-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I8ysPQgyp1+t6bUrr9AbOovO2a81uvYCnu66D1fHGJqmlcCjOkSydjTRa1vnguc3 DKqzhV8T8Cdl3tYqt647vA== 0000950168-02-001140.txt : 20020430 0000950168-02-001140.hdr.sgml : 20020430 ACCESSION NUMBER: 0000950168-02-001140 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020219 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL PRODUCT DEVELOPMENT INC CENTRAL INDEX KEY: 0001003124 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 561640186 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27570 FILM NUMBER: 02625325 BUSINESS ADDRESS: STREET 1: 3151 SOUTH 17TH ST CITY: WILMINGTON STATE: NC ZIP: 28412 BUSINESS PHONE: 9102510081 MAIL ADDRESS: STREET 1: 3151 SOUTH 17TH ST CITY: WILMINGTON STATE: NC ZIP: 28412 8-K/A 1 d8ka.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 19, 2002 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) North Carolina - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 0-27570 56-1640186 - ----------------------------------- --------------------------------- (Commission file Number) (IRS Employer ID Number) 3151 South 17/th/ Street, Wilmington, North Carolina 28412 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (910) 251-0081 ------------------------ Item 2. Acquisition or Disposition of Assets. As previously reported, in February 2002, the Company acquired Medical Research Laboratories International, Inc. and Medical Research Laboratories International BVBA. This Form 8-K/A amends the Form 8-K filed on February 19, 2002 to include the financial information required under Regulation S-X. 2 Item 7. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired. ------------------------------------------- See Exhibit 99.1 (b) Pro Forma Financial Information. ------------------------------- See Exhibit 99.2 (c) Exhibits. -------- 23.2 Consent of PricewaterhouseCoopers LLP. 99.1 Audited combined financial statements as of December 31, 2001 of Medical Research Laboratories International, Inc. and Medical Research Laboratories International BVBA. 99.2 Pro forma combined balance sheet and statement of operations of Pharmaceutical Product Development, Inc. and the combined financial statements of Medical Research Laboratories International, Inc. and Medical Research Laboratories International BVBA as of and for the twelve months ended December 31, 2001. 3 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 hereunto duly authorized. PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. Date: April 29, 2002 By: /s/ Philippe M. Maitre --------------------------------------- Philippe M. Maitre Chief Financial Officer 4 EX-23.2 3 dex232.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.2 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File Nos. 333-20925, 333-39974, 333-33760, 333-80691, 333-28435) of Pharmaceutical Product Development, Inc. and its subsidiaries of our report dated March 6, 2002 relating to the combined financial statements of Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A, which appears in the Current Report on Form 8-K/A of Pharmaceutical Product Development, Inc. dated April 29, 2002. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Cincinnati, Ohio April 29, 2002 EX-99.1 4 dex991.txt AUDITED COMBINED FINANCIAL STATEMENTS Exhibit 99.1 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Combined Financial Statements December 31, 2001 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Table of Contents - --------------------------------------------------------------------------------
Pages Report of Independent Accountants 1 Combined Financial Statements: Combined Balance Sheet as of December 31, 2001 2 Combined Statement of Operations for the year ended December 31, 2001 3 Combined Statement of Changes in Shareholders' Equity for the year ended December 31, 2001 4 Combined Statement of Cash Flows for the year ended December 31, 2001 5 Notes to Combined Financial Statements 6-12
Report of Independent Accountants To the Board of Directors and Shareholders of Pharmaceutical Product Development, Inc. and Subsidiaries In our opinion, the accompanying combined balance sheet and the related combined statements of operations, shareholders' equity, and cash flows present fairly, in all material respects, the financial position of Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. (collectively the "Companies") at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companies' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP - ------------------------------ Cincinnati, Ohio March 6, 2002 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Combined Balance Sheet As of December 31, 2001 - -------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 14,435,754 Trade accounts receivable, net