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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 June 30, 1999.
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 (I.R.S. Employer
incorporation or organization) 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 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: 24,628,278 shares of common
stock, par value $0.10 per share, as of July 30, 1999.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998....................................................................... 3
Consolidated Condensed Balance Sheets as of June 30, 1999
and December 31, 1998........................................................................ 4
Consolidated Condensed Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998....................................................................... 5
Notes to Consolidated Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 16
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................ 17
Signatures.......................................................................................... 18
</TABLE>
2
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Life sciences revenues, net of subcontractor costs of
$37,696, $24,468, $60,848 and $43,594, respectively $75,569 $57,386 $ 144,342 $ 109,362
Discovery sciences revenues, net of subcontractor costs of
$18, $13, $34 and $35, respectively 685 79 1,522 256
-------- -------- -------- ---------
Net revenue 76,254 57,465 145,864 109,618
-------- -------- -------- ---------
Direct costs - Life sciences 37,141 28,397 70,519 54,824
Direct costs - Discovery sciences 1,650 852 3,133 1,947
Selling, general and administrative expenses 24,066 19,872 46,103 37,502
Depreciation and amortization 3,592 2,998 7,057 6,023
Merger costs - - 218 -
Acquired in-process research and development costs - 3,163 - 3,163
-------- -------- -------- ---------
66,449 55,282 127,030 103,459
-------- -------- -------- ---------
Operating income 9,805 2,183 18,834 6,159
Interest income, net 739 263 1,457 503
Other income, net 276 312 751 1,706
-------- -------- -------- ---------
Income from continuing operations before provision
for income taxes 10,820 2,758 21,042 8,368
Provision for income taxes 4,198 1,089 8,164 3,265
-------- -------- -------- ---------
Income from continuing operations 6,622 1,669 12,878 5,103
-------- -------- -------- ---------
Income (loss) from operations of discontinued environmental
sciences segment, net of income taxes of $0, $787, $(79)
and $1,507, respectively - 1,206 (125) 2,308
-------- -------- -------- ---------
Net income $ 6,622 $ 2,875 $ 12,753 $ 7,411
======== ======== ======== =========
Income from continuing operations per share:
Basic $ 0.27 $ 0.07 $ 0.53 $ 0.22
======== ======== ======== =========
Diluted $ 0.27 $ 0.07 $ 0.52 $ 0.22
======== ======== ======== =========
Income (loss) from discontinued operations per share:
Basic $ - $ 0.05 $ (0.01) $ 0.10
======== ======== ======== =========
Diluted $ - $ 0.05 $ (0.01) $ 0.10
======== ======== ======== =========
Net income per share:
Basic $ 0.27 $ 0.12 $ 0.52 $ 0.32
======== ======== ======== =========
Diluted $ 0.27 $ 0.12 $ 0.51 $ 0.32
======== ======== ======== =========
Weighted average number of common shares outstanding:
Basic 24,567 23,079 24,501 23,052
Dilutive effect of stock options 330 167 407 139
-------- -------- -------- ---------
Diluted 24,897 23,246 24,908 23,191
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 39,334 $ 34,083
Accounts receivable and unbilled services, net 112,876 125,065
Investigator advances 952 1,505
Prepaid expenses and other current assets 11,500 9,562
Deferred tax asset 3,040 2,751
----- -----
Total current assets 167,702 172,966
======== =======
Property, plant and equipment, net 48,388 42,509
Goodwill, net 9,871 14,869
Other assets, net 26,790 6,238
------ -----
Total assets $ 252,751 $ 236,582
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 237 $ 3,580
Accounts payable 6,986 7,812
Payables to investigators 6,148 5,204
Other accrued expenses 24,631 28,007
Unearned income 37,359 34,446
------ ------
Total current liabilities 75,361 79,049
Long-term debt, less current maturities 170 161
Deferred rent and other 1,822 1,962
----- -----
Total liabilities 77,353 81,172
------ ------
Shareholders' equity
Common stock 2,458 2,343
Paid-in capital 132,895 123,709
Retained earnings 42,954 29,929
Accumulated other comprehensive loss (2,909) (571)
------- -----
Total shareholders' equity 175,398 155,410
------- -------
Total liabilities and shareholders' equity $ 252,751 $ 236,582
=========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
4
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 12,753 $ 7,411
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of CCCR - (1,071)
Acquired in-process research and development costs - 3,163
Depreciation and amortization 7,254 6,925
Change in operating assets and liabilities (186) (12,709)
----- --------
Net cash provided by operating activities 19,821 3,719
------ -----
Cash flows from investing activities:
Cash received from repayment of note receivable 500 -
Sale of investments - 8,000
Purchase of investments (3,500) -
Purchases of property and equipment (13,241) (10,254)
Net cash received (paid) for acquisitions 738 (1,006)
Net cash paid for acquisition of in-process research
and development costs - (3,163)
Proceeds from sale of property and equipment 14 -
Net cash received in sale of business 3,421 5,285
----- -----
Net cash used in investing activities (12,068) (1,138)
-------- -------
Cash flows from financing activities:
Proceeds from long-term debt 982 -
Repayment of long-term debt (6,231) (739)
Proceeds from issuance of common stock 5,085 2,273
Other - 48
------- ----
Net cash (used in) provided by financing activities (164) 1,582
----- -----
Effect of exchange rate changes on cash (2,338) (270)
------- -----
Net increase in cash and cash equivalents 5,251 3,893
Cash and cash equivalents, beginning of the period 34,083 15,879
------ ------
Cash and cash equivalents, end of the period $ 39,334 $ 19,772
=========== =========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
5
<PAGE>
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. and its subsidiaries, collectively (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
consolidated condensed 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 on Form 10-K for the
year ended December 31, 1998. The results of operations for the three-month and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results to be expected for the full year or any other period. The amounts on the
December 31, 1998 consolidated condensed balance sheet have been derived from
the audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
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.
