-----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, SoBlbpv7fCwi4HjZzDwjbtVRCHGi2LhEGNOI2Oj2gGHNl0xWIPmGjpex+M7DldiQ nG/tPXxKGiSCRxBiyigCag== 0000950144-97-005812.txt : 19970520 0000950144-97-005812.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950144-97-005812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23520 FILM NUMBER: 97606179 BUSINESS ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: STE 300 CITY: DURHAM STATE: NC ZIP: 27703-8411 BUSINESS PHONE: 9199412000 MAIL ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: STE 300 CITY: DURHAM STATE: NC ZIP: 27703-8411 10-Q 1 QUINTILES TRANSNATIONAL CORP. 10-Q 3-31-97 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997 Commission file number 340-23520 QUINTILES TRANSNATIONAL CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) North Carolina 56-1714315 - ------------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4709 Creekstone Dr., Suite 300 Durham, NC 27703-8411 - ------------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) (919) 941-2000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of Common Stock, $.01 par value, outstanding as of April 30, 1997, was 34,842,729. 1 2 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Index Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - March 31, 1997 and December 31, 1996 3 Condensed consolidated statements of income - Three months ended March 31, 1997 and 1996 4 Condensed consolidated statements of cash flows - Three months ended March 31, 1997 and 1996 5 Notes to condensed consolidated financial statements - March 31, 1997 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information 11 Signatures 13 Exhibit Index 14 2 3 PART I. FINANCIAL INFORMATION Item 1 - Financial Statements QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31 1997 1996 --------- --------- (Unaudited) (Note 1) (In thousands) ASSETS Current assets: Cash and cash equivalents $ 128,894 $ 62,032 Accounts receivable and unbilled services 189,126 178,579 Investments 32,666 37,623 Other 15,637 12,656 --------- --------- Total current assets 366,323 290,890 Property and equipment 194,433 178,466 Less accumulated depreciation 60,581 54,286 --------- --------- 133,852 124,180 Non-current assets: Investments 26,214 25,083 Intangibles 70,913 66,804 Deferred income taxes 58,832 -- Deposits and other 11,272 11,048 --------- --------- Total non-current assets 167,231 102,935 --------- --------- Total assets $ 667,406 $ 518,005 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 88,115 85,366 Credit arrangements, current 17,005 22,614 Unearned income 76,481 77,825 Income taxes and other 11,236 9,077 --------- --------- Total current liabilities 192,837 194,882 Long-term liabilities: Credit arrangements, less current portion 152,673 146,869 Long-term obligation 21,112 21,823 Deferred income taxes and other 4,492 10,083 --------- --------- 178,277 178,775 --------- --------- Total liabilities 371,114 373,657 Shareholders' equity: Common Stock and additional paid-in capital, 34,794,633 and 33,149,962 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively 289,283 139,221 Retained earnings 16,089 5,702 Other equity (9,080) (575) --------- --------- Total shareholders' equity 296,292 144,348 --------- --------- Total liabilities and shareholders' equity $ 667,406 $ 518,005 ========= =========
See notes to condensed consolidated financial statements. 3 4 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 1996 --------- -------- (In thousands, except per share data) Net revenue $ 169,976 $110,592 Costs and expenses: Direct 86,610 56,858 General and administrative 58,422 36,662 Depreciation and amortization 7,839 5,328 Non-recurring: Restructuring -- 2,373 Special pension contribution -- 2,329 --------- -------- Total costs and expenses 152,871 103,550 --------- -------- Income from operations 17,105 7,042 Other (expense) income, net (683) 215 --------- -------- Income before income taxes 16,422 7,257 Income taxes 6,035 2,821 --------- -------- Net income $ 10,387 $ 4,436 ========= ======== Net income per share $ 0.30 $ 0.13 ========= ========
See notes to condensed consolidated financial statements. 4 5 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31 1997 1996 --------- -------- (In thousands) OPERATING ACTIVITIES Net income $ 10,387 $ 4,436 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,839 5,328 Change in operating assets and liabilities (10,012) 10,949 Other (1,070) (135) Change in fiscal year of pooled entity -- (9,378) --------- -------- Net cash provided by operating activities 7,144 11,200 INVESTING ACTIVITIES Proceeds from disposition of property and equipment 66 20 Acquisition of businesses, net of cash acquired -- (899) Acquisition of intangible assets (4,795) -- Acquisition of property and equipment (17,587) (9,039) Security investments, net 3,226 -- Dividend paid by pooled entity -- (9,162) Change in fiscal year of pooled entity -- 11,768 --------- -------- Net cash used in investing activities (19,090) (7,312) FINANCING ACTIVITIES Proceeds from borrowings and line of credit 3,491 658 Principal payments on borrowings and line of credit (8,277) (884) Principal payments on capital lease obligations (2,627) (1,398) Proceeds from issuance of common stock 91,578 586 Stock issuance costs (4,207) -- Other -- (101) Change in fiscal year of pooled entity -- 1,398 --------- -------- Net cash provided by financing activities 79,958 259 Effect of foreign currency exchange rate changes on cash (1,150) (84) --------- -------- Increase in cash and cash equivalents 66,862 4,063 Cash and cash equivalents at beginning of period 62,032 80,061 --------- -------- Cash and cash equivalents at end of period $ 128,894 $ 84,124 ========= ========