of allowance for doubtful accounts of $401,306 8,404,250 Prepaid expenses 227,538 Other current assets 165,899 ------------ Total current assets 23,233,441 ------------ Property and equipment: Equipment and fixtures 6,022,345 Land 643,016 Building 2,676,175 Leasehold improvements 601,928 Construction in progress 2,784,496 ------------ 12,727,960 Less accumulated depreciation and amortization (6,783,600) ------------ Net property and equipment 5,944,360 ------------ Total assets $ 29,177,801 ============ Liabilities Current liabilities: Current portion of lease obligation $ 394,402 Current portion of construction loan 131,192 Related party loan 1,145,621 Accounts payable, trade 1,535,537 Accrued compensated absences 385,829 Refundable deposits 948,033 Accrued and other liabilities 663,295 Foreign income taxes payable 1,144,050 ------------ Total current liabilities 6,347,959 Construction loan, non-current 3,043,944 Lease obligation, non-current 1,052,942 ------------ Total liabilities 10,444,845 ------------ Commitments and contingencies Shareholders' Equity (Note 1) Common stock 6,445,124 Accumulated other comprehensive loss (145,510) Retained earnings 12,433,342 ------------ Total shareholders' equity 18,732,956 ------------ Total liabilities and shareholders' equity $ 29,177,801 ============ The accompanying notes are an integral part of these combined financial statements. 2 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Combined Statement of Operations For the Year Ended December 31, 2001 - -------------------------------------------------------------------------------- Net clinical study revenues $ 38,007,285 Direct costs 22,281,281 Selling, general and administrative expenses 4,580,912 Depreciation and amortization expense 947,009 ------------- Operating income 10,198,083 ------------- Other income (expense): Interest income 370,346 Interest expense (252,527) Foreign currency exchange gain 340,244 Other, net 108,649 ------------- Total other income 566,712 ------------- Income before taxes 10,764,795 Provision for foreign income taxes 588,975 ------------- Net income $ 10,175,820 ============= The accompanying notes are an integral part of these combined financial statements. 3 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Combined Statement of Changes in Shareholders' Equity For the Year Ended December 31, 2001 - --------------------------------------------------------------------------------
Accumulated Other Common Comprehensive Retained Total Comprehensive Stock Loss Earnings Equity Income ----------- --------------- ------------ ------------ --------------- Balance at December 31, 2000 $ 6,445,124 $ (44,528) $ 18,817,422 $ 25,218,018 Distributions to shareholders (16,559,900) (16,559,900) Net income 10,175,820 10,175,820 $ 10,175,820 Currency translation adjustments (100,982) (100,982) (100,982) -------------- Comprehensive income for the period $ 10,074,838 ----------- ------------ ------------ ------------ ============== Balance at December 31, 2001 $ 6,445,124 $ (145,510) $ 12,433,342 $ 18,732,956 =========== ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. 4 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Combined Statement of Cash Flows For the Year Ended December 31, 2001 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 10,175,820 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 947,009 Loss on sale of property and equipment 2,864 Net changes in: Accounts receivable 1,509,807 Prepaid expenses and other assets (80,913) Accounts payable 536,585 Refundable deposits 332,767 Accrued and other liabilities 452,488 Foreign income taxes payable (67,536) -------------- Net cash provided by operating activities 13,808,891 -------------- Cash flows from investing activities: Purchases of equipment (3,005,981) Capitalized interest (125,259) -------------- Net cash used in investing activities (3,131,240) -------------- Cash flows from financing activities: Proceeds from construction loan 3,175,136 Distributions to shareholders (16,559,900) Payments on capital leases (302,514) -------------- Net cash used in financing activities (13,687,278) -------------- Effect of exchange rate changes on cash (81,823) -------------- Decrease in cash and cash equivalents (3,091,450) Cash and cash equivalents at beginning of year 17,527,204 -------------- Cash and cash equivalents at end of year $ 14,435,754 ============== Supplemental disclosure of cash flow information: Cash paid for: Interest $ 421,825 ============== Foreign income taxes $ 316,460 ============== Non-cash investing activity: Amendment to building capital lease $ 126,175 ==============