Reclassifications
Certain 1998 financial statement amounts have been reclassified to
conform with the 1999 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
POOLINGS
In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company. The Company acquired PPD ATP in exchange for
approximately 876,000 shares of the Company's common stock. Outstanding PPD ATP
options were exchanged for options to acquire approximately 216,000 shares of
the Company's common stock. This acquisition was accounted for as a pooling of
interests transaction as of January 1, 1999. Pro forma information is not
presented nor have the Company's consolidated financial statements for 1998 been
restated to reflect the impact of this acquisition because the results of
operations of PPD ATP for the year ended December 31, 1998 were not material to
the consolidated results of the Company.
PURCHASES
In January 1998, the Company acquired two environmental consulting
businesses for a total of $1,006,000 in cash and the potential for the former
owners to earn an additional amount depending on the profitability of the
businesses for a certain period after the acquisition. In connection with these
acquisitions, the Company recorded approximately $900,000 in goodwill. These
businesses were disposed of with the rest of the environmental sciences segment
on January 31, 1999 (see Note 6 of Notes to Consolidated Condensed Financial
Statements).
6
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. EARNINGS PER SHARE
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 period plus the effects
of any dilutive common stock equivalents at the end of the period.
5. SALE OF BUSINESS
In February 1998, the Company, through its subsidiary Clinix
International Inc., sold substantially all of the assets of the Chicago Center
for Clinical Research ("CCCR"). The consideration received by the Company for
CCCR totaled approximately $7,785,000, which was comprised of $5,285,000 in cash
and a promissory note of $2,500,000 payable over five years. The sale resulted
in a gain of approximately $1,071,000 that was recognized as other income during
the first quarter of 1998. As part of the sales agreement, the Company continued
to provide CCCR with certain clinical and administrative services for an agreed
upon amount through the first quarter of 1999.
6. DISCONTINUED OPERATIONS
Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of the
environmental sciences segment, for total consideration of approximately
$26,244,000. The Company received as consideration cash of $1,244,000, a
four-year note for $7,000,000 and a 12-year note for $18,000,000. The sale
resulted in no gain or loss because the sales price was equal to the book value
of the net assets sold at January 31, 1999. In the first quarter of 1999, the
Company received full pre-payment of the four-year note. Results of operations
for the three months ended March 31, 1998 have been restated to reflect the
environmental services segment as discontinued operations.
The consolidated condensed balance sheet at December 31, 1998 includes
the following assets and liabilities of the environmental sciences segment (in
thousands):
December 31,
------------
1998
----
Current assets $ 24,214
Total assets 32,527
Current liabilities 6,030
Total liabilities 6,209
-----
Net assets of discontinued operations $ 26,318
========
7. COMPREHENSIVE INCOME
The Company's total comprehensive income for the three-month periods
ended June 30, 1999 and 1998 was $5,854,000 and $2,559,000, respectively, and
for the six-month periods ended June 30, 1999 and 1998 was $10,145,000 and
$7,141,000, respectively.
The Company's other comprehensive loss consisted of a decrease in
cumulative translation adjustment for the three-month periods ended June 30,
1999 and 1998 of $768,000 and $316,000, respectively, and for the six-month
periods ended June 30, 1999 and 1998 of $2,338,000 and $270,000, respectively.
The large decrease in cumulative translation adjustment for the six-month period
ended June 30, 1999 was due to the 8.2 cent decrease in the exchange rate
between the pound sterling and the U.S. dollar.
7
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
8. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following:
June 30, December 31,
1999 1998
---- ----
Trade:
Billed $68,740 $75,405
Unbilled 44,883 51,702
Reserve for doubtful accounts (747) (2,042)
----- -------
$112,876 $125,065
========= ========
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY OVERVIEW
Pharmaceutical Product Development, Inc. and its subsidiaries,
collectively (the "Company"), provide a broad range of research and development
and consulting services in the life sciences and discovery sciences segments.
Services provided in the life sciences segment include worldwide clinical
research and development of pharmaceutical products and medical devices,
biostatistical analysis and analytical laboratory services. Discovery sciences
services include target identification and validation, compound creation,
screening and compound selection. The Company provides its services under
contract to clients in the pharmaceutical, general chemical, agrochemical,
biotechnology and other industries. In addition, discovery sciences services
performs discovery research on certain compounds for which the Company holds a
license. The Company's life sciences services are marketed primarily in the
United States and Europe. Revenues derived from the Company's discovery segment
were all generated in the United States.
Prior to the divestiture of its environmental sciences segment on
January 31, 1999 (see Note 6 of Notes to Consolidated Condensed Financial
Statements), the Company also provided environmental sciences services.
Environmental sciences services included assessment and management of chemical
and environmental health risk, site investigation and remediation planning and
litigation support. In addition to the industries mentioned above, the
environmental sciences segment also marketed services to clients in the
industrial, manufacturing and oil and gas industries. The environmental sciences
segment marketed its services primarily in the United States and Europe.
Life Sciences Group
The Company's Life Sciences Group provides services through PPD
Development, Inc. and its wholly owned subsidiaries (collectively "PPD
Development") in the Americas (United States, Canada, South America), Africa,
Asia, Europe and the Pacific Rim. PPD Informatics, a division of PPD
Development, provides software development and system integration services to
the pharmaceutical and biotechnology industries. PPD ATP, a division of PPD
Development, provides customized inbound and outbound telecommunications
programs targeting consumers and health care providers.
