-----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, SIZGCSmzqoXRa0npfrUcP08JCYJaIzCQMaEV0d9rOd8L/M5ttmp5GSyV2oUys1HP RN4kWVPOsa19sgyllup0ag== 0000950144-06-001990.txt : 20060309 0000950144-06-001990.hdr.sgml : 20060309 20060308194647 ACCESSION NUMBER: 0000950144-06-001990 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20060308 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060309 DATE AS OF CHANGE: 20060308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUINTILES TRANSNATIONAL CORP CENTRAL INDEX KEY: 0000919623 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 561714315 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-113805 FILM NUMBER: 06674473 BUSINESS ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: RIVERBIRCH BLDG STE 200 CITY: DURHAM STATE: NC ZIP: 27703-8411 BUSINESS PHONE: 9199982000 MAIL ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: STE 300 CITY: DURHAM STATE: NC ZIP: 27703-8411 8-K/A 1 g00058kae8vkza.htm QUINTILES TRANSNATIONAL CORP. Quintiles Transnational Corp.
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
To
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 8, 2006
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
         
North Carolina   333-113805   56-1714315
(State or other jurisdiction of   (Commission File   (I.R.S. Employer
incorporation)   Number)   Identification Number)
4709 Creekstone Drive, Suite 200, Durham, North Carolina 27703-8411
(Address of principal executive offices)
(919) 998-2000
Registrant’s telephone number, including area code
N/A
(Former name or former address, if changed since last report)
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:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     This Amendment No. 1 to the Current Report on Form 8-K, dated March 8, 2006, of Quintiles Transnational Corp. is being furnished to correct certain typographical errors contained in Item 2.02 of that report. Item 2.02 is hereby amended and replaced in its entirety as follows:
Item 2.02. Results of Operations and Financial Condition
     On March 3, 2006, Quintiles Transnational Corp. (the “Company”) and Pharma Services Intermediate Holding Corp. (“Holding”) commenced a cash tender offer to purchase any and all of the Company’s outstanding $450 million aggregate principal amount 10% senior subordinated notes due 2013 and any and all of Holding’s outstanding $219 aggregate principal amount at maturity 11.5% senior discount notes due 2014. In connection with the cash tender offer, the Company and Holding each are soliciting consents to amend the indentures under which the respective notes were issued to eliminate or make less restrictive most of the restrictive covenants contained in the indentures and amend certain related provisions. The tender offer is subject to certain conditions, including, without limitation, the Company having borrowed funds sufficient to purchase the notes tendered and pay the related consent payments and fees and expenses in connection with the tender offer. The Company is pursuing plans to borrow up to $1.47 billion under new credit facility arrangements, which would include a $250 million first lien revolving credit facility due 2012, a $900 million first lien term loan B due 2013 and a $320 million second lien term loan C due 2014. Proceeds from these borrowings would be used, together with available cash, to fund these payments and satisfy this condition to the tender offer, as well as to eliminate the outstanding preferred stock of Pharma Services Holding, Inc., the parent of the Company and Holding. The tender offer and the refinancing are subject to certain conditions, rights of the withdrawal and other terms which could result in the Company not completing the refinancing or tender offer.
     The Company issued a press release on March 3, 2006 announcing the commencement of the tender offer and consent solicitation and on March 6, 2006 announcing the commencement of the refinancing. Copies of these press releases are attached to this report as Exhibits 99.01 and 99.02, respectively, and incorporated by reference herein.
     In connection with the refinancing transaction, the Company is making certain information available to potential lenders, primarily with respect to the combined results of its Product Development and Commercialization reporting segments, which together are referred to as Services, including the following financial information furnished in this report:
  •   Services, carve-out statements of operations, balance sheets and statements of cash flows for the years ended December 31, 2003 and 2004 and the twelve months ended September 30, 2005, or Services Carve-Out Financial Statements.
 
  •   Services net revenue and operational earnings before interest expense (income), income taxes and depreciation and amortization (“Operational EBITDA”) for the years ended December 31, 2003 and 2004 and the twelve months ended September 30, 2005 and 2004, or Services Net Revenue and Operational EBITDA.
 
  •   Quarterly Services net revenue, operational EBITDA, Contribution, Selling, General and Administrative (“SG&A”) Expenses and Days Sales Outstanding (“DSO”) by quarter for 2003, 2004 and 2005.
 
  •   Services net revenue by geography and line of business for the years ended December 31, 2003 and 2004 and the nine months ended September 30, 2005, or Services Net Revenue by Geography and Line of Business.

2

 

  •   Half year consolidated backlog and net new business wins as of December 31, 2002, 2003, 2004 and 2005, including Commercial Services backlog specifically associated with the Company’s Cymbalta® contract, or Backlog and Net New Business Wins.
     Information in this report contains “forward-looking statements.” These statements involve risks and uncertainties that could cause actual results to differ materially, including, without limitation, the possibility that the Company may not be able to secure financing under one or more credit facilities on terms acceptable to the Company prior to the expiration of the tender offer or otherwise obtain funds sufficient to purchase the notes tendered and pay the related consent payments and fees and expenses in connection therewith. Additional factors that could cause actual results to differ materially are discussed in the Company’s recent filings with the Securities and Exchange Commission, including but not limited to its Annual Report on Form 10-K, its Form 8-Ks and its other periodic reports, including Form 10-Qs. Any forward-looking statements are as of the date hereof, and the Company has no duty to update them if its views later change.
     Services Carve-Out Financial Statements
     The carve-out financial statements presented below show the results of the Company’s Product Development and Commercialization segments, on a combined basis, separately from the Company’s consolidated results. In the carve-out financial statement presentations below, CR&R stands for Commercial Rights & Royalties, which represents the Company’s PharmBio Development reporting unit. The combination of the Product Development and Commercialization segments as “Services” is not in accordance with generally accepted accounting principles in the United States (“GAAP”). However, such information is considered important information by potential lenders and therefore has been provided in this format.
     The Company has restated the financial statements presented in this report to reflect the results of certain disposed businesses as discontinued operations. These changes are summarized below.
     In December 2005, the Company completed the sale of its Pharmaplan Business, or Pharmaplan, to Opus Ventures, for approximately $1.3 million in cash. The results of operations, assets and liabilities of Pharmaplan have been reported separately as a discontinued operation. All periods presented herein have been restated to reflect Pharmaplan as a discontinued operation.
     In September 2005, the Company completed the sale of its Early Development and Packaging Business, or EDP Business, to Aptuit Inc., or Aptuit, for approximately $124 million in cash. The results of operations, assets and liabilities of the EDP Business have been reported separately as a discontinued operation. All periods presented herein have been restated to reflect the EDP Business as a discontinued operation.
     In August 2004, the Company completed the sale of certain assets representing its Bioglan Pharmaceuticals business, or Bioglan, to Bradley Pharmaceuticals, Inc., or Bradley, for approximately $188.3 million including approximately $5.3 million of direct costs for transferred inventory. The results of operations, assets and liabilities of the Bioglan business have been reported separately as a discontinued operation. All periods presented herein have been restated to reflect the Bioglan business as a discontinued operation.

