UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2011.
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to .
Commission File Number 0-27570
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
North Carolina | 56-1640186 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
929 North Front Street
Wilmington, North Carolina
(Address of principal executive offices)
28401
(Zip Code)
Registrants telephone number, including area code: (910) 251-0081
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. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 113,241,298 shares of common stock, par value $0.05 per share, as of April 27, 2011.
2
Item 1. | Financial Statements |
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Net revenue: |
||||||||
Service revenue |
$ | 324,120 | $ | 356,165 | ||||
Reimbursed revenue |
22,649 | 27,038 | ||||||
Total net revenue |
346,769 | 383,203 | ||||||
Direct costs |
182,802 | 206,823 | ||||||
Research and development expenses |
6,338 | 2,220 | ||||||
Selling, general and administrative expenses |
112,910 | 104,947 | ||||||
Depreciation and amortization |
17,037 | 16,764 | ||||||
Total operating expenses |
319,087 | 330,754 | ||||||
Operating income |
27,682 | 52,449 | ||||||
(Loss) income from equity method investment |
(2,042 | ) | 2,549 | |||||
Other income (expense), net |
1,273 | (47 | ) | |||||
Income from continuing operations before provision for income taxes |
26,913 | 54,951 | ||||||
Provision for income taxes |
8,631 | 17,584 | ||||||
Income from continuing operations |
18,282 | 37,367 | ||||||
Loss from discontinued operations, net of income taxes |
(1,077 | ) | | |||||
Net income |
17,205 | 37,367 | ||||||
Net loss attributable to noncontrolling interests |
| 247 | ||||||
Net income attributable to shareholders |
$ | 17,205 | $ | 37,614 | ||||
Basic and diluted income per common share from continuing operations |
$ | 0.15 | $ | 0.32 | ||||
Basic and diluted loss per common share from discontinued operations |
$ | (0.01 | ) | $ | | |||
Net income per common share: |
||||||||
Basic |
$ | 0.15 | $ | 0.32 | ||||
Diluted |
$ | 0.14 | $ | 0.32 | ||||
Dividends declared per common share |
$ | 0.15 | $ | 0.15 | ||||
Weighted-average number of common shares outstanding: |
||||||||
Basic |
118,460 | 116,870 | ||||||
Dilutive effect of stock options and restricted stock |
726 | 1,314 | ||||||
Diluted |
119,186 | 118,184 | ||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
Assets
December 31, 2010 |
March 31, 2011 |
|||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 479,574 | $ | 349,778 | ||||
Short-term investments |
79,976 | 25,245 | ||||||
Accounts receivable and unbilled services, net |
435,876 | 467,276 | ||||||
Income tax receivable |
12,327 | 6,570 | ||||||
Investigator advances |
16,032 | 16,024 | ||||||
Prepaid expenses |
24,535 | 28,424 | ||||||
Deferred tax assets |
30,910 | 32,969 | ||||||
Cash held in escrow |
10,304 | 9,701 | ||||||
Other current assets |
44,172 | 27,129 | ||||||
Total current assets |
1,133,706 | 963,116 | ||||||
Property and equipment, net |
385,863 | 405,447 | ||||||
Goodwill |
291,217 | 295,495 | ||||||
Long-term investments |
78,747 | 77,553 | ||||||
Other investments |
47,833 | 59,228 | ||||||
Intangible assets |
31,444 | 29,939 | ||||||
Deferred tax assets |
819 | 973 | ||||||
Other assets |
22,417 | 31,260 | ||||||
Total assets |
$ | 1,992,046 | $ | 1,863,011 | ||||
Liabilities and Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 29,858 | $ | 38,467 | ||||
Payables to investigators |
56,612 | 55,215 | ||||||
Accrued income taxes |
1,918 | 13,153 | ||||||
Other accrued expenses |
208,128 | 193,188 | ||||||
Unearned income |
317,191 | 334,364 | ||||||
Total current liabilities |
613,707 | 634,387 | ||||||
Accrued income taxes |
32,924 | 33,643 | ||||||
Accrued pension liability |
10,989 | 11,586 | ||||||
Deferred rent |
16,411 | 16,086 | ||||||
Deferred tax liabilities |
16,552 | 16,440 | ||||||
Other liabilities |
10,796 | 9,906 | ||||||
Total liabilities |
701,379 | 722,048 | ||||||
Redeemable noncontrolling interests |
1,657 | 745 | ||||||
Total equity: |
||||||||
Shareholders equity: |
||||||||
Common stock |
5,952 | 5,655 | ||||||
Paid-in capital |
609,281 | 592,502 | ||||||
Retained earnings |
682,160 | 535,808 | ||||||
Accumulated other comprehensive loss |
(17,140 | ) | (1,661 | ) | ||||
Total shareholders equity |
1,280,253 | 1,132,304 | ||||||
Noncontrolling interests |
8,757 | 7,914 | ||||||
Total equity |
1,289,010 | 1,140,218 | ||||||
Total liabilities and equity |
$ | 1,992,046 | $ | 1,863,011 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 17,205 | $ | 37,367 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
17,110 | 16,764 | ||||||
Equity compensation expense |
5,651 | 5,828 | ||||||
Loss (income) from equity investment, net of taxes |
1,306 | (1,638 | ) | |||||
Benefit for deferred income taxes |
(2,141 | ) | (2,724 | ) | ||||
Other |
320 | (451 | ) | |||||
Net change in operating assets and liabilities |
22,568 | (13,223 | ) | |||||
Net cash provided by operating activities |
62,019 | 41,923 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(11,147 | ) | (22,181 | ) | ||||
Proceeds from sale of property and equipment |
48 | 10 | ||||||
Proceeds from sale of business |
3,644 | | ||||||
Purchases of investments |
(4,124 | ) | (977 | ) | ||||
Maturities and sales of investments |
44,561 | 55,450 | ||||||
Purchases of other investments |
(1,258 | ) | (834 | ) | ||||
Net cash paid for acquisitions |
(48 | ) | (523 | ) | ||||
Changes in restricted cash |
48 | 523 | ||||||
Advances to related party |
| (4,400 | ) | |||||
Net cash provided by investing activities |
31,724 | 27,068 | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options and employee stock purchase plan |
4,661 | 10,857 | ||||||
Income tax benefit from exercise of stock options and disqualifying dispositions of stock |
24 | 289 | ||||||
Repurchase of common stock |
| (200,000 | ) | |||||
Cash dividends paid |
(17,778 | ) | (18,984 | ) | ||||
Net cash used in financing activities |
(13,093 | ) | (207,838 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(8,981 | ) | 9,051 | |||||
Net increase (decrease) in cash and cash equivalents |
71,669 | (129,796 | ) | |||||
Cash and cash equivalents, beginning of the period |
408,903 | 479,574 | ||||||
Cash and cash equivalents, end of the period |
$ | 480,572 | $ | 349,778 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
1. | Significant Accounting Policies |
The significant accounting policies followed by Pharmaceutical Product Development, Inc. and its subsidiaries (collectively, the Company) for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. The Company prepared these unaudited consolidated condensed financial statements in accordance with Rule 10-01 of Regulation S-X and, in managements opinion, has included all adjustments of a normal recurring nature necessary for a fair presentation. The accompanying consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year or any other period. The amounts in the December 31, 2010 consolidated condensed balance sheet are derived from the audited financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
On June 14, 2010, the Company spun off its compound partnering business into a new independent, publicly traded company, Furiex Pharmaceuticals, Inc. (Nasdaq: FURX). Substantially all of the operating business components of the Discovery Sciences segment were included in the spin-off. The Company contributed $100.0 million of cash and cash equivalents to Furiex and distributed all outstanding shares of Furiex to the Companys shareholders as a pro-rata, tax-free dividend, issuing one share of Furiex common stock for every twelve shares of the Companys common stock to shareholders of record on June 1, 2010. The results of operations for the former compound partnering business conducted by the Company until June 14, 2010 are included as part of this report as continuing operations because the Company believes this transaction does not qualify for discontinued operations treatment due to the ongoing master development services agreement between the Company and Furiex. The Company does not have any equity or other form of ownership interest in Furiex subsequent to the separation.
Prior to the Companys June 2010 spin-off, the Discovery Sciences segment included the compound partnering business, a preclinical toxicology research business, and a biomarker discovery services business. In 2009, the Company sold both its preclinical toxicology research and biomarker discovery businesses which were part of the Discovery Sciences segment. In 2010, the Company discontinued the operations of its wholly owned subsidiary PPD Dermatology, Inc. The Companys Discovery Sciences revenues were all generated in the United States.
