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, 2004.
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: 56,460,047 shares of common stock, par value $0.10 per share, as of July 30, 2004.
| Page | ||
| Part I. FINANCIAL INFORMATION | ||
| Item 1. Financial Statements |
||
| 3 | ||
| Consolidated Condensed Balance Sheets as of December 31, 2003 and June 30, 2004 (unaudited) |
4 | |
| 5 | ||
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
28 | |
| Item 4. Controls and Procedures |
29 | |
| Part II. OTHER INFORMATION | ||
| 30 | ||
| Item 6. Exhibits and Reports on Form 8-K |
31 | |
| 32 | ||
2
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, |
|||||||||||||||
| 2003 |
2004 |
2003 |
2004 |
|||||||||||||
| Development revenues |
$ | 161,587 | $ | 183,178 | $ | 317,486 | $ | 357,892 | ||||||||
| Discovery sciences revenues |
7,124 | 2,033 | 10,219 | 9,581 | ||||||||||||
| Reimbursed out-of-pockets |
16,259 | 15,325 | 27,142 | 28,343 | ||||||||||||
| Net revenue |
184,970 | 200,536 | 354,847 | 395,816 | ||||||||||||
| Direct costs - Development |
78,284 | 90,834 | 153,003 | 179,044 | ||||||||||||
| Direct costs - Discovery sciences |
3,474 | 1,282 | 5,008 | 2,848 | ||||||||||||
| Direct costs - Reimbursable out-of-pocket expenses |
16,259 | 15,325 | 27,142 | 28,343 | ||||||||||||
| Research and development expenses |
3,725 | 3,638 | 7,086 | 4,924 | ||||||||||||
| Selling, general and administrative expenses |
41,782 | 47,816 | 81,545 | 92,975 | ||||||||||||
| Depreciation |
6,837 | 6,883 | 13,754 | 13,600 | ||||||||||||
| Amortization |
429 | 417 | 719 | 742 | ||||||||||||
| Restructuring charges |
— | 2,114 | — | 2,619 | ||||||||||||
| 150,790 | 168,309 | 288,257 | 325,095 | |||||||||||||
| Operating income |
34,180 | 32,227 | 66,590 | 70,721 | ||||||||||||
| Interest income, net |
565 | 258 | 821 | 450 | ||||||||||||
| Impairment of investments |
(8,600 | ) | (2,000 | ) | (8,600 | ) | (2,000 | ) | ||||||||
| Other income, net |
141 | 950 | 678 | 1,262 | ||||||||||||
| Income before provision for income taxes |
26,286 | 31,435 | 59,489 | 70,433 | ||||||||||||
| Provision for income taxes |
9,446 | 8,121 | 21,482 | 22,355 | ||||||||||||
| Net income |
$ | 16,840 | $ | 23,314 | $ | 38,007 | $ | 48,078 | ||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | 0.30 | $ | 0.41 | $ | 0.68 | $ | 0.86 | ||||||||
| Diluted |
$ | 0.30 | $ | 0.41 | $ | 0.68 | $ | 0.85 | ||||||||
| Weighted average number of common shares outstanding: |
||||||||||||||||
| Basic |
55,699 | 56,223 | 55,630 | 56,188 | ||||||||||||
| Dilutive effect of stock options and restricted stock |
480 | 433 | 517 | 432 | ||||||||||||
| Diluted |
56,179 | 56,656 | 56,147 | 56,620 | ||||||||||||
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, 2003 |
June 30, 2004 | |||||
| (unaudited) | ||||||
| Assets | ||||||
| Current assets |
||||||
| Cash and cash equivalents |
$ | 110,102 | $ | 161,896 | ||
| Accounts receivable and unbilled services, net |
243,494 | 221,322 | ||||
| Investigator advances |
12,792 | 9,380 | ||||
| Prepaid expenses and other current assets |
19,192 | 22,818 | ||||
| Deferred income taxes, net |
12,366 | 17,315 | ||||
| Total current assets |
397,946 | 432,731 | ||||
| Property, plant and equipment, net |
112,143 | 121,849 | ||||
| Investments |
61,371 | 65,741 | ||||