3

 

TWELVE MONTHS ENDED SEPTEMBER 30, 2005
CARVE-OUT STATEMENT OF OPERATIONS — UNAUDITED
(in thousands)
                                 
            Subtract     Adjust        
    Consolidated     CR&R     Intercompany     Services  
Net revenues
   $ 1,850,179     $ 102,053     $ (100,068 )   $ 1,848,194  
Add: reimbursed service costs
     477,075       —       (7,056 )     484,131  
 
                        
Gross revenues
     2,327,254       102,053       (107,124 )     2,332,325  
 
                                
Costs, expenses and other:
                                
Costs of revenues
     1,669,736       180,987       (107,124 )     1,595,873  
Selling, general and administrative
     580,239       —       —       580,239  
Interest income
     (12,848 )     (4,436 )     —       (8,412 )
Interest expense
     69,138       516       —       68,622  
Other (income), net
     (2,169 )     (356 )     —       (1,813 )
Restructuring
     28,247       —       —       28,247  
Impairments
     7,678       —       —       7,678  
Transaction expenses, net
     (2,666 )     —       —       (2,666 )
 
                        
 
     2,337,355       176,711       (107,124 )     2,267,768  
 
                                
(Loss) income before income taxes
     (10,101 )     (74,658 )     —       64,557  
Income tax (benefit)
     (43,469 )     (26,131 )     —       (17,338 )
Income (loss) before equity in (losses) earnings of unconsolidated affiliates and minority interests
     33,368       (48,527 )     —       81,895  
Equity in (losses) earnings of unconsolidated affiliates
     (1,137 )     —       —       (1,137 )
Minority interests
     (3,153 )     —       —       (3,153 )
 
                        
Income (loss) from continuing operations
     29,078       (48,527 )     —       77,605  
(Loss) income from discontinued operations, net of income taxes
     (30,541 )     801       —       (31,342 )
(Loss) gain from sale of discontinued operations, net of income taxes
     (3,989 )     620       —       (4,609 )
 
                        
Net (loss) income
   $ (5,452 )   $ (47,106 )   $ —     $ 41,654  
 
                        

4

 

SEPTEMBER 30, 2005
CARVE-OUT BALANCE SHEET — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Assets
                        
Current assets:
                        
Cash and cash equivalents
   $ 479,203     $ —     $ 479,203  
Trade accounts receivable and unbilled services, net
     336,538       8,404       328,134  
Investments in debt securities
     588       —       588  
Prepaid expenses
     20,027       3       20,024  
Other current assets and receivables
     62,291       1,542       60,749  
Assets of discontinued operations
     4,853       4,853       —  
 
                  
 
                        
Total current assets
     903,500       14,802       888,698  
 
                        
Property and equipment:
                        
Land, buildings and leasehold improvements
     50,057       —       50,057  
Equipment
     65,058       63       64,995  
Furniture and fixtures
     21,153       —       21,153  
Motor vehicles
     39,188       —       39,188  
 
                  
 
     175,456       63       175,393  
Less accumulated depreciation
     (69,899 )     (5 )     (69,894 )
 
                  
 
     105,557       58       105,499  
 
                        
Intangibles and other assets:
                        
Investments in debt securities
     12,869       —       12,869  
Investments in marketable equity securities
     33,450       33,450       —  
Investments in non-marketable equity securities and loans
     52,985       52,185       800  
Investments in unconsolidated affiliates
     125,692       —       125,692  
Commercial rights and royalties
     122,961       122,961       —  
Accounts receivable — unbilled
     38,734       38,734       —  
Goodwill
     87,230       508       86,722  
Other identifiable intangibles, net
     227,204       3,492       223,712  
Deferred income taxes
     69,399       —       69,399  
Deposits and other assets
     37,898       2,909       34,989  
 
                  
 
     808,422       254,239       554,183  
 
                  
 
                        
Total assets
   $ 1,817,479     $ 269,099     $ 1,548,380  
 
                  

5

 

SEPTEMBER 30, 2005
CARVE-OUT BALANCE SHEET — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Liabilities, Shareholders’ Equity and Intercompany
                        
Current liabilities:
                        
Accounts payable
   $ 50,952     $ 4,083     $ 46,869  
Accrued expenses
     268,784       1,401       267,383  
Unearned income
     206,742       545       206,197  
Income taxes payable
     9,370       —       9,370  
Current portion of obligations held under capital leases
     13,736       —       13,736  
Current portion of long-term debt
     5,022       —       5,022  
Other current liabilities
     10,240       —       10,240  
Liabilities of discontinued operations
     2,947       2,947       —  
 
                  
Total current liabilities
     567,793       8,976       558,817  
 
                        
Long-term liabilities:
                        
Obligations held under capital leases, less current portion
     13,121       —       13,121  
Long-term debt, less current portion
     604,280       —       604,280  
Minority interest
     36,031       —       36,031  
Unearned income
     37,202       37,202       —  
Other liabilities
     15,825       1,002       14,823  
 
                  
 
     706,459       38,204       668,255  
 
                  
Total liabilities
     1,274,252       47,180       1,227,072  
 
                        
Shareholders’ equity and intercompany:
                        
Total shareholders’ equity and intercompany
     543,227       221,919       321,308  
 
                  
Total liabilities, shareholders’ equity and intercompany
   $ 1,817,479     $ 269,099     $ 1,548,380  
 
                  

6

 

TWELVE MONTHS ENDED SEPTEMBER 30, 2005
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Operating activities:
                        
Net (loss) income
   $ (5,452 )   $ (47,106 )   $ 41,654  
Loss (income) from discontinued operations, net of income taxes
     30,541       (801 )     31,342  
Loss (gain) from sale of discontinued operations, net of income taxes
     3,989       (620 )     4,609  
 
                  
Income (loss) from continuing operations
     29,078       (48,527 )     77,605  
 
                        
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
                        
Depreciation and amortization
     105,703       5,077       100,626  
Amortization expense of debt issuance costs
     6,801       —       6,801  
Amortization of commercial rights and royalties assets
     18,908       18,908       —  
Restructuring (payments) accrual and write-off of other assets, net
     6,002       —       6,002  
Impairment of long-lived assets
     6,633       —       6,633  
Loss on sale of property and equipment, net
     811       63       748  
Loss on investments, net
     4,604       4,604       —  
Provision for deferred income taxes
     (46,619 )     —       (46,619 )
Change in operating assets and liabilities:
                        
Accounts receivable and unbilled services
     (96,486 )     (1,561 )     (94,925 )
Prepaid expenses and other assets
     35,841       40,010       (4,169 )
Accounts payable and accrued expenses
     26,697       (3,966 )     30,663  
Unearned income
     36,603       4,782       31,821  
Income taxes payable and other liabilities
     (39,990 )     1,011       (41,001 )
Other
     3,428       81       3,347  
 
                  
Net cash provided by continuing operations
     98,014       20,482       77,532  
Net cash provided by discontinued operations
     17,178       57       17,121  
 
                  
Net cash provided by operating activities
     115,192       20,539       94,653  

7

 

TWELVE MONTHS ENDED SEPTEMBER 30, 2005
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Investing activities:
                        