See notes to condensed consolidated financial statements. 5 6 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 1997 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1996 of Quintiles Transnational Corp. (the "Company"). The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Net income per share is based on the weighted average number of shares of common stock outstanding during each period. Weighted average shares outstanding for the three month periods ended March 31 were as follows:
Weighted Average Shares Outstanding 1997 1996 ---- ---- Three months ended March 31 34,565,853 33,901,731
2. Significant Customer No customer accounted for greater than 10% of consolidated net revenue for the three months ended March 31, 1997. One customer accounted for greater than 10% of consolidated net revenue for the three months ended March 31, 1996, as indicated below (in thousands): Three months ended March 31, 1996 ------------------------------ Customer A $14,232 6 7 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) -- Continued 3. Shareholders' Equity On March 12, 1997, the Company closed a public offering of 5,520,000 shares of common stock at a price to the public of $62.875 per share. Of the 5,520,000 shares sold, 1,415,000 shares were sold by the Company. Net proceeds to the Company which exclude underwriting discounts and offering expenses amounted to approximately $84.6 million. 4. Income Taxes In the first quarter of 1997, the Company recorded an estimate of the deferred tax asset related to tax basis goodwill created by the Innovex acquisition, which is amortizable for U.S. tax purposes starting January 1, 1997. The gross amount of this deferred tax asset is estimated to be $99.5 million, for which a valuation allowance of $36.8 million was recorded to reflect possible limitations in the use of these tax benefits. A corresponding $62.7 million increase in additional paid in capital was recorded in accordance with generally accepted accounting principles. 5. Subsequent Event On May 8, 1997, the Company announced the signing of a definitive agreement to acquire CerebroVascular Advances, Inc. ("CVA"), a clinical research company that is a leader in stroke clinical trials. The agreement calls for the merger of CVA into a wholly-owned subsidiary of the Company in exchange for approximately 251,000 shares of the Company's common stock, subject to adjustment prior to closing, in a pooling of interests transaction. Completion of the acquisition, subject to CVA shareholder approval and other customary conditions, is expected during the third quarter. 7 8 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended March 31, 1997 and 1996 Net revenue increased 53.7% to $170.0 million for the first quarter of 1997, as compared to $110.6 million for the first quarter of 1996. In general, growth occurred across each of the Company's three geographic regions. Factors contributing to this growth include the provision of increased services rendered under existing contracts, the initiation of services under contracts awarded subsequent to the first quarter of 1996 and the Company's acquisitions accounted for as purchases subsequent to March 31, 1996 which contributed approximately $6.9 million to the net revenue for the first quarter of 1997. Direct costs, which include compensation and related fringe benefits for billable employees and any other expenses directly related to contracts which are not included as reimbursed costs, increased 52.3% to $86.6 million for the quarter ended March 31, 1997 from $56.9 million for the quarter ended March 31, 1996 as a result of the increase in net revenue. Direct costs, as a percentage of net revenue, decreased slightly to 51.0% for the first quarter of 1997 versus 51.4% for the first quarter of 1996. General and administrative expense, which includes compensation and fringe benefits for administrative employees, non-billable travel, professional services, advertising, computer and facility expenses, increased 59.4% to $58.4 million from $36.7 million for the quarters ended March 31, 1997 and 1996, respectively. This increase is primarily the result of growth and expansion, the increased commitment to developing the Company's proprietary software systems and an increase in the costs associated with personnel, facility management and outside services brought on by the Company's growth. General and administrative expense, as a percentage of net revenue, increased to 34.4% for the first quarter of 1997 from 33.2% for the first quarter of 1996. This increase is primarily the result of expenditures related to the development of a transnational divisional management infrastructure to facilitate the Company's management of future growth opportunities. Depreciation and