Principles of consolidation
The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and include the accounts of Pharmaceutical Product Development, Inc. and its majority-owned subsidiaries that the Company controls. Amounts pertaining to the noncontrolling ownership interests held by third parties in the operating results and financial position of the Companys majority-owned subsidiaries are reported as noncontrolling interests. All intercompany balances and transactions have been eliminated in consolidation.
In connection with the formation of the Companys subsidiary BioDuro Biologics Pte. Ltd., or BioDuro Biologics, the Company has contractual rights and restrictions related to certain activities of MAB Discovery GmbH, or MAB, a variable interest entity that provides services to BioDuro Biologics. The Company determined that it is the primary beneficiary because the Company is currently the sole purchaser of MABs services, the primary source of funding to MAB for capital expenditures and has an obligation to absorb certain losses. As a result, the Company consolidates the financial results of MAB into its financial statements. MAB creditors have no recourse against the Company in the event of a default by MAB. As of March 31, 2011, MAB had total assets of $4.9 million and total liabilities of $4.9 million, and the Company had committed to provide up to $9.2 million of credit to MAB, of which $3.8 million was outstanding.
6
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
1. | Significant Accounting Policies |
Recent accounting pronouncements
In October 2009, the Financial Account Standards Board, or FASB, issued a new accounting standard related to accounting for revenue arrangements with multiple deliverables. This standard applies to all deliverables in contractual arrangements in all industries in which the vendor will perform multiple revenue-generating activities. This standard also addresses the unit of accounting for an arrangement involving multiple deliverables and how arrangement consideration should be allocated. This standard was effective on January 1, 2011 on a prospective basis. The adoption of this standard did not have a material impact on the Companys consolidated condensed financial statements, other than requiring the additional disclosures included below under Revenue recognition.
In March 2010, the FASB issued a new accounting standard, the objective of which is to establish a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. This consensus applies to milestones in single or multiple-deliverable arrangements involving research and development transactions and was effective on January 1, 2011 on a prospective basis. The adoption of this standard did not have a material impact on the Companys consolidated condensed financial statements, other than requiring additional disclosures.
In April 2011, the FASB issued an accounting standard update clarifying the guidance as to whether a restructuring of accounts receivable constitutes a troubled debt restructuring. The guidance applies to modifications of receivables when a debtor is experiencing financial difficulties. This guidance will be effective for the first interim period beginning on or after June 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its consolidated condensed financial statements.
Revenue recognition
The Company generally enters into contracts with clients to provide services with payments based on fixed and variable fee arrangements. The Company recognizes revenue for services, as rendered, only after persuasive evidence of an arrangement exists, the sales price is determinable and collectability is reasonably assured. Once the above criteria have been met, the Company recognizes revenue for the services provided based on the proportional performance methodology, which determines the proportion of outputs or performance obligations that have been completed or delivered compared to the total contractual outputs or performance obligations.
Some of the Companys contractual arrangements with clients involve multiple service deliverables, such as developing testing methodologies, database management, investigator recruitment and clinical trials monitoring, among other services. Upon entering into the contractual arrangement, the Company determines whether each deliverable has standalone value to the client. If the multiple deliverables within the arrangement each have standalone value to the client, then a separate unit of accounting is assigned to each separate deliverable. If the multiple deliverables are not considered to each have standalone value to the client because the separate deliverables can only be used together, then the deliverables are considered bundled and only one unit of accounting is assigned to the entire arrangement.
A newly adopted accounting standard related to the accounting for revenue arrangements with multiple deliverables requires the allocation of the contractual arrangements value based on the relative selling price of the separately identified units of accounting within the arrangement. The standard requires a hierarchy of evidence to be followed when determining the best evidence of the selling price of an item. The best evidence of selling price for a unit of accounting is vendor-specific objective evidence, or VSOE, or the price charged when a deliverable is sold routinely on a standalone basis. When VSOE is not available to determine selling price, relevant third-party evidence, or TPE, of selling price should be used, such as prices competitors charge for interchangeable services to similar clients. When neither VSOE nor TPE of selling price for similar deliverables exists, the Company must use its best estimate of selling price, or BESP, considering all relevant information that is available.
7
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
1. | Significant Accounting Policies |
Revenue recognition
The Company generally is not able to establish TPE for its services, as its deliverables are highly customized and competitor pricing is not available. VSOE can often be established for certain deliverables based on the Companys standard price lists used for unitized services or the unit price or hourly rates set forth in the customer arrangement. BESP for deliverables is generally established based on labor costs, risks, and expected profit margins developed from the competitive bidding process for client contracts. The Company allocates the contractual arrangements value at the inception of the arrangement using the relative selling prices of the deliverable services within the contract based upon VSOE when available but primarily upon BESP. Consistent with the Companys accounting policies prior to the adoption of this standard, the Company recognizes revenue for the separate elements of its contracts in accordance with the revenue recognition criteria above. The adoption of this standard did not have a material impact on the Companys consolidated condensed financial statements.
Under a small number of client contracts, a portion of the payments owed to the Company are contingent upon successful achievement of performance standards or research and development success milestones. These payments are not included in the total contract value used for the proportional performance calculations until the achievement of the performance standard or milestone is reasonably assured. Milestone payments on contracts entered into subsequent to January 1, 2011 were immaterial.
Earnings per share
The Company computes basic income per common share based on the weighted-average number of common shares outstanding during the period. The Company computes diluted income per common share information based on the weighted-average number of common shares outstanding during the period plus the effects of any dilutive common stock equivalents. The Company excluded 7,921,256 shares and 6,783,793 shares from the calculation of diluted earnings per common share during the three months ended March 31, 2010 and 2011, respectively, because they were antidilutive. The antidilutive shares consist of shares underlying stock options, employee stock purchase plan subscriptions and restricted stock units that were antidilutive for the period.
Use of estimates in preparation of the financial statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
2. | Acquisitions and Dispositions |
Acquisitions
In October 2010, the Company acquired a 60 percent interest in X-Chem, Inc., which is developing proprietary small molecule drug discovery services capabilities, for total consideration of $15.5 million. The Company paid $7.0 million to acquire existing outstanding equity interests and $8.5 million to acquire newly issued shares. The Company recorded the transaction as an acquisition of a controlling interest and consolidates X-Chems operating results in the financial statements of the Company. As of the acquisition date, the Company recorded the assets, liabilities and noncontrolling interests at fair value, including accounts receivable, net of $0.6 million. The Company estimated the fair value of the noncontrolling interests in X-Chem by applying the discounted cash flows method of the income approach. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. At any time prior to October 31, 2014, the Company has the option to purchase the remaining 40 percent of X-Chem at an entity valuation of $70.0 million. If the Company does not exercise its option, the noncontrolling interest holders have the right to purchase the Companys ownership interests at an entity valuation of $20.0 million between November 1, 2015 and November 30, 2015. X-Chem is required to declare and pay dividends in the future based on a formula agreed to by the Company and the noncontrolling interest holders. As of March 31, 2011, the Company had paid $4.5 million of the total $7.0 million purchase price to acquire outstanding equity interests. The Company deposited the remaining $2.5 million of the purchase price into an escrow account to secure indemnification claims and the payment of other obligations. As of March 31, 2011, the Company recorded a liability to pay the escrowed funds, which are scheduled to be released in April 2013, as a component of other liabilities. Through the acquisition, the Company expanded its drug discovery services capabilities. This acquisition is included in the Companys Laboratory Services segment.
Acquisition costs related to X-Chem were not significant and were included in selling, general and administrative costs in the consolidated condensed statements of income. The factors that contributed to the recognition of goodwill included securing new technologies and synergies that are specific to the Companys business, access to new market segments which are expected to increase revenues and profits, and acquisition of a talented workforce. The Company will not be able to deduct this goodwill for tax purposes.
The Company accounted for this acquisition under the acquisition method of accounting. The total purchase price for this acquisition was allocated based on the estimated fair value of assets acquired and liabilities assumed.
X-Chem | ||||
Purchase Price Allocation for X-Chem: |
||||
Current assets |
$ | 9,309 | ||
Property and equipment, net |
22 | |||
Current liabilities |
(1,011 | ) | ||
Other liabilities |
(3,592 | ) | ||
Noncontrolling interests |
(8,297 | ) | ||
Identifiable intangible assets |
9,030 | |||
Goodwill |
10,039 | |||
Total |
$ | 15,500 | ||
9
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
2. | Acquisitions and Dispositions |
Pro forma results of operations prior to the date of acquisition have not been presented because the pro forma results are not materially different from the actual results presented.