Acquisition of property, equipment and software
     (37,302 )     (63 )     (37,239 )
Payment of transaction costs in Transaction
     (5,830 )     —       (5,830 )
Acquisition of businesses, net of cash acquired
     (14,011 )     (7,635 )     (6,376 )
Acquisition of commercial rights and royalties
     (60,944 )     (60,944 )     —  
Proceeds from disposal of discontinued operations
     124,000       —       124,000  
Expenses of disposal of discontinued operations
     (11,405 )     —       (11,405 )
Proceeds from disposition of property and equipment
     6,601       —       6,601  
Maturities of held-to-maturity investments
     710       —       710  
Purchase of available-for-sale investments
     (1,491 )     —       (1,491 )
Proceeds from sale of available-for-sale investments
     66       —       66  
Purchase of equity securities
     (15,534 )     (15,534 )     —  
Proceeds from sale of equity securities
     18,801       18,801       —  
Proceeds from other investments
     718       718       —  
Purchases of other investments
     (3,163 )     (3,163 )     —  
Other
     59       (487 )     546  
 
                  
Net cash provided by (used in) continuing operations
     1,275       (68,307 )     69,582  
Net cash (used in) provided by discontinued operations
     (13,209 )     (54 )     (13,155 )
 
                  
Net cash (used in) provided by investing activities
     (11,934 )     (68,361 )     56,427  
 
                        
Financing activities:
                        
Repayment of debt
     (158,284 )     —       (158,284 )
Principal payments on capital lease obligations
     (14,202 )     —       (14,202 )
Intercompany with parent companies
     (860 )     —       (860 )
Intercompany
     —       47,485       (47,485 )
 
                  
Net cash (used in) provided by continuing operations
     (173,346 )     47,485       (220,831 )
Net cash (used in) discontinued operations
     (18 )     0       (18 )
 
                  
Net cash (used in) provided by financing activities
     (173,364 )     47,485       (220,849 )
Effect of foreign currency exchange rate changes on cash
     921       (2 )     923  
 
                  
(Decrease) in cash and cash equivalents
     (69,185 )     (339 )     (68,846 )
Consolidated cash and cash equivalents at beginning of period
     548,684       635       548,049  
 
                  
Consolidated cash and cash equivalents at end of period
   $ 479,499     $ 296     $ 479,203  
 
                  
Cash and cash equivalents of discontinued operations
   $ 296     $ 296     $ —  
Cash and cash equivalents of continuing operations
   $ 479,203     $ —     $ 479,203  

8

 

DECEMBER 31, 2004
CARVE-OUT STATEMENT OF OPERATIONS — UNAUDITED
(in thousands)
                                 
            Subtract     Adjust        
    Consolidated     CR&R     Intercompany     Services  
Net revenues
   $ 1,604,977     $ 41,805     $ (65,688 )   $ 1,628,860  
Add: reimbursed service costs
     351,277       —       (6,289 )     357,566  
 
                        
Gross revenues
     1,956,254       41,805       (71,977 )     1,986,426  
 
                                
Costs, expenses and other:
                                
Costs of revenues
     1,411,874       128,566       (71,977 )     1,355,285  
Selling, general and administrative
     582,244       —       —       582,244  
Interest income
     (11,280 )     (4,102 )     —       (7,178 )
Interest expense
     69,896       765       —       69,131  
Other (income), net
     (5,626 )     44       —       (5,670 )
Restructuring
     5,682       —       —       5,682  
Impairments
     1,045       —       —       1,045  
Gain on sale of portion of an investment in a subsidiary
     (24,688 )     —       —       (24,688 )
Non-operating gain on change of interest transaction
     (10,030 )     —       —       (10,030 )
 
                        
 
     2,019,117       125,273       (71,977 )     1,965,821  
 
                        
 
                                
Income (loss) before income taxes
     (62,863 )     (83,468 )     —       20,605  
Income tax (benefit)
     (2,966 )     (29,214 )     —       26,248  
 
                        
Income (loss) before equity in (losses) earnings of unconsolidated affiliates and minority interests
     (59,897 )     (54,254 )     —       (5,643 )
Equity in (losses) earnings of unconsolidated affiliates
     (149 )     —       —       (149 )
Minority interests
     (1,095 )     —       —       (1,095 )
 
                        
 
                                
Income (loss) from continuing operations
     (61,141 )     (54,254 )     —       (6,887 )
 
                                
(Loss) income from discontinued operations, net of income taxes
     7,762       10,385       —       (2,623 )
 
                                
(Loss) gain from sale of discontinued operations, net of income taxes
     54,422       54,422       —       —  
 
                        
 
                                
Net (loss) income
   $ 1,043     $ 10,553     $ —     $ (9,510 )
 
                        

9

 

DECEMBER 31, 2004
CARVE-OUT BALANCE SHEET — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Assets
                        
Current assets:
                        
Cash and cash equivalents
   $ 534,453     $ —     $ 534,453  
Trade accounts receivable and unbilled services, net
     262,231       9,238       252,993  
Investments in debt securities
     569       —       569  
Prepaid expenses
     19,141       —       19,141  
Deferred income taxes
     28,626       —       28,626  
Other current assets and receivables
     22,863       725       22,138  
Assets of discontinued operations
     228,419       4,729       223,690  
 
                  
 
                        
Total current assets
     1,096,302       14,692       1,081,610  
 
                        
Property and equipment:
                        
Land, buildings and leasehold improvements
     51,654       —       51,654  
Equipment
     57,617       —       57,617  
Furniture and fixtures
     21,524       —       21,524  
Motor vehicles
     39,155       —       39,155  
 
                  
 
     169,950       —       169,950  
Less accumulated depreciation
     (49,072 )     —       (49,072 )
 
                  
 
     120,878       —       120,878  
 
                        
Intangibles and other assets:
                        
Investments in debt securities
     11,552       —       11,552  
Investments in marketable equity securities
     24,425       24,425       —  
Investments in non-marketable equity securities and loans
     56,441       55,690       751  
Investments in unconsolidated affiliates
     120,984       —       120,984  
Commercial rights and royalties
     138,543       138,543       —  
Accounts receivable — unbilled
     46,669       46,669       —  
Goodwill
     96,602       508       96,094  
Other identifiable intangibles, net
     270,651       8,882       261,769  
Deferred income taxes
     13,653       —       13,653  
Deposits and other assets
     48,922       5,499       43,423  
 
                  
 
     828,442       280,216       548,226  
 
                  
 
                        
Total assets
   $ 2,045,622     $ 294,908     $ 1,750,714  
 
                  

10

 

DECEMBER 31, 2004
CARVE-OUT BALANCE SHEET — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Liabilities, Shareholders’ Equity and Intercompany
                        
Current liabilities:
                        
Accounts payable
   $ 66,444     $ 3,306     $ 63,138  
Accrued expenses
     265,048       27,719       237,329  
Unearned income
     190,150       —       190,150  
Income taxes payable
     35,061       —       35,061  
Current portion of obligations held under capital leases
     14,888       —       14,888  
Current portion of long-term debt
     5,431       —       5,431  
Other current liabilities
     6,911       —       6,911  
Liabilities of discontinued operations
     32,771       4,074       28,697  
 
