8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 26, 2010

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)
929 North Front Street, Wilmington, North Carolina 28401
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (910) 251-0081

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On October 26, 2010, Pharmaceutical Product Development, Inc., or PPD, issued a press release announcing its financial and operating results for the three months and nine months ended September 30, 2010. A copy of the press release is attached hereto as Exhibit 99.1. In addition, PPD posted on its website a business segment presentation and a GAAP/non-GAAP reconciliation presentation. Copies of these presentations are attached hereto as Exhibits 99.2 and 99.3.

The information in this Form 8-K (including Exhibits 99.1, 99.2 and 99.3) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press release dated October 26, 2010 announcing its financial and operating results for the three months and nine months ended September 30, 2010.
99.2	Business segment review presentation.
99.3	GAAP/non-GAAP reconciliation presentation.

SIGNATURE

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.
Date: October 26, 2010	/S/    DANIEL G. DARAZSDI
	Daniel G. Darazsdi,
	Chief Financial Officer

EX-99.1

EXHIBIT 99.1

Contacts:

Dan Darazsdi

+1 910 558 7915

daniel.darazsdi@ppdi.com

Luke Heagle

+1 910 558 7585

luke.heagle@ppdi.com

FOR IMMEDIATE RELEASE

PPD Reports Third Quarter 2010 Financial Results

Highlights:

• Gross authorizations of $664 million

• Net revenue growth of 7 percent over Q3 2009

• Significant sequential operating margin expansion

• Continued strong cash flow delivery

WILMINGTON, N.C. (October 26, 2010)—PPD, Inc. (Nasdaq: PPDI) today reported its financial and operating results for the third quarter ended September 30, 2010.

PPD recorded net revenue of $365.4 million for the third quarter of 2010, an increase of 7.3 percent over net revenue of $340.4 million for the third quarter of 2009. Third quarter 2010 operating income was $56.8 million, an increase of 10.1 percent compared to income from operations of $51.6 million for the same period in 2009. Diluted earnings per share for the third quarter of 2010 were $0.32, compared to $0.32 for the third quarter of 2009.

“We were pleased to deliver on our commitment to our shareholders during the third quarter,” said David Grange, chief executive officer of PPD. “Gross authorizations continued to be strong, and operating margin expanded significantly on a sequential basis due to improved performance in emerging markets and our focus on overall company spending. Our strong performance demonstrates our organizational focus and drive aimed at achieving our 2010 objectives and creating long-term value for our shareholders.”

As described in more detail below, beginning with the third quarter of 2010, PPD will report its financial and operating results in two segments: Clinical Development Services and Laboratory Services. These two business segments comprise what had previously been the company’s Development segment. A slide presentation related to these new business segments will be available on the Presentations and Events page in the Investors section of the PPD web site at www.ppdi.com.

Clinical Development Services

PPD’s Clinical Development Services segment includes global Phase II-IV clinical trial management services. Clinical Development Services segment net revenue for the third

quarter of 2010 was $260.3 million, compared to $250.0 million for the third quarter of 2009. Third quarter 2010 income from operations for this segment was $43.7 million, compared to $39.2 million for the third quarter of 2009.

Laboratory Services

PPD’s Laboratory Services segment includes Phase I clinic, cGMP, bioanalytical, central laboratory, vaccines and biologics, and BioDuro/discovery services. Laboratory Services segment net revenue for the third quarter of 2010 was $79.0 million, compared to $65.9 million for the third quarter of 2009. Third quarter 2010 income from operations for this segment was $13.2 million, compared to $12.8 million for the third quarter of 2009.

Other Financial Information

Gross authorizations for the third quarter of 2010 totaled $663.8 million. Backlog at September 30, 2010, was $3.4 billion. Contract cancellations and adjustments for the quarter were $220.9 million, including two large project cancellations that together totaled $92.8 million.

Cash flow from operations for the third quarter of 2010 was $47.9 million, benefiting from continued strong working capital management. At September 30, 2010, PPD had $613.0 million in cash and investments, after giving effect to the payment of the company’s third quarter dividend. The effective tax rate for continuing operations in the third quarter of 2010 was 28.5 percent.

“We continued to make great strides in positioning PPD for long-term growth, and we are pleased with our operational and sales execution during the third quarter,” said Fred Eshelman, executive chairman of PPD. “We believe the demand for PPD’s clinical development and laboratory services continues to be strong, and we will continue to focus on best-in-class quality and performance to create sustained shareholder value.”

