QUINTILES TRANSNATIONAL CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

Commission file number 000-23520

Quintiles Transnational Corp.

(Exact name of registrant as specified in its charter)


North Carolina		56-1714315
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4709 Creekstone Dr., Suite 200 Durham, NC (Address of principal executive offices)		27703-8411 (Zip Code)

(919) 998-2000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No

The number of shares of Common Stock, $.01 par value, outstanding as of October 31, 2003 was 125,000,000.

INDEX


		Page

Part I. Financial Information
Item 1.	Financial Statements (unaudited)		2
	Condensed consolidated balance sheets — September 30, 2003 (successor) and December 31, 2002 (predecessor)		2
	Condensed consolidated statements of operations — September 26, 2003 through September 30, 2003 (successor); July 1, 2003 through September 25, 2003 (predecessor); January 1, 2003 through September 25, 2003 (predecessor); Three and nine months ended September 30, 2002 (predecessor)		3
	Condensed consolidated statements of cash flows — January 1, 2003 through September 25, 2003 (predecessor); September 26, 2003 through September 30, 2003 (successor); Nine months ended September 30, 2002 (predecessor)		4
	Notes to condensed consolidated financial statements — September 30, 2003		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosure about Market Risk		51
Item 4.	Controls and Procedures		52
Part II. Other Information
Item 1.	Legal Proceedings		52
Item 2.	Changes in Securities and Use of Proceeds		54
Item 3.	Defaults upon Senior Securities — Not Applicable		54
Item 4.	Submission of Matters to a Vote of Security Holders		54
Item 5.	Other Information — Not Applicable		55
Item 6.	Exhibits and Reports on Form 8-K		55
Signatures			57
Exhibit Index			58

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


			September 30,			December 31,
			2003			2002

			Successor			Predecessor
			(Unaudited)			(Note 1)

			(In thousands,
			except share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	333,157		$	644,284
	Trade accounts receivable and unbilled services, net			249,928			255,647
	Investments in debt securities			593			27,218
	Prepaid expenses			25,567			22,516
	Other current assets and receivables			53,945			42,654

		Total current assets		663,190			992,319
Property and equipment				311,099			475,543
Less accumulated depreciation				(661	)		(213,385	)

				310,438			262,158
Intangibles and other assets:
	Investments in debt securities			10,775			9,453
	Investments in marketable equity securities			59,846			64,926
	Investments in non-marketable equity securities and loans			45,478			46,449
	Investments in unconsolidated affiliates			121,153			121,101
	Commercial rights and royalties			10,813			1,786
	Accounts receivable — unbilled			33,450			59,750
	Advances to customer			70,000			70,000
	Goodwill			192,351			70,133
	Other identifiable intangibles, net			405,248			142,715
	Deferred income taxes			2,015			174,534
	Deposits and other assets			62,899			38,871

				1,014,028			799,718

		Total assets	$	1,987,656		$	2,054,195

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	325,926		$	238,269
	Credit arrangements			19,607			21,719
	Unearned income			167,125			141,718
	Income taxes payable			14,935			20,067
	Other current liabilities			2,858			2,073

		Total current liabilities		530,451			423,846
Long-term liabilities:
	Credit arrangements, less current portion			773,241			18,855
	Deferred income taxes			135,020			405
	Other liabilities			26,398			12,703

				934,659			31,963

		Total liabilities		1,465,110			455,809
Shareholders’ equity:
	Preferred stock, none issued and outstanding at September 30, 2003 and December 31, 2002			—			—
	Common stock and additional paid-in capital, 125,000,000 and 117,850,597 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively			521,727			881,927
	Retained earnings			819			716,465
	Accumulated other comprehensive income (loss)			—			(6	)

		Total shareholders’ equity		522,546			1,598,386

		Total liabilities and shareholders’ equity	$	1,987,656		$	2,054,195

The accompanying notes are an integral part of these condensed consolidated statements.

