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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 March 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number 0-27570
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
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North Carolina 56-1640186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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3151 Seventeenth Street Extension
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 of 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 23,073,406 shares of common
stock, par value $0.10 per share, as of April 30, 1998.
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<PAGE>
INDEX
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations and Comprehensive Income for the Three
Months Ended
March 31, 1998 and 1997 .............................................................. 3
Consolidated Condensed Balance Sheets as of March 31, 1998 and December 31, 1997 ...... 4
Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31,
1998 and 1997........................................................................... 5
Notes to Consolidated Condensed Financial Statements .................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ 12
Signatures .............................................................................. 13
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2
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except per share amounts)
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Three Months Ended
March 31,
-------------------------
1998 1997
------------- -----------
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Life sciences revenues, net of subcontractor costs of $19,127 and $18,747, respectively... $ 51,977 $ 45,965
Environmental sciences revenues, net of subcontractor costs of $2,491 and $1,526,
respectively............................................................................ 12,695 11,709
Discovery sciences revenues, net of subcontractor costs of $22 in 1998.................... 177 --
--------- --------
Net revenue ............................................................................. 64,849 57,674
--------- --------
Direct costs -- Life sciences ............................................................ 26,427 24,114
Direct costs -- Environmental sciences ................................................... 8,963 8,338
Direct costs -- Discovery sciences ....................................................... 1,095 --
Selling, general and administrative expenses ............................................. 19,086 16,564
Depreciation and amortization ............................................................ 3,479 2,733
Merger costs ............................................................................. -- 443
--------- --------
59,050 52,192
--------- --------
Operating income ........................................................................ 5,799 5,482
Interest income, net ..................................................................... 238 345
Other income (expense), net .............................................................. 1,395 (41)
--------- --------
Income before provision for income taxes ................................................. 7,432 5,786
Provision for income taxes ............................................................... 2,895 2,314
--------- --------
Net income ............................................................................... $ 4,537 $ 3,472
========= ========
Cumulative translation adjustment ....................................................... 28 (267)
Unrealized gain on investments .......................................................... -- (47)
--------- --------
Comprehensive income, net of taxes ....................................................... $ 4,565 $ 3,158
========= ========
Net income per common share:
Basic ................................................................................... $ 0.20 $ 0.16
========= ========
Diluted ................................................................................. $ 0.20 $ 0.16
========= ========
Weighted average number of common shares outstanding:
Basic ................................................................................... 23,025 22,174
Dilutive effect of stock options ........................................................ 82 172
--------- --------
Diluted ................................................................................. 23,107 22,346
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
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March 31, December 31,
1998 1997
------------ -------------
(unaudited)
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Assets
Current assets
Cash and cash equivalents .............................. $ 26,222 $ 15,879
Marketable securities .................................. -- 7,994
Accounts receivable and unbilled services, net ......... 109,459 101,554
Investigator advances .................................. 2,102 1,870
Prepaid expenses and other current assets .............. 7,194 7,227
Deferred tax asset ..................................... 1,278 1,973
-------- --------
Total current assets ................................. 146,255 136,497
Property, plant and equipment, net ...................... 35,013 34,902
Goodwill, net ........................................... 14,954 18,026
Other assets, net ....................................... 8,402 7,622
-------- --------
Total assets ......................................... $204,624 $197,047
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt ................... $ 4,338 $ 4,906
Accounts payable ....................................... 8,253 6,249
Payables to investigators .............................. 3,838 4,138
Other accrued expenses ................................. 22,772 23,532
Unearned income ........................................ 29,470 27,722
-------- --------
Total current liabilities ............................ 68,671 66,547
Long-term debt, less current maturities ................. 330 340