PPD will conduct a live conference call and webcast tomorrow, October 27, 2010, at 9:00 a.m. ET to discuss its third quarter 2010 results. A Q&A session will follow. All interested parties can access the webcast through the Presentations & Events link in the Investors section of the PPD web site at www.ppdi.com. The webcast will be archived shortly after the call for on-demand replay. The conference call will be broadcast live over the internet, and the live call may be accessed via the following direct dial numbers:

Participant dial-in:	+1 877 644 0692 (U.S./Canada)
	+1 973 200 3387 (International)
Conference ID:	83838111

PPD is a leading global contract research organization, celebrating 25 years of providing drug discovery, development and lifecycle management services. Our clients and partners include pharmaceutical, biotechnology, medical device, academic and government organizations. With offices in 42 countries and more than 10,500 professionals worldwide, PPD applies innovative technologies, therapeutic expertise and a commitment to quality to help clients and partners accelerate the delivery of safe and effective therapeutics and maximize the returns on their R&D investments. For more information, visit www.ppdi.com.

Except for historical information, all of the statements, expectations and assumptions contained in this news release are forward-looking statements that involve a number of risks and

uncertainties. Although PPD attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors which could cause actual results to differ materially include the following: success in sales growth; loss of or delay in large contracts; high cancellation rates; negative impact from accounting changes; competition within the outsourcing industry; reliance on economic conditions and outsourcing trends in the pharmaceutical, biotechnology and medical device industries and academic and government-sponsored research sectors; overall global economic conditions; rapid technological advances that make our products and services less competitive; risks associated with acquisitions and investments, such as integration and impairments; the ability to attract, integrate and retain key personnel; risks that we may not continue our dividend policy; and the other risk factors set forth from time to time in the SEC filings for PPD, copies of which are available free of charge upon request from the PPD investor relations department.

PPD, Inc.

Statement of Operations Data

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2010			2009		2010
Net revenue:
Service revenue	$	316,283		$	339,390		$	987,140	$	1,005,006
Reimbursed revenue		24,117			25,985			72,228		77,054
Total net revenue		340,400			365,375			1,059,368		1,082,060
Direct costs		174,597			189,979			545,803		564,948
Research and development		974			470			3,264		15,253
Selling, general and administrative		93,028			102,365			282,812		327,381
Depreciation and amortization		16,282			15,726			47,118		49,877
Restructuring costs		3,892			—			3,892		—
Operating income		51,627			56,835			176,479		124,601
Loss from equity method investment		—			(4,562	)		—		(8,351	)
Other income, net		1,246			877			2,103		4,899
Income from continuing operations before income taxes		52,873			53,150			178,582		121,149
Provision for income taxes		12,773			15,148			51,897		41,303
Income from continuing operations		40,100			38,002			126,685		79,846
Discontinued operations, net of taxes		(2,426	)		—			13,618		(3,662	)
Net income	$	37,674		$	38,002		$	140,303	$	76,184
Basic and diluted income per share from continuing operations:	$	0.34		$	0.32		$	1.07	$	0.67
Income (loss) per share from discontinued operations:
Basic	$	(0.02	)	$	—		$	0.12	$	(0.03	)
Diluted	$	(0.02	)	$	—		$	0.11	$	(0.03	)
Net income per share:
Basic	$	0.32		$	0.32		$	1.19	$	0.64
Diluted	$	0.32		$	0.32		$	1.18	$	0.64
Dividends declared per common share	$	0.15		$	0.15		$	0.425	$	0.45
Weighted average number of shares outstanding:
Basic		118,130			118,814			117,951		118,607
Diluted		118,577			119,805			118,721		119,571

PPD, Inc.

Segment Information

(in thousands)

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2010		2009		2010
Net revenue:
Clinical Development Services	$	249,981		$	260,345	$	778,152	$	765,075
Laboratory Services		65,860			79,045		203,222		231,921
Subtotal (formerly Development segment)		315,841			339,390		981,374		996,996
Discovery Sciences		442			—		5,766		8,010
Reimbursed revenue		24,117			25,985		72,228		77,054
Total	$	340,400		$	365,375	$	1,059,368	$	1,082,060
Operating income (loss):
Clinical Development Services	$	39,202		$	43,681	$	130,941	$	101,830
Laboratory Services		12,813			13,154		42,627		34,631
Subtotal (formerly Development segment)		52,015			56,835		173,568		136,461
Discovery Sciences		(388	)		—		2,911		(11,860	)
Total	$	51,627		$	56,835	$	176,479	$	124,601

PPD, Inc.

Balance Sheet Data

(in thousands)

(unaudited)

	December 31, 2009		September 30, 2010
Cash, cash equivalents, short-term and long-term investments	$	642,106	$	613,047
Accounts receivable and unbilled services, net		429,670		416,161
Total assets		2,030,203		1,905,467
Unearned income		297,844		291,686
Shareholders’ equity		1,346,127		1,240,563

Additional information

(in thousands)

(unaudited)

Cash, cash equivalents, short-term and long-term investments categories

	December 31, 2009		September 30, 2010
Cash and cash equivalents	$	408,903	$	440,442
Short-term investments		144,645		89,988
Long-term auction rate securities		88,558		82,617
	$	642,106	$	613,047