PPD Development provides its clients 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 Development's integrated
services offer its clients a variable cost alternative to the fixed costs
associated with internal drug development. PPD Development's professional CRO
services include Phase I clinical testing, laboratory services, patient and
investigator recruitment, Phase II-IV clinical trial monitoring and management,
clinical data management and biostatistical analysis, regulatory consulting and
submissions, medical writing, pharmacovigilance, 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.
PPD Informatics became a division of the Company through the
acquisition of Belmont Research, Inc. in March 1997. PPD Informatics clients
include international and domestic pharmaceutical and biotechnology companies,
scientific software vendors and government agencies, including the FDA. PPD
Informatics develops specialized software products to support different aspects
of the pharmaceutical research and development process, including drug
discovery, clinical trials and regulatory review. Current PPD Informatics
software products include Resolve(TM), which manages data queries to
investigator sites, TableTrans(R), which enables ease of data transformation,
and CrossGraphs(R), which is used for exploration and presentation of research
data.
PPD ATP became a division of the Company through the acquisition of
ATP, Inc. in March 1999. PPD ATP manages telephone inquiries from consumers and
health care providers by utilizing on-line, licensed pharmacists and other
health care professionals who are available 24 hours a day, 365 days a year. PPD
ATP creates and implements customized inbound and outbound telecommunication
programs for pharmaceutical manufacturers, chain drug stores, managed care
organizations, and other corporations with health care enhancing objectives.
During 1998, the Life Sciences Group also included Intek Labs, Inc.
("Intek"), which was acquired in November 1997. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification and archiving
services through its Good Laboratory Practice (GLP) certified laboratories.
Intek also furnishes pharmacogenetic services for clinical trials. In February
1999, Intek became a subsidiary of PPGx, Inc. ("PPGx"), the Company's
pharmacogenomics joint venture with Axys Pharmaceuticals, Inc. PPGx provides
9
<PAGE>
pharmacogenomics products and services to pharmaceutical and biotechnology
companies. Pharmacogenomics is the use of genetic information to predict the
safety, toxicity and/or efficacy of drugs in individual patients or groups of
patients. Pharmacogenomics is becoming widely adopted as a drug discovery and
development tool and increasingly important as part of an individual's diagnosis
and treatment regimen. The Company owns a minority position in PPGx, with the
option to increase its ownership share. The Company also has exclusive marketing
rights to PPGx pharmacogenomics products and services. 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, 1998.
Discovery Sciences Group
PPD Discovery, Inc. ("PPD Discovery") was established in June 1997 when
the Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company,
and the GSX System, a functional genomics platform technology. PPD Discovery
focuses on the discovery research segment of the research and development
outsourcing market. In May 1998, the Company created GenuPro, Inc. ("GenuPro"),
a wholly owned subsidiary, which holds licenses to a number of compounds in the
genitourinary field. GenuPro manages and performs the discovery research and
development of these compounds. 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, 1998.
FORWARD-LOOKING STATEMENTS
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. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth herein and in the Company's other SEC filings, and
including, in particular, risks relating to government regulation; dependence on
certain industries; the fixed price nature of contracts; the commencement,
completion or cancellation of large contracts; progress of ongoing contracts;
potential liability associated with the Company's lines of business; dependence
on personnel; management of growth; and competition. Because 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. See "Potential
Volatility of Quarterly Operating Results and Stock Price".
RESULTS OF OPERATIONS
GENERAL
During the second quarter of 1999, the Company reported net income of
$6.6 million, or $0.27 per diluted share, compared to net income of $2.9
million, or $0.12 per diluted share, during the second quarter of 1998. Net
income from continuing operations (excluding acquired in-process research and
development costs and operations of the discontinued division) of $6.6 million
was 84.8% higher than net income from continuing operations for the same period
a year ago.
In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company. PPD ATP provides customized inbound and outbound
telecommunications programs targeting consumers and health care providers. The
Company acquired PPD ATP in exchange for approximately 876,000 shares of the
Company's common stock. Outstanding PPD ATP options became options to acquire
approximately 216,000 shares of the Company's common stock. This acquisition was
accounted for as a pooling of interests transaction. Results of operations for
PPD ATP are included in the consolidated results of operations of the Company
beginning January 1, 1999. Results of operations of the Company for periods
prior to January 1, 1999 were not restated as PPD ATP's results of operations
for the year ended December 31, 1998 were not material to the Company's 1998
operating results.
In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics. The Company
contributed $1.5 million in cash, the stock of its subsidiary, Intek, and the
rights to a software license for an 18.2% ownership interest in PPGx.
Separately, the Company and Axys entered into a software licensing agreement
whereby the Company licensed certain software from Axys for $2.0 million. The
Company has exclusive marketing rights to PPGx pharmacogenomics products and
services and an option to increase its ownership share of PPGx after the first
anniversary of PPGx.
10
<PAGE>
Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of the
environmental sciences segment. The Company received as consideration cash of
$1.4 million, a four-year note in the amount of $7.0 million and a 12-year note
in the amount of $18.0 million. The Company received an opinion from Lehman
Brothers to the effect that the consideration received was fair from a financial
standpoint. The Company did not recognize a gain or loss as a result of the sale
because the sales price was equal to the book value of the net assets sold at
January 31, 1999. The Company also entered into a three-year consulting
agreement to provide certain consulting services to Environ Holdings for a fee
of $0.5 million per year.
THREE MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED JUNE 30, 1998
Net revenue increased $18.8 million, or 32.7%, to $76.3 million in 1999
from $57.5 million in 1998. The Life Sciences Group's operations accounted for
99.1% of the Company's net revenue for the second quarter of 1999. The Life
Sciences Group generated net revenue of $75.6 million, up $18.2 million, or
31.7%, from the 1998 second quarter. The growth in the Life Sciences Group
operations was primarily attributable to an increase in the size, scope and
number of contracts in the global CRO Phase II-IV division. In addition, PPD ATP
contributed net revenue of $3.5 million to the Life Sciences Group for the three
months ended June 30, 1999. The Discovery Sciences Group generated net revenue
of $0.7 million, up $0.6 million, or 767.1%, from the 1998 second quarter. The
growth in the Discovery Sciences Group operations was primarily attributable to
an increase in the number of contracts in the combinatorial chemistry division
and a joint development and license agreement (signed during the fourth quarter
of 1998) in the functional genomics division.