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	September									September			January 1,
	26, 2003									26, 2003
	Through			July 1, 2003			Three			Through			2003			Nine Months
				Through			Months						Through			Ended
							Ended
	September 30,			September 25,			September			September 30,			September 25,			September 30,
	2003			2003			30,			2003			2003			2002
							2002

	Successor			Predecessor			Predecessor			Successor			Predecessor			Predecessor

	(Unaudited)

	(In thousands, except per share data)
Gross revenues	$	22,992		$	467,182		$	490,965		$	22,992		$	1,498,822		$	1,482,494
Costs, expenses and other:
Costs of revenues		15,052			307,662			330,108			15,052			997,822			1,020,500
General and administrative		5,971			129,082			128,842			5,971			397,318			381,970
Interest (income) expense, net		1,033			(2,246	)		(3,256	)		1,033			(10,374	)		(9,954	)
Other (income) expense, net		(309	)		17			1,473			(309	)		(5,433	)		344
Transaction and restructuring		—			50,261			—			—			54,148			—

		21,747			484,776			457,167			21,747			1,433,481			1,392,860

Income (loss) before income taxes		1,245			(17,594	)		33,798			1,245			65,341			89,634
Income tax expense (benefit)		448			(14	)		11,602			448			28,184			30,028

Income (loss) before equity in earnings of unconsolidated affiliates and other		797			(17,580	)		22,196			797			37,157			59,606
Equity in earnings of unconsolidated affiliates and other		22			(12	)		(1,017	)		22			4			(540	)

Income (loss) from operations		819			(17,592	)		21,179			819			37,161			59,066
Cumulative effect on prior years (to December 31, 2001) of changing to a different method of recognizing deferred income taxes		—			—			—			—			—			45,659

Net income (loss)	$	819		$	(17,592	)	$	21,179		$	819		$	37,161		$	104,725

Basic net income (loss) per share:
Income (loss) from operations	$	0.01		$	(0.15	)	$	0.18		$	0.01		$	0.31		$	0.50
Cumulative effect of change in accounting principle		—			—			—			—			—			0.39

Basic net income (loss) per share	$	0.01		$	(0.15	)	$	0.18		$	0.01		$	0.31		$	0.89

Diluted net income (loss) per share:
Income (loss) from operations	$	0.01		$	(0.15	)	$	0.18		$	0.01		$	0.31		$	0.50
Cumulative effect of change in accounting principle		—			—			—			—			—			0.39

Diluted net income (loss) per share	$	0.01		$	(0.15	)	$	0.18		$	0.01		$	0.31		$	0.88

Shares used in computing net income (loss) per share:
Basic		125,000			118,560			117,694			125,000			118,358			118,240
Diluted		125,000			118,560			117,845			125,000			119,050			118,520

The accompanying notes are an integral part of these condensed consolidated statements.

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		September			January 1,
		26, 2003
		Through			2003			Nine Months
					Through			Ended
		September			September			September
		30,			30,			30,
		2003			2003			2002

		Successor			Predecessor			Predecessor

		(In thousands)

		(Unaudited)
Operating activities
	Net income	$	819		$	37,161		$	104,725
	Cumulative effect on prior years (to December 31, 2001) of changing to a different method of recognizing deferred income taxes		—			—			(45,659	)

	Income from operations		819			37,161			59,066
Adjustments to reconcile income from operations to net cash provided by operating activities:
	Depreciation and amortization		1,655			65,871			65,387
	Restructuring charge (payments) accrual, net		—			283			(18,953	)
	Transaction costs		—			44,057			—
	(Gain) loss from sales and impairments of investments, net		(213	)		(27,363	)		(14,609	)
	Provision for (benefit from) deferred income tax expense		—			12,592			(7,432	)
	Change in operating assets and liabilities		(2,261	)		38,172			83,475
	Other		—			(904	)		1,967

Net cash provided by operating activities			—			169,869			168,901
Investing activities
Acquisition of property and equipment			—			(39,682	)		(30,608	)
Repurchase of common stock in going-private merger			(1,617,567	)		—			—
Payment of transaction costs in going-private merger			(16,073	)		(2,896	)		—
Acquisition of businesses, net of cash acquired			—		</