March 31, 2002. The increase in the cost of licenses was primarily due to an increase in ASP hosting fees associated with expanding hosting capabilities to support additional ASP accounts. As a percentage of license revenues, the cost of licenses decreased to 12.1% for the three months ended March 31, 2003 from 17.8% for the three months ended March 31, 2002. The decrease was due primarily to the increase in license revenues without a comparable increase in costs, many of which are fixed in nature. 15 The cost of services increased 52.5% to $5.2 million for the three months ended March 31, 2003 from $3.4 million for the three months ended March 31, 2002. As a percentage of service revenues, the cost of services decreased to 41.9% for the three months ended March 31, 2003 from 44.7% for the three months ended March 31, 2002. The cost of Cardiac Safety services increased 60.2% to $4.3 million for the three months ended March 31, 2003 compared to $2.7 million for the three months ended March 31, 2002. The increase in the cost of Cardiac Safety services was primarily due to an increase in rental and depreciation costs associated with cardiac safety rental equipment, and increased labor, facilities and other costs associated with expanding capabilities to meet the growth in Cardiac Safety service revenues. We also began amortization of our internal use software costs during the third quarter of 2002. Additional internal use software costs were capitalized throughout the remainder of 2002 and through the first quarter of 2003. We expect to begin amortizing the additional capitalized costs in the second quarter of 2003. As a percentage of Cardiac Safety service revenues, the cost of Cardiac Safety services decreased to 41.0% for the three months ended March 31, 2003 from 42.9% for the three months ended March 31, 2002. The decrease in the cost of Cardiac Safety services as a percentage of Cardiac Safety service revenues was primarily due to the increase in Cardiac Safety service revenues without a comparable increase in costs, some of which are fixed in nature. The cost of technology consulting and training services increased 60.2% to $604,000 for the three months ended March 31, 2003, from $377,000 for the three months ended March 31, 2002. The increase in the cost of technology consulting and training services was due primarily to increased third-party consulting and labor costs associated with the increase in technology consulting and training service revenues. The cost of technology consulting and training services as a percentage of technology consulting and training service revenues decreased to 70.9% for the three months ended March 31, 2003 from 103.0% for the three months ended March 31, 2002. The decrease in the cost of technology consulting and training services as a percentage of technology consulting and training service revenues was due primarily to the increase in technology consulting and training service revenues with a less than proportional increase in costs. The cost of software maintenance services decreased 20.2% to $260,000, or 25.8% of software maintenance service revenues, for the three months ended March 31, 2003, from $326,000, or 34.2% of software maintenance service revenues, for the three months ended March 31, 2002. The decrease in the cost of software maintenance services, both in absolute terms and as a percentage of software maintenance service revenues, was due primarily to a reduction in office rent, depreciation and other costs during the first quarter of 2003. Selling and marketing expenses increased 23.6% to $1.8 million for the three months ended March 31, 2003 compared to $1.5 million for the three months ended March 31, 2002. The increase in selling and marketing expenses was due primarily to increased commissionable revenue and labor costs during the first quarter of 2003. As a percentage of total net revenues, selling and marketing expenses decreased to 13.4% for the three months ended March 31, 2003 from 17.6% for the three months ended March 31, 2002. The decrease in selling and marketing expenses as a percentage of total net revenues was primarily due to the increase in total net revenues with a less than proportional increase in selling and marketing expenses. General and administrative expenses increased 12.4% to $1.5 million for the three months ended March 31, 2003 from $1.3 million for the three months ended March 31, 2002. The increase in general and administrative expenses was due primarily to an increase in public relations and insurance expense during the three months ended March 31, 2003. As a percentage of total net revenues, general and administrative expenses decreased to 11.1% for the three months ended March 31, 2003 from 16.0% for the three months ended March 31, 2002. The decrease in general and administrative expenses as a percentage of total net revenues was primarily due to the increase in total net revenues with a less than proportional increase in general and administrative expenses, many of which are fixed in nature. Research and development expenses decreased 8.2% to $1.1 million, or 7.9% of total net revenues, for the three months ended March 31, 2003 from $1.2 million, or 13.9% of total net revenues, for the three months ended March 31, 2002. The decrease in research and development expenses, both in absolute terms and as a percentage of total net revenues, was primarily due to a reduction in labor, third-party consulting and other related costs during the three months ended March 31, 2003. This reduction was partially due to the capitalization of costs associated with the development of internal use software. The capitalization of these costs was completed at March 31, 2003 and research and development costs are expected to increase in future periods as a result. 