As of March 31, 2011, the Company held $13.9 million in escrow relating to payments to be made for previous acquisitions, of which $9.7 million is reflected as cash held in escrow and $4.2 million is reflected as a component of other assets in the accompanying consolidated condensed balance sheet. These escrows secure the indemnification obligations contained in the definitive agreements governing these transactions. The Company recorded $13.6 million in liabilities related to these acquisitions of which $9.4 million is recorded as a component of accrued expenses and $4.2 million is recorded as a component of other liabilities. The Company classified these balances as current or long-term based on the expected date of the release of the funds.
In December 2010, the Company formed BioDuro Biologics Pte. Ltd. to develop proprietary biological drug discovery services capabilities. The Company invested $5.0 million and sold a 25 percent interest in the entity in exchange for $1.7 million in intangible assets. The Company recorded the exchange of the 25 percent noncontrolling interests in the entity at the fair value of the intangible assets acquired. At any time between December 2014 and December 2016, the Company has the right to acquire the noncontrolling interest at fair value. If the Company fails to exercise its purchase option, then during the 183-day period following the expiration of this option the minority owners have the right to require the Company to purchase their noncontrolling interests at fair value. BioDuro Biologics is included in the Companys Laboratory Services segment.
Dispositions
In May 2010, the Company discontinued the operations of its wholly owned subsidiary PPD Dermatology, Inc., which was part of the Companys Discovery Sciences segment.
The results of PPD Dermatology are reported as discontinued operations within the consolidated condensed statements of income as set forth in the following table:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Loss from discontinued operations |
$ | (1,611 | ) | $ | | |||
Benefit for income taxes |
(534 | ) | | |||||
Loss from discontinued operations, net of income taxes |
(1,077 | ) | |
10
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
3. | Cash and Cash Equivalents, Short-term Investments, Long-term Investments and Other Investments |
Cash and cash equivalents, short-term investments, long-term investments and other investments were composed of the following as of the dates set forth below:
Cash and Cash Equivalents |
Short-term Investments |
Long-term Investments |
Other Investments |
Unrealized Gains |
Unrealized Losses |
|||||||||||||||||||
As of December 31, 2010 |
||||||||||||||||||||||||
Cash |
$ | 246,843 | ||||||||||||||||||||||
Money market funds |
232,731 | |||||||||||||||||||||||
Auction rate securities |
$ | 78,747 | $ | 14,203 | ||||||||||||||||||||
Municipal debt securities |
$ | 32,707 | $ | 122 | 24 | |||||||||||||||||||
Corporate debt securities FDIC insured |
9,160 | 105 | 1 | |||||||||||||||||||||
Treasury securities |
38,109 | 118 | 2 | |||||||||||||||||||||
Equity method investment: |
||||||||||||||||||||||||
Celtic Therapeutics Holdings, L.P. |
$ | 30,724 | ||||||||||||||||||||||
Cost method investments: |
||||||||||||||||||||||||
Bay City Capital Funds |
7,069 | |||||||||||||||||||||||
A.M. Pappas Funds |
3,486 | |||||||||||||||||||||||
Liquidia Technologies, Inc. |
5,000 | |||||||||||||||||||||||
Other investments |
1,554 | |||||||||||||||||||||||
Total |
$ | 479,574 | $ | 79,976 | $ | 78,747 | $ | 47,833 | $ | 345 | $ | 14,230 | ||||||||||||
As of March 31, 2011 |
||||||||||||||||||||||||
Cash |
$ | 291,827 | ||||||||||||||||||||||
Money market funds |
57,951 | |||||||||||||||||||||||
Auction rate securities |
$ | 77,553 | $ | 15,322 | ||||||||||||||||||||
Municipal debt securities |
$ | 25,245 | $ | 161 | 3 | |||||||||||||||||||
Equity method investment: |
||||||||||||||||||||||||
Celtic Therapeutics Holdings, L.P. |
$ | 41,285 | ||||||||||||||||||||||
Cost method investments: |
||||||||||||||||||||||||
Bay City Capital Funds |
7,598 | |||||||||||||||||||||||
A.M. Pappas Funds |
3,633 | |||||||||||||||||||||||
Liquidia Technologies, Inc. |
5,000 | |||||||||||||||||||||||
Other investments |
1,712 | |||||||||||||||||||||||
Total |
$ | 349,778 | $ | 25,245 | $ | 77,553 | $ | 59,228 | $ | 161 | $ | 15,325 | ||||||||||||
11
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
3. | Cash and Cash Equivalents, Short-term Investments, Long-term Investments and Other Investments |
For the three months ended March 31, 2010 and 2011, the Company had the following gross realized gains and losses on investments:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Gross realized gains on municipal debt securities |
$ | 4 | $ | 13 | ||||
Gross realized gains on other short-term investments |
| 206 | ||||||
Gross realized losses on municipal debt securities |
53 | 3 | ||||||
Gross realized losses on other short-term investments |
| 2 |
Short-term and long-term investments
The Company classifies its short-term and long-term investments as available-for-sale securities. The Company determines realized and unrealized gains and losses on short-term and long-term investments on a specific identification basis.
The Company held $78.7 million and $77.6 million, net of unrealized losses, in auction rate securities at December 31, 2010 and March 31, 2011, respectively. The Companys portfolio of investments in auction rate securities consists principally of interests in government-guaranteed student loans, insured municipal debt obligations and municipal preferred auction rate securities. The Company classified its entire balance of auction rate securities as long-term investments as of March 31, 2011 due to continuing uncertainties about the liquidity of the auction rate securities market. The Company also recorded unrealized losses on these investments of $14.2 million and $15.3 million as of December 31, 2010 and March 31, 2011, respectively. The Company recorded these unrealized losses based on a Level 3 valuation, including assumptions about appropriate maturity periods of the instruments by utilizing a 2 to 5 year workout period based on industry expectations, market interest rates for comparable securities and the underlying credit-worthiness of the issuers. The Company concluded that this impairment was temporary because of its ability to hold the auction rate securities until the fair value recovers and has no current plans to sell the securities. The Company will continue to review the classification and valuation of these securities on a quarterly basis.
Equity method investment
In 2009, the Company committed to invest up to $102.7 million in Celtic Therapeutics Holdings, L.P., or Celtic, as a limited partner. Celtic is an investment partnership organized for the purpose of identifying, acquiring and investing in a diversified portfolio of novel therapeutic product candidates, with a focus on mid-stage compounds that have progressed through human proof of concept studies and that are targeted to address unmet medical needs. As of March 31, 2011, the Company owned 56.8% of the outstanding partnership interests of Celtic. The Company accounts for this investment under the equity method of accounting because the Company is a limited partner and the general partner has all decision-making authority relating to investment decisions and fund operations. As such, the Company is deemed to lack the control of the entity required for consolidation. As of March 31, 2011, the Company had a remaining commitment of $60.0 million. For the three months ended March 31, 2010 and 2011, respectively, the Company recognized a loss of $2.0 million and income of $2.5 million, respectively, based on the allocation of profits to the partners capital accounts. As of March 31, 2011, the Company had an investment balance of $41.3 million. The Company expects to invest the remainder of its commitment over a period of three years.
12
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
3. | Cash and Cash Equivalents, Short-term Investments, Long-term Investments and Other Investments |
Cost method investments
The Company is a limited partner in several venture capital funds established for the purpose of investing in life science and healthcare companies. These funds require the Company to commit to make investments in the funds over a period of time. The Company accounts for these funds as cost method investments and determines realized and unrealized losses on a specific identification method.
The Company is a stockholder in Accelerator III Corporation and certain of its incubator companies. Accelerator III requires the Company to make investments upon request up to its committed capital amount. The Company accounts for this investment as a cost method investment and determines realized and unrealized losses on a specific identification method.