Total direct costs increased 32.6% to $38.8 million from $29.2 million
last year and remained relatively constant as a percentage of net revenue at
50.9% for both periods. Life Sciences Group direct cost increased to $37.1
million in 1999 as compared to $28.4 million in 1998. PPD ATP contributed direct
costs of $1.7 million to the Life Sciences Group for the three months ended June
30, 1999. Life Sciences Group direct costs decreased as a percentage of related
net revenue to 49.1% from 49.5%. This decrease was principally due to the
different mix of contracts performed and a focused effort to control costs.
Discovery Sciences Group direct costs increased to $1.7 million in 1999 as
compared to $0.9 million in 1998. This increase was primarily due to the
addition in the 1999 period of costs of GenuPro, which was created in May 1998.
Selling, general and administrative ("SG&A") expenses increased 21.1%
to $24.1 million in 1999 from $19.9 million in the same period last year. The
increase is primarily attributable to an increase in administrative personnel to
support the Company's expanding operations. As a percentage of net revenue, SG&A
expenses decreased to 31.6% from 34.6% last year.
Total depreciation and amortization expense of $3.6 million in 1999 was
$0.6 million, or 19.8%, higher than the same period last year. The increase was
related to the depreciation of the increased investment in property and
equipment due to the acquisition of PPD ATP and the Company's growth. The
Company's capital expenditures were $6.8 million in the second quarter of 1999.
Expanded capabilities in the Company's labs accounted for approximately 53.6% of
this capital investment, while the enhancement and expansion of information
technology capacities accounted for approximately 25.5% of this capital
investment. The remaining capital expenditures were predominately incurred in
connection with the expansion of existing operations and the opening of new
offices.
The Company recorded an acquired in-process research and development
charge of $3.2 million in the second quarter of 1998 as a result of the purchase
of a license to six genitourinary compounds. The Company immediately expensed
the acquired in-process research and development costs because the compounds
were in the initial phase of research and development and had no alternative
future use.
Operating income improved to $9.8 million for the three months ended
June 30, 1999, from $2.2 million for the three months ended June 30, 1998.
Excluding acquired in-process research and development costs incurred in 1998,
the Company's adjusted operating income of $9.8 million in 1999 was 83.4% higher
than adjusted operating income of $5.3 million for the same period last year. As
a percentage of net revenue, the quarterly adjusted operating income improved to
12.9% in 1999 from 9.3% for the same period last year.
Net interest and other income increased $0.4 million, rising to $1.0
million for the three months ending June 30, 1999 from $0.6 million for the
three months ending June 30, 1998. The improvement was primarily the result of
the increase in interest income of $0.5 million. During the second quarter of
1999, the Company received $0.4 million in interest income related to the notes
receivable from CCCR and Environ Holdings. The Company
11
<PAGE>
expects to receive an additional $0.4 million in interest income per quarter
during 1999 related to these notes unless such notes are paid off early.
The Company recorded income from discontinued operations, net of income
tax expense, related to its environmental sciences segment, of $1.2 million in
the second quarter of 1998. The environmental sciences segment was sold on
January 31, 1999.
The provision for income taxes increased $3.1 million to $4.2 million
for the three months ended June 30, 1999, as compared to $1.1 million for the
three months ended June 30, 1998 due to the Company's increase in earnings
before income taxes. As a percentage of income before income taxes, the
provision for income taxes decreased slightly to 38.8% for 1999 from 39.5% for
1998.
The net income of $6.6 million in the second quarter of 1999 represents
an improvement of $3.7 million over the $2.9 million over the same quarter a
year ago. Net income per basic and diluted share of $0.27 for the second quarter
of 1999 compares to $0.07 in the second quarter of 1998. Excluding non-recurring
items (acquired in-process research and development costs, and results of
operations of the discontinued environmental services), the Company's second
quarter 1999 income from continuing operations of $6.6 million was 84.8% higher
than income from continuing operations of $3.6 million for the second quarter of
1998. On an equivalent earnings-per-share basis, net income per diluted share
(excluding non-recurring costs) of $0.27 compares to net income per diluted
share of $0.15 for the same period last year computed on 1.7 million less shares
outstanding.
SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
Net revenue increased $36.2 million, or 33.1%, to $145.9 million in
1999 from $109.6 million in 1998. The Life Sciences Group's operations accounted
for 99.0% of the Company's net revenue for the 1999 period as compared to 99.8%
for the 1998 period. The Life Sciences Group generated net revenue of $144.3
million, up $35.0 million, or 32.0%, from last year. The growth in the Life
Sciences Group operations was primarily attributable to an increase in the size,
scope and number of contracts in the global CRO Phase II-IV division. PPD ATP
contributed net revenue of $6.8 million to the Life Sciences Group for the six
months ended June 30, 1999. The Discovery Sciences Group generated net revenue
of $1.5 million, up $1.3 million, or 494.5%, from last year. The growth in the
Discovery Sciences Group operations was primarily attributable to an increase in
the number of contracts in the combinatorial chemistry division and a joint
development and license agreement (signed during the fourth quarter of 1998) in
the functional genomics division.