Deferred rent and other ................................. 2,424 2,555
-------- --------
Total liabilities .................................... 71,425 69,442
-------- --------
Shareholders' equity
Common stock ........................................... 2,303 2,295
Paid-in capital ........................................ 116,803 115,680
Unrealized gain on investments ......................... -- 168
Cumulative translation adjustment ...................... (604) (650)
Retained earnings ...................................... 14,697 10,112
-------- --------
Total shareholders' equity ........................... 133,199 127,605
-------- --------
Total liabilities and shareholders' equity ........... $204,624 $197,047
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Three Months Ended
March 31,
-------------------------
1998 1997
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Cash flows from operating activities:
Net income ................................................. $ 4,537 $ 3,472
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Merger expenses .......................................... -- (5,464)
Gain on sale of business ................................. (1,071) --
Depreciation and amortization ............................ 3,479 2,733
Other .................................................... 1,508 (492)
Change in operating assets and liabilities ............... (6,954) (4,430)
-------- ---------
Net cash provided by (used in) operating activities ..... 1,499 (4,181)
-------- ---------
Cash flows from investing activities:
Purchases of investments ................................... -- (10,973)
Sales of investments ....................................... 8,000 12,240
Purchases of property and equipment ........................ (4,086) (2,980)
Net cash paid for acquisitions ............................. (1,006) (86)
Net cash received in sale of business ...................... 5,285 --
Other ...................................................... -- 926
-------- ---------
Net cash provided by (used in) investing activities ..... 8,193 (873)
-------- ---------
Cash flows from financing activities:
Repayment of long-term debt ................................ (554) (143)
Proceeds from issuance of common stock ..................... 1,111 1,077
Distributions to shareholders .............................. -- (430)
Other ...................................................... 48 --
-------- ---------
Net cash provided by financing activities ............... 605 504
-------- ---------
Effect of exchange rate changes on cash ..................... 46 (287)
-------- ---------
Net increase (decrease) in cash and cash equivalents ........ 10,343 (4,837)
Cash and cash equivalents, beginning of the period .......... 15,879 21,838
-------- ---------
Cash and cash equivalents, end of the period ................ $ 26,222 $ 17,001
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Accounting Policies
The significant accounting policies followed by Pharmaceutical Product
Development, Inc. (the "Company") for interim financial reporting are
consistent with the accounting policies followed for annual financial
reporting. These unaudited consolidated condensed financial statements have
been prepared in accordance with Rule 10-01 of Regulation S-X, and in
management's opinion, all adjustments of a normal recurring nature necessary
for a fair presentation have been included. The accompanying financial
statements do not purport to contain all the necessary financial disclosures
that might otherwise be necessary in the circumstances and should be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's Annual Report for the year ended December 31, 1997. The results of
operations for the three month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
Use of Estimates in the Preparation of Financial Statements
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 and
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.
Certain 1997 financial statement amounts have been reclassified to conform
with the 1998 presentation.
2. Principles of Consolidation
The accompanying unaudited consolidated condensed financial statements
include the accounts and operations of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
3. Acquisitions
Purchases
In January 1998, the Company acquired two environmental consulting
businesses for $1,000,000 and the potential to earn an additional amount
depending on their profitability for a certain period after the acquisition. In
connection with these acquisitions, the Company recorded approximately $900,000
in goodwill. Pro forma information is not presented as the results of
operations prior to the dates of the acquisitions are not material individually
or collectively to the Company.
In a January 1997 transaction, the Company acquired Technical Assessment
Systems, Inc. for $490,000 cash, a note for approximately $300,000 and the
potential to earn an additional amount depending on their profitability for a
certain period after the acquisition. In connection with the acquisition, the
Company recorded $1,070,000 in goodwill. In June 1997, the Company acquired the
GSX System, a functional genomics platform technology. The GSX System was
purchased for approximately $8,700,000 in cash. Liabilities assumed in this
transaction were $832,000. Pro forma information is not presented as the
results of operations prior to the dates of the acquisitions are not material
individually or collectively to the Company.
Pooling
In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502,384 shares of the Company's
common stock plus options to purchase approximately 115,000 shares of Company
common stock. In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The
consideration for SARCO consisted of 263,158 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"). The
consideration for Intek consisted of 399,999 shares of the Company's common
stock. All three of these acquisitions were accounted for as pooling of
interests transactions. Pro forma information is not presented as the results
of operations prior to the dates of the acquisitions are not material
individually or collectively to the Company.