The accompanying notes are an integral part of these combined financial statements. 5 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies Organization: Medical Research Laboratories International, Inc. ("MRL U.S.") and Medical Research Laboratories International B.V.B.A. ("MRL Belgium"), collectively referred to as the "Companies", are companies with certain common ownership. MRL U.S., a Kentucky Corporation, operates a medical laboratory facility. Effective December 10, 1998, MRL U.S. was formed by its predecessor, Medical Research Laboratories, a partnership through a Plan of Reorganization. MRL Belgium, a Belgium Corporation, was incorporated on November 24, 1993 to operate a medical laboratory facility. The shareholders were MRL Select, Institut Pasteur de Lille, FDM Pharma and GP Consultants. On March 31, 1996, the latter three were replaced by Dr. Evan A. Stein and MRL Select. The components of shareholders' equity are as follows:
Common Stock Accumulated --------------------------- Other Number of Comprehensive Retained Shares Amount Income Earnings Total ------------- ----------- --------------- ------------- ------------ MRL U.S. 205 $6,024,609 $ - $10,026,567 $16,051,176 MRL Belgium 1,000 420,515 (145,510) 2,406,775 2,681,780 ----------- --------------- ------------- ------------ $6,445,124 $ (145,510) $12,433,342 $18,732,956 ----------- --------------- ------------- ------------
Acquisitions by Pharmaceutical Product Development, Inc.: Effective February 19, 2002, pursuant to an Agreement and Plan of Reorganization dated January 28, 2002, Pharmaceutical Product Development, Inc., a North Carolina Corporation ("PPD"), acquired all of the outstanding common stock of MRL U.S. for $29,000,000 in cash and $64,708,000 of PPD's common stock. In connection and simultaneous with PPD's acquisition of MRL U.S., PPD acquired all of the outstanding common stock of MRL Belgium, pursuant to a Share Purchase Agreement dated January 28, 2002 for $10,000,000 in cash and $8,792,000 of PPD's common stock. Basis of Presentation: These combined financial statements have been prepared in conjunction with the sale of the Companies to Pharmaceutical Product Development, Inc. discussed above. All material transactions and balances between the Companies have been eliminated in combination. 6 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- Nature of Operations: The Companies provide logistical support and biological analysis for clinical research. These laboratory services are conducted nationally and internationally for large clinical research studies for the pharmaceutical industry. Use of Estimates: 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. Revenue Recognition: Revenues are recognized on the accrual basis as services are performed. Amounts billed in advance are deferred on the balance sheet as refundable deposits and recognized when the services are performed. Cash and Cash Equivalents: All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. Property and Equipment: Property and equipment are stated at historical cost less accumulated depreciation. If an expenditure results in an asset having an extended estimated useful life, the expenditure is capitalized and depreciated over the estimated useful life of the asset. When an asset is sold or retired, its cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized as a component of other income. Management re-evaluates its long-lived assets whenever events or circumstances arise indicating that the carrying amount of a long-lived asset may not be recoverable. Management has determined that no provision for impairment is required. MRL U.S. depreciates equipment and fixtures on an accelerated basis over five and seven years, respectively, and amortizes leasehold improvements over 31 years on a straight-line basis. Assets held under capital leases are depreciated over the term of the lease. MRL Belgium depreciates equipment and furniture on a straight-line basis over five and seven years, respectively, and amortizes leasehold improvements over nine years on a straight-line basis. Income Taxes: MRL U.S. has elected to be taxed as an "S Corporation", which results in the tax attributes of MRL U.S. passing through to its stockholders. Accordingly, federal and state income taxes have not been provided for in the Statement of Operations. 