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 AND EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2003.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to .
Commission File Number 0-27570
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
| North Carolina | 56-1640186 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
3151 South Seventeenth Street
Wilmington, North Carolina
(Address of principal executive offices)
28412
(Zip Code)
Registrant’s telephone number, including area code: (910) 251-0081
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,920,523 shares of common stock, par value $0.10 per share, as of August 1, 2003.
INDEX
| Page | ||||
| Part I. FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements |
|||
| Consolidated Condensed Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2002 and 2003 | 3 | |||
| Consolidated Condensed Balance Sheets as of December 31, 2002 and June 30, 2003 (unaudited) |
4 | |||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. |
27 | |||
| Item 4. |
28 | |||
| Part II. OTHER INFORMATION | ||||
| Item 4. |
29 | |||
| Item 6. |
30 | |||
| 31 | ||||
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
| Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||
| 2002 |
2003 |
2002 |
2003 |
||||||||||||
| Development revenues |
$ | 135,049 | $ | 161,587 | $ | 251,785 | $ | 317,486 | |||||||
| Discovery sciences revenues |
5,122 | 7,124 | 10,501 | 10,219 | |||||||||||
| Reimbursed out-of-pockets |
11,395 | 16,259 | 19,863 | 27,142 | |||||||||||
| Net revenue |
151,566 | 184,970 | 282,149 | 354,847 | |||||||||||
| Direct costs—Development |
65,558 | 78,284 | 121,232 | 153,003 | |||||||||||
| Direct costs—Discovery sciences |
2,320 | 3,474 | 4,261 | 5,008 | |||||||||||
| Direct costs—Reimbursable out-of-pocket expenses |
11,395 | 16,259 | 19,863 | 27,142 | |||||||||||
| Research and development |
2,572 | 3,725 | 4,323 | 7,086 | |||||||||||
| Selling, general and administrative expenses |
37,655 | 41,782 | 73,290 | 81,545 | |||||||||||
| Depreciation |
5,730 | 6,837 | 11,096 | 13,754 | |||||||||||
| Amortization |
155 | 429 | 436 | 719 | |||||||||||
| 125,385 | 150,790 | 234,501 | 288,257 | ||||||||||||
| Operating income |
26,181 | 34,180 | 47,648 | 66,590 | |||||||||||
| Interest income, net |
613 | 565 | 1,490 | 821 | |||||||||||
| Impairment of investments |
— | (8,600 | ) | (32,006 | ) | (8,600 | ) | ||||||||
| Other income, net |
544 | 141 | 1,211 | 678 | |||||||||||
| Income before provision for income taxes |
27,338 | 26,286 | 18,343 | 59,489 | |||||||||||
| Provision for income taxes |
10,115 | 9,446 | 16,595 | 21,482 | |||||||||||
| Income before equity in net loss of investee |
17,223 | 16,840 | 1,748 | 38,007 | |||||||||||
| Equity in net loss of investee, net of income taxes |
13 | — | 105 | — | |||||||||||
| Net income |
$ | 17,210 | $ | 16,840 | $ | 1,643 | $ | 38,007 | |||||||
| Net income per share: |
|||||||||||||||
| Basic |
$ | 0.31 | $ | 0.30 | $ | 0.03 | $ | 0.68 | |||||||
| Diluted |
$ | 0.31 | $ | 0.30 | $ | 0.03 | $ | 0.68 | |||||||
| Weighted average number of common shares outstanding: |
|||||||||||||||
| Basic |
55,123 | 55,699 | 53,837 | 55,630 | |||||||||||
| Dilutive effect of stock options and restricted stock |
646 | 480 | 717 | 517 | |||||||||||
| Diluted |
55,769 | 56,179 | 54,554 | 56,147 | |||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
| December 31, 2002 |
June 30, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 181,224 | $ | 198,056 | ||||
| Accounts receivable and unbilled services, net |
199,936 | 212,075 | ||||||
| Investigator advances |
6,300 | 9,852 | ||||||
| Prepaid expenses and other current assets |
13,676 | 16,828 | ||||||
| Notes receivable |
500 | — | ||||||
| Deferred tax asset |
13,858 | 9,253 | ||||||
| Total current assets |
415,494 | 446,064 | ||||||
| Property, plant and equipment, net |
107,704 | 111,027 | ||||||
| Investments |
16,934 | 13,529 | ||||||
| Goodwill |
147,408 | 151,306 | ||||||
| Intangible assets, net |
3,624 | 2,912 | ||||||
| Other assets, net |
956 | 722 | ||||||
| Total assets |
$ | 692,120 | $ | 725,560 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 10,645 | $ | 9,853 | ||||
| Payables to investigators |
20,645 | 26,967 | ||||||
| Other accrued expenses |
68,026 | 58,207 | ||||||
| Unearned income |
114,494 | 102,094 | ||||||
| Accrued income taxes |
12,231 | 13,849 | ||||||
| Current maturities of long-term debt |
1,757 | 1,508 | ||||||
| Total current liabilities |
227,798 | 212,478 | ||||||
| Long-term debt, less current maturities |
6,649 | 6,593 | ||||||
| Deferred rent and other |
3,480 | 4,145 | ||||||
| Accrued additional pension liability |
7,905 | 8,132 | ||||||
| Deferred tax liability, net |
5,951 | 2,592 | ||||||
| Total liabilities |
251,783 | 233,940 | ||||||
| Shareholders’ equity |
||||||||
| Common stock |
5,544 | 5,581 | ||||||
| Paid-in capital |
263,554 | 270,404 | ||||||
| Retained earnings |
180,071 | 218,078 | ||||||
| Deferred compensation |
(367 | ) | (183 | ) | ||||
| Accumulated other comprehensive loss |
(8,465 | ) | (2,260 | ) | ||||
| Total shareholders’ equity |
440,337 | 491,620 | ||||||
| Total liabilities and shareholders’ equity |
$ | 692,120 | $ | 725,560 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six Months Ended June 30, |
||||||||
| 2002 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,643 | $ | 38,007 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Impairment of investments |
32,006 | 8,600 | ||||||
| Depreciation and amortization |
11,532 | 14,473 | ||||||
| Stock compensation amortization |
67 | 183 | ||||||
| Loss (gain) on disposition of property and equipment, net |
8 | (11 | ) | |||||
| Change in provision for doubtful accounts |
(44 | ) | 280 | |||||
| Gain on sale of investment |
(173 | ) | — | |||||
| Equity in net loss of investee |
119 | — | ||||||
| Change in deferred income taxes |
(2,510 | ) | 1,246 | |||||
| Change in operating assets and liabilities, net of effect of acquisitions |
(11,371 | ) | (31,789 | ) | ||||