The Companys capital commitments in these funds as of March 31, 2011 were as follows:
Fund |
Ownership | Total Capital Commitment |
Remaining Commitment |
Commitment Expiration | ||||||||||
Bay City Capital Fund IV, L.P. |
2.9 | % | $ | 10,000 | $ | 1,451 | September 2010 (2) | |||||||
Bay City Capital Fund V, L.P. |
2.0 | % | 10,000 | 5,959 | October 2012 | |||||||||
A.M. Pappas Life Science Ventures III, L.P. |
4.7 | % | 4,750 | 736 | December 2009 (2) | |||||||||
A.M. Pappas Life Science Ventures IV, L.P. |
3.0 | % | 2,935 | 1,937 | February 2014 | |||||||||
Accelerator III and incubator companies (1) |
19.9 | % | 4,602 | 1,565 | None |
(1) | The Companys percentage ownership of Accelerator III and incubator companies might vary but will not exceed 19.9%. |
(2) | The funding commitments to Bay City Capital Fund IV, L.P. and A.M. Pappas Life Science Ventures III, L.P. have expired for new investments. The Company may still be required to fund additional investments in existing fund portfolio companies and the ongoing operations of the funds up to the amount of the remaining capital commitment. |
In May 2010, the Company invested $5.0 million for an ownership interest in Liquidia Technologies, Inc. As of March 31, 2011, the Companys ownership interest in Liquidia was 8.6%.
13
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
4. | Accounts Receivable and Unbilled Services |
Accounts receivable and unbilled services, net, consisted of the following amounts on the dates set forth below:
December 31, 2010 |
March 31, 2011 |
|||||||
Billed |
$ | 276,240 | $ | 307,430 | ||||
Unbilled |
168,037 | 166,347 | ||||||
Allowance for doubtful accounts |
(8,401 | ) | (6,501 | ) | ||||
Total accounts receivable and unbilled services, net |
$ | 435,876 | $ | 467,276 | ||||
5. | Property and Equipment |
Property and equipment, stated at cost, consisted of the following amounts on the dates set forth below:
December 31, 2010 |
March 31, 2011 |
|||||||
Land |
$ | 8,201 | $ | 8,283 | ||||
Buildings and leasehold improvements |
274,716 | 278,077 | ||||||
Fixed assets not placed in service |
13,843 | 35,805 | ||||||
Information technology systems under development |
28,808 | 22,527 | ||||||
Furniture and equipment |
234,132 | 240,071 | ||||||
Computer equipment and software |
203,867 | 215,414 | ||||||
Total property and equipment |
763,567 | 800,177 | ||||||
Less accumulated depreciation |
(377,704 | ) | (394,730 | ) | ||||
Total property and equipment, net |
$ | 385,863 | $ | 405,447 | ||||
As of March 31, 2011, fixed assets not placed in service included software licenses purchased from a third-party vendor with annual payment terms as follows:
June 1, 2011 |
$ | 4,212 | ||
June 1, 2012 |
4,212 | |||
Total future remaining payments |
8,424 | |||
Present value discount |
(183 | ) | ||
Present value of remaining payments |
$ | 8,241 | ||
The Company classified its liability related to these licenses as $4.2 million in other accrued expenses and $4.0 million in other liabilities on its consolidated condensed balance sheet as of March 31, 2011. Depreciation expense was $16.2 million and $15.8 million for the three months ended March 31, 2010 and 2011, respectively.
14
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
6. | Goodwill and Intangible Assets |
Changes in the carrying amount of goodwill for the three months ended March 31, 2011, by operating segment, were as follows:
Clinical Development Services |
Laboratory Services |
Total | ||||||||||
Balance as of December 31, 2010 |
$ | 106,671 | $ | 184,546 | $ | 291,217 | ||||||
Adjustments to goodwill for prior year acquisitions |
| (825 | ) | (825 | ) | |||||||
Translation adjustments |
3,210 | 1,893 | 5,103 | |||||||||
Balance as of March 31, 2011 |
$ | 109,881 | $ | 185,614 | $ | 295,495 | ||||||
As of March 31, 2011, the Company recorded a $0.8 million adjustment to goodwill related to X-Chem resulting from information regarding the valuation estimates that became available after the preliminary purchase price allocation was established.
The Companys intangible assets were composed of the following as of the dates set forth below:
December 31, 2010 | March 31, 2011 | |||||||||||||||||||||||
Carrying Amount |
Accumulated Amortization |
Net | Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Customer relationships |
$ | 17,658 | $ | (2,844 | ) | $ | 14,814 | $ | 17,658 | $ | (3,378 | ) | $ | 14,280 | ||||||||||
Non-compete agreements |
2,047 | (84 | ) | 1,963 | 1,300 | (110 | ) | 1,190 | ||||||||||||||||
Trade name |
150 | (150 | ) | | 150 | (150 | ) | | ||||||||||||||||
In-process R&D |
8,220 | | 8,220 | 8,220 | | 8,220 | ||||||||||||||||||
Backlog |
7,217 | (2,770 | ) | 4,447 | 7,217 | (2,968 | ) | 4,249 | ||||||||||||||||
Other intangible asset |
2,000 | | 2,000 | 2,000 | | 2,000 | ||||||||||||||||||
Total |
$ | 37,292 | $ | (5,848 | ) | $ | 31,444 | $ | 36,545 | $ | (6,606 | ) | $ | 29,939 | ||||||||||
Amortization expense for the three months ended March 31, 2010 and 2011 was $0.9 million and $1.0 million, respectively. As of March 31, 2011, expected amortization expense for each of the next five years is as follows:
2011 (remaining nine months) |
$ | 2,930 | ||
2012 |
3,274 | |||
2013 |
3,097 | |||
2014 |
2,344 | |||
2015 |
1,769 |
15
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
7. | Shareholders Equity |
Stock options
The Company estimates fair value of each award on the grant date using the Black-Scholes option-pricing model and recognizes it as expense over the employees requisite service period.
During the three months ended March 31, 2011, the Company granted options to purchase approximately 1,615,500 shares with a weighted-average exercise price of $27.27. This amount includes options to purchase approximately 1,554,500 shares granted in the Companys annual grant during the first quarter of 2011. All options were granted with an exercise price equal to the fair value of the Companys common stock on the grant date. The fair value of the Companys common stock on the grant date is equal to the Nasdaq closing price of the Companys stock on the date of grant. The weighted-average grant date fair value per share and the aggregate fair value of options granted during the three months ended March 31, 2010 and 2011 was $5.43 and $6.77 per share, $8.9 million and $10.9 million, respectively. As of March 31, 2011, the Company had 12.6 million options outstanding.
Restricted stock units
The Company has issued restricted stock units that are subject to a three-year linear vesting schedule with one-third of the grant vesting on each of the first, second and third anniversaries of the award date. The Company determines expense based on the market value of the restricted stock units on the award date, and recognizes expense on a straight-line basis over the vesting period.
During the three months ended March 31, 2011, the Company awarded approximately 359,000 restricted stock units to employees in the Companys annual grant during the first quarter of 2011. The weighted-average award date fair value per unit and the aggregate fair value of units during the three months ended March 31, 2011 was $27.27 per share and $9.8 million, respectively. As of March 31, 2011, all 359,000 restricted stock units were unvested.
Stock repurchase program
In February 2008, the Companys Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $350.0 million of its common stock from time to time. In February 2011, the Company entered into an accelerated share repurchase, or ASR, arrangement with Barclays Capital Inc., or Barclays, under which the Company used $200.0 million of the remaining amount to repurchase additional shares of its common stock. During the three months ended March 31, 2011, the Company repurchased approximately 6.5 million shares of its common stock under this arrangement for an aggregate purchase price of $200.0 million.
The agreement with Barclays for the ASR includes a forward sale contract that is expected to settle prior to September 2011. Under the terms of the forward sale contract, Barclays is required to purchase, in the open market, $200.0 million of shares of the Companys common stock during the term of the contract to fulfill its obligation related to the shares it borrowed from third parties and sold to the Company. At settlement, the Company, at its option, is required to either pay cash or issue registered or unregistered shares of its common stock to Barclays if Barclays volume weighted average purchase price of open market purchases is higher than the average price of the 6.5 million shares purchased by the Company from Barclays, such average price is referred to as the hedge price. If Barclays volume weighted average price is lower than the hedge price, Barclays is required to pay the Company either cash or additional shares of the Companys common stock, at the Companys option. The Company accounted for this forward sale contract as an equity instrument under accounting guidelines. As the fair value of the forward sale contract at inception was zero, no accounting for the forward sale contract is required until settlement, as long as the forward sale continues to meet the requirements for classification as an equity instrument.
16
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
7. | Shareholders Equity |
As of March 31, 2011, $60.7 million remained available for stock repurchases authorized by the Board of Directors. The manner of the purchases, the amount the Company spends and the number of shares repurchased will vary based on a variety of factors, including the status of the Barclays ASR program, the stock price and blackout periods in which the Company is restricted from repurchasing shares.