6
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited) -- Continued
4. Per Share Information
The computation of basic income per share information is based on the
weighted average number of common shares outstanding during the period. The
computation of diluted income per share information is based on the weighted
average number of common shares outstanding during the year plus the effects of
any common stock equivalents at period end.
5. Sale of Business
On February 27, 1998, the Company, through its subsidiary Clinix
International Inc., sold the business and assets of the Chicago Center for
Clinical Research ("CCCR"). The selling price was approximately $7,785,000 in
the form of cash and a promissory note payable over five years. The sale
resulted in a gain of approximately $1,071,000 which was included in results of
operations during the first quarter of 1998. As part of the sales agreement,
the Company will continue to provide CCCR with certain clinical and
administrative services over the next several quarters.
6. New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), for the year ending December
31, 1998. SFAS No. 130 requires the Company to display an amount representing
total comprehensive income for the period in a financial statement which is
displayed with the same prominence as other financial statements. Accordingly,
all prior period data presented has been restated to conform to the provisions
of SFAS No. 130.
The Company will adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), for the year ending December 31, 1998. SFAS No. 131 requires
the Company to report certain information about operating segments in complete
sets of financial statements and in condensed financial statements of interim
period issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company does not expect this new pronouncement to have a significant impact
on the financial statements.
The Company will adopt Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), for the year ending December 31, 1998. SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information and changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. The Company does not expect this new pronouncement to have a
significant impact on the financial statements.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMPANY OVERVIEW
Pharmaceutical Product Development, Inc. ("PPDI" or "the Company")
provides a broad range of research and consulting services in the life,
environmental and discovery sciences. The Company's life sciences subsidiaries
include PPD Pharmaco, Inc., Belmont Research, Inc. and Intek Labs, Inc. PPD
Pharmaco is a leading contract research organization ("CRO") providing
integrated product development services on a global basis to complement the
research and development activities of companies in the pharmaceutical and
biotechnology industries. Through its environmental sciences subsidiary, APBI
Environmental Sciences Group, Inc., operating under the trade name ENVIRON, the
Company also provides assessment and management of chemical and environmental
health risk. PPD Discovery, Inc., the Company's discovery sciences subsidiary,
focuses on the discovery segment of the research and development outsourcing
market.
Life Sciences Group
The Company's Life Sciences Group provides services through (i) PPD
Pharmaco, Inc. and its wholly-owned European, South American, South African,
Australian and Canadian subsidiaries (collectively "PPD Pharmaco"), (ii)
Belmont Research, Inc. ("Belmont"), and (iii) Intek Labs, Inc. ("Intek").
PPD Pharmaco offers its clients high quality, value-added services
designed to reduce drug development time. Reduced development time allows the
client to get its products into the market faster and to maximize the period of
marketing exclusivity and the economic return for such products. In addition,
PPD Pharmaco's integrated services offer its clients a variable cost
alternative to the fixed costs associated with internal drug development. PPD
Pharmaco's professional CRO services include Phase I clinical testing,
laboratory services, patient recruitment, Phase II-IV clinical trial
management, clinical data management and biostatistical analysis, treatment
Investigational New Drug Applications, medical writing and regulatory services,
and healthcare economics and outcomes research. The Company believes that it is
one of a few CROs in the world capable of providing such a broad range of
clinical development services.
Belmont was acquired by the Company in March 1997. Belmont provides
software development and system integration services to the pharmaceutical
industry. Belmont's clients include international and domestic pharmaceutical
and biotechnology companies, scientific software vendors and government
agencies including the FDA. Belmont also develops specialized software products
to support different aspects of the pharmaceutical research process, including
drug discovery, clinical trials and regulatory review. Current Belmont software
products include ResolveTM, which manages data queries to investigator sites,
and CrossGraphs(R) which is used for exploration and presentation of research
data.