7 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- Income taxes for MRL Belgium are computed using the asset and liability method. Under this method, deferred income taxes result from temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities. Such amounts are measured using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are recorded to the extent that management believes it is more likely than not that the asset will be realized. There are no deferred tax assets or liabilities recorded by MRL Belgium as there are no differences in the book and tax basis of timing items that would give rise to such amounts. Financial Instruments: Financial instruments consist solely of cash, accounts receivable, accounts payable and a related party loan. The carrying amount of cash, accounts receivable and accounts payable approximates fair value due to their short-term nature. The difference between the carrying value and fair value of the related party loan is not significant. Financial instruments that potentially subject the Companies to concentrations of credit risk are comprised principally of cash and accounts receivable. The Companies do not require collateral on accounts receivable as the majority of the Companies' customers are well-established companies. The Companies have not experienced any significant losses relating to individual customers. The Companies do not participate in any derivative or hedging transactions. Foreign Currency Translations: The functional currency of MRL Belgium is the Euro. Assets and liabilities of MRL Belgium are translated to U.S. dollars at current exchange rates, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are not included in determining net income but are reflected in comprehensive income and accumulated in a separate component of shareholders' equity. 2. Debt MRL U.S. entered into a $500,000 line of credit agreement with a bank on June 1, 2001, with interest calculated at the bank's prime rate. There were no outstanding borrowings under the line of credit during 2001. The line of credit expires on May 31, 2002. Commitment fees associated with this line of credit are not significant. MRL Belgium entered in a loan agreement with a bank in April 2001 bearing interest at 5.26%. The loan is being used to finance the construction of MRL Belgium's new laboratory and office building. The building is expected to be completed in July 2002. Upon completion of the building the loan will be converted to a long-term mortgage obligation. The amount classified as current represents estimated payments to be made during 2002 after the loan is converted. 8 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- The related party loan is not subject to any fixed term of repayment and is non-interest bearing. The related party loan was paid in February 2002. 3. Lease Commitments MRL U.S. has a building lease with Dr. Evan A. Stein, who is a significant stockholder of MRL U.S. The agreement is accounted for as a capital lease and has a ten-year term ending on December 31, 2004. The agreement also contains an option to renew at the end of the original term for one additional ten-year period. MRL U.S. also leases certain office equipment which is accounted for as a capital lease. The aggregate amount of building and equipment under capital leases and the related accumulated depreciation are as follows: 2001 ----------- Cost of building and equipment under capital leases $2,676,175 Accumulated depreciation (1,785,012) ----------- Cost of building and equipment under capital leaase, net $ 891,163 =========== The Companies also lease office space, vehicles and office equipment which are accounted for as operating leases. 9 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- Future minimum annual rental commitments under the leases, at December 31, 2001, are as follows: Operating Capital Leases Leases ------------- ------------- 2002 $ 351,186 $ 647,518 2003 194,778 644,580 2004 172,445 638,722 2005 24,977 - 2006 and thereafter - - ------------- ------------- Total minimum lease payments $ 743,386 1,930,820 ============= Less amounts representing interest 483,476 ------------- Present value of net minimum payments 1,447,344 Less current portion 394,402 ------------- Lease obligation, non-current $1,052,942 ============= 4. Employee Benefit Plans MRL U.S. maintains a qualified salary reduction plan, under section 401(k) of the Internal Revenue Code, covering substantially all employees. Under the plan, eligible employees can elect to contribute a portion of current compensation, subject to limits established under the Internal Revenue Code, and MRL U.S. matches a portion of the employees' contribution on a discretionary basis. MRL U.S. contributions amounted to $302,638 for 2001. MRL U.S. also maintains the Medical Research Laboratories Money Purchase Pension Plan, which covers substantially all salaried employees. Under the defined contribution plan, MRL U.S. contributes 5% of each eligible employees' annual compensation and employees are fully vested in such contributions from their date of employment. MRL U.S. contributions to the plan were approximately $225,795 during 2001. MRL Belgium employees are covered by pension plans administered by the Belgium government. As such, contributions to these plans are included in payroll costs. 