amortization increased to $7.8 million for the first quarter of 1997 from $5.3 million for the first quarter of 1996. Income from operations was $17.1 million or 10.1% of net revenue for the first quarter of 1997 versus $7.0 million or 6.4% of net revenue for the first quarter of 1996. Excluding non-recurring costs, income from operations was $11.7 million or 10.6% of net revenue for the first quarter of 1996. During the first quarter of 1996, two non-recurring charges were recognized: a $2.4 million expense for an Innovex Limited internal reorganization and a related $2.3 million special pension contribution. Other expense was $683,000 for the first quarter of 1997 as compared to other income of $215,000 for the first quarter of 1996. This fluctuation is primarily due to an increase of approximately $975,000 in net interest expense and a decrease in other expense of approximately $77,000. Amortization of 8 9 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES the issuance costs and interest relating to the Company's May 1996 private placement of its 4.25% Convertible Subordinated Notes due May 31, 2000 of approximately $1.8 million is included in determining net interest expense for the first quarter of 1997. Income taxes, as a percentage of income before income taxes, decreased to 36.7% for the first quarter of 1997 versus 38.9% for the first quarter of 1996. This decrease is primarily due to an increase in profits in locations with lower tax rates and a tax benefit of approximately $148,000 from tax advantaged investment instruments. Net income increased to $10.4 million for the first quarter of 1997 from $4.4 million for the first quarter of 1996. Excluding non-recurring costs, net income was $10.4 million or 6.1% of net revenue for the first quarter of 1997 versus $8.0 million or 7.2% of net revenue for the first quarter of 1996. Liquidity and Capital Resources Cash flows from operations were $7.1 million for the three months ended March 31, 1997 versus $11.2 million for the comparable period of 1996. Investing activities, for the three months ended March 31, 1997, consisted primarily of capital asset purchases, acquisition of Debra Chapman Consulting Group Pty Limited and the Medical Alliances Australia Pty Limited, and investment security purchases and maturities. These investing activities required an outlay of cash of $19.1 million for the first three months of 1997 compared to an outlay of $7.3 million for investing activities during the same period in 1996. As of March 31, 1997, total working capital was $173.5 million versus $96.0 million as of December 31, 1996. Net receivables from clients (accounts receivable and unbilled services net of unearned income) increased to $112.6 million at March 31, 1997 as compared to $100.8 million at the end of 1996. On March 12, 1997, the Company closed a public offering of 5,520,000 shares of its common stock at a price to the public of $62.875 per share. Of the 5,520,000 shares sold, 1,415,000 shares were sold by the Company and 4,105,000 shares were sold by selling shareholders. Net proceeds to the Company amounted to approximately $84.6 million. The Company has a $4.0 million secured line of credit with a U.S. bank. Additionally, the Company has a (pound)6.0 million (approximately $9.8 million) unsecured line of credit with a U.K. bank and a (pound)5.0 million (approximately $8.2 million) secured overdraft facility with a second U.K. bank. A $15.0 million unsecured line of credit with a second U.S. bank expired in accordance with its terms during the quarter. At March 31, 1997, the Company had $518,000 and (pound)10.5 million (approximately $17.1 million) available under these arrangements. The Company's primary cash needs on both a short-term basis and a long-term basis are for working capital, geographic expansion, addition of new services, potential acquisitions, general corporate purposes and capital expenditures. 9 10 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Based on its current operating plan, the Company believes that its available cash and cash equivalents as of March 31, 1997, together with cash flow from operations and borrowings under its line of credit agreements, will be sufficient to meet its foreseeable cash needs. Currently, the Company is evaluating a number of acquisition and expansion possibilities. The Company may from time to time seek to obtain debt or equity financing to facilitate possible acquisitions or expansion. In the first quarter of 1997, the Company recorded an estimate of the deferred tax asset related to tax basis goodwill created by the Innovex acquisition, which is amortizable for U.S. tax purposes starting January 1, 1997. The gross amount of this deferred tax asset is estimated to be $99.5 million, for which a valuation allowance of $36.8 million was recorded to reflect possible limitations in the use of these tax benefits. A corresponding $62.7 million increase in additional paid in capital was recorded in accordance with generally accepted accounting principles. Recent Events On May 8, 1997, the Company announced the signing of a definitive agreement to acquire CVA, a clinical research company that is a leader in stroke clinical trials. The agreement calls for the merger of CVA