Intek was acquired in November 1997. Intek provides molecular genotyping,
phenotyping and large-scale genomic DNA purification services through its
current Good Laboratory Practice ("cGLP") compliant reference laboratory. Intek
furnishes pharmacogenetic services for clinical trials. Intek routinely reports
pharmacogenetic profiles within 48 hours enabling genotyping to be performed on
clinical trial candidates at enrollment. Intek also provides genotyping and
phenotyping for difficult cellular and tissue samples such as liver,
hepatocytes and S9 liver fractions. Additional services include in vitro
studies to correlate therapeutic response with polymorphisms early in drug
development, and large-scale genomic DNA purification and archiving services to
prepare clinical trial samples for DNA banking and pharmacogenomic research.
During 1997, the Life Sciences Group also included Clinix International,
Inc., which in August 1995 acquired the business and substantially all of the
assets of Chicago Center for Clinical Research ("CCCR"), a nationally
recognized organization which conducts clinical trials in the pharmaceutical,
food and nutrition industries. The Company sold substantially all of the assets
of CCCR in February 1998. For more detailed information on the Company's Life
Sciences Group, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Environmental Sciences Group
ENVIRON, the Company's Environmental Sciences Group, provides
environmental services through APBI Environmental Sciences Group, Inc.,
operating under the trade name ENVIRON. ENVIRON provides a broad range of
scientific, technical and strategic management consulting services that address
a wide variety of public health and environmental issues related to the
presence of chemicals in foods, drugs, medical devices, consumer products, the
workplace, and the environment. Services provided by ENVIRON are concentrated
in the assessment and management of chemical risk and are characterized by
engagements supporting private sector clients with complex, potentially
high-liability concerns. For more detailed information on the Company's
Environmental Sciences Group, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
8
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Discovery Sciences Group
PPD Discovery, Inc. ("PPD Discovery") was established in June 1997. The
Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company. The
Company also acquired the GSX System, a functional genomics platform
technology. The acquisitions form the basis of the new wholly-owned subsidiary
focused on the discovery research segment of the research and development
outsourcing market. For more detailed information on the Company's Discovery
Sciences Group, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Statements in this Management's Discussion and Analysis that are not
descriptions of historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 reflecting
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Although the company
has attempted to be accurate in making those forward-looking statements, it is
possible that the assumptions made by management may not materialize. In
addition, other important factors which could cause results to differ
materially include the following: economic conditions in the pharmaceutical and
biotechnology industries, outsourcing trends in the pharmaceutical and
biotechnology industries, risks associated with acquisitions, loss of large
contracts, competition within the CRO industry, continued success in sales
growth, the ability to attract and retain key personnel, and the other risk
factors set forth from time to time in the companies SEC filings, copies of
which are available upon request from PPD's investor relations department.
Since a large percentage of the Company's operating costs are relatively fixed,
variations in the timing and progress of large contracts can materially affect
results.
RESULTS OF OPERATIONS
General
In January 1998, the Company acquired two environmental consulting
businesses for $1,000,000. In connection with these acquisitions, the Company
recorded approximately $900,000 in goodwill. Financial data for 1997 has not
been restated to include these acquisitions, as their results of operations
prior to the date of acquisition are not material to the Company.
During the first quarter of 1998, net income, excluding $1,071,000 in gain
relating to the sale of CCCR in February 1998 and $443,000 in costs relating to
the acquisition of Belmont in March 1997, increased 3.0% to $3.9 million, from
$3.7 million for the same period in 1997. Operating income decreased by 2.1% to
$5.8 million from $5.9 million a year earlier. If the gain on sale of business
and merger costs are included, net income rose $1.1 million to $0.20 per share.
Three Months Ended March 31, 1998 Versus Three Months Ended March 31, 1997
Net revenue increased $7.2 million, or 12.4%, to $64.9 million in 1998
from $57.7 million last year. The Life Sciences Group's operations accounted
for 80.2% of the Company's net revenue for 1998. The Life Sciences Group
generated net revenue of $52.0 million, up $6.0 million, or 13.1%, from last
year. The growth in the Life Sciences Group operations was due in part to an
increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business. Net revenue from ENVIRON, the
Company's Environmental Sciences Group, representing 19.6% of the Company's net
revenue for the first quarter 1998, was $12.7 million, compared with $11.7
million in 1997.