EX-99.2

Business Segment Review

Third Quarter 2010

Earnings Call

October 27, 2010

Exhibit 99.2

Table of Contents

Safe Harbor

1

Business Segments

2

Clinical Development Services

Laboratory Services

Net Revenue by Segment

3

Income from Operations by Segment

4

Safe Harbor

This presentation includes selected non-GAAP financial

measures. For a presentation of and reconciliation to the

most directly comparable GAAP financial measures, go to

the link titled “GAAP/Non-GAAP Reconciliation

Presentation”

under Presentations & Events in the

Investors section of PPD’s

Web site

located at

www.ppdi.com

1

Business Segments

*

Clinical Development Services

Phase II-IV Clinical Trial Management

-

Project Management

-

Clinical Trial Monitoring

-

Data Management

-

Biostatistics  

-

Regulatory Affairs

-

Pharmacovigilance

-

Late-Stage

Laboratory Services

Phase I Clinic

cGMP

Bioanalytical

Global Central Labs

Vaccines & Biologics

BioDuro

/ Discovery Services

2

*These two segments comprise the former Development segment.

Net Revenue by Segment

(Non-GAAP, in Millions*)

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Clinical Development Services

$268.1

$260.1

$250.0

$256.7

$249.3

$255.4

$260.3

% of Total

79.9%

78.8%

79.2%

78.2%

77.0%

76.5%

76.7%

Laboratory Services

$67.3

$70.1

$65.9

$71.4

$74.5

$78.3

$79.0

% of Total

20.1%

21.2%

20.8%

21.8%

23.0%

23.5%

23.3%

Total

(Formerly Development Segment)

$335.4

$330.2

$315.8

$328.1

$323.8

$333.8

$339.4

3

*Net revenue excludes reimbursed out-of-pockets.

Income from Operations by Segment

(Non-GAAP, in Millions*)

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Clinical Development Services

$51.9

$48.0

$47.0

$41.0

$31.7

$34.6

$47.2

Operating Margin %

19.3%

18.5%

18.8%

16.0%

12.7%

13.6%

18.1%

Laboratory Services

$15.4

$15.2

$13.2

$12.8

$10.1

$12.3

$13.5

Operating Margin %

22.9%

21.7%

20.0%

17.9%

13.5%

15.6%

17.1%

Total

(Formerly Development Segment)

$67.3

$63.3

$60.2

$53.8

$41.8

$46.9

$60.7

Operating Margin %

20.1%

19.2%

19.0%

16.4%

12.9%

14.0%

17.9%

*Income from operations excludes reimbursed out-of-pocket

expenses, stock option expense, and restructuring costs. See

GAAP/Non-GAAP reconciliation in Investors section of PPD

website.

4

EX-99.3

A leading global CRO

GAAP / Non-GAAP Reconciliation

Exhibit 99.3

A leading global CRO

Regulation G

From time to time, PPD discloses selected non-GAAP financial measures. For

example, we disclose net revenue excluding reimbursed out-of-pockets because these

third party expenses are reimbursed to us by our clients, are not directly related to the

services

we

provide

and

do

not

have

any

impact

on

our

operating

income,

net

income

or

earnings

per

share.

In

addition,

we

present

certain financial measures

excluding

non-

cash

stock

option

expense

and

in some cases special

items

that

are

not

related

to our

core service businesses. While non-GAAP financial measures are not superior to or a

substitute for the comparable GAAP measures, we believe certain non-GAAP

information is useful to investors for historical comparison purposes and because it

provides

additional

information

on

the

performance

of

PPD’s

core

service

businesses.

PPD management also uses this information to measure the Company’s operating

performance

and

to

compare

that

performance

against

results

from

prior

periods

and

the

performance of PPD’s competitors.

For the non-GAAP financial measures that have been disclosed by us, the

following is a presentation of and reconciliation to the most directly comparable GAAP

financial measure.

1

A leading global CRO

GAAP/Non-GAAP Reconciliation

Net Revenue, Net Income and EPS (2005-2009)

2

(in thousands, except per share data)

2005

2006

2007

2008

2009

Net Revenue:

Net Revenue, per GAAP

1,037,090

$  

1,247,682

$

1,414,465

$

1,551,384

$

1,416,770

$

Less: Reimbursed out-of-pockets

75,074

101,383

119,087

117,132

101,003

Net Revenue less reimbursed out-of-pockets

962,016

1,146,299

1,295,378

1,434,252

1,315,767

Net Income:

Net Income, per GAAP

119,897

$     

156,652

$   

163,401

$   

187,519

$   

159,295

$   

Plus: Impairment of investments, net of recoveries

5,928

-

690

17,741

2,076

Plus: Impairment of intangible asset

-

-

-

1,607

10,361

Plus: Restructuring charges

-

-

-

-

3,892

Plus: Bad debt expense associated with Accentia

-

-

-

4,708

-

Less: Gain on sale/exchange of assets

(5,144)

-

-

-

-

Less: Tax benefit on impairment of investments, net of recoveries

(2,118)