                  
Total current liabilities
     616,704       35,099       581,605  
 
                        
Long-term liabilities:
                        
Obligations held under capital leases, less current portion
     16,452       —       16,452  
Long-term debt, less current portion
     758,110       —       758,110  
Deferred income taxes
     29,516               29,516  
Minority interest
     36,848       —       36,848  
Other liabilities
     19,901       —       19,901  
 
                  
 
     860,827       —       860,827  
 
                  
Total liabilities
     1,477,531       35,099       1,442,432  
 
                        
Shareholders’ equity and intercompany:
                        
Total shareholders’ equity and intercompany
     568,091       259,809       308,282  
 
                  
Total liabilities, shareholders’ equity and intercompany
   $ 2,045,622     $ 294,908     $ 1,750,714  
 
                  

11

 

DECEMBER 31, 2004
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Operating activities:
                        
Net income (loss)
   $ 1,043     $ 10,553     $ (9,510 )
(Income) loss from discontinued operations, net of income taxes
     (7,762 )     (10,385 )     2,623  
(Gain) from sale of discontinued operations, net of income taxes
     (54,422 )     (54,422 )     —  
 
                  
(Loss) income from continuing operations
     (61,141 )     (54,254 )     (6,887 )
 
                        
Adjustments to reconcile income (loss) from continuing operations to net cash (used in) provided by operating activities:
                        
Depreciation and amortization
     110,449       3,412       107,037  
Amortization expense of debt issuance costs
     3,565       —       3,565  
Amortization of commercial rights and royalties assets
     16,985       16,985       —  
Restructuring (payments) accrual and write-off of other assets, net
     (3,351 )     —       (3,351 )
Impairment of long-lived assets
     —       —       —  
Gain on sale of property and equipment, net
     (7,186 )     —       (7,186 )
Gain from sale of certain assets
     (5,967 )     —       (5,967 )
Gain from sale of a portion of an investment in a subsidiary
     (24,688 )     —       (24,688 )
Non-operating gain on change of interest transaction
     (10,030 )     —       (10,030 )
Loss on investments, net
     8,956       8,956       —  
Provision for deferred income taxes
     10,652       —       10,652  
Change in operating assets and liabilities:
                        
Accounts receivable and unbilled services
     (52,291 )     2,178       (54,469 )
Prepaid expenses and other assets
     (20,098 )     (20,406 )     308  
Accounts payable and accrued expenses
     35,570       1,885       33,685  
Unearned income
     5,893       (5,751 )     11,644  
Income taxes payable and other liabilities
     (26,481 )     (4,482 )     (21,999 )
Other
     615       —       615  
 
                  
Net cash (used in) provided by continuing operations
     (18,548 )     (51,477 )     32,929  
Net cash provided by (used in) discontinued operations
     10,178       10,867       (689 )
 
                  
Net cash (used in) provided by operating activities
     (8,370 )     (40,610 )     32,240  

12

 

DECEMBER 31, 2004
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Investing activities:
                        
Acquisition of property, equipment and software
     (41,459 )     —       (41,459 )
Payment of transaction costs in Transaction
     (20,367 )     —       (20,367 )
Acquisition of businesses acquired, net of cash acquired
     (2,299 )     —       (2,299 )
Acquisition of commercial rights and royalties
     (53,000 )     (53,000 )     —  
Proceeds from disposal of discontinued operations
     188,329       188,329       —  
Expenses of disposal of discontinued operations
     (18,027 )     (18,027 )     —  
Proceeds from sale of certain assets
     9,218       —       9,218  
Proceeds from sale of minority interest in subsidiary, net of expenses
     35,963       —       35,963  
Proceeds from disposition of property and equipment
     6,732       —       6,732  
Maturities of held-to-maturity investments
     693       —       693  
Purchase of available-for-sale investments
     (1,042 )     —       (1,042 )
Purchase of equity securities
     (13,070 )     (13,070 )     —  
Proceeds from sale of equity securities
     39,982       39,982       —  
Purchase of other investments
     (1,838 )     (1,838 )     —  
Proceeds from other investments
     667       —       667  
Other
     250       1       249  
 
                  
Net cash provided by (used in) continuing operations
     130,732       142,377       (11,645 )
Net cash (used in) provided by discontinued operations
     (8,877 )     (95 )     (8,782 )
 
                  
Net cash (used in) provided by investing activities
     121,855       142,282       (20,427 )
 
                        
Financing activities:
                        
Repayment of debt
     (5,763 )     —       (5,763 )
Principal payments on capital lease obligations
     (13,061 )     —       (13,061 )
Intercompany with parent companies
     (985 )     —       (985 )
Proceeds from change in interest transaction
     41,773       —       41,773  
Intercompany
     —       (102,503 )     102,503  
 
                  
Net cash (used in) provided by continuing operations
     21,964       (102,503 )     124,467  
Net cash (used in) discontinued operations
     (22 )     (10 )     (12 )
 
                  
Net cash (used in) provided by financing activities
     21,942       (102,513 )     124,455  
Effect of foreign currency exchange rate changes on cash
     25,091       204       24,887  
 
                  
(Increase) decrease in cash and cash equivalents
     160,518       (637 )     161,155  
Consolidated cash and cash equivalents at beginning of period
     375,163       1,865       373,298  
 
                  
Consolidated cash and cash equivalents at end of period
   $ 535,681     $ 1,228     $ 534,453  
 
                  
Cash and cash equivalents of discontinued operations
   $ 1,228     $ 1,228     $ —  
Cash and cash equivalents of continuing operations
   $ 534,453     $ —     $ 534,453  

13

 

DECEMBER 31, 2003
CARVE-OUT STATEMENT OF OPERATIONS — UNAUDITED
(in thousands)
                                 
            Subtract     Adjust        
    Consolidated     CR&R     Intercompany     Services  
Net revenues
   $ 1,472,637     $ 127,144     $ (40,235 )   $ 1,385,728  
Add: reimbursed service costs
     361,656       —       —       361,656  
 
                        
Gross revenues
     1,834,293       127,144       (40,235 )     1,747,384  
 
                                
Costs, expenses and other:
                                
Costs of revenues
     1,228,390       86,494       (40,235 )     1,182,131  
Selling, general and administrative
     501,114       —       —       501,114  
Interest income
     (16,860 )     (4,526 )     —       (12,334 )
Interest expense
     22,368       697       —       21,671  
Other (income) expense, net
     (8,010 )     (5,281 )     —       (2,729 )
Restructuring
     4,765       —       —       4,765  
Transaction expenses, net
     48,676       —       —       48,676  
 
                        
 
     1,780,443       77,384       (40,235 )     1,743,294  
 
                        
Income before income taxes
     53,850       49,760       —       4,090  
Income tax expense
     38,337       17,416       —       20,921  
 
                        
Income (loss) before minority interests and equity in earnings of unconsolidated affiliates
     15,513       32,344       —       (16,831 )
Equity in (losses) earnings of unconsolidated affiliates
     5       —       —       5  
Minority interests
     50       —       —       50  
 