10 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- 5. Concentrations of Credit Risk Financial instruments that potentially subject the Companies to concentrations of credit risk consist primarily of cash and trade receivables. Cash is placed with a high quality financial institution. The majority of the Companies' cash and cash equivalents are maintained at Merrill Lynch Brokerage, an institution not insured by the FDIC insurance program. With respect to trade receivables, such receivables are primarily from pharmaceutical manufacturers located in the United States and Europe. Four customers in 2001 individually accounted for 10% or more of net revenues in the respective years. The aggregate revenues from these customers represented 76% of total revenues for the year ended December 31, 2001. 6. Related Party Transactions In addition to the lease described in Note 3 and related party loan described in Note 2, other transactions with related parties are as follows: A management and consulting agreement with Medical Application Consultants, Inc., an Ohio Corporation owned by Dr. Evan A. Stein, resulted in management expense of $351,600 in 2001. MRL U.S. recorded revenues for laboratory and other administrative services provided to various other related parties as follows: 2001 ---------- Cholesterol Treatment Center (CTC); an Ohio corporation controlled by Dr. Evan A. Stein $ 17,799 Metabolic Atherosclorosis Research Center, L.L.C. (MARC); a Kentucky Limited Liability Company controlled by Dr. Evan A. Stein 15,174 ---------- $ 32,973 ========== Laboratory and other administrative services charges to these related parties totaling $10,220 remained in accounts receivable at December 31, 2001. 11 Medical Research Laboratories International, Inc. and Medical Research Laboratories International B.V.B.A. Notes to combined Financial Statements - -------------------------------------------------------------------------------- 7. Income Taxes The following is a reconciliation of the Statutory Federal income tax rate to the effective tax rate for MRL Belgium: 2001 ----------- Taxes at Belgium Federal Statutory rate (40.17%) $ 558,794 Penalty for insufficient prepayments 20,252 Non-deductible expenses 9,929 ----------- Provision for income taxes $ 588,975 =========== 8. Commitments and Contingencies In the normal course of business, the Companies are subject to claims, both asserted and unasserted. Based on information presently known, management does not believe any claims will have a material impact on the Companies' financial position or results of operations. 12 EX-99.2 5 dex992.txt PRO FORMA COMBINED FINANCIAL STATEMENTS Exhibit 99.2 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT INFORMATION UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following Unaudited Pro Forma Combined Balance Sheet and the Unaudited Pro Forma Combined Statement of Operations, collectively, the "Pro Forma Financial Statements", were prepared by Pharmaceutical Product Development, Inc. (PPD) to give effect to the acquisition of all of the capital stock of Medical Research Laboratories International, Inc. and Medical Research Laboratories International, BVBA (collectively, "MRL"). On January 28, 2002, PPD executed definitive agreements for the acquisition of MRL. The transaction was completed on February 19, 2002 and is to be accounted for under the purchase method of accounting. Under the terms of the agreements PPD paid $39,000,000 cash and 2,560,410 shares of PPD common stock valued at $73,500,000 to acquire all of the outstanding shares of MRL. The final allocation of the purchase price may ultimately differ based on the final valuation of the intangible assets and the finalization of the closing balance sheet. The estimated allocation of the purchase price is as follows: - -------------------------------------------------------------------------------- (in thousands) - -------------------------------------------------------------------------------- Cash paid $39,000 - -------------------------------------------------------------------------------- Value of stock consideration 73,500 - -------------------------------------------------------------------------------- Acquisition costs 619 - -------------------------------------------------------------------------------- Total $113,119 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Allocation of purchase price - -------------------------------------------------------------------------------- Fair value of assets acquired less liabilities assumed $15,883 - -------------------------------------------------------------------------------- Value of identifiable intangible assets: - -------------------------------------------------------------------------------- Backlog 