16 Other income, net, consisted primarily of interest income realized from our cash, cash equivalents and short-term investments, net of interest expense related to capital lease obligations. Additionally, $47,000 of interest income was earned on the escrow accounts related to the sale of the domestic clinical research operations to SCP Communications, Inc. and was recorded during the three months ended March 31, 2002. Other income, net, decreased 64.6% to $56,000 for the three months ended March 31, 2003 compared to $158,000 for the three months ended March 31, 2002. The primary reasons for the decrease were lower interest rates and an increase in interest expense related to increased capital lease obligations during the first quarter of 2003. The decrease was also due to interest income earned on the escrow accounts, which was realized during the three months ended March 31, 2002. In December 1999, we sold our domestic clinical research operations to SCP Communications, Inc. In the first quarter of 2002, we recorded $35,000 of additional gain on the sale. During the first quarter of 2002, we finalized the accounting for the disposition related to certain earn-outs. The escrow account that was established in connection with the transaction has been closed effective as of the last income distribution we received during the first quarter of 2002. Our effective tax rate was 32.0% and 37.25% for the three months ended March 31, 2002 and 2003, respectively. The 2003 tax rate was primarily impacted by new tax legislation which increased our 2003 income tax liability to New Jersey. The 2002 tax rate was primarily impacted by the reversal of valuation allowances related to certain state net operating loss carryforwards. Liquidity and Capital Resources At March 31, 2003, we had $16.9 million of cash and cash equivalents and $10.8 million invested in short-term investments. We generally place our investments in money market funds, municipal securities, bonds of government sponsored agencies, certificates of deposit with maturities of less than one year, and A1P1 rated commercial bonds and paper. For the three months ended March 31, 2003, our operations provided cash of $1.1 million compared to $2.2 million for the three months ended March 31, 2002. The change was primarily the result of an increase in accounts receivable along with a decrease in accounts payable and deferred revenues during the three months ended March 31, 2003 compared to the three months ended March 31, 2002. This change was partially offset by improved operating income during the three months ended March 31, 2003. For the three months ended March 31, 2003, our investing activities used cash of $3.2 million compared to $1.3 million used for the three months ended March 31, 2002. The change was primarily due to an increase in the net purchases of short- term investments during the three months ended March 31, 2003 compared to the three months ended March 31, 2002. During the three months ended March 31, 2003, we capitalized $1.7 million of property and equipment compared to $1.5 million capitalized during the three months ended March 31, 2002. The increase was primarily the result of higher purchases of computer equipment in the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Included in property and equipment is internal use software associated with the development of a new data and communications management services software product used in connection with our centralized core cardiac safety electrocardiographic services. We capitalize our internal use software costs in accordance with SOP No. 98-1. We began amortization of internal use software costs of $4.0 million in August of 2002, which resulted in an additional amortization charge to the cost of Cardiac Safety services of approximately $84,000 per month. Additional internal use software costs of $1.1 million were capitalized throughout the remainder of 2002 and through the first quarter of 2003. We expect to begin amortizing the additional capitalized costs in the second quarter of 2003, which will result in additional amortization charges of approximately $22,000 per month. For the three months ended March 31, 2003, our financing activities provided cash of $1.6 million compared to $371,000 for the three months ended March 31, 2002. During the three months ended March 31, 2003, we received $1.7 million in cash from the exercise of 326,416 stock options at exercise prices per option of between $2.50 and $13.40. 