                        
Income (loss) from continuing operations
     15,568       32,344       —       (16,776 )
Income from discontinued operations, net of income taxes
     14,166       9,590       —       4,576  
 
                        
Net income (loss)
   $ 29,734     $ 41,934     $ —     $ (12,200 )
 
                        

14

 

DECEMBER 31, 2003
CARVE-OUT BALANCE SHEET — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Assets
                        
Current assets:
                        
Cash and cash equivalents
   $ 373,298     $ —     $ 373,298  
Restricted cash
     —       —       —  
Trade accounts receivable and unbilled services, net
     197,805       10,687       187,118  
Investments in debt securities
     611       —       611  
Prepaid expenses
     19,329       —       19,329  
Deferred income taxes
     24,105       —       24,105  
Other current assets and receivables
     24,315       1,601       22,714  
Assets of discontinued operations
     322,899       91,168       231,731  
 
                  
 
                        
Total current assets
     962,362       103,456       858,906  
 
                        
Property and equipment:
                        
Land, buildings and leasehold improvements
     44,665       —       44,665  
Equipment
     37,011       —       37,011  
Furniture and fixtures
     17,659       —       17,659  
Motor vehicles
     25,274       —       25,274  
 
                  
 
     124,609       —       124,609  
Less accumulated depreciation
     (16,332 )     —       (16,332 )
 
                  
 
     108,277       —       108,277  
 
                        
Intangibles and other assets:
                        
Investments in debt securities
     10,426       —       10,426  
Investments in marketable equity securities
     58,294       58,294       —  
Investments in non-marketable equity securities and loans
     48,556       47,208       1,348  
Investments in unconsolidated affiliates
     121,176       —       121,176  
Commercial rights and royalties
     12,529       12,529       —  
Advances to customer
     70,000       70,000       —  
Accounts receivable — unbilled
     40,107       40,107       —  
Goodwill
     160,849       1,741       159,108  
Other identifiable intangibles, net
     331,309       13,328       317,981  
Deferred income taxes
     4,093       —       4,093  
Deposits and other assets
     51,784       6,810       44,974  
 
                  
 
     909,123       250,017       659,106  
 
                  
 
                        
Total assets
   $ 1,979,762     $ 353,473     $ 1,626,289  
 
                  

15

 

December 31, 2003
CARVE-OUT BALANCE SHEET — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Liabilities, Shareholders’ Equity and Intercompany
                        
Current liabilities:
                        
Accounts payable
   $ 54,710     $ 2,422     $ 52,288  
Accrued expenses
     241,028       6,237       234,791  
Unearned income
     175,564       337       175,227  
Income taxes payable
     24,560       —       24,560  
Current portion of obligations held under capital leases
     15,087       —       15,087  
Current portion of long-term debt
     5,583       —       5,583  
Other current liabilities
     3,169       —       3,169  
Liabilities of discontinued operations
     54,529       9,193       45,336  
 
                  
Total current liabilities
     574,230       18,189       556,041  
 
                        
Long-term liabilities:
                        
Obligations held under capital leases, less current portion
     10,230       —       10,230  
Long-term debt, less current portion
     760,101       —       760,101  
Deferred income taxes
     74,756       —       74,756  
Other liabilities
     25,347       1,507       23,840  
 
                  
 
     870,434       1,507       868,927  
 
                  
Total liabilities
     1,444,664       19,696       1,424,968  
 
                        
Shareholders’ equity and intercompany:
                        
Total shareholders’ equity and intercompany
     535,098       333,777       201,321  
 
                  
Total liabilities, shareholders’ equity and intercompany
   $ 1,979,762     $ 353,473     $ 1,626,289  
 
                  

16

 

DECEMBER 31, 2003
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Operating activities:
                        
Net income (loss)
   $ 29,734     $ 41,934     $ (12,200 )
(Income) from discontinued operations, net of income taxes
     (14,166 )     (9,590 )     (4,576 )
 
                  
Income (loss) from continuing operations
     15,568       32,344       (16,776 )
 
                        
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
                        
Depreciation and amortization
     81,124       3,162       77,962  
Amortization expense of debt issuance costs
     878       —       878  
Amortization of commercial rights and royalties assets
     3,508       3,508       —  
Restructuring (payments) accrual and write-off of other assets, net
     (2,366 )     —       (2,366 )
Transaction costs
     44,057       —       44,057  
Gain on sale of property and equipment, net
     (536 )     —       (536 )
(Gain) loss on investments, net
     (31,037 )     (31,658 )     621  
Provision for deferred income taxes
     16,721       —       16,721  
Change in operating assets and liabilities:
                        
Accounts receivable and unbilled services
     137,468       (3,884 )     141,352  
Prepaid expenses and other assets
     57,524       23,521       34,003  
Accounts payable and accrued expenses
     2,128       (836 )     2,964  
Unearned income
     (68,317 )     286       (68,603 )
Income taxes payable and other liabilities
     (13,069 )     (3,040 )     (10,029 )
Other
     118       (485 )     603  
 
                  
Net cash provided by continuing operations
     243,769       22,918       220,851  
Net cash provided by discontinued operations
     31,715       14,602       17,113  
 
                  
Net cash provided by operating activities
     275,484       37,520       237,964  

17

 

DECEMBER 31, 2003
CARVE-OUT STATEMENT OF CASH FLOWS — UNAUDITED (Continued)
(in thousands)
                         
            Subtract        
    Consolidated     CR&R     Services  
Investing activities:
                        
Acquisition of property, equipment and software
     (38,783 )     —       (38,783 )
Repurchase of common stock in Transaction
     (1,617,567 )     —       (1,617,567 )
Payment of transaction costs in Transaction
     (67,630 )     —       (67,630 )
Acquisition of businesses, net of cash acquired
     (4,817 )     (1,882 )     (2,935 )
Advances to customer
     (3,739 )     (3,739 )     —  
Acquisition of commercial rights and royalties
     (20,710 )     (20,710 )     —  
Proceeds from disposition of property and equipment
     8,127       —       8,127  
Maturities of held-to-maturity investments
     570       —       570  
Purchase of available-for-sale investments
     (2,565 )     —       (2,565 )
Proceeds from sale of available-for-sale investments
     26,375       —       26,375  
Purchase of equity securities
     (16,545 )     (16,545 )     —  
Proceeds from sale of equity securities
     69,559       69,220       339  
Purchase of other investments
     (305 )     (124 )     (181 )
 
                  
Net cash (used in) provided by continuing operations
     (1,668,030 )     26,220       (1,694,250 )
Net cash (used in) discontinued operations
     (16,445 )     (1,364 )     (15,081 )
 
                  
Net cash (used in) provided by investing activities
     (1,684,475 )     24,856       (1,709,331 )
 
                        
Financing activities:
                        
Proceeds from issuance of debt, net of costs
     733,433       —       733,433  
Capital contribution in Transaction
     390,549       —       390,549  
Repayment of debt
     (4,400 )     —       (4,400 )
Principal payments on capital lease obligations
     (14,512 )     —       (14,512 )
Issuance of common stock
     7,042       —       7,042  
Intercompany
     —       (59,742 )     59,742  
 