8. | Comprehensive Income |
Comprehensive income consisted of the following amounts on the dates set forth below:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Net income, as reported |
$ | 17,205 | $ | 37,367 | ||||
Other comprehensive income (loss): |
||||||||
Cumulative translation adjustment |
(11,910 | ) | 16,422 | |||||
Change in fair value of hedging transactions, net of tax benefit (expense) of $1,212 and ($504), respectively |
(2,854 | ) | 1,055 | |||||
Reclassification adjustment for hedging results included in direct costs, net of tax benefit of $683 and $542, respectively |
(1,249 | ) | (1,176 | ) | ||||
Net unrealized gain (loss) on investments, net of tax (expense) benefit of ($945) and |
||||||||
$457, respectively |
1,842 | (822 | ) | |||||
Total other comprehensive income (loss) |
(14,171 | ) | 15,479 | |||||
Comprehensive income |
$ | 3,034 | $ | 52,846 | ||||
Accumulated other comprehensive loss consisted of the following amounts on the dates set forth below:
December 31, 2010 |
March 31, 2011 |
|||||||
Translation adjustment |
$ | 29 | $ | 16,450 | ||||
Pension liability, net of tax benefit of $4,865 |
(11,705 | ) | (11,705 | ) | ||||
Fair value on hedging transactions, net of tax expense of ($1,714) and ($1,697), respectively |
3,523 | 3,402 | ||||||
Net unrealized losses on investments, net of tax benefit of $4,898 and $5,355, respectively |
(8,987 | ) | (9,808 | ) | ||||
Total |
$ | (17,140 | ) | $ | (1,661 | ) | ||
17
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
9. | Accounting for Derivative Instruments and Hedging Activities |
The Company has significant international revenues and expenses, and related receivables and payables, denominated in currencies other than the functional currency of the related subsidiary. As a result, the Companys operating results can be affected by changes in foreign currency exchange rates. In an effort to minimize this risk, from time to time, the Company purchases foreign currency option and forward contracts as hedges against anticipated and recorded transactions, and the related receivables and payables denominated in foreign currencies. The Company only uses foreign currency option and forward contracts as hedges to minimize the variability in the Companys operating results arising from foreign currency exchange rate movements and not for speculative or trading purposes.
The Company recognizes changes in the fair value of the effective portion of foreign exchange derivatives that are designated and qualify as cash flow hedges of forecasted revenue and expense transactions in accumulated other comprehensive income, or OCI. The Company reclassifies these amounts from OCI and recognizes them in earnings when either the forecasted transaction occurs or it becomes probable that the forecasted transaction will not occur. The Company reclassifies OCI associated with hedges of foreign currency revenue into direct costs upon recognition of the forecasted transaction in the statements of income. The Company recognizes the ineffective portion of a derivative instrument in earnings in the current period as a component of other income, and measures it by comparing the fair value of the forward contract to the change in the forward value of the anticipated transaction. Hedging portfolio ineffectiveness during the three months ended March 31, 2010 and 2011 was $0.2 million and $0.1 million, respectively.
The Company also manages its exposure on receivables and payables denominated in currencies other than the entitys functional currency through the use of natural hedges and foreign currency options and forwards, if necessary. The Company records foreign currency derivatives at fair value, with fluctuations in the fair value being included in the statements of income as a component of other income. There were two outstanding foreign currency options and forwards related to receivables and payables hedging outstanding as of March 31, 2011. The fair value of the derivative liability and the gains and losses reported in the statements of income were not significant.
As of March 31, 2011, the Companys outstanding hedging contracts were scheduled to expire over the next nine months. The Company expects to reclassify the current gain positions of $3.4 million, net of tax, within the next nine months from OCI into the statement of income. As of December 31, 2010 and March 31, 2011, the Companys foreign currency derivative portfolio resulted in the Company recognizing an asset of $6.7 million and $6.8 million, respectively, as a component of other current assets and a liability of $1.4 million and $1.6 million, respectively, as a component of other accrued expenses.
18
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
10. | Pension Plan |
Net periodic pension costs for the U.K. pension plan included the following components:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Interest cost |
$ | 799 | $ | 813 | ||||
Expected return on plan assets |
(623 | ) | (742 | ) | ||||
Amortization of losses |
267 | 212 | ||||||
Net periodic pension cost |
$ | 443 | $ | 283 | ||||
During the three months ended March 31, 2011, the Company did not make contributions to the plan, but it does expect to contribute approximately $3.0 million to this plan during the remainder of 2011.
11. | Commitments and Contingencies |
From time to time, the Company causes letters of credit to be issued to provide credit support for guarantees, contractual commitments and insurance policies. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees payable to the issuers of the letters of credit competitively determined in the marketplace. As of March 31, 2011, the Company had four letters of credit outstanding for a total of $1.8 million.
The Company currently maintains insurance for risks associated with the operation of its business, provision of professional services and ownership of property. These policies provide coverage for a variety of potential losses, including loss or damage to property, bodily injury, general commercial liability, professional errors and omissions and medical malpractice. The Companys retentions and deductibles associated with these insurance policies range in amounts up to $5.0 million.
The Company is self-insured for health insurance for the majority of its employees located within the United States, but maintains stop-loss insurance on a claims made basis for expenses in excess of $0.4 million per member per year.
As of March 31, 2011, the Company had commitments to invest up to an aggregate additional $10.1 million in several venture capital funds, $1.6 million in other investments and $60.0 million in an equity method investment. For further details, see Note 3.
In 2010, the Company entered into a non-revolving line of credit agreement to loan Celtic Pharma Development Services Bermuda Ltd., a subsidiary of Celtic Pharmaceutical Holdings L.P., up to $18.0 million to finance trade payables in connection with a specified drug candidate. Celtic Pharma Development Services Bermuda Ltd. has appointed the Company to conduct certain clinical studies on the drug candidate. Principal and interest are due and payable no later than June 30, 2013 and are secured by a guarantee of an affiliate of the borrower. As of March 31, 2011, the Company had advanced $13.6 million to the borrower and recorded this as a component of other assets.
In 2010, the Company sold a noncontrolling interest in its BioDuro Biologics Pte. Ltd. subsidiary. During the 183-day period commencing in December 2016, the minority equity holders have the right to require the Company to repurchase the noncontrolling interest at fair value.
19
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
11. | Commitments and Contingencies |
As of March 31, 2011, the Companys total gross unrecognized tax benefits were $27.8 million, of which $15.2 million, if recognized, would reduce its effective tax rate. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits could decrease up to $4.7 million within the next twelve months due to the settlement of audits and the expiration of statutes of limitations.
The Companys policy for recording interest and penalties associated with tax audits is to record them as a component of provision for income taxes. As of March 31, 2011, the Company accrued $4.6 million of interest and $0.9 million of penalties with respect to uncertain tax positions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the Company will reduce amounts accrued and reflect them as a reduction of the overall income tax provision.
Under most of its agreements for services, the Company typically agrees to indemnify and defend the sponsor against third-party claims based on the Companys negligence or willful misconduct. Any successful claims could have a material adverse effect on the Companys financial condition, results of operations or cash flows.
In the normal course of business, the Company is a party to various claims and legal proceedings. The Company records a reserve for pending and threatened litigation matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable. Although the ultimate outcome of pending and threatened litigation is currently not determinable and litigation costs can be material, management of the Company, after consultation with legal counsel, does not believe that the resolution of these matters will have a material effect upon the Companys financial condition, results of operations or cash flows.
20
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
12. | Fair Value of Financial Instruments |
The Companys assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the accounting standards. See Fair Value under Note 1 to the financial statements in the Companys Form 10-K for the year ended December 31, 2010 for a discussion regarding this hierarchy.