2,100 - -------------------------------------------------------------------------------- Goodwill 95,136 - -------------------------------------------------------------------------------- Total $113,119 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company will amortize the backlog over a period of two years. In accordance with the provisions of the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangibles", goodwill will not be amortized. The goodwill will be tested annually as required by SFAS No 142. The financial information of PPD and MRL have been combined as if the acquisition occurred as of January 1, 2001 for purposes of the pro forma combined statement of operations. For purposes of the pro forma combined balance sheet, the financial information of PPD and MRL have been combined as if the acquisition occurred at December 31, 2001. There are no differences between PPD's and MRL's accounting policies that are expected to have a material impact on the Pro Forma Financial Statements. The Pro Forma Financial Statements do not purport to present the combined financial position or results of operations if the combination had occurred at the beginning of the period or to project the combined financial position or results of operations for any future date or period. The Pro Forma Financial Statements should be read in conjunction with the historical consolidated financial statements, including the notes thereto, of Pharmaceutical Product Development, Inc. which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and the audited combined financial statements of Medical Research Laboratories International, Inc. and Medical Research Laboratories International BVBA, which are included elsewhere in this document. The Pro Forma Financial Statements are presented utilizing the purchase method of accounting, whereby the fair value of the identified tangible and intangible assets acquired and the fair value of the liabilities assumed have been recorded. The purchase price in excess of the net assets acquired as of December 31, 2001 of $88.9 million has been reflected in the Pro Forma Combined Balance Sheet. Based on the estimated closing balance sheet and fair value adjustments as of February 19, 2002 the estimated goodwill will be approximately $95.1 million. The difference in the estimated goodwill as of December 31, 2001 and February 19, 2002 results from the decrease in the net assets acquired during that period. The pro forma adjustments are described in the notes following the combined pro forma financial statement information. The combined pro forma results of operations presented herein are not necessarily indicative of the future results of operations. 2 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. PRO FORMA COMBINED BALANCE SHEET AS OF DECEMBER 31, 2001 (in thousands) (unaudited)
As Reported Pro Forma --------------------------- ---------------------------------- Assets PPD MRL Adjustments Notes Combined Current assets Cash and cash equivalents $ 143,173 $ 14,436 $ (39,000) (a) (619) (b) $ 117,990 Accounts receivable and unbilled services, net 140,744 8,404 - 149,148 Investigator advances 6,008 - - 6,008 Prepaid expenses and other current assets 10,507 393 - 10,900 Current maturities of note receivable 500 - - 500 Deferred tax asset 9,273 - - 9,273 --------- --------- --------- --------- Total current assets 310,205 23,233 (39,619) 293,819 Property and equipment, net 85,690 5,945 2,735 (c) 94,370 Goodwill, net 7,590 - 88,932 (d) 619 (b) 97,141 Notes receivable, long-term portion 17,000 - - 17,000 Investments 43,758 - - 43,758 Other assets 1,157 - 2,100 (e) 3,257 --------- --------- --------- --------- Total assets $ 465,400 $ 29,178 $ 54,767 $ 549,345 ========= ========= ========= ========= Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 8,210 $ 1,536 $ - $ 9,746 Payables to investigators 7,988 - - 7,988 Other accrued expenses 48,951 1,049 - 50,000 Unearned income 82,336 948 - 83,284 Accrued income taxes 8,688 1,144 - 9,832 Current maturities of long-term debt and capital lease obligations 1,203 1,671 - 2,874 --------- --------- --------- --------- Total current liabilities 157,376 6,348 - 163,724 Long-term debt and capital lease obligations, less current maturities 1,871 4,097 5,968 Deferred rent and other 3,518 - - 3,518 --------- --------- ---------- --------- Total liabilities 162,765 10,445 - 173,210 Shareholders' equity Common stock 5,193 6,445 (6,445) (f) 256 (g) 5,449 Paid-in capital 164,162 - 73,244 (g) 237,406 Retained earnings 140,174 12,433 (12,433) (f) 140,174 Deferred compensation (966) - - (966) Accumulated other comprehensive loss (5,928) (145) 145 (f) (5,928) --------- --------- --------- --------- Total shareholders' equity 302,635 18,733 54,767 376,135 --------- --------- --------- --------- Total liabilities and shareholders' equity $ 465,400 $ 29,178 $ 54,767 $ 549,345 ========= ========= ========= =========