                  
Net cash provided by (used in) continuing operations
     1,112,112       (59,742 )     1,171,854  
Net cash (used in) discontinued operations
     46     58       (12 )
 
                  
Net cash provided by (used in) financing activities
     1,112,158       (59,684 )     1,171,842  
Effect of foreign currency exchange rate changes on cash
     27,712       (856 )     28,568  
 
                  
(Decrease) increase in cash and cash equivalents
     (269,121 )     1,836       (270,957 )
Consolidated cash and cash equivalents at beginning of period
     644,284       29       644,255  
 
                  
Consolidated cash and cash equivalents at end of period
   $ 375,163     $ 1,865     $ 373,298  
 
                  
Cash and cash equivalents of discontinued operations
   $ 1,865     $ 1,865     $ —  
Cash and cash equivalents of continuing operations
   $ 373,298     $ —     $ 373,298  

18

 

     In accordance with GAAP the Company’s predecessor results have not been aggregated with its successor results and, accordingly, the filed financial statements do not show results of operations or cash flows for the twelve months ended December 31, 2003. However, in order to facilitate an understanding of the results of operations for the twelve months ended December 31, 2003, the Company presents its predecessor results and its successor results on a combined basis. The combined results of operations are non-GAAP financial measures and should not be used in isolation or as a substitution for the predecessor and successor results.
     Below is a reconciliation of the combined results for the year ended December 31, 2003 (in thousands):
                         
    September 26, 2003     January 1, 2003     Year ended  
    through     through     December 31,  
    December 31, 2003     September 25, 2003     2003  
    Successor     Predecessor     Combined  
 
                        
Net revenues
   $ 389,004     $ 1,083,633     $ 1,472,637  
Add: reimbursed service costs
     94,960       266,696       361,656  
 
                  
Gross revenues
     483,964       1,350,329       1,834,293  
 
                        
Costs, expenses and other:
                        
Costs of revenues
     332,581       895,809       1,228,390  
Selling, general and administrative
     141,123       359,991       501,114  
Interest income
     (4,751 )     (12,109 )     (16,860 )
Interest expense
     20,640       1,728       22,368  
Other (income) expense, net
     (2,568 )     (5,442 )     (8,010 )
Restructuring
     —       4,765       4,765  
Transaction
     —       48,676       48,676  
 
                  
 
     487,025       1,293,418       1,780,443  
 
                  
 
(Loss) income before income taxes
     (3,061 )     56,911       53,850  
Income tax expense
     10,115       28,222       38,337  
 
                  
 
                        
(Loss) income before minority interests and equity in (losses) earnings of unconsolidated affiliates
     (13,176 )     28,689       15,513  
 
                        
Equity in earnings (losses) of unconsolidated affiliates
     13       (8 )     5  
Minority interests
     4       46       50  
 
                  
 
                        
(Loss) income from continuing operations
     (13,159 )     28,727       15,568  
 
                        
Income from discontinued operation
     5,732       8,434       14,166  
 
                  
Net (loss) income
   $ (7,427 )   $ 37,161     $ 29,734  
 
                  

19

 

                         
    September 26, 2003     January 1, 2003        
    through     through     Year ended  
    December 31,     September 25,     December 31,  
    2003     2003     2003  
    Successor     Predecessor     Combined  
Operating activities:
                        
Net (loss) income
   $ (7,427 )   $ 37,161     $ 29,734  
(Income) from discontinued operations, net of income taxes
     (5,732 )     (8,434 )     (14,166 )
Loss (gain) from sale of discontinued operations, net of income taxes
     —       —       —  
 
                  
(Loss) income from continuing operations
     (13,159 )     28,727       15,568  
 
                        
Adjustments to reconcile (loss) income from continuing operations to net cash (used in) provided by operating activities:
                        
Depreciation and amortization
     31,224       49,900       81,124  
Amortization expense of debt issuance costs
     878       —       878  
Amortization of commercial rights and royalties assets
     1,285       2,223       3,508  
Restructuring (payments) accrual and write-off of other assets, net
     (1,942 )     (424 )     (2,366 )
Transaction costs
     —       44,057       44,057  
Loss (gain) on sale of property and equipment, net
     (325 )     (211 )     (536 )
Loss (gain) on investments, net
     (2,952 )     (28,085 )     (31,037 )
Provision for deferred income taxes
     750       15,971       16,721  
Change in operating assets and liabilities:
                        
Accounts receivable and unbilled services
     20,868       116,600       137,468  
Prepaid expenses and other assets
     13,950       43,574       57,524  
Accounts payable and accrued expenses
     14,053       (11,925 )     2,128  
Unearned income
     17,399       (85,716 )     (68,317 )
Income taxes payable and other liabilities
     4,847       (17,916 )     (13,069 )
Other
     (168 )     286       118  
 
                  
Net cash provided by continuing operations
     86,708       157,061       243,769  
Net cash provided by discontinued operations
     18,907       12,808       31,715  
 
                  
Net cash provided by operating activities
     105,615       169,869       275,484  

20

 

                         
    September 26, 2003     January 1, 2003        
    through     through     Year ended  
    December 31,     September 25,     December 31,  
    2003     2003     2003  
    Successor     Predecessor     Combined  
Investing activities:
                        
Acquisition of property, equipment and software
   $ (11,225 )   $ (27,558 )   $ (38,783 )
Repurchase of common stock in Transaction
     (1,617,567 )     —       (1,617,567 )
Payment of transaction costs in Transaction
     (64,734 )     (2,896 )     (67,630 )
Acquisition of businesses, net of cash acquired
     (3,363 )     (1,454 )     (4,817 )
Advances to customer
     —       (3,739 )     (3,739 )
Acquisition of commercial rights and royalties
     (3,000 )     (17,710 )     (20,710 )
Proceeds from disposition of property and equipment
     1,951       6,176       8,127  
Maturities of held-to-maturity investments
     325       245       570  
Purchase of available-for-sale investments
     (1,212 )     (1,353 )     (2,565 )
Proceeds from sale of available-for-sale investments
     —       26,375       26,375  
Purchase of equity securities
     (5,900 )     (10,645 )     (16,545 )
Proceeds from sale of equity securities
     7,633       61,926       69,559  
Purchase of other investments
     (120 )     (185 )     (305 )
Other
     —       —       —  
 
                  
Net cash (used in) provided by continuing operations
     (1,697,212 )     29,182       (1,668,030 )
Net cash (used in) provided by discontinued operations
     (3,659 )     (12,786 )     (16,445 )
 
                  
Net cash (used in) provided by investing activities
     (1,700,871 )     16,396       (1,684,475 )
 
                        
Financing activities:
                        
Proceeds from issuance of debt, net of costs
     733,433       —       733,433  
Capital contribution in Transaction
     390,549       —       390,549  
Repayment of debt
     (2,568 )     (1,832 )     (4,400 )
Principal payments on capital lease obligations
     (3,103 )     (11,409 )     (14,512 )
Issuance of common stock
     —       7,042       7,042  
Intercompany with parent companies
     —       —       —  
 