| Intangible assets |
2,007 | 1,905 | ||||
| Goodwill |
178,076 | 176,582 | ||||
| Other assets |
841 | 780 | ||||
| Long-term deferred income taxes, net |
23,083 | 23,220 | ||||
| Total assets |
$ | 775,467 | $ | 822,808 | ||
| Liabilities and Shareholders’ Equity | ||||||
| Current liabilities |
||||||
| Accounts payable |
$ | 15,243 | $ | 8,221 | ||
| Payables to investigators |
23,735 | 29,470 | ||||
| Other accrued expenses |
63,749 | 74,682 | ||||
| Unearned income |
129,818 | 104,708 | ||||
| Accrued income taxes |
7,419 | 19,439 | ||||
| Current maturities of long-term debt and capital lease obligations |
1,381 | 914 | ||||
| Total current liabilities |
241,345 | 237,434 | ||||
| Long-term debt and capital lease obligations, less current maturities |
6,281 | 5,914 | ||||
| Accrued additional pension liability |
9,859 | 10,044 | ||||
| Deferred rent and other |
5,461 | 5,510 | ||||
| Total liabilities |
262,946 | 258,902 | ||||
| Shareholders’ equity |
||||||
| Common stock |
5,605 | 5,624 | ||||
| Paid-in capital |
278,057 | 283,048 | ||||
| Retained earnings |
226,381 | 274,458 | ||||
| Accumulated other comprehensive income, net of deferred taxes |
2,478 | 776 | ||||
| Total shareholders’ equity |
512,521 | 563,906 | ||||
| Total liabilities and shareholders’ equity |
$ | 775,467 | $ | 822,808 | ||
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, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 38,007 | $ | 48,078 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Impairment of investments |
8,600 | 2,000 | ||||||
| Restructuring charges |
— | 2,619 | ||||||
| Depreciation and amortization |
14,473 | 14,342 | ||||||
| Stock compensation amortization |
183 | — | ||||||
| Loss (gain) on disposition of property and equipment, net |
(11 | ) | 27 | |||||
| Provision for doubtful accounts |
280 | 403 | ||||||
| Provision (benefit) for deferred income taxes |
1,246 | (4,702 | ) | |||||
| Change in operating assets and liabilities, net of effect of acquisitions |
(31,789 | ) | 13,651 | |||||
| Net cash provided by operating activities |
30,989 | 76,418 | ||||||
| Cash flows from investing activities: |
||||||||
| Cash received from repayment of note receivable |
500 | — | ||||||
| Purchases of property and equipment |
(16,001 | ) | (23,972 | ) | ||||
| Proceeds from sale of property and equipment |
85 | 183 | ||||||
| Purchases of investments |
(3,450 | ) | (5,900 | ) | ||||
| Cash paid (refunded) related to businesses acquired, net of cash acquired |
(1,400 | ) | 1,450 | |||||
| Net cash used in investing activities |
(20,266 | ) | (28,239 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Principal repayments of long-term debt |
(144 | ) | (174 | ) | ||||
| Repayment of capital leases obligation |
(916 | ) | (460 | ) | ||||
| Proceeds from exercise of stock options and employee stock purchase plan |
5,101 | 4,212 | ||||||
| Net cash provided by financing activities |
4,041 | 3,578 | ||||||
| Effect of exchange rate changes on cash |
2,068 | 37 | ||||||
| Net increase in cash and cash equivalents |
16,832 | 51,794 | ||||||
| Cash and cash equivalents, beginning of the period |
181,224 | 110,102 | ||||||
| Cash and cash equivalents, end of the period |
$ | 198,056 | $ | 161,896 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accou