See accompanying pro forma notes. 3 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (in thousands, except per share data) (unaudited)
As Reported Pro Forma --------------------------- ---------------------------------- PPD MRL Adjustments Notes Combined Development revenues $ 403,701 $ 38,007 $ - $ 441,708 Discovery sciences revenues 27,840 - - 27,840 --------- --------- --------- --------- Net revenue 431,541 38,007 - 469,548 --------- --------- --------- --------- Direct costs - Development 196,078 22,281 - 218,359 Direct costs - Discovery sciences 11,794 - - 11,794 Research and development expenses 4,422 - - 4,422 Selling, general and administrative expenses 126,391 4,581 - 130,972 Depreciation and amortization 20,264 947 1,454 (h) 22,665 --------- --------- --------- --------- 358,949 27,809 1,454 388,212 --------- --------- --------- --------- Operating income 72,592 10,198 (1,454) 81,336 Interest: Income 5,480 370 (1,268) (i) 4,582 Expense (535) (253) - (788) ---------- ---------- --------- ---------- Interest income, net 4,945 117 (1,268) 3,794 Other income, net 469 449 - 918 Income before provision for income taxes 78,006 10,764 (2,722) 86,048 Provision for income taxes 28,747 589 2,375 (j) 31,711 --------- --------- --------- --------- Income before equity in net loss of investee 49,259 10,175 (5,097) 54,337 Equity in net loss of investee, net of income taxes 92 - - 92 --------- --------- --------- --------- Net income $ 49,167 $ 10,175 $ (5,097) $ 54,245 ========= ========= ========== ========= Net income per common share: Basic $ 0.95 $ 1.00 ========= ========= Diluted $ 0.94 $ 0.99 ========= ========= Weighted average number of common shares outstanding: Basic 51,689 2,560 (k) 54,249 Dilutive effect of stock options 805 - 805 --------- --------- --------- Diluted 52,494 2,560 55,054 ========= ========= =========
See accompanying pro forma notes. 4 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION CLASSIFICATION DIFFERENCES: The Unaudited Pro Forma Combined Balance Sheet and Statements of Operations include certain reclassifications of the MRL balances to reflect the presentation used by PPD as follows: 1) Prepaid expenses and Other current assets for MRL were combined into Prepaid expenses and other current assets in the Unaudited Pro Forma Combined Balance Sheet. 2) Accrued compensated absences for MRL was reclassified to Other accrued expenses in the Unaudited Pro Forma Combined Balance Sheet. 3) Current portion of lease obligation, Current portion of construction loan and Related party loan for MRL were reclassified to Current maturities of long-term debt and capital lease obligations in the Unaudited Pro Forma Combined Balance Sheet. 4) Construction loan, non-current and Lease obligation, non-current were combined into Long-term debt and capital lease obligations, less current maturities in the Unaudited Pro Forma Combined Balance Sheet. 5) Foreign currency exchange gain for MRL was reclassified to Other income, net in the Unaudited Pro Forma Combined Income Statement. PRO FORMA COMBINED BALANCE SHEET: a. Adjustment to reflect the cash payment of $39,000,000 for the acquisition. b. Adjustment to reflect $619,000 of estimated acquisition costs in connection with the MRL acquisition. c. Adjustment to reflect property and equipment at preliminary estimated fair value. d. Adjustment to reflect goodwill resulting from the MRL acquisition. e. Adjustment to reflect the preliminary estimated fair value of backlog acquired in connection with the MRL acquisition. f. Adjustment to eliminate common stock, paid-in capital and accumulated other comprehensive loss of MRL. g. Adjustment to record the issuance of 2,560,410 common shares of the Company at par value and the resulting increase in paid-in capital in connection with the acquisition. PRO FORMA COMBINED STATEMENT OF OPERATIONS: h. Adjustment to reflect the amortization of intangible assets over estimated useful lives and additional depreciation on increased value of fixed assets due to recording purchased assets at estimated fair value. i. Adjustment to reflect the reduction in interest income resulting from the cash paid of $39,000,000 in connection with the acquisition. j. Adjustment to reflect the estimated income tax provision for the MRL operations subsequent to the elimination of MRL's Subchapter S income tax status based on the Company's historical tax rate. k. Adjustment to reflect the issuance of 2,560,410 shares of PPD's common stock in connection with the acquisition as outstanding as of January 1, 2001. 5 -----END PRIVACY-ENHANCED MESSAGE-----