                  
Net cash provided by (used in) continuing operations
     1,118,311       (6,199 )     1,112,112  
Net cash provided by (used in) discontinued operations
     24       22       46  
 
                  
Net cash provided by (used in) financing activities
     1,118,335       (6,177 )     1,112,158  
Effect of foreign currency exchange rate changes on cash
     9,788       17,924       27,712  
 
                  
(Decrease) increase in cash and cash equivalents
     (467,133 )     198,012       (269,121 )
Consolidated cash and cash equivalents at beginning of period
     842,296       644,284       644,284  
 
                  
Consolidated cash and cash equivalents at end of period
   $ 375,163     $ 842,296     $ 375,163  
 
                  
Cash and cash equivalents of discontinued operations
   $ 1,865     $ 280     $ 1,865  
 
                  
Cash and cash equivalents of continuing operations
   $ 373,298     $ 842,016     $ 373,298  
 
                  

21

 

     Services Net Revenue and Operational EBITDA
     The following table presents the Company’s operations by reportable segment, with Product Development and Commercialization summed to equal Services. The Company is managed through three reportable segments, namely, the Product Development Group, the Commercial Services Group, and the PharmaBio Development Group. Management has distinguished these segments based on the normal operations of the Company. The Product Development Group is primarily responsible for all phases of clinical research and outcomes research consulting. The Commercial Services Group is primarily responsible for sales force deployment and strategic marketing services. The PharmaBio Development Group is primarily responsible for facilitating non-traditional customer alliances and its results consist primarily of product revenues, royalties and commissions and investment revenues relating to the financial arrangements with customers and other third parties.
     In August 2004, the Company completed its previously announced sale of certain assets related to its Bioglan business. The results of operations for Bioglan have been separately reported as a discontinued operation and are no longer included in the PharmaBio Development Group. In September 2005, the Company completed its previously announced sale of its EDP Business. The results of operations for the EDP Business have been separately reported as a discontinued operation and are no longer included in the Product Development Group. In December 2005, the Company completed the sale of its Pharmaplan business. The results of operations for Pharmaplan have been reported as a discontinued operation and are no longer included in the Pharmabio Development Group. All periods presented herein reflect Pharmaplan, the EDP Business and Bioglan as discontinued operations.
     The Company measures segment profitability based on Operational EBITDA. Operational EBITDA is defined as gross revenues less costs of revenues (except for the exclusion of depreciation and amortization included in costs of revenues) and selling, general and administrative expenses. When the Company enters into strategic agreements whereby its Commercial Services or Product Development Groups provide services to customers of the PharmaBio Development Group, service revenues are presented based upon market rates and are eliminated in consolidation. Intersegment revenues have been eliminated (in thousands):

22

 

Twelve months ended September 30, 2005
                                                 
    Product                     PharmaBio             Quintiles  
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 1,100,597     $ 647,529     $ 1,748,126       —       —     $ 1,748,126  
Intersegment
     4,149       95,919       100,068       —       (100,068 )     —  
 
                                    
Total net services
     1,104,746       743,448       1,848,194       —       (100,068 )     1,748,126  
 
                                                
Commercial rights and royalties
     —       —       —       107,320       —       107,320  
 
                                                
Investment
     —       —       —       (5,267 )     —       (5,267 )
 
                                    
Total net revenues
     1,104,746       743,448       1,848,194       102,053       (100,068 )     1,850,179  
Reimbursed service costs
     414,602       69,529       484,131       —       (7,056 )     477,075  
 
                                    
Gross revenues
   $ 1,519,348     $ 812,977     $ 2,332,325     $ 102,053     $ (107,124 )   $ 2,327,254  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 187,711     $ 69,128     $ 256,839     $ (73,856 )   $ —     $ 182,983  
 
                                    
Year Ended December 31, 2004
                                                 
    Product                     PharmaBio             Quintiles  
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 960,502     $ 602,670     $ 1,563,172     $ —     $ —     $ 1,563,172  
Intersegment
     —       65,687       65,687       —       (65,687 )     —  
 
                                    
Total net services
     960,502       668,357       1,628,859       —       (65,687 )     1,563,172  
 
                                                
Commercial rights and royalties
     —       —       —       51,425       —       51,425  
 
                                                
Investment
     —       —       —       (9,620 )     —       (9,620 )
 
                                    
Total net revenues
     960,502       668,357       1,628,859       41,805       (65,687 )     1,604,977  
Reimbursed service costs
     296,482       61,084       357,566       —       (6,289 )     351,277  
 
                                    
Gross revenues
   $ 1,256,984     $ 729,441     $ 1,986,425     $ 41,805     $ (71,976 )   $ 1,956,254  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 112,379     $ 43,556     $ 155,935     $ (83,349 )   $ —     $ 72,856  
 
                                    
Twelve Months Ended September 30, 2004
                                                 
    Product                     PharmaBio             Quintiles  
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 911,352     $ 568,047     $ 1,479,399     $ —     $ —     $ 1,479,399  
Intersegment
     —       51,522       51,522       —       (51,522 )     —  
 
                                    
Total net services
     911,352       619,569       1,530,921       —       (51,522 )     1,479,399  
 
                                                
Commercial rights and royalties
     —       —       —       54,601       —       54,601  
 
                                                
Investment
     —       —       —       (3,757 )     —       (3,757 )
 
                                    
Total net revenues
     911,352       619,569       1,530,921       50,844       (51,522 )     1,530,243  
Reimbursed service costs
     283,239       62,905       346,144       —       (2,978 )     343,166  
 
                                    
Gross revenues
   $ 1,194,591     $ 682,474     $ 1,877,065     $ 50,844     $ (54,500 )   $ 1,873,409  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 99,050     $ 34,606     $ 133,656     $ (52,004 )   $ —     $ 81,652  
 
                                    

23

 

Year Ended December 31, 2003
                                                 
    Product                     PharmaBio             Quintiles  
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 852,514     $ 492,978     $ 1,345,492     $ —     $ —     $ 1,345,492  
Intersegment
     —       40,235       40,235       —       (40,235 )     —  
 
                                    
Total net services
     852,514       533,213       1,385,727       —       (40,235 )     1,345,492  
 
                                                
Commercial rights and royalties
     —       —       —       96,212       —       96,212  
 
Investment
     —       —       —       30,933       —       30,933  
 
                                    
Total net revenues
     852,514       533,213       1,385,727       127,145       (40,235 )     1,472,637  
Reimbursed service costs
     300,302       61,354       361,656       —       —       361,656  
 
                                    
Gross revenues
   $ 1,152,816     $ 594,567     $ 1,747,383     $ 127,145     $ (40,235 )   $ 1,834,293  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 119,472     $ 22,629     $ 142,101     $ 43,812     $ —     $ 185,913  
 
                                    
     In accordance with GAAP the Company’s predecessor results have not been aggregated with its successor results and, accordingly, the filed financial statements do not show results of operations or cash flows for the twelve months ended December 31, 2003. However, in order to facilitate an understanding of the results of operations for the twelve months ended December 31, 2003, the Company presents its predecessor results and its successor results on a combined basis. The combined results of operations are non-GAAP financial measures and should not be used in isolation or as a substitution for the predecessor and successor results.
     Below is a reconciliation of the combined results for the year ended December 31, 2003 (in thousands):
September 26, 2003 through December 31, 2003 — Successor
                                                 