-

(235)

(5,810)

(569)

Less: Tax benefit on impairment of intangible asset

-

-

-

(526)

(2,839)

Less: Tax benefit on bad debt expense associated with Accentia

-

-

-

(1,542)

-

Plus: Tax expense on gain on sale/exchange of assets

1,800

-

-

-

-

Less: Tax benefit on restructuring charges

-

-

-

-

(1,067)

Less: Tax benefit associated with release of capital loss carryforwards

(774)

-

-

-

-

Net Income excluding above items, including stock option expense

119,589

$     

156,652

$   

163,856

$   

203,697

$   

171,149

$   

Diluted EPS:

EPS, per GAAP

1.03

$           

1.32

$         

1.36

$         

1.56

$         

1.34

$         

Plus: Impairment of investments, net of recoveries

0.05

-

0.01

0.15

0.02

Plus: Impairment of intangible asset

-

-

-

0.01

0.09

Plus: Restructuring charges

-

-

-

-

0.03

Plus: Bad debt expense associated with Accentia

-

-

-

0.04

-

Less: Gain on sale/exchange of assets

(0.04)

-

-

-

-

Less: Tax benefit on impairment of investments, net of recoveries

(0.02)

-

(0.01)

(0.05)

-

Less: Tax benefit on impairment of intangible asset

-

-

-

-

(0.02)

Less: Tax benefit on bad debt expense associated with Accentia

-

-

-

(0.01)

-

Less: Tax benefit on restructuring charge

-

-

-

-

(0.01)

Plus: Tax expense on gain on sale/exchange of assets

0.01

-

-

-

-

Less: Tax benefit associated with release of capital loss carryforwards

-

-

-

-

-

EPS excluding above items, including stock option expense

1.03

$           

1.32

$         

1.36

$         

1.70

$         

1.45

$         

Diluted Shares Outstanding, per GAAP

116,434

118,536

119,953

120,097

118,769

Note:

2008 revenue has been restated to exclude discontinued operations

A leading global CRO

GAAP/Non-GAAP Reconciliation

Net Revenue, Net Income and EPS (2000-2004)

3

(in thousands, except per share data)

2000

2001

2002

2003

2004

Net Revenue:

Net Revenue, per GAAP

372,650

$    

460,633

$    

608,657

$    

726,983

$     

841,256

$     

Less: Reimbursed out-of-pockets

27,332

29,092

46,008

57,485

67,316

Net Revenue less reimbursed out-of-pockets

345,318

431,541

562,649

669,498

773,940

Net Income:

Net Income, per GAAP

28,934

$      

44,666

$      

33,681

$      

41,410

$       

91,684

$       

Plus: Costs to acquire dapoxetine

patents

-

-

-

65,000

-

Plus: Impairment of equity investments

-

-

33,787

10,078

2,000

Plus: Restructuring charges

-

-

-

1,917

2,619

Less: Gain on sale/exchange of assets

-

-

-

(5,738)

-

Less:

Tax

benefit

on

costs

to

acquire

dapoxetine

patents

-

-

-

(24,179)

-

Less: Tax benefit on impairments and restructuring charges

-

-

(2,300)

(4,312)

(907)

Plus: Tax expense on gain on sale/exchange of assets

-

-

-

2,065

-

Plus: Tax expense on gain on exchange of assets

-

-

-

-

-

Less: Tax benefit associated with release of capital loss carryforwards

-

-

-

-

(3,721)

Net Income excluding above items, including stock option expense

28,934

$      

44,666

$      

65,168

$      

86,241

$       

91,675

$       

Diluted EPS:

EPS, per GAAP

0.29

$          

0.43

$          

0.30

$          

0.37

$           

0.81

$           

Plus: Costs to acquire dapoxetine

patents

-

-

-

0.58

-

Plus: Impairment of equity investments

-

-

0.30

0.09

0.02

Plus: Restructuring charges

-

-

-

0.02

0.02

Less: Gain on sale/exchange of assets

-

-

-

(0.05)

-

Less:

Tax

benefit

on

costs

to

acquire

dapoxetine

patents

-

-

-

(0.22)

-

Less: Tax benefit on impairments and restructuring charges

-

-

(0.02)

(0.04)

(0.01)

Plus: Tax expense on gain on sale/exchange of assets

-

-

-

0.02

-

Plus: Tax expense on gain on exchange of assets

-

-

-

-

-

Less: Tax benefit associated with release of capital loss carryforwards

-

-

-

-

(0.03)

EPS excluding above items, including stock option expense

0.29

$          

0.43

$          

0.58

$          

0.77

$           

0.81

$           

Diluted Shares Outstanding, per GAAP

100,708

104,988

110,686

112,572

113,808

A leading global CRO

GAAP/Non-GAAP Reconciliation

Gross Margin and Operating Margin (FY’08 & FY’09)

4

(in thousands)

Item

2008

2009

Net Revenue:

  Net Revenue, per GAAP

1

1,551,384

$       

1,416,770

$       

       Less:  Reimbursed out-of-pockets

2

117,132

101,003

  Net Revenue less reimbursed out-of-pockets

3

1,434,252

$       

1,315,767

$       

Direct Costs:

Direct Costs, per GAAP

4

807,170

$          

731,755

$          

       Less:  Reimbursable out-of-pocket expenses

5

117,132

101,003

       Less:  Stock option expense

5

9,694

8,271

Direct Costs excluding reimbursables and stock option expense

6

680,344

$          

622,481

$          

Gross Margin ($):

Gross Margin, per GAAP

7

744,214

$          

685,015

$          

Item #1- Item #4

Gross Margin, excluding reimbursables and stock option expense

8

753,908

$          

693,286

$          

Item #3- Item #6

Gross Margin (%):

Gross Margin, per GAAP

48.0%

48.4%

Item #7/ Item #1

Gross Margin, excluding reimbursables and stock option expense

52.6%

52.7%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

282,397

$          

192,890

$          

       Plus:  Stock option expense

23,381

18,108

       Plus:  Impairment of intangible asset

1,607

10,361

       Plus:  Restructuring charges

-

3,892

       Plus:  Bad debt expense associated with Accentia

4,708

-

Operating Income, excluding reimbursables and above items

10

312,093

$          

225,251

$          

Operating Margin (%):

Operating Margin, per GAAP

18.2%

13.6%

Item #9/ Item #1

Operating Margin, excluding reimbursables and above items

21.8%

17.1%

Item #10/ Item #3

Note:

2008 has been restated to exclude discontinued operations

Twelve Months Ended

December 31,

A leading global CRO

GAAP/Non-GAAP Reconciliation

Development Segment

Gross Margin and Operating Margin (FY’08 & FY’09)

5

(in thousands)

Item

2008

2009

Net Revenue:

Net Revenue, per GAAP

1

1,532,679

$   

1,410,294

$   

Less:  Reimbursed out-of-pockets

2

116,850

100,840

Net Revenue less reimbursed out-of-pockets

3

1,415,829

$   

1,309,454

$   

Direct Costs:

Direct Costs, per GAAP

4

806,274

$     

730,962

$     

Less:  Reimbursable out-of-pocket expenses

5

116,850

100,840

Less:  Stock option expense

9,239

7,875

Direct

Costs,

excluding

reimbursables

and

stock

option

expense

6

680,185

$     

622,247

$     

Gross Margin ($):

Gross Margin, per GAAP

7

726,405

$     

679,332

$     

Item #1-

Item #4

Gross

Margin,

excluding

reimbursables

and

stock

option

expense

8

735,644

$     

687,207

$     

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

47.4%

48.2%

Item #7/ Item #1

Gross

Margin,

excluding

reimbursables

and

stock

option

expense

52.0%

52.5%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

272,540

$     

223,165

$     

Plus: Stock option expense

23,074

17,763

Plus:  Restructuring charges

-

3,892

Plus: Bad debt expense associated with Accentia

4,708

-

Operating

Income,

excluding

reimbursables

and

above

items

10

300,322

$     

244,820

$     

Operating Margin (%):

Operating Margin, per GAAP

17.8%

15.8%

Item #9/ Item #1

Operating

Margin,

excluding

reimbursables

and

above

items

21.2%

18.7%

Item #10/ Item #3

Note:

2008 has been restated to exclude discontinued operations

Twelve Months Ended

December 31,

A leading global CRO

GAAP/Non-GAAP Reconciliation

Gross Margin and Operating Margin (Q1’09 & Q1’10)

6

(in thousands)

Item

2009

2010

Net Revenue:

Net Revenue, per GAAP

1

364,370

$ 

346,769

$ 

Less:  Reimbursed out-of-pockets

2

23,854

22,649

Net Revenue less reimbursed out-of-pockets

3

340,516

$ 

324,120

$ 

Direct Costs:

Direct Costs, per GAAP

4

188,318

$ 

182,802

$ 

Less:  Reimbursable out-of-pocket expenses

5

23,854

22,649

Less:  Stock option expense

2,636

2,173

Direct

Costs,

excluding

reimbursables

and

stock

option

expense

6

161,828

$ 

157,980

$ 

Gross Margin ($):

Gross Margin, per GAAP

7

176,052

$ 

163,967

$ 

Item #1-

Item #4

Gross

Margin,

excluding

reimbursables

and

stock

option

expense

8

178,688

$ 

166,140

$ 

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

48.3%

47.3%

Item #7/ Item #1

Gross

Margin,

excluding

reimbursables

and

stock

option

expense

52.5%

51.3%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

66,588

$   

26,071

$   

Plus: Stock option expense

4,805

5,420

Operating

Income,

excluding

reimbursables

and

stock

option

expense

10

71,393

$   

31,491

$   

Operating Margin (%):