17 We have a line of credit arrangement with Wachovia Bank, National Association totaling $3.0 million. At March 31, 2003, we had no outstanding borrowings under the line. We expect that existing cash and cash equivalents, short-term investments, marketable securities, cash flows from operations and available borrowings under our line of credit will be sufficient to meet our foreseeable cash needs for at least the next year. However, there may be acquisition and other growth opportunities that require additional external financing and we may from time to time seek to obtain additional funds from the public or private issuances of equity or debt securities. There can be no assurance that such financings will be available or available on terms acceptable to us. Inflation We believe the effects of inflation and changing prices generally do not have a material adverse effect on our results of operations or financial condition. Item 3. Qualitative and Quantitative Disclosures About Market Risk Our primary financial market risks include fluctuations in interest rates and currency exchange rates. Interest Rate Risk We generally place our investments in money market funds, municipal securities, bonds of government sponsored agencies, certificates of deposit with fixed rates with maturities of less than one year, and A1P1 rated commercial bonds and paper. We actively manage our portfolio of cash equivalents, short-term investments and marketable securities, but in order to ensure liquidity, will only invest in instruments with high credit quality where a secondary market exists. We have not held and do not hold any derivatives related to our interest rate exposure. Due to the average maturity and conservative nature of our investment portfolio, a sudden change in interest rates would not have a material effect on the value of the portfolio. Management estimates that had the average yield of our investments decreased by 100 basis points, our interest income for the three months ended March 31, 2003 would have decreased by less than $70,000. This estimate assumes that the decrease occurred on the first day of 2003 and reduced the yield of each investment by 100 basis points. The impact on our future interest income of future changes in investment yields will depend largely on the gross amount of our cash, cash equivalents and short-term investments. See "Liquidity and Capital Resources" as part of Management's Discussion and Analysis of Financial Condition and Results of Operations. Foreign Currency Risk We operate on a global basis from locations in the United States and the United Kingdom. All international net revenues are billed and expenses incurred in either U.S. dollars or pounds sterling. As such, we face exposure to adverse movements in the exchange rate of the pound sterling. As the currency rate changes, translation of the income statement of our UK subsidiary from the local currency to U.S. dollars affects year-to-year comparability of operating results. We do not hedge translation risks because any cash flows from UK operations are generally reinvested in the UK. Management estimates that a 10% change in the exchange rate of the pound sterling would have impacted the reported operating income for the three months ended March 31, 2003 by less than $70,000. Item 4. Controls and Procedures Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company (including our consolidated subsidiaries) required to be included in our periodic filings with the Securities and Exchange Commission. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation. 18 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a.) Exhibits 3.1 Restated Certificate of Incorporation, as amended 99.1 Statement of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code. 99.2 Statement of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the United States Code. b.) Reports on Form 8-K On February 5, 2003, we filed a report on Form 8-K disclosing a press release we issued on February 5, 2003, reporting our results of operations for the quarter and year ended December 31, 2002 and providing financial guidance for fiscal 2003. 19 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. eResearchTechnology, Inc. (Registrant) Date: May 9, 2003 By: JOSEPH A. ESPOSITO ------------------------ Joseph A. Esposito President and Chief Executive Officer, Director (Principal executive officer) Date: May 9, 2003 By: BRUCE JOHNSON ------------------------ Bruce Johnson Senior Vice President and Chief Financial Officer (Principal financial and accounting officer) 20 Certifications I, Joseph Esposito, certify that: 1. I have reviewed this quarterly report on Form 10-Q of eResearchTechnology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 Joseph A. Esposito ------------------------------------- President and Chief Executive Officer 21 I, Bruce Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of eResearchTechnology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 Bruce Johnson ---------------------------------------------- Sr. Vice President and Chief Financial Officer 22 EX-3 3 ex3-1.txt EXHIBIT 3.1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF PREMIER RESEARCH WORLDWIDE, LTD. Premier Research Worldwide, Ltd., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: that (i) the name of the corporation is PREMIER RESEARCH WORLDWIDE, LTD., formerly known as Research Data Worldwide, Ltd. which was formerly known as Research Data Corporation, which is the name under which the corporation was originally incorporated, and (ii) the date of filing its original Certificate of Incorporation with the Secretary of State was August 19, 1993. SECOND: that this Restated Certificate of Incorporation was duly adopted by the Corporation's stockholders in accordance with the provisions of Section 245 of the General Corporation Law of Delaware. THIRD: that the text of the Certificate of Incorporation is hereby amended to read in its entirety as follows: ARTICLE I The name of the Corporation is PREMIER RESEARCH WORLDWIDE, LTD. ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such registered office is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The aggregate number of shares which the corporation shall have authority to issue is 15,500,000, by classes and par value of shares as follows: Par Value Class No. of Shares Per Share ----- ------------- --------- Common 15,000,000 $ 0.01 Preferred 500,000 $10.00 The relative rights, preferences and limitations of the shares of each class are as follows: Preferred. The Board of Directors is authorized to adopt by resolution at any time, or from time to time, amendments to the Certificate of Incorporation in respect of any unissued and/or treasury shares of preferred stock, and thereby to fix or change the division of shares of the preferred stock into classes and/or into series within any class or classes, and the determination of the relative rights, preferences and limitations of the shares of any class or series. The authority of the Board with respect to each class or series of preferred stock shall include, but not be limited to, determination of the following: (a) The number of shares constituting that class or series and the distinctive designation of that class or series; (b) The dividend rate on the shares of that class or series, whether dividends shall be cumulative, and, if so, from which date or dates; (c) Whether that class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that class or series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that class or series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions; (f) The rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (g) Any other relative rights, preferences and limitations of that class or series as may be permitted or required by law. Common. Each share of common stock shall be entitled to one vote on all matters submitted to a vote of stockholders. The common stockholders shall be entitled to such dividends as may be declared by the Board of Directors from time to time, provided that required dividends, if any, on the preferred stock have been paid or provided for. In the event of the liquidation, dissolution, or winding up, whether voluntary or involuntary, of the Corporation, the assets and funds of the Corporation available for distribution to stockholders, and remaining after the payment to holders of preferred stock of the amounts to which they are entitled, shall be divided and paid to the holders of the common stock according to their respective shares. ARTICLE V (a) The number of directors which shall constitute the whole Board of Directors shall be not less than two nor more than fifteen. The exact number of directors within such maximum and minimum shall be determined by resolution duly adopted by the Board of Directors by a majority vote of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits. At the meeting of stockholders, or by written consent in lieu of such meeting, at or by which this Restated Certificate of Incorporation is adopted, directors of the first class shall be elected to hold office for a term expiring at the next ensuing annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second ensuing annual meeting, and directors of the third class shall be elected to hold office for a term expiring at the third ensuing annual meeting. At each annual meeting of stockholders following such initial classification and election, directors in numbers equal to the number of the class whose terms expire at the time of such meeting shall he elected to hold office until the second succeeding annual meeting of stockholders. Each director shall hold office until his successor is elected and qualified, or until his earlier resignation or removal. (c) Newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the whole Board, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. (d) Any directors elected pursuant to any special voting rights of one or more series of preferred stock shall be excluded from, and for no purpose be counted in, the scope and operation of the foregoing provisions of this Article V. (e) Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this certificate of incorporation or the by-laws of the Corporation), the affirmative vote of the holders of seventy percent (70%) or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall he required to amend, alter, change or repeal this Article V. ARTICLE VI 1. (A) In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in paragraph 2 of this Article VI: (i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), to or with any Interested Stockholder or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; or (iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the affirmative vote of the holders of at least eighty percent (80%) of the then outstanding shares of each class of the capital stock of the Corporation (the "Voting Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. Notwithstanding any other provision of this certificate of incorporation to the contrary, for purposes of this Article VI, each share of the Voting Stock shall have one vote. (B) The term "Business Combination" as used in this Article VI shall mean any transaction which is referred to in any one or more of clauses (i) through (v) of sub-paragraph (A) of this paragraph 1. 