The following table presents information about the Companys assets and liabilities required to be measured at fair value on a recurring basis:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of December 31, 2010 |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 232,731 | $ | | $ | | $ | 232,731 | ||||||||
Short-term investments: |
||||||||||||||||
Treasury securities |
38,109 | | | 38,109 | ||||||||||||
Municipal debt securities |
| 32,707 | | 32,707 | ||||||||||||
Corporate debt securities |
| 9,160 | | 9,160 | ||||||||||||
Long-term investments |
| | 78,747 | 78,747 | ||||||||||||
Other investment |
| | 30,724 | 30,724 | ||||||||||||
Derivative contracts |
| 6,668 | | 6,668 | ||||||||||||
Total assets |
$ | 270,840 | $ | 48,535 | $ | 109,471 | $ | 428,846 | ||||||||
Liabilities |
||||||||||||||||
Derivative contracts |
$ | | $ | 1,373 | $ | | $ | 1,373 | ||||||||
Total liabilities |
$ | | $ | 1,373 | $ | | $ | 1,373 | ||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of March 31, 2011 |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 57,951 | $ | | $ | | $ | 57,951 | ||||||||
Short-term investments: |
||||||||||||||||
Municipal debt securities |
| 25,245 | | 25,245 | ||||||||||||
Long-term investments |
| | 77,553 | 77,553 | ||||||||||||
Other investments |
| | 41,285 | 41,285 | ||||||||||||
Derivative contracts |
| 6,819 | | 6,819 | ||||||||||||
Total assets |
$ | 57,951 | $ | 32,064 | $ | 118,838 | $ | 208,853 | ||||||||
Liabilities |
||||||||||||||||
Derivative contracts |
$ | | $ | 1,626 | $ | | $ | 1,626 | ||||||||
Total liabilities |
$ | | $ | 1,626 | $ | | $ | 1,626 | ||||||||
21
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
12. | Fair Value of Financial Instruments |
The following table provides a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs, or Level 3, for the three months ended March 31, 2011:
Long-term Investments |
||||
Balance as of December 31, 2010 |
$ | 109,471 | ||
Adjustment to previously recognized unrealized loss on investments included in other comprehensive income |
(1,119 | ) | ||
Income from equity method investment |
2,549 | |||
Additional equity method investment |
8,012 | |||
Liquidation of investments |
(75 | ) | ||
Balance as of March 31, 2011 |
$ | 118,838 | ||
13. | Business Segment Data |
The Company evaluates segment performance and allocates resources based on net revenue and operating income (loss). Depreciation and amortization expense is allocated to the business unit based on various operational metrics, such as headcount and space allocation. In addition, net revenue and operating income (loss) by segment exclude reimbursed revenue. The Company has a global infrastructure supporting its business segments, and therefore, assets are not identified by reportable segment.
Net revenue and operating income (loss) by business segment were as follows as of the dates set forth below:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
Net revenue: |
||||||||
Clinical Development Services |
$ | 249,294 | $ | 279,658 | ||||
Laboratory Services |
74,533 | 76,507 | ||||||
Discovery Sciences |
293 | | ||||||
Reimbursed revenue |
22,649 | 27,038 | ||||||
Total |
$ | 346,769 | $ | 383,203 | ||||
Operating income (loss): |
||||||||
Clinical Development Services |
$ | 27,006 | $ | 46,492 | ||||
Laboratory Services |
9,534 | 5,957 | ||||||
Discovery Sciences |
(8,858 | ) | | |||||
Total |
$ | 27,682 | $ | 52,449 | ||||
22
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(numbers in tables in thousands)
(unaudited)
14. | Related Party Transactions |
As of March 31, 2011, the Company provides services to and owns 56.8% of Celtic Therapeutics Holdings, L.P., or Celtic, which is accounted for under the equity method. The Company previously loaned Celtic $8.0 million. During the first quarter of 2011, the outstanding loan was converted to additional equity in settlement of a $10.0 million capital call.
15. | Subsequent Events |
Line of credit
In April 2011, the Company entered into a $50.0 million revolving line of credit facility with Barclays Bank PLC. The facility has a term of one-year and the Company can use the borrowings for general corporate purposes. The credit facility contains normal, usual and customary affirmative, negative and financial covenants for financings of this size and kind. Outstanding borrowings under the credit facility bear interest at an annual fluctuating rate tied to certain financial indices plus an agreed upon margin. The credit facility is currently scheduled to expire in April 2012, at which time any outstanding balance will be due.
Equity method investment
In April 2011, the Company entered into a commitment to invest $50.0 million in the venBio Global Strategic Fund, L.P., or venBio, over the next five years. venBio invests in early stage life sciences companies. The Company is a limited partner in venBio and will account for the investment using the equity method.
23
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, our consolidated condensed financial statements and accompanying notes. In this discussion, the words PPD, we, our and us refer to Pharmaceutical Product Development, Inc., together with its subsidiaries where appropriate.
Forward-looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements relate to future events or our future financial performance. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, assumptions and other statements that are not statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as might, will, should, expect, plan, anticipate, believe, estimate, predict, intend, potential or continue, or the negative of these terms, or other comparable terminology. These statements are only predictions. These statements rely on a number of assumptions and estimates that could be inaccurate and that are subject to risks and uncertainties. Actual events or results might differ materially due to a number of factors, including those listed in Potential Volatility of Quarterly Operating Results and Stock Price below and in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2010. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Company Overview
We are a leading global contract research organization providing drug discovery, development and lifecycle management services. Our clients include pharmaceutical, biotechnology, medical device, academic, non-profit and government organizations. We apply innovative technologies, therapeutic expertise and a commitment to quality to help our clients accelerate the development of safe and effective therapeutics and maximize the returns on their research and development investments.
We have been in the drug development business for more than 25 years. Our development services include preclinical drug discovery services, programs, Phase I through Phase IV clinical development services and post-approval services, as well as bioanalytical, cGMP, global central laboratory and vaccines and biologics laboratory services. We have extensive clinical trial experience, including regional, national and global studies across a wide spectrum of therapeutic areas and in over 100 countries, spanning six continents. In addition, for marketed drugs, biologics and devices, we offer support such as medical information, patient compliance programs, patient and disease registry programs, product safety and pharmacovigilance, standard response document development, observational studies, Phase IV monitored studies and prescription-to-over-the-counter, or Rx to OTC, programs. Our services offer our clients a way to identify and develop drug candidates more quickly and cost-effectively.
With 87 offices in 44 countries and more than 11,000 employees worldwide, our global infrastructure enables us to accommodate the multinational drug development needs of our clients. We have provided services to 49 of the top 50 pharmaceutical companies in the world as ranked by 2009 healthcare research and development spending. We also work with leading biotechnology companies and government organizations that sponsor clinical research. We are one of the worlds largest providers of drug development services based on 2010 annual net revenue generated from contract research organizations.
Our services offer our clients a way to identify and develop drug candidates more quickly and cost-effectively. In addition, with global infrastructure, we are able to accommodate the multinational drug discovery and development needs of our clients. For more detailed information on PPD, see our Annual Report on Form 10-K for the year ended December 31, 2010.
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Executive Overview
Our revenues are dependent on a relatively small number of industries and clients. As a result, we closely monitor the market for our services. For a discussion of the trends affecting the market for our services, see Item 1. Business Trends Affecting the Drug Discovery and Development Industry in our Annual Report on Form 10-K for the year ended December 31, 2010. We continue to believe in the fundamentals of the CRO services market. We expect many clinical trial sponsors to continue to narrow their drug discovery and development services vendor lists and outsource a greater percentage of their research and development budgets in the years ahead. For the remainder of 2011, we plan to continue to pursue and establish innovative and strategic client relationships, while enhancing our focus on execution and quality to differentiate our company and create value for our clients and our shareholders. We also expect to expand the scope of our discovery services offerings through new technologies that should differentiate us from our competitors. We continue to focus on all selling, general and administrative, or SG&A, expenses and on driving efficiencies, while selectively investing for future growth and productivity gains. Finally, we will continue the initiatives started in 2010 to improve productivity and control costs to achieve our 2011 financial objectives.
We review various metrics to evaluate our financial performance, including period-to-period changes in backlog, new authorizations, cancellation rates, revenue, revenue conversion, margins and earnings. In the first quarter of 2011, we had net authorizations, defined as new authorizations less cancellations and adjustments, of $465.4 million, a slight decrease over the same period in 2010. The cancellation rate for the first quarter of 2011 was 5.1% of beginning backlog compared to 4.2% for the same period in 2010. The average length of our contracts in backlog decreased to 33 months as of March 31, 2011 from 34 months as of December 31, 2010. Revenue conversion, defined as revenue divided by prior periods ending backlog, in the first quarter of 2011 averaged 10.4% compared to 10.8% for the same period in 2010.
Backlog by client type as of March 31, 2011 was 77.5% pharmaceutical, 16.5% biotech and 6.0% government/other, as compared to 77.6% pharmaceutical, 15.6% biotech and 6.8% government/other as of March 31, 2010. Net revenue by client type for the quarter ended March 31, 2011 was 80.2% pharmaceutical, 17.6% biotech and 2.2% government/other, compared to 74.8% pharmaceutical, 21.4% biotech and 3.8% government/other for the same period in 2010. The change in the composition of our net revenue was primarily a result of an increase in percentage of authorizations from pharmaceutical companies during the trailing twelve-month period ended March 31, 2011 and mergers of biotechnology clients into pharmaceutical companies.