Total direct costs increased 29.7% to $73.7 million from $56.8 million
last year and decreased as a percentage of net revenue to 50.5% from 51.8%. Life
Sciences Group direct cost increased to $70.5 million in 1999 as compared to
$54.8 million in 1998. PPD ATP contributed direct costs of $3.3 million to the
Life Sciences Group for the six months ended June 30, 1999. Life Sciences Group
direct costs decreased as a percentage of related net revenue to 48.9% from
50.1%. This decrease was principally due to the different mix of contracts
performed and a focused effort to control costs. Discovery Sciences Group direct
costs increased to $3.1 million in 1999 as compared to $1.9 million in 1998.
This increase was primarily due to the addition in the 1999 period of costs of
GenuPro which was created in May 1998.
SG&A expenses increased 22.9% to $46.1 million in 1999 from $37.5
million in the same period last year. The increase is primarily attributable to
investment in additional personnel to support the Company's expanding
operations. As a percentage of net revenue, SG&A expenses decreased to 31.6%
from 34.2% last year.
Total depreciation and amortization expense of $7.1 million in 1999 was
$1.0 million, or 17.2%, higher than the same period last year. The increase was
related to the depreciation of the increased investment in property and
equipment due to the acquisition of PPD ATP and the Company's growth. The
Company's capital expenditures were $13.3 million in the six months ended June
30, 1999. Expanded capabilities in the Company's labs accounted for
approximately 47.8% of this capital investment, while the enhancement and
expansion of information technology capacities accounted for approximately 28.2%
of this capital investment. The remaining capital expenditures were
predominately incurred in connection with the expansion of existing operations
and the opening of new offices.
During the first quarter of 1999, the Company recorded merger costs of
$0.2 million in connection with acquisition of PPD ATP. These costs were
primarily cash expenses, such as legal and accounting fees related to this
transaction.
12
<PAGE>
The Company recorded an acquired in-process research and development
charge of $3.2 million in the second quarter of 1998 as a result of the purchase
of a license to six genitourinary compounds. The Company immediately expensed
the acquired in-process research and development costs because the compounds
were in the initial phase of research and development and had no alternative
future use.
Operating income improved to $18.8 million for the six months ended
June 30, 1999, from $6.2 million for the six months ended June 30, 1998.
Excluding merger costs and acquired in-process research and development costs,
the Company's adjusted operating income of $19.1 million in 1999 was 104.4%
higher than adjusted operating income of $9.3 million for the same period last
year. As a percentage of net revenue, the adjusted operating income improved to
13.1% in 1999 from 8.5% for the same period last year.
Net interest and other income remained consistent at $2.2 million for
the six months ended both June 30, 1999 and June 30, 1998. Excluding the gain
related to the sale of CCCR in 1998, net interest and other income of 2.2
million was $1.1 million higher than the prior year for the same period. The
improvement was primarily the result of the increase in interest income of $1.0
million. During the first six months of 1999, the Company received $0.8 million
in interest income related to the notes receivable from CCCR and Environ
Holdings. The Company expects to receive an additional $0.4 million per quarter
during 1999 related to interest income unless the notes are paid off early.
The Company recorded a loss from discontinued operations, net of income
tax expense, related to its environmental sciences segment, of $0.1 million in
1999, as compared to income of $2.3 million in the first six months of 1998. The
environmental sciences segment was sold on January 31, 1999.
The provision for income taxes increased $4.9 million to $8.2 million
for the six months ended June 30, 1999, as compared to $3.3 million for the six
months ended June 30, 1998 due to the Company's increase in earnings before
income taxes. As a percentage of income before income taxes, the provision for
income taxes has remained relatively consistent at 38.8% for 1999 and 39.0% for
1998.
The net income of $12.8 million represents an improvement of $5.3
million over the same period a year ago. Net income per diluted share of $0.51
compares to net income per diluted share of $0.32 for the same period last year.
Excluding non-recurring items (merger costs, acquired in-process research and
development costs, the gain on sale of CCCR and operations of the discontinued
division), the Company's income from continuing operations of $13.0 million was
104.0% higher than last year's income from continuing operations of $6.4
million. On an equivalent earnings-per-share basis, net income per diluted share
(excluding non-recurring costs) of $0.52 compares to net income per diluted
share of $0.28 for the same period last year computed on 1.7 million less shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $39.3 million of cash and cash
equivalents on hand. The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations, borrowings and
through the sale of the Company's stock.
For the six months ended June 30, 1999, the Company experienced a net
increase in cash from operating activities of $19.8 million. For the period, the
net increase resulted primarily from the net income of $12.8 million plus net
noncash changes to net income for depreciation and amortization of $7.3 million.
The number of days revenue outstanding in accounts receivable and unbilled
services, net of unearned income, were 66.0 and 74.4 days (excluding operations
and related balance sheet accounts of the discontinued division at June 30,
1998) as of June 30, 1999 and June 30, 1998, respectively. The decrease is a
result of a focused effort by management on collections.
For the three months ended June 30, 1999, the Company's investing
activities used $12.1 million in cash. Capital expenditures of $13.2 million and
the investment in PPGx of $3.5 million were partially offset by net cash
received in the sale of business of $3.4 million, $0.7 million in cash received
with the acquisition of PPD ATP and $0.5 million from the repayment of note
receivable.
For the three months ended June 30, 1999, the Company's financing
activities used $0.2 million in cash, as net proceeds from stock option
exercises of $5.1 million and the proceeds from long-term debt of $1.0 million
related primarily to PPD ATP's building loan were partially offset by $6.2
million in net repayment of long-term debt.
13
<PAGE>
Working capital as of June 30, 1999 was $92.3 million compared to $93.9
million at December 31, 1998. Excluding the environmental sciences segment from
the balance sheet as of December 31, 1998, the adjusted working capital would
have been $74.6 million. The increase in adjusted working capital was due
primarily to an increase in cash and cash equivalents of $9.5 million and an
increase in accounts receivable and unbilled services, net of $7.5 million.