Total direct costs increased 12.4% to $36.5 million from $32.5 million
last year and remained constant as a percentage of net revenue at 56.3% for
both periods. The Life Science Group's direct costs as a percentage of related
net revenue declined to 50.8% from 52.5% last year. This decrease is
principally due to higher labor utilization and a focused effort to control
costs across all business segments. ENVIRON's direct costs as a percentage of
related net revenue decreased to 70.6% from 71.2% last year.
Selling, general and administrative ("SG&A") expenses increased 15.2% to
$19.1 million from $16.6 million in 1997. As a percentage of net revenue, SG&A
expenses increased to 29.4% from 28.7% last year. SG&A expenses from
acquisitions since March 31, 1997 comprise $0.4 million of the increase. The
SG&A increase as a percentage of net revenue is primarily attributable to the
recent investment in the Company's business development and marketing
department, as well as, the addition of the SG&A of the Discovery Sciences
Group, which began operations in July 1997.
Total depreciation and amortization expense of $3.5 million was $0.7
million, or 27.3%, higher than last year. The increase was related to the
Company's growth, as well as the ongoing capital investment in the Company's
base business.
Operating income improved $0.3 million to an operating income of $5.8
million for the three months ended March 31, 1998, as compared to an operating
income of $5.5 million for the three months ended March 31, 1997. As a
percentage of net revenue, the quarterly operating income of 8.9% represents a
decline from the operating income of 9.5% of net revenue for the same period
last year. This decline was due to the increase in SG&A mentioned above.
9
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The net income of $4.5 million represents an improvement of $1.1 million
over the same quarter a year ago. The net income per basic and diluted share of
$0.20 compares to net income per basic and diluted share of $0.16 for the same
period last year. Excluding the impact of the gain on sale of business in 1998
and merger costs in 1997, the Company's net income of $3.9 million was 3.0%
higher than last year's net income of $3.7 million. On an equivalent
earnings-per-share basis the net income per basic and diluted share of $0.17
compares to $0.17 for the same period last year computed on 0.8 million less
shares outstanding.
Liquidity and Capital Resources
As of March 31, 1998, the Company had $26.2 million of cash and cash
equivalents on hand. The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations and borrowings.
For the three months ended March 31, 1998, the Company experienced a net
increase in cash from operating activities of $1.5 million. For the period, net
income of $4.5 million and depreciation and amortization of $3.5 million were
offset primarily by the gain on sale of business of $1.1 million and the net
decrease of $7.0 million in operating assets and liabilities (which includes a
$10.1 million increase in billed and unbilled receivables).
For the three months ended March 31, 1998, the Company's investing
activities provided $8.2 million in cash. Net cash received in sale of business
was $5.3 million and the sale of investments provided $8.0 million. This was
partially offset by capital expenditures of $4.1 million and the $1.0 million
net cash paid for acquisitions.
For the three months ended March 31, 1998, the Company's financing
activities provided $0.6 million in cash, as net proceeds from stock option
exercises of $1.1 million were partially offset by $0.6 million in net
repayment of long-term debt.
In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank. Interest accrues on amounts borrowed
at a floating rate currently equal to LIBOR plus 0.75% per year. Indebtedness
under the line is unsecured and subject to certain covenants relating to
financial ratios and tangible net worth. The unused portion of the loan is
available to provide working capital and for general corporate purposes. As of
March 31, 1998, the Company had no amounts outstanding under this facility.
In August 1997, the Company negotiated a credit facility for $50.0 million
with Wachovia Bank, N.A. Interest accrues on amounts borrowed at a floating
rate currently equal to LIBOR plus 0.70% per year. Indebtedness under the line
is unsecured and subject to certain covenants relating to financial ratios and
tangible net worth. The unused portion of the loan is available to provide
working capital and for general corporate purposes. As of March 31, 1998, the
Company had $3.3 million outstanding under this facility.
The Company expects to continue expanding its operations through internal
growth and strategic acquisitions. The Company expects such activities will be
funded from existing cash and marketable securities, cash flow from operations
and borrowings under its credit facilities. The Company believes that such
sources of cash will be sufficient to fund the Company's current operations for
at least the next 12 months. The Company is currently evaluating a number of
acquisition and other growth opportunities which may require additional
external financing, and the Company may from time to time seek to obtain funds
from public or private issuances of equity or debt securities.