For the first quarter of 2011, net revenue contribution by business segment was 78.5% from Clinical Development Services and 21.5% from Laboratory Services, compared to net revenue contribution for the first quarter of 2010 of 76.9% from Clinical Development Services, 23.0% from Laboratory Services and 0.1% for Discovery Sciences. Our top therapeutic areas by net revenue for the quarter ended March 31, 2011 were oncology, circulatory/cardiovascular, endocrine/metabolic, infectious disease and central nervous system. For a detailed discussion of our revenue, margins, earnings and other financial results for the quarter ended March 31, 2011, see Results of Operations Three Months Ended March 31, 2010 versus Three Months Ended March 31, 2011 below.
Capital expenditures for the three months ended March 31, 2011 totaled $22.2 million. These capital expenditures were primarily for the expansion of our Richmond laboratory, scientific equipment for our laboratory units and leasehold improvements for our Vaccine and Biologics Center of Excellence. We made these investments to support growth in our businesses and to improve the efficiencies of our operations.
As of March 31, 2011, we had $452.6 million of cash, cash equivalents and short- and long-term investments. In the first quarter of 2011, we generated $41.9 million in cash from operations. The number of days revenue outstanding in accounts receivable and unbilled services, net of unearned income, also known as DSO, was 26 days for the three months ended March 31, 2011, compared to 22 days for the year ended December 31, 2010. Collection efficiency remains solid, demonstrated by our aged accounts receivables less than 90 days which remains over 90% of total accounts receivable for the three months ended March 31, 2011. We plan to continue to monitor DSO and the various factors that affect it. However, we expect DSO will continue to fluctuate in the future depending on contract terms, the mix of contracts performed and our success in collecting receivables.
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New Business Authorizations and Backlog
We add new business authorizations, which are sales of our services, to backlog when we enter into a contract or letter of intent or receive a verbal commitment. Authorizations have and will continue to vary significantly from quarter to quarter and contracts generally have terms ranging from several months to several years. We recognize revenue on these authorizations as services are performed. Our new authorizations for the three months ended March 31, 2010 and 2011 were $607.1 million and $639.5 million, respectively.
The dollar amount of our backlog consists of anticipated future net revenue from contracts, letters of intent and verbal commitments we consider highly reliable, that either have not started but are anticipated to begin in the future, or are in process and have not been completed. As of March 31, 2011, the remaining duration of the contracts in our backlog ranged from one to 119 months, with a weighted-average duration of 33 months. The weighted-average duration of the contracts in our backlog will fluctuate from period to period in the future based on the contracts constituting our backlog at any given time. The dollar amount of our backlog excludes net revenue that has been recognized previously in our statements of income and is adjusted each quarter for foreign currency fluctuations. Our backlog as of March 31, 2010 and 2011 was $3.1 billion and $3.6 billion, respectively. For various reasons discussed in Item 1. Business Backlog of our Form 10-K, our backlog might never be fully recognized as net revenue and is not necessarily a meaningful predictor of future performance.
Results of Operations
Revenue Recognition
We generally enter into contracts with clients to provide services with payments based on fixed and variable fee arrangements. We recognize revenue for services, as rendered, only after persuasive evidence of an arrangement exists, the sales price is determinable and collectability is reasonably assured. Once the above criteria have been met, we recognize revenue for the services provided based on the proportional performance methodology, which determines the proportion of outputs or performance obligations that have been completed or delivered compared to the total contractual outputs or performance obligations.
Some of our contractual arrangements with clients involve multiple service deliverables, such as developing testing methodologies, database management, investigator recruitment and clinical trial monitoring, among other services. Upon entering into the contractual arrangement, we determine whether each deliverable has standalone value to the client. If the multiple deliverables within the arrangement each have standalone value to the client, then a separate unit of accounting is assigned to each separate deliverable. If the multiple deliverables are not considered to each have standalone value to the client because the separate deliverables can only be used together, then the deliverables are considered bundled and only one unit of accounting is assigned to the entire arrangement.
A newly adopted accounting standard related to the accounting for revenue arrangement with multiple deliverables requires the allocation of the contractual arrangements value based on the relative selling price of the separately identified units of accounting within the arrangement. The standard requires a hierarchy of evidence to be followed when determining the best evidence of the selling price of an item. The best evidence of selling price for a unit of accounting is vendor-specific objective evidence, or VSOE, or the price charged when a deliverable is sold routinely on a standalone basis. When VSOE is not available to determine selling price, relevant third-party evidence, or TPE, of selling price should be used, such as prices competitors charge for interchangeable services to similar clients. When neither VSOE nor TPE of selling price for similar deliverables exists, we must use our best estimate of selling price, or BESP, considering all relevant information that is available.
We generally are not able to establish TPE for our services, as our deliverables are highly customized and competitor pricing is not available. VSOE can often be established for certain deliverables based on our standard price lists used for unitized services or the unit price or hourly rates set forth in the customer arrangement. BESP for deliverables is generally established based on labor costs, risks, and expected profit margins developed from the competitive bidding process for client contracts. We allocate the contractual arrangements value at the inception of the arrangement using the relative selling prices of the deliverable services within the contract based upon VSOE when available but primarily upon BESP. Consistent with our accounting policies prior to the adoption of this standard, we recognize revenue for the separate elements of our contracts in accordance with the revenue recognition criteria above. The adoption of this standard did not have a material impact on our consolidated condensed financial statements.
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Under a small number of client contracts, a portion of the payments owed to us are contingent upon successful achievement of performance standards or research and development success milestones. These payments are not included in the total contract value used for the proportional performance calculations until the achievement of the performance standard or milestone is reasonably assured. Milestone payments on contracts entered into subsequent to January 1, 2011 were immaterial.
For most clinical trial related service contracts in our Clinical Development Services segment and our Laboratory Services segment, we base measurement of performance on a comparison of direct costs through that date to estimated total direct costs to complete the contract. Direct costs relate primarily to the amount of labor and related overhead costs for the delivery of services. We believe this is the best indicator of the performance of the contractual obligations. Changes in the estimated total direct costs to complete a contract without a corresponding proportional change to the contract value result in a cumulative adjustment to the amount of revenue recognized in the period in which the change in estimate is determined. For time-and-material contracts, we recognize revenue as hours are worked, multiplied by the applicable hourly rate.
Additionally, the Laboratory Services segment enters into arrangements in which the performance obligation is a specified laboratory test. We recognize revenue under these arrangements based upon the number of samples tested times the contracted unit price.
In the event of changes in the scope, nature, duration, or volume of services of the contract with a client, we negotiate to modify our existing contract or establish a new contract to reflect the changes. We recognized renegotiated amounts as revenue by revision to the total contract value resulting from the renegotiated contract.
We often offer volume rebates to our large clients based on annual volume thresholds. We record an estimate of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total rebate to be earned for the period.
In connection with the management of clinical trials, we pay, on behalf of our clients, fees to investigators and test subjects as well as other out-of-pocket costs for items such as travel, printing, meetings and couriers. Our clients reimburse us for these costs. Amounts paid by us as a principal for out-of-pocket costs are included in direct costs and the reimbursements we receive as a principal are reported as reimbursed revenue. In our statements of income, we combine amounts paid by us as an agent for out-of-pocket costs with the corresponding reimbursements, or revenue, we receive as an agent. During the three months ended March 31, 2010 and 2011, fees paid to investigators and other fees we paid as an agent and the associated reimbursements were approximately $84.6 million and $100.7 million, respectively.
Most of our contracts can be terminated by our clients either immediately or after a specified period following notice. These contracts typically require the client to pay us the fees earned through the termination date, the fees and expenses to wind down the study and, in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Therefore, revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation.
Prior to our June 2010 spin-off of the Discovery Sciences segment, we generated Discovery Sciences segment revenue from our compound partnering business in the form of upfront payments, development and regulatory milestone payments, and royalties. Upfront payments were generally paid within a short period of time following the execution of an out-license and collaboration agreement. Milestone payments were typically one-time payments to us triggered by the collaborators achievement of specified development and regulatory events such as the commencement of Phase III trials or regulatory submission or approval. Royalties were payments received by us based on net product sales of a collaboration. We recognized these various forms of payment from our collaborators when the event which triggered the obligation of payment had occurred, there were no further obligations on our part in connection with the payment and collection was reasonably assured.