In June 1998, 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 0.625% 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
June 30, 1999, the Company had $11.5 million reserved under this facility in the
form of a letter of credit. This credit facility expires in June 2000, at which
time any outstanding balance is due.
In August 1998, the Company renegotiated 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 June 30, 1999,
the Company did not have any amount outstanding under this facility. This credit
facility expires in August 1999. The Company plans to renegotiate and renew this
credit 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, cash flow from operations, borrowings under
its credit facilities and through the sale of the Company's stock. The Company
believes that such sources of cash will be sufficient to fund the Company's
operations for at least the next 12 months. The Company is currently evaluating
a number of acquisitions 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 COMPLIANCE
The Year 2000 issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year. As a
result, computer systems and/or software used by many companies in a very wide
variety of applications may experience operating difficulties unless they are
modified or upgraded to adequately process information involving, related to or
dependent upon the four digit field. Significant uncertainty exists concerning
the scope and magnitude of problems associated with the Year 2000.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 failures and has established an internal review
team to address the Year 2000 issue that encompasses operating and
administrative areas of the Company. During the first quarter of 1997, a team of
experienced information technology staff was assigned to work with Company
personnel to identify and resolve significant Year 2000 issues in a timely
manner. In addition, executive management regularly monitors the status of the
Company's Year 2000 remediation plans. The process includes an inventory and
assessment of affected equipment and software, development of remediation plans,
execution of those plans and testing of all technology affected by this issue.
In addition, the Company is engaged in assessing the Year 2000 issue with
significant suppliers and clients.
At June 30, 1999, the assessment process is 98% complete for all
equipment (including computer hardware and software technology) used internally
by the Company as compared to 95% at December 31, 1998. Remediation is well
underway, with approximately 98% of all systems requiring remediation completed
at June 30, 1999 as compared to 80% at December 31, 1998. All systems,
regardless of whether they require remediation, are being tested to ensure Year
2000 compliance. The Company has completed testing for Year 2000 compliance as
of June 30, 1999 for 97% of our systems. Testing of all critical systems has
been completed. The Company expects to continue this process for all new
equipment and software on an ongoing basis. The Company has initiated formal
communications with its significant suppliers in North America and Europe to
determine the extent to which the Company is vulnerable to third party failure
to remediate Year 2000 compliance problems. The Company is in regular
communication with key suppliers and clients and responds promptly to all
requests for information regarding Year 2000 compliance. Although there can be
no assurance, based on current information available, management believes that
it will be able to perform all services and provide all products it currently
offers without any material adverse effects arising from failure to remediate
deficiencies arising from Year 2000.
14
<PAGE>
External and internal costs specifically associated with applying
vendor upgrades, testing and modifying internal use software for Year 2000
compliance are expensed as incurred. The Company pays for Year 2000 expenses
with cash from operating activities. The percentage of the Company's information
technology budget used for remediation is approximately 11% in 1998 and 5% in
1999. To date, the Company has spent approximately $1.65 million on Year 2000
compliance, and expects to spend an additional $0.10 million to complete the
compliance process. Of the total amount that the Company expects to spend,
approximately $1.25 million is attributable to internal labor costs for
assessment and testing. Although internal resources have been dedicated to Year
2000 efforts, work has been spread across all areas and there has been no
material delay in any major projects.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. If unexpected issues
arise causing delays in the clinical studies being performed for these clients,
the Company will have a specified period of time to correct those issues. If not
corrected, the client can modify or terminate its contract with the Company. The
Company believes that modification or termination of one or more client
contracts represents the most reasonably likely adverse event, which might arise
from material Year 2000 compliance failures. Business contingency plans are
being developed in case of periodic outages of power and communications across
our locations worldwide. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year 2000 readiness
of third-party suppliers and clients, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact
on its results of operations, liquidity or financial condition.
The Company has significantly reduced the level of uncertainty about
Year 2000 problems and, in particular, about Year 2000 compliance and readiness
of its internal systems and key suppliers. The Company also believes that its
information technology staff, which has been instrumental in the Company's Year
2000 compliance efforts, may be able to mitigate many Year 2000 problems.
However, the Company will continue to assess and develop contingency plans for a
possible Year 2000 failure as it completes its testing of Year 2000 issues.
The cost of the Year 2000 compliance project and the time by which the
Company expects to complete its Year 2000 assessment and remediation are
estimates, based on numerous assumptions, including the continued availability
of funding resources and third party modification plans. However, there can be
no guarantee that these estimates are accurate and will be achieved, and actual
results could differ significantly from management's expectations. In addition,
there is no guarantee that the Company's evaluation of the most likely effects
of a material Year 2000 compliance failure is correct, or that its plan to
address such failure will be adequate. In either instance, the effect upon the
Company's financial condition could be material.
INFLATION
The Company believes the effects of inflation have not had 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.
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
amounts in dollars 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
15
<PAGE>
currency, and that international operations have not accounted for a significant
portion of total operations (approximately 15%). It is anticipated that those
conditions will persist for at least the next 12 months.
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 and other international business
risks 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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to foreign currency risk by virtue of its
international operations. The Company conducts business in several foreign
countries and approximately 15% and 14% of the Company's net revenues for the
three months ended June 30, 1999 and 1998, respectively, were derived outside
the United States. Funds generated by each subsidiary of the Company are
generally reinvested in the country where they are earned. The operations in the
United Kingdom have generated more than 37% and 44% of the Company's revenue
from foreign operations for the three months ended June 30, 1999 and 1998,
respectively. Accordingly, some exposure exists to potentially adverse movements
in the pound sterling. The United Kingdom has traditionally had a relatively
stable currency. It is anticipated that those conditions will persist for at
least the next 12 months.