2. The provisions of paragraph 1 of this Article VI shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this certificate of incorporation, if all of the conditions specified in either of the following sub-paragraphs (A) and (B) are met: (A) The Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined); provided, however, that such approval shall only be effective if obtained at a meeting at which a Continuing Director Quorum (as hereinafter defined) is present. (B) All of the following conditions shall have been met: (i) The aggregate amount of (x) cash and (y) Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash, to be received per share by holders of each class of the Corporation's capital stock in such Business Combination shall be at least equal to the highest amount determined under sub-clauses (a), (b) and (c) below: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any share of such class acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) the Fair Market Value per Share of such class on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article VI as the "Determination Date"), whichever is higher; and (c) (if applicable) the highest preferential amount per share to which the holders of shares of such class would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event. (ii) The consideration to be received by holders of a particular class of outstanding Voting Stock shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. If the Interested Shareholder shall not have previously acquired shares of a particular class, the form of consideration to be received by holders of such class shall be cash. (iii) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (iv) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). 3. For the purposes of this Article VI: (A) The term "Person" shall mean any individual, firm, corporation or other entity. (B) The term "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (i) is the beneficial owner (as hereinafter defined) of more than twenty percent (20%) of the Voting Stock; or (ii) is an Affiliate (as hereinafter defined) of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of twenty percent (20%) or more of the Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933; provided, that no person which prior to October 24, 1996 came within the definition set forth in this sub-paragraph (B), nor any present or future Affiliate of such a person, shall be considered an Interested Stockholder. (C) A person shall be a "beneficial owner" of any Voting Stock: (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has, directly or indirectly (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (D) For the purposes of determining whether a person is an Interested Stockholder pursuant to sub-paragraph (B) of this paragraph 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (C) of this paragraph 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise. (E) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on October 24, 1996. (F) The term "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in subparagraph (B) of this paragraph 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (G) The term "Continuing Director" means any member of the Board of Directors of the Corporation who is unaffiliated with the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with the Interested Stockholder and is recommended or elected to succeed a Continuing Director by a majority of Continuing Directors, provided that such recommendation or election shall only be effective if made at a meeting at which a Continuing Director Quorum is present. (H) The term "Continuing Director Quorum" means three Continuing Directors capable of exercising the powers conferred upon them under the provisions of the Certificate of Incorporation or By-Laws of the Corporation or by law. (I) The term "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of Continuing Directors, provided that such determination shall only be effective if made at a meeting at which a Continuing Director Quorum is present. (i) In the event of any Business Combination in which the Corporation survives, the phrase "other consideration to be received" as used in sub-paragraphs (B)(i) and (ii) of paragraph 2 of this Article VI shall include the shares of Common Stock and/or the shares of any other class of Voting Stock retained by the holders of such shares. 4. The Board of Directors shall have discretion to interpret the meaning of the provisions of this Article VI, and their applicability with respect to various factual situations, and the determinations of the Board in such regard shall be conclusive and binding. 5. Nothing contained in this Article VI shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 6. Notwithstanding any other provisions of this Certificate of Incorporation or the By-laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this certificate of incorporation or the by-laws of the Corporation), the affirmative vote of the holders of eighty percent (80%) or more of the outstanding shares of each class of Voting Stock shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article VI. ARTICLE VII A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. The liability of a director of the Corporation shall be further eliminated or limited to the fullest extent allowable under Delaware Law, as it may in the future be amended. ARTICLE VIII In furtherance and not in limitation of the power conferred upon the Board of Directors by law, the Board of Directors shall have power to adopt, amend and repeal from time to time by-laws of the Corporation. IN WITNESS WHEREOF, said PREMIER RESEARCH WORLDWIDE, LTD. has caused its corporate seal to be hereunto affixed and this certificate to be signed by Joan Carter, its Chairman of the Board, and attested by James H. Carll, its Assistant Secretary, this 18th day of November, 1996. PREMIER RESEARCH WORLDWIDE, LTD. By: Joan Carter ---------------------------------- Joan Carter, Chairman of the Board [Corporate Seal] Attest: By: James H. Carll ------------------------- James H. Carll, Assistant Secretary CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF PREMIER RESEARCH WORLDWIDE, LTD. TO: THE SECRETARY OF STATE STATE OF DELAWARE Pursuant to the provisions of Section 242 of the Delaware General Corporation Law, this Certificate of Amendment is being filed in order to amend the Certificate of Incorporation of Premier Research Worldwide, Ltd., a Delaware corporation, as set forth below: I. The name of the corporation is Premier Research Worldwide, Ltd. II. Article I of the Certificate of Incorporation is amended to read in its entirety as follows: The name of the Corporation is PRWW, Ltd. III. The amendment was approved and adopted at the Annual Meeting of Shareholders of the Corporation duly held on April 17, 2000. IV. The number of shares outstanding, the class of such shares, the number of shares entitled to vote on the amendment, and the number of shares voted for and against such amendment are as follows: Number of Number of Shares Shares Voted Outstanding Class Entitled To Vote Voted For Against 6,952,297 Common 6,952,297 5,840,978 4,754 V. This amendment has been duly adopted in accordance with Section 242 of the Delaware General Corporation Law. VI. The amendment shall be effective upon the close of business on April 20, 2000. DATED: April 17, 2000 PREMIER RESEARCH WORLDWIDE, LTD. By: Joel Morganroth, MD ------------------------- Joel Morganroth, M.D., Chairman and Chief Executive Officer CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF PRWW, LTD. TO: THE SECRETARY OF STATE STATE OF DELAWARE Pursuant to the provisions of Section 242 of the Delaware General Corporation Law, this Certificate of Amendment is being filed in order to amend the Certificate of Incorporation of PRWW, LTD., a Delaware corporation, as set forth below: I. The name of the corporation is PRWW, LTD. II. The Certificate of Incorporation is hereby amended as follows: (a) Article I of the Certificate of Incorporation is amended to read in its entirety as follows: The name of the Corporation is eResearchTechnology, Inc. III. The amendment was approved and adopted at the Annual Meeting of Shareholders of the Corporation duly held on April 24, 2001. IV. The number of shares outstanding, the class of such shares, the number of shares entitled to vote on the amendment, and the number of shares voted for and against such amendment are as follows: Number of Shares Outstanding and Voted Voted Vote Entitled to Vote Class For Against Abstain ----------------- ------ --------- ------- ------- 6,970,887 Common 6,176,734 116,227 2,934 V. This amendment has been duly adopted in accordance with Section 242 of the Delaware General Corporation Law. VI. The amendment shall be effective upon the close of business on April 26th, 2001. DATED: April 24, 2001 PRWW, LTD. By: Joel Morganroth, MD ------------------------------- Joel Morganroth, M.D. Chairman CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF eResearchTechnology, Inc. eResearchTechnology, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: FIRST: The Board of Directors of eResearchTechnology, Inc. (the "Corporation"), at a meeting held on February 4, 2003 at which a quorum was present and acting throughout, duly adopted a resolution setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring the amendment to be advisable and calling for consideration of the amendment by the stockholders of the Corporation. The amendment is as follows: The first paragraph of Article IV of the Restated Certificate of Incorporation of eResearchTechnology, Inc. is amended to read in its entirety as follows: "The aggregate number of shares which the corporation shall have the authority to issue is 50,500,000, by classes and par value of shares as follows: Class No. of Shares Par Value Per share ----- ------------- ------------------- Common.................. 50,000,000 $ 0.01 Preferred............... 500,000 $10.00" SECOND: Thereafter, pursuant to a resolution of the Board of Directors, the holders of a majority of the outstanding shares of the Corporation's Common Stock, constituting the only class of capital stock of the Corporation entitled to vote thereon, voted in favor of the amendment at a meeting held on April 22, 2003. THIRD: Such amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 28th day of April, 2003. eResearchTechnology, Inc. By: Joel Morganroth ------------------------ Joel Morganroth, M.D., Chairman of the Board EX-99 4 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Statement of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code Pursuant to Section 1350 of Title 18 of the United States Code, the undersigned, Joseph Esposito, the President and Chief Executive Officer of eResearchTechnology, Inc. (the "Company"), hereby certifies that: The Company's Form 10-Q Quarterly Report for the period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2003 Joseph Esposito -------------------------------- Joseph Esposito, President and Chief Executive Officer EX-99 5 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 Statement of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the United States Code Pursuant to Section 1350 of Title 18 of the United States Code, the undersigned, Bruce Johnson, the Sr. Vice President and Chief Financial Officer of eResearchTechnology, Inc. (the "Company"), hereby certifies that: The Company's Form 10-Q Quarterly Report for the period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 9, 2003 Bruce Johnson ---------------------------- Bruce Johnson, Sr. Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----