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Recording of Expenses
We generally record our operating expenses among the following categories:
| direct costs; |
| research and development; |
| selling, general and administrative; and |
| depreciation and amortization. |
Direct costs consist of amounts necessary to carry out the revenue and earnings process, and include direct labor and related benefit charges, other costs directly related to contracts, an allocation of facility and information technology costs, and reimbursable out-of-pocket expenses. Direct costs, as a percentage of net revenue, will fluctuate from one period to another as a result of changes in labor utilization and the mix of service offerings involved in the hundreds of studies being conducted during any period of time.
Research and development, or R&D, expenses for the Clinical Development Services and Laboratory Services segments consist of labor and related benefits charges, materials, supplies and technology costs related to the development of new services offerings for clients. R&D costs for the Discovery Sciences segment consisted primarily of costs associated with preclinical studies and the clinical trials of our product candidates, development materials, patent costs, labor and related benefit charges associated with personnel performing research and development work, supplies associated with this work, consulting services and an allocation of facility and information technology costs.
SG&A expenses consist primarily of administrative payroll and related benefit charges, sales, advertising and promotional expenses, recruiting and relocation expenses, training costs, administrative travel, an allocation of facility and information technology costs and costs related to operational employees performing administrative tasks.
Depreciation and amortization expenses consist of facility and equipment depreciation and amortization of intangible assets. We record property and equipment at cost less accumulated depreciation. We record depreciation expense on a straight-line method. We depreciate leasehold improvements over the shorter of the respective lives of the leases or the useful lives of the improvements.
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Three Months Ended March 31, 2010 versus Three Months Ended March 31, 2011
The following table sets forth amounts from our consolidated condensed financial statements along with the dollar and percentage change for the three months ended March 31, 2010 compared to the three months ended March 31, 2011.
Three Months Ended March 31, |
||||||||||||||||
(in thousands, except per share data) | 2010 | 2011 | $ Inc (Dec) | % Inc (Dec) | ||||||||||||
Net revenue: |
||||||||||||||||
Service revenue |
$ | 324,120 | $ | 356,165 | $ | 32,045 | 9.9 | % | ||||||||
Reimbursed revenue |
22,649 | 27,038 | 4,389 | 19.4 | ||||||||||||
Total net revenue |
346,769 | 383,203 | 36,434 | 10.5 | ||||||||||||
Direct costs |
182,802 | 206,823 | 24,021 | 13.1 | ||||||||||||
Research and development expenses |
6,338 | 2,220 | (4,118 | ) | (65.0 | ) | ||||||||||
Selling, general and administrative expenses |
112,910 | 104,947 | (7,963 | ) | (7.1 | ) | ||||||||||
Depreciation and amortization |
17,037 | 16,764 | (273 | ) | (1.6 | ) | ||||||||||
Operating income |
27,682 | 52,449 | 24,767 | 89.5 | ||||||||||||
(Loss) income from equity method investment |
(2,042 | ) | 2,549 | 4,591 | 224.8 | |||||||||||
Other income (expense), net |
1,273 | (47 | ) | (1,320 | ) | (103.7 | ) | |||||||||
Income from continuing operations before provision for income taxes |
26,913 | 54,951 | 28,038 | 104.2 | ||||||||||||
Provision for income taxes |
8,631 | 17,584 | 8,953 | 103.7 | ||||||||||||
Income from continuing operations |
18,282 | 37,367 | 19,085 | 104.4 | ||||||||||||
Loss from discontinued operations, net of income taxes |
(1,077 | ) | | 1,077 | 100.0 | |||||||||||
Net income |
17,205 | 37,367 | 20,162 | 117.2 | ||||||||||||
Net loss attributable to noncontrolling interests |
| 247 | 247 | 100.0 | ||||||||||||
Net income attributable to shareholders |
$ | 17,205 | $ | 37,614 | $ | 20,409 | 118.6 | |||||||||
Income per diluted share from continuing operations |
$ | 0.15 | $ | 0.32 | $ | 0.17 | 113.3 | |||||||||
Loss per diluted share from discontinued operations |
$ | (0.01 | ) | $ | | $ | 0.01 | 100.0 | ||||||||
Net income per diluted share |
$ | 0.14 | $ | 0.32 | $ | 0.18 | 128.6 | |||||||||
Total net revenue increased $36.4 million to $383.2 million in the first quarter of 2011. Service revenue was $356.2 million, which accounted for 92.9% of total net revenue for the first quarter of 2011. The $32.0 million increase in service revenue was attributable to a $30.0 million increase in net revenue from our Clinical Development Services segment and a $2.0 million increase in net revenue from our Laboratory Services segment. The increase in net revenue from our Clinical Development Services segment was primarily related to an increase in net authorizations during the trailing twelve- month period ended March 31, 2011 compared to the same period in 2010.
Total direct costs increased $24.0 million to $206.8 million in the first three months of 2011. The increase was mainly attributable to a $17.2 million increase in direct personnel costs, a $4.4 million increase in reimbursable out-of-pocket expenses, a $1.8 million reduction in research credits and a $1.3 million increase in contract labor and consulting. Direct personnel costs increased due to an increase in direct utilization and due to approximately 350 additional headcount added to support revenue growth.
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R&D expenses decreased $4.1 million to $2.2 million in the first three months of 2011. The decrease in R&D expense was due to the spin-off of the compound partnering business in June 2010 and was partially offset by increased spending in drug discovery services.
SG&A expenses decreased $8.0 million to $104.9 million in the first three months of 2011. The decrease in SG&A expenses was primarily related to a $3.3 million decrease in SG&A expenses related to the spin-off of the compound partnering business, $1.5 million decrease in non-billable travel and training costs, a $0.9 million decrease from receipt of a government grant, a $0.8 million decrease in personnel costs due to an increase in direct utilization, a $0.6 million decrease in accounting and legal costs, a $0.6 million decrease in contract labor and subcontractor costs and a $0.5 million reduction in loss on disposal of assets.
Depreciation and amortization expense decreased $0.3 million to $16.8 million in the first three months of 2011.
(Loss) income from equity investment increased by $4.6 million to $2.5 million in the first three months of 2011. The increase was attributable to the change in the net asset value of our investment in Celtic Therapeutics Holdings, L.P.
Other income (expense), net decreased $1.3 million to a net expense of $47,000 in the first three months of 2011. Changes in exchange rates from the time we recognize revenue until the client pays resulted in a net loss of $2.5 million in the first three months of 2011, down from a net gain of $0.5 million in the first three months of 2010. This loss was partially offset by a $1.2 million increase in interest income.
Our provision for income taxes from continuing operations increased $9.0 million to $17.6 million in the first three months of 2011. Our effective income tax rate for the first three months of 2010 and 2011 was 32%.
In the first three months of 2010, we incurred a loss from discontinued operations, net of income taxes of $1.1 million. This loss was attributable to discontinuing the operations of our wholly-owned subsidiary, PPD Dermatology, Inc.
Net income of $37.6 million in the first three months of 2011 represents an increase of 118.6% from $17.2 million in the first three months of 2010. Net income per diluted share of $0.32 in the first three months of 2011 represents a 128.6% increase from $0.14 net income per diluted share in the first three months of 2010. Net income changed for various reasons as explained above.
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Liquidity and Capital Resources
As of March 31, 2011, we had $349.8 million of cash and cash equivalents and $25.2 million of short-term investments. We invest our cash and cash equivalents and short-term investments in bank deposits, financial instruments that are issued or guaranteed by the U.S. government and municipal debt obligations. Our expected primary cash needs are for capital expenditures, expansion of services, possible acquisitions, investments, geographic expansion, dividends, working capital and other general corporate purposes. We have historically funded our operations, dividends and growth, including acquisitions, primarily with cash flow from operations.
We held $78.7 million and $77.6 million, net of unrealized losses, in auction rate securities at December 31, 2010 and March 31, 2011, respectively. Our portfolio of investments in auction rate securities consists principally of interests in government-guaranteed student loans, insured municipal debt obligations and municipal preferred auction rate securities. We classified our entire balance of auction rate securities as long-term investments as of March 31, 2011 due to continuing uncertainties about the liquidity of the auction rate securities market. We also recorded unrealized losses on these investments of $14.2 million and $15.3 million as of December 31, 2010 and March 31, 2011, respectively. We concluded that this impairment was temporary because of our ability to hold the auction rate securities until the fair value recovers and we have no current plans to sell the securities. We will continue to review the classification and valuation of these securities on a quarterly basis.
In the first three months of 2011, our operating activities provided $41.9 million in cash as compared to $62.0 million for the same period last year. The change in operating cash flow was due primarily to a net change in operating cash receipts and payments totaling $35.8 million, a net-of-tax gain from equity investment of $1.6 million in the current period as compared to a net-of-tax loss from equity investment