Additionally, the Company's consolidated financial statements are
denominated in U.S. dollars and, accordingly, changes in the exchange rates
between the Company's subsidiaries' local currency and the U.S. dollar will
affect the translation of such subsidiaries' financial results into U.S. dollars
for purposes of reporting the Company's consolidated financial results.
Translation adjustments are reported as a component of accumulated other
comprehensive loss as a separate component of the balance sheet. Financial
statement translation has not, to date, been material to the Company's balance
sheet. Such adjustments may in the future be material to the Company's financial
statements.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the Company was held on May
12, 1999.
At the Annual Meeting, the following proposals were voted upon:
A proposal to amend the Company's 1995 Equity Compensation Plan to
increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from 2,500,000 shares to 3,500,000 shares was approved by
the following vote:
For Against
--- -------
17,399,385 2,612,060
A proposal to amend the Company's 1995 Equity Compensation Plan to
limit awards, which can be made under the plan to certain executive officers to
a total of 500,000 shares over any three-year period, was approved by the
following vote:
For Against
--- -------
19,629,368 382,077
A proposal to amend the Company's 1995 Equity Compensation Plan to
limit awards, which can be made under the plan to non-employee directors as a
group to 250,000 shares over any three-year period, was approved by the
following vote:
For Against
--- -------
19,712,899 298,546
The following directors were elected to office for the ensuing year and
were approved by the following votes:
For Against
--- -------
Ernest Mario 19,981,625 29,820
Fredric N. Eshelman 19,982,625 28,820
John A. McNeill, Jr. 19,981,625 29,820
Stuart Bondurant 19,982,625 28,820
Frederick Frank 19,978,590 32,855
Paul J. Rizzo 19,981,585 29,860
Thomas D'Alonzo 19,982,625 28,820
Abraham E. Cohen 19,982,625 28,820
Donald C. Harrison 19,982,625 28,820
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.131 Amendment, dated April 14, 1999, to Lease Agreement
dated September 15, 1998 between PPD Pharmaco, Inc.
and BBC Family Limited Partnership.
Exhibit 10.132 Amendment, dated April 14, 1999, to Lease Agreement
dated March 25, 1996 between PPD and BBC Family
Limited Partnership.
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 June 30,
1999.
17
<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: August 13, 1999
18
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE AGREEMENT, entered into as of this _14th day of
April, 1999, by and between BBC FAMILY LIMITED PARTNERSHIP, a North Carolina
limited partnership, whose address is 1201 Glen Meade Road, Wilmington, N. C.
28401 ("Lessor"), and PPD PHARMACO INC., a corporation, whose address is 3151
South 17th Street, Wilmington, NC 28412, ("Lessee");
W I T N E S S E T H :
---------------------
THAT, WHEREAS, by lease agreement entered into as of September 15,
1998, Lessor leased certain premises in New Hanover County, North Carolina, to
Lessee; and
WHEREAS, the parties hereto desire to amend the said Lease Agreement to
correct an error in the legal description of the leased premises;
NOW, THEREFORE, for valuable consideration received by each of the
parties hereto, from the other, the receipt and legal sufficiency of which is
hereby acknowledged, it is agreed that the aforesaid Lease Agreement is amended
as follows:
1. THE DESCRIPTION OF REAL PROPERTY INSERTED IN THE LEASE AGREEMENT IS
HEREBY AMENDED BY DELETING THE SAME IN ITS ENTIRETY AND INSERTING IN
LIEU THEREOF EXHIBIT "A" ATTACHED HERETO.
All other terms and conditions of the said Lease Agreement shall remain
in full force and effect except as amended or modified hereby or inconsistent
herewith.
IN WITNESS WHEREOF, BBC FAMILY LIMITED PARTNERSHIP has caused this
instrument to be executed under seal in its partnership name by all of its
General Partners, and PPD PHARMACO INC. has caused this instrument to be
executed by its Vice- President, attested by its ______________ Secretary, and
its corporate seal to be hereunto affixed, all by authority of its Board of
Directors duly given.
<PAGE>
BBC FAMILY LIMITED PARTNERSHIP (SEAL)
By /s/ Scott C. Sullivan (SEAL)
----------------------
Scott C. Sullivan
General Partner
By /s/ Jabe V. Hardee (SEAL)
-------------------
Jabe V. Hardee
General Partner
PPD PHARMACO INC.
ATTEST:
By: /s/ Rudy C. Howard
------------------
Rudy C. Howard Vice- President
/s/ Fred B. Davenport, Jr.
- --------------------------
Fred B. Davenport, Jr. Secretary
- --------------------------------
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
I, Kimberly Ameri, a Notary Public of New Hanover County, North
Carolina, do hereby certify that SCOTT C. SULLIVAN, and JABE V. HARDEE, the
General Partners of BBC FAMILY LIMITED PARTNERSHIP, a limited partnership,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
Witness my hand and notarial seal, this the 14th day of April, 1999.
/s/ Kimberly Ameri
----------------------------
Notary Public
My commission expires: 3-15-2003
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
I, Jean G. Wachtel, a Notary Public of New Hanover County, North
Carolina, do hereby certify that __________ Fred B. Davenport, Jr. personally
appeared before me this day and acknowledged that he (or she) is the
_____________ Secretary of PPD PHARMACO INC., a corporation; that the foregoing
and annexed instrument was signed in the name of the corporation by its
Vice-President, attested by himself (or herself) as its _______________
Secretary, and its corporate seal thereunto affixed, all by authority of its
Board of Directors duly given.
Witness my hand and notarial seal, this the 14th day of April, 1999.
/s/ Jean G. Wachtel
--------------------------
Notary Public
My commission expires: June 23, 2003
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE AGREEMENT, entered into as of this 14th day of
April, 1999, by and between BBC FAMILY LIMITED PARTNERSHIP, a North Carolina
limited partnership, whose address is 1201 Glen Meade Road, Wilmington, N. C.