Operating Margin, per GAAP

18.3%

7.5%

Item #9/ Item #1

Operating

Margin,

excluding

reimbursables

and

stock

option

expense

21.0%

9.7%

Item #10/ Item #3

Note:2009 has been restated to exclude discontinued operations

Three Months Ended

March 31,

A leading global CRO

Direct Costs, excluding reimbursables and stock option expense

GAAP/Non-GAAP Reconciliation

Development Segment

Gross Margin and Operating Margin (Q1’09 & Q1’10)

7

(in thousands)

Item

2009

2010

Net Revenue:

Net Revenue, per GAAP

1

359,208

$  

346,476

$  

Less:  Reimbursed out-of-pockets

2

23,854

22,649

Net Revenue less reimbursed out-of-pockets

3

335,354

$  

323,827

$  

Direct Costs:

Direct Costs, per GAAP

4

188,023

$  

182,650

$  

Less:  Reimbursable out-of-pocket expenses

5

23,854

22,649

Less:  Stock option expense

2,442

2,036

6

161,727

$  

157,965

$  

Gross Margin ($):

Gross Margin, per GAAP

7

171,185

$  

163,826

$  

Item #1-

Item #4

8

173,627

$  

165,862

$  

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

47.7%

47.3%

Item #7/ Item #1

51.8%

51.2%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

62,612

$    

36,811

$    

Plus: Stock option expense

4,656

5,282

10

67,268

$    

42,093

$    

Operating Margin (%):

Operating Margin, per GAAP

17.4%

10.6%

Item #9/ Item #1

20.1%

13.0%

Item #10/ Item #3

Note:

2009 has been restated to exclude discontinued operations

Three Months Ended

March 31,

Gross Margin, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

Operating Income, excluding reimbursables and stock option expense

Operating Margin, excluding reimbursables and stock option expense

A leading global CRO

8

GAAP/Non-GAAP Reconciliation

Gross Margin and Operating Margin (Q2’09 & Q2’10)

(in thousands)

Item

2009

2010

Net Revenue:

Net Revenue, per GAAP

1

354,598

$ 

369,919

$ 

Less:  Reimbursed out-of-pockets

2

24,257

28,423

Net Revenue less reimbursed out-of-pockets

3

330,341

$ 

341,496

$ 

Direct Costs:

Direct Costs, per GAAP

4

182,888

$ 

192,170

$ 

Less:  Reimbursable out-of-pocket expenses

5

24,257

28,423

Less:  Stock option expense

1,867

1,211

6

156,764

$ 

162,536

$ 

Gross Margin ($):

Gross Margin, per GAAP

7

171,710

$ 

177,749

$ 

Item #1-

Item #4

8

173,577

$ 

178,960

$ 

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

48.4%

48.1%

Item #7/ Item #1

52.5%

52.4%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

58,264

$   

40,084

$   

Plus: Stock option expense

4,397

3,768

Operating Income, excluding reimbursables

and stock option expense

10

62,661

$   

43,852

$   

Operating Margin (%):

Operating Margin, per GAAP

16.4%

10.8%

Item #9/ Item #1

Operating Margin, excluding reimbursables

and stock option expense

19.0%

12.8%

Item #10/ Item #3

Note:

2009 has been restated to exclude discontinued operations

Three Months Ended

June 30,

Direct Costs, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

A leading global CRO

9

GAAP/Non-GAAP Reconciliation

Development Segment

Gross Margin and Operating Margin (Q2’09 & Q2’10)

(in thousands)

Item

2009

2010

Net Revenue:

Net Revenue, per GAAP

1

354,436

$  

362,202

$  

Less:  Reimbursed out-of-pockets

2

24,257

28,423

Net Revenue less reimbursed out-of-pockets

3

330,179

$  

333,779

$  

Direct Costs:

Direct Costs, per GAAP

4

182,743

$  

192,196

$  

Less:  Reimbursable out-of-pocket expenses

5

24,257

28,423

Less:  Stock option expense

1,788

1,242

6

156,698

$  

162,531

$  

Gross Margin ($):

Gross Margin, per GAAP

7

171,693

$  

170,006

$  

Item #1-

Item #4

8

173,481

$  

171,248

$  

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

48.4%

46.9%

Item #7/ Item #1

52.5%

51.3%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

58,942

$    

43,085

$    

Plus: Stock option expense

4,319

3,799

10

63,261

$    

46,884

$    

Operating Margin (%):

Operating Margin, per GAAP

16.6%

11.9%

Item #9/ Item #1

19.2%

14.0%

Item #10/ Item #3

Note:

2009 has been restated to exclude discontinued operations

Three Months Ended

June 30,

Direct Costs, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

Operating Income, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

A leading global CRO

GAAP/Non-GAAP Reconciliation

Operating Margin (Q3’09 & Q3’10)

10

(in thousands)

Item

2009

2010

Net Revenue:

  Net Revenue, per GAAP

1

340,400

$  

365,375

$  

       Less:  Reimbursed out-of-pockets

2

24,117

25,985

  Net Revenue less reimbursed out-of-pockets

3

316,283

$  

339,390

$  

Operating Income:

Operating Income, per GAAP

4

51,627

$    

56,835

$    

Plus: Stock option expense

4,324

3,889

Plus: Restructuring costs

3,892

-

Operating Income, excluding reimbursables, stock option expense

and restructuring costs

5

59,843

$    

60,724

$    

Operating Margin (%):

Operating Margin, per GAAP

15.2%

15.6%

Item #4/ Item #1

Operating Margin, excluding reimbursables, stock option expense

and restructuring costs

18.9%

17.9%

Item #5/ Item #3

Note:

2009 has been restated to exclude discontinued operations

Three Months Ended

September 30,

A leading global CRO

GAAP/Non-GAAP Reconciliation

Net

Revenue,

Operating

Income

and

Operating

Margin

(Q1'09

-

Q4'09)

11

(in thousands)

Item

Q1'09

Q2'09

Q3'09

Q4'09

Net Revenue:

Net Revenue, per GAAP

1

364,370

$   

354,598

$   

340,400

$   

357,239

$   

Less:  Reimbursed out-of-pockets

23,854

24,257

24,117

28,612

Less:  Discovery Sciences revenue

5,162

162

442

547

Net Revenue less above items

2

335,354

$   

330,179

$   

315,841

$   

328,080

$   

Net Revenue by segment (less above items):

Clinical Development Services Net Revenue

3

268,092

$   

260,079

$   

249,981

$   

256,713

$   

Laboratory Services Net Revenue

4

67,262

70,100

65,860

71,367

Net Revenue less above items

335,354

$   

330,179

$   

315,841

$   

328,080

$   

Operating Income:

Operating Income, per GAAP

5

66,588

$     

58,264

$     

51,627

$     

37,826

$     

Less:  Discovery Sciences operating (income) loss

(4,125)

600

323

11,426

Plus:  Stock option expense

4,805

4,397

4,324

4,572

Plus:  Restructuring costs

-

-

3,892

-

Operating Income excluding above items

6

67,268

$     

63,261

$     

60,166

$     

53,824

$     

Operating Income by segment (excluding above items):

Clinical Development Services Operating Income

7

51,866

$     

48,030

$     

46,986

$     

41,037

$     

Laboratory Services Operating Income

8

15,402

15,231

13,180

12,787

Operating Income excluding above items

67,268

$     

63,261

$     

60,166

$     

53,824

$     

Operating Margin (%):

Operating Margin, per GAAP

18.3%

16.4%

15.2%

10.6%

Item 5/Item 1

Operating Margin, excluding above items

20.1%

19.2%

19.0%

16.4%

Item 6/Item 2

Clinical Development Services Operating Margin, excluding above items

19.3%

18.5%

18.8%

16.0%

Item 7/Item 3

Laboratory Services Operating Margin, excluding above items

22.9%

21.7%

20.0%

17.9%

Item 8/Item 4

A leading global CRO

GAAP/Non-GAAP Reconciliation

Net Revenue, Operating Income and Operating Margin (Q1'10

-

Q3'10)

12

(in thousands)

Item

Q1'10

Q2'10

Q3'10

Net Revenue:

Net Revenue, per GAAP

1

346,769

$   

369,919

$   

365,375

$   

Less:  Reimbursed out-of-pockets

22,649

28,423

25,985

Less:  Discovery Sciences revenue

293

7,717

-

Net Revenue less above items

2

323,827

$   

333,779

$   

339,390

$   

Net Revenue by segment (less above items):

Clinical Development Services Net Revenue

3

249,294

$   

255,436

$   

260,345

$   

Laboratory Services Net Revenue

4

74,533

78,343

79,045

Net Revenue less above items

323,827

$   

333,779

$   

339,390

$   

Operating Income:

Operating Income, per GAAP

5

27,682

$     

40,084

$     

56,835

$     

Less:  Discovery Sciences operating (income) loss

8,725

3,032

-

Plus:  Stock option expense

5,420

3,768

3,889

Operating Income excluding above items

6

41,827

$     

46,884

$     

60,724

$     

Operating Income by segment (excluding above items):

Clinical Development Services Operating Income

7

31,749

$     

34,628

$     

47,186

$     

Laboratory Services Operating Income

8

10,078

12,256

13,538

Operating Income excluding above items

41,827

$     

46,884

$     

60,724

$     

Operating Margin (%):

Operating Margin, per GAAP

8.0%

10.8%

15.6%

Item 5/Item 1

Operating Margin, excluding above items

12.9%

14.0%

17.9%

Item 6/Item 2

Clinical Development Services Operating Margin, excluding above items

12.7%

13.6%

18.1%

Item 7/Item 3

Laboratory Services Operating Margin, excluding above items

13.5%

15.6%

17.1%

Item 8/Item 4

A leading global CRO

GAAP/Non-GAAP Reconciliation

Gross Margin and Operating Margin (Q4’08 & Q4’09)