Year 2000 Impact
The Company has accessed the impact Year 2000 could have on its operations
and does not anticipate that the Year 2000 will materially impact the Company's
information systems, business, and ability to operate in a well-controlled
environment.
Inflation
The Company believes the effects of inflation do not have a material
adverse effect on its results of operations or financial condition.
Exchange Rate Fluctuations and Exchange Controls
The vast majority of the Company's contracts are entered into by the
Company's United States or United Kingdom subsidiaries. The contracts entered
into by the United States subsidiaries are almost always denominated in United
States dollars.
10
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Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling. Substantially all of the
United Kingdom subsidiaries' expenses, such as salaries, services, materials
and supplies, are paid in pounds sterling. However, the Company's consolidated
financial statements are denominated in dollars and, accordingly, changes in
the exchange rate between the pound sterling and the dollar will affect the
translation of such subsidiaries' financial results into dollars for purposes
of reporting the Company's consolidated financial results, and also affect the
dollar amounts actually received by the Company from such subsidiaries.
The Company currently participates in only a small number of transactions
involving multiple currencies. In most of those situations, contractual
provisions either limit or reduce the translation risk. Financial statement
translation has not, to date, been material to the Company's balance sheet. The
reasons for this are that the majority of international operations are located
in the United Kingdom, which traditionally has had a relatively stable
currency, and that international operations have not accounted for a
significant portion of total operations (less than 15%). The Company currently
believes that those conditions will persist for at least the following year.
There are no material exchange controls currently in effect in any country
in which the Company's subsidiaries conduct operations on the payment of
dividends or otherwise restricting the transfer of funds outside such countries
by a company resident in such countries. Although the Company performs services
for clients located in a number of foreign jurisdictions, to date, the Company
has not experienced any difficulties in receiving funds remitted from foreign
countries. However, if any such jurisdictions were to impose or modify existing
exchange control restrictions on the remittance of funds to the Company, such
restrictions could have an adverse effect on the Company's business.
Potential Volatility of Quarterly Operating Results and Stock Price
The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion or cancellation of large
contracts, progress of ongoing contracts, acquisitions, the timing of start-up
expenses for new offices, management of growth and changes in the mix of
services. Since a large percentage of the Company's operating costs are
relatively fixed, variations in the timing and progress of large contracts can
materially affect quarterly results. To the extent the Company's international
business increases, exchange rate fluctuations may also influence these
results. The Company believes that comparisons of its quarterly financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. However, fluctuations in quarterly results or
other factors beyond the Company's control, such as changes in earnings
estimates by analysts, market conditions in the CRO, environmental,
pharmaceutical and biotechnology industries and general economic conditions
could affect the market price of the Common Stock in a manner unrelated to the
longer-term operating performance of the Company.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
<TABLE>
<S> <C>
(a) Exhibits
Exhibit 27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
</TABLE>
12
<PAGE>
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.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
---------------------------------------
(Registrant)
By /s/ Rudy C. Howard
-------------------------------
Chief Financial Officer, Vice
President of Finance and Treasurer
(Principal Financial Officer)
Date: May 12, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Pharmaceutical Product Development Inc. Consolidated Balance Sheet and Statement
of Operations included within this Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,222
<SECURITIES> 0
<RECEIVABLES> 110,825
<ALLOWANCES> 1,366
<INVENTORY> 0
<CURRENT-ASSETS> 146,255
<PP&E> 85,727
<DEPRECIATION> 50,714
<TOTAL-ASSETS> 204,624
<CURRENT-LIABILITIES> 68,671
<BONDS> 0
0
0
<COMMON> 2,303
<OTHER-SE> 130,896
<TOTAL-LIABILITY-AND-EQUITY> 204,624
<SALES> 0
<TOTAL-REVENUES> 64,849
<CGS> 0
<TOTAL-COSTS> 36,485
<OTHER-EXPENSES> 22,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 7,432
<INCOME-TAX> 2,895
<INCOME-CONTINUING> 4,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,537
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