    Product                     PharmaBio             Quintiles  
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 229,904     $ 130,705     $ 360,609     $ —     $ —     $ 360,609  
Intersegment
     —       10,458       10,458       —       (10,458 )     —  
 
                                    
Total net services
     229,904       141,163       371,067       —       (10,458 )     360,609  
 
                                                
Commercial rights and royalties
     —       —       —       25,635       —       25,635  
 
                                                
Investment
     —       —       —       2,760       —       2,760  
 
                                    
Total net revenues
     229,904       141,163       371,067       28,395       (10,458 )     389,004  
Reimbursed service costs
     76,594       18,366       94,960       —       —       94,960  
 
                                    
Gross revenues
   $ 306,498     $ 159,529     $ 466,027     $ 28,395     $ (10,458 )   $ 483,964  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 30,122     $ 6,918     $ 37,040     $ 4,444     $ —     $ 41,484  
 
                                    

24

 

January 1, 2003 through September 25, 2003 — Predecessor
                                                 
    Product                     PharmaBio              
    Development     Commercial Services     Services     Development     Eliminations     Consolidated  
Service revenues:
                                                
External
   $ 622,610     $ 362,273     $ 984,883     $ —     $ —     $ 984,883  
Intersegment
     —       29,777       29,777       —       (29,777 )     —  
 
                                    
Total net services
     622,610       392,050       1,014,660       —       (29,777 )     984,883  
 
                                                
Commercial rights and royalties
     —       —       —       70,577       —       70,577  
 
                                                
Investment
     —       —       —       28,173       —       28,173  
 
                                    
Total net revenues
     622,610       392,050       1,014,660       98,750       (29,777 )     1,083,633  
Reimbursed service costs
     223,708       42,988       266,696       —       —       266,696  
 
                                    
Gross revenues
   $ 846,318     $ 435,038     $ 1,281,356     $ 98,750     $ (29,777 )   $ 1,350,329  
 
                                    
 
                                                
Segment Operational EBITDA
   $ 89,350     $ 15,711     $ 105,061     $ 39,368     $ —     $ 144,429  
 
                                    
     Services Quarterly Financial Information (in millions except DSO)
                                                                                                                   
 
        2003       2004       2005    
        1Q       2Q       3Q       4Q       1Q       2Q       3Q       4Q       1Q       2Q       3Q    
 
Services net revenues
     $ 339       $ 352       $ 340       $ 354       $ 372       $ 387       $ 418       $ 452       $ 451       $ 482       $ 463    
 
Services operational EBITDA
     $ 34       $ 39       $ 36       $ 34       $ 26       $ 28       $ 46       $ 56       $ 57       $ 70       $ 74    
 
Services contribution
     $ 153       $ 163       $ 158       $ 170       $ 168       $ 172       $ 193       $ 205       $ 198       $ 224       $ 210    
 
Services SG&A
     $ 119       $ 124       $ 122       $ 136       $ 142       $ 145       $ 147         149       $ 141       $ 154       $ 137    
 
Services DSO — in days
       15         16         11         2         10         13         12         11         15         17         19    
 

25

 

     Services Net Revenue by Geography and Line of Business
     For the first nine months of 2005, approximately 34.3% of the Company’s net revenue was attributed to operations in the United States and 65.7% to operations outside the United States. Approximately 49.1%, 49.9%and 47.8% of its net revenue was attributed to its clinical development services in the first nine months of 2005, and the year ended December 31, 2004 and 2003, respectively; approximately 10.2%, 10.0% and 10.1% of the Company’s net revenue was attributed to its clinical technology services in the first nine months of 2005, and the year ended December 31, 2004 and 2003, respectively, and approximately 29.3%, 31.5% and 27.3% of its net revenue was attributed to commercialization services in the first nine months of 2005, and the year ended December 31, 2004 and 2003, respectively. Neither its medical communications and consulting services, nor its commercial rights and royalties accounted for more than 10% of its net revenue in any of these periods.
     Backlog and Net New Business Wins
     The Company reports backlog based on anticipated net revenue from uncompleted projects that its customers have authorized and the Company believes to be firm. Once work begins on a project, net revenue is recognized over the duration of the project. The backlog at December 31, 2005 and 2004 includes approximately $285 million and $357 million, respectively, of backlog related to services contracted from the Company’s service groups, primarily commercial services, in connection with the strategic alliances forged by its PharmaBio Development Group. Of the backlog amounts between the Company’s service groups and its PharmBio Development Group, $252 million and $314 million represents backlog associated with the Company’s Cymbalta® contract.
     Net new business represents anticipated net revenue from contracts which the Company entered into during the period and adjusted for contracts that were canceled during the period. Approximately $32.9 million and $388 million of net wins on internal service contracts are included in net new business wins for the years ended December 31, 2004 and 2005, respectively. The $388.0 million of net wins of internal service contracts for 2004 includes $357 million of new business associated with the Company’s Cymbalta® contract.
     The following analysis details the Company’s net new business wins and backlog trends for 2002, 2003, 2004 and 2005. Amounts are in millions and at fixed rates. At actual rates, net new business wins are $2,006 for the year ended December 31, 2005 and backlog is $2,614 at December 31, 2005.
                                                                                     
 
        2002       2003       2004       2005    
        1H       2H       1H       2H       1H       2H       1H       2H    
 
Total Net New Business Wins
     $ 511       $ 601       $ 669       $ 764       $ 857       $ 1,282       $ 1,025       $ 1,040    
 
Product Development
     $ 291       $ 370       $ 417       $ 510       $ 585       $ 549       $ 645       $ 803    
 
Commercialization
     $ 219       $ 230       $ 252       $ 254       $ 271       $ 733       $ 379       $ 237    
 
Cymbalta®
       —         —         —         —         —       $ 357         —         —    
 
Total Backlog
     $ 1,660       $ 1,616       $ 1,657       $ 1,782       $ 2,054       $ 2,493       $ 2,675       $ 2,744    
 
Cymbalta® backlog
       —         —         —         —         —       $ 314       $ 282       $ 252    
 

26

 

Item 9.01 Financial Statements and Exhibits.
(d)      Exhibits
     
Exhibit No.   Description of Exhibit
 
    
99.01
  Press release of Quintiles Transnational Corp. dated March 3, 2006*
 
    
99.02
  Press release of Quintiles Transnational Corp. dated March 6, 2006*
 
*Previously filed.

27

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized.
         
 
  QUINTILES TRANSNATIONAL CORP.
 
        
 
  By:   /s/ John D. Ratliff
 
       
 
      John D. Ratliff
Executive Vice President, Chief
Financial Officer
 
        
Dated: March 8, 2006
        

28

 

EXHIBIT INDEX
     
Exhibit No.   Description of Exhibit
 
    
99.01
  Press Release of Quintiles Transnational Corp. dated March 3, 2006*
 
    
99.02
  Press release of Quintiles Transnational Corp. dated March 6, 2006*
 
*Previously filed.

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