13

(in thousands)

Item

2008

2009

Net Revenue:

Net Revenue, per GAAP

1

363,139

$

357,402

$

Less:  Reimbursed out-of-pockets

2

24,321

28,775

Net Revenue less reimbursed out-of-pockets

3

338,818

$

328,627

$

Direct Costs:

Direct Costs, per GAAP

4

179,510

$

185,952

$

Less:  Reimbursable out-of-pocket expenses

5

24,321

28,775

Less:  Stock option expense

2,334

1,994

6

152,855

$

155,183

$

Gross Margin ($):

Gross Margin, per GAAP

7

183,629

$

171,450

$

Item #1-

Item #4

8

185,963

$

173,444

$

Item #3-

Item #6

Gross Margin (%):

Gross Margin, per GAAP

50.6%

48.0%

Item #7/ Item #1

54.9%

52.8%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

71,709

$  

23,907

$  

Plus: Stock option expense

5,159

4,572

Plus: Bad debt expense associated with Accentia

4,708

-

Plus: Impairment on intangible asset

-

10,361

Operating

Income,

excluding

reimbursables

and

above items

10

81,576

$  

38,840

$  

Operating Margin (%):

Operating Margin, per GAAP

19.8%

6.7%

Item #9/ Item #1

Operating

Margin,

excluding

reimbursables

and

above items

24.1%

11.8%

Item #10/ Item #3

Note:

2008 has been restated to exclude discontinued operations

Three Months Ended

December 31,

Direct Costs, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

Gross Margin, excluding reimbursables and stock option expense

A leading global CRO

GAAP/Non-GAAP Reconciliation

Development Segment

Gross Margin and Operating Margin (Q4’08 & Q4’09)

14

(in thousands)

Item

2008

2009

Net Revenue:

  Net Revenue, per GAAP

1

362,814

$    

356,692

$    

       Less:  Reimbursed out-of-pockets

2

24,105

28,612

  Net Revenue less reimbursed out-of-pockets

3

338,709

$    

328,080

$    

Direct Costs:

Direct Costs, per GAAP

4

179,046

$    

185,732

$    

       Less:  Reimbursable out-of-pocket expenses

5

24,105

28,612

       Less:  Stock option expense

2,132

1,954

Direct Costs, excluding reimbursables and stock option expense

6

152,809

$    

155,166

$    

Gross Margin ($):

Gross Margin, per GAAP

7

183,768

$    

170,960

$    

Item #1- Item #4

Gross Margin, excluding reimbursables and stock option expense

8

185,900

$    

172,914

$    

Item #3- Item #6

Gross Margin (%):

Gross Margin, per GAAP

50.7%

47.9%

Item #7/ Item #1

Gross Margin, excluding reimbursables and stock option expense

54.9%

52.7%

Item #8/ Item #3

Operating Income:

Operating Income, per GAAP

9

72,636

$      

49,406

$      

       Plus: Stock option expense

4,960

4,528

       Plus: Bad debt expense associated with Accentia

4,708

-

Operating Income, excluding reimbursables and above items

10

82,304

$      

53,934

$      

Operating Margin (%):

Operating Margin, per GAAP

20.0%

13.9%

Item #9/ Item #1

Operating Margin, excluding reimbursables and above items

24.3%

16.4%

Item #10/ Item #3

Note:

2008 has been restated to exclude discontinued operations

Three Months Ended

December 31,

A leading global CRO

GAAP/Non-GAAP Reconciliation

Net Income and EPS (Q4’08 & Q4’09)

15

(in thousands, except per share data)

2008

2009

  Net Income, per GAAP

47,198

$      

18,991

$      

       Plus:  Impairment of investments

2,306

2,076

       Plus:  Impairment of intangibles

-

10,361

       Plus:  Bad debt expense associated with Accentia

4,708

-

       Less: Tax benefit on impairment of investments

(738)

(411)

       Less: Tax benefit on impairment of intangibles

-

(2,052)

       Less: Tax benefit on bad debt expense associated with Accentia

(1,507)

-

  Net income excluding above items

51,967

$      

28,965

$      

Diluted EPS, per GAAP

0.40

$         

0.16

$         

       Plus:  Impairment of investments

0.02

0.02

       Plus:  Impairment of intangibles

-

0.08

       Plus: Bad debt expense associated with Accentia

0.04

-

       Less: Tax benefit on impairment of investments

(0.01)

-

       Less: Tax benefit on impairment of intangibles

-

(0.02)

       Less: Tax benefit on bad debt expense associated with Accentia

(0.01)

-

Diluted EPS excluding above items

0.44

$         

0.24

$         

Diluted Shares Outstanding, per GAAP

118,837

118,918

Three Months Ended

December 31,