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