into a wholly-owned subsidiary of the Company in exchange for approximately 251,000 shares of the Company's common stock, subject to adjustment prior to closing, in a pooling of interests transaction. Completion of the acquisition, subject to CVA shareholder approval and other customary conditions, is expected during the third quarter. Cautionary Statement for Forward-Looking Information Information set forth in this Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" contain various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, which statements represent the Company's actual operating results and financial position to differ materially. Such forward looking statements can be identified by the use of forward looking terminology such as "may," "will," "expect," "anticipate," "estimate," "believe," or "continue," or the negative thereof or other variations thereof or comparable terminology. The Company cautions that any such forward looking statements are further qualified by important factors that could cause the Company's actual operating results to differ materially from those in the forward looking statements, including without limitation, the Company's dependence on certain industries and clients, management of its growth, risks associated with acquisitions, risks relating to contract sales services, competition within the industry, loss or delay of large contracts, dependence on personnel and government regulation and other Risk Factors described in Exhibit 99.01 filed with this report (and incorporated herein by reference). 10 11 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES PART II. Other Information Item 1. Legal Proceedings -- Not applicable Item 2. Changes in Securities -- Not applicable Item 3. Defaults upon Senior Securities -- Not applicable Item 4. Submission of Matters to a Vote of Security Holders -- Not applicable Item 5. Other Information (a) On or about March 27, 1997, the Company's Board of Directors mailed to Shareholders of Record at the close of business on February 25, 1997, a proxy statement and accompanying proxy card in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders to be held on April 30, 1997 for the following purposes: (1) To elect four nominees to serve as Class III directors with terms continuing until the Annual Meeting of Shareholders in 2000; (2) To elect two nominees to serve as Class II directors with terms continuing until the Annual Meeting of Shareholders in 1999; (3) To elect one nominee to serve as a Class I director with a term continuing until the Annual Meeting of Shareholders in 1998; (4) To approve the Company's Employee Stock Purchase Plan; (5) To ratify the appointment of Ernst & Young LLP as independent auditors for the Company and its subsidiaries for the fiscal year ending December 31, 1997; and (6) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. 11 12 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description ------- ----------- 27.01 Financial Data Schedule 99.01* Risk Factors - ------------ *Exhibit 99.01 to the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 25, 1997 and incorporated herein by reference. (b) The Company filed one report on Form 8-K/A, dated January 16, 1997, one report on Form 8-K, dated February 7, 1997, and one report on Form 8-K, dated March 5, 1997, during the three months ended March 31, 1997. On the report on Form 8-K/A, dated January 16, 1997, the Company filed Unaudited Interim Condensed Financial Statements of Innovex Limited ("Innovex") and BRI International, Inc. ("BRI") and Unaudited Proforma Combined Condensed Financial Statements of the Company, Innovex and BRI. On the report on Form 8-K, dated February 7, 1997, the Company reported information regarding certain effects of government regulation on its business and filed the Audited Consolidated Financial Statements of the Company for the fiscal year ended December 31, 1996. On the report on Form 8-K, dated March 5, 1997, the Company filed a supplemental agreement to the Registration Rights Agreement by and among the Company and certain shareholders listed therein. No other reports on Form 8-K have been filed. 12 13 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Quintiles Transnational Corp. -------------------------------------------- Registrant Date May 15, 1997 Dennis B. Gillings ------------ -------------------------------------------- Dennis B. Gillings, Chief Executive Officer Date May 15, 1997 Rachel R. Selisker ------------ -------------------------------------------- Rachel R. Selisker, Chief Financial Officer 13 14 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Description ------- ----------- 27.01 Financial Data Schedule 99.01* Risk Factors - ------------ *Exhibit 99.01 to the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 25, 1997 and incorporated herein by reference. 14 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM _____ AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH _______ . 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 128,894 32,666 190,101 975 0 366,323 194,433 60,581 667,406 192,837 173,785 0 0 348 295,944 667,406 0 169,976 0 152,871 (1,880) 0 2,564 16,422 6,035 10,387 0 0 0 10,387 .30 0
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