28401, PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation,
whose address is 3151 South 17th Street, Wilmington, NC 28412 and PPD PHARMACO,
INC., a Texas corporation, whose address is 3151 South 17th Street, Wilmington,
NC 28412;
W I T N E S S E T H :
---------------------
THAT, WHEREAS, by lease agreement entered into as of March 25, 1996
("Lease Agreement"), BBC FAMILY LIMITED PARTNERSHIP leased certain premises in
New Hanover County, North Carolina, to PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.;
and
WHEREAS, pursuant to an Assignment and Assumption Agreement between the
parties hereto dated December 31, 1996, PHARMACEUTICAL PRODUCT DEVELOPMENT,
INC., assigned all of its right, title and interest in the Lease Agreement to
PPD PHARMACO, INC; and
WHEREAS, the parties hereto now desire to amend the said Lease
Agreement to correct an error in the legal description of the leased premises;
NOW, THEREFORE, for valuable consideration received by each of the
parties hereto, from the other, the receipt and legal sufficiency of which is
hereby acknowledged, it is agreed that the aforesaid Lease Agreement is amended
as follows:
1. THE DESCRIPTION OF REAL PROPERTY INSERTED IN THE LEASE AGREEMENT IS HEREBY
AMENDED BY DELETING THE SAME IN ITS ENTIRETY AND INSERTING IN LIEU THEREOF
EXHIBIT "A" ATTACHED HERETO.
Except as herein expressly amended, all of the terms and conditions of
the said Lease Agreement remain in full force and effect.
IN WITNESS WHEREOF, BBC FAMILY LIMITED PARTNERSHIP has caused
<PAGE>
this instrument to be executed under seal in its partnership name by all of its
General Partners, PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., has caused this
instrument to be executed in its corporate name by its Vice- President, attested
by its ______________ Secretary, and its corporate seal to be hereunto affixed,
all by authority of its Board of Directors duly given and PPD PHARMACO, INC. has
caused this instrument to be executed in its corporate name by its Vice-
President, attested by its ______________ Secretary, and its corporate seal to
be hereunto affixed, all by authority of its Board of Directors duly given.
<PAGE>
BBC FAMILY LIMITED PARTNERSHIP (SEAL)
By /s/ Scott C. Sullivan (SEAL)
---------------------
Scott C. Sullivan
General Partner
By /s/ Jabe V. Hardee (SEAL)
------------------
Jabe V. Hardee
General Partner
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Rudy C. Howard
--------------------------------
Rudy C. Howard, Vice- President
ATTEST:
/s/ Fred B. Davenport, Jr.
- --------------------------
Fred B. Davenport, Jr., Secretary
(Affix Corporate Seal)
PPD PHARMACO, INC.
By: /s/ Rudy C. Howard
-------------------------------
Rudy C. Howard, Vice- President
ATTEST:
/s/ Fred B. Davenport, Jr.
- --------------------------
Fred B. Davenport, Jr., Secretary
(Affix Corporate Seal)
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
<PAGE>
I, Kimberly Ameri, a Notary Public of New Hanover County, North
Carolina, do hereby certify that SCOTT C. SULLIVAN, and JABE V. HARDEE, the
General Partners of BBC FAMILY LIMITED PARTNERSHIP, a limited partnership,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
Witness my hand and notarial seal, this the 14th day of April, 1999.
/s/ Kimberly Ameri
-----------------------------
Notary Public
My commission expires: 3-15-2003
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
I, Jean G. Wachtel, a Notary Public of New Hanover County, North
Carolina, do hereby certify that Fred B. Davenport, Jr. personally appeared
before me this day and acknowledged that he (or she) is the _____________
Secretary of PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a corporation; that the
foregoing and annexed instrument was signed in the name of the corporation by
its Vice- President, attested by himself (or herself) as its _______________
Secretary, and its corporate seal thereunto affixed, all by authority of its
Board of Directors duly given.
Witness my hand and notarial seal, this the _14th_ day of April, 1999.
/s/ Jean G. Wachtel
------------------------------
Notary Public
My commission expires: June 23, 2003
STATE OF NORTH CAROLINA
COUNTY OF NEW HANOVER
I, Jean G. Wachtel, a Notary Public of New Hanover County, North
Carolina, do hereby certify that Fred B. Davenport, Jr. personally appeared
before me this day and acknowledged that he (or she) is the _____________
Secretary of PPD PHARMACO, INC., a corporation; that the foregoing and annexed
<PAGE>
instrument was signed in the name of the corporation by its Vice- President,
attested by himself (or herself) as its _______________ Secretary, and its
corporate seal thereunto affixed, all by authority of its Board of Directors
duly given.
Witness my hand and notarial seal, this the _14th_ day of April, 1999.
/s/ Jean G. Wachtel
--------------------------
Notary Public
My commission expires: June 23, 2003
<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-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,334
<SECURITIES> 0
<RECEIVABLES> 116,349
<ALLOWANCES> 759
<INVENTORY> 0
<CURRENT-ASSETS> 167,702
<PP&E> 100,091
<DEPRECIATION> 51,703
<TOTAL-ASSETS> 252,751
<CURRENT-LIABILITIES> 75,361
<BONDS> 0
0
0
<COMMON> 2,458
<OTHER-SE> 172,940
<TOTAL-LIABILITY-AND-EQUITY> 252,751
<SALES> 0
<TOTAL-REVENUES> 145,864
<CGS> 0
<TOTAL-COSTS> 73,652
<OTHER-EXPENSES> 53,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 21,042
<INCOME-TAX> 8,164
<INCOME-CONTINUING> 12,878
<DISCONTINUED> (125)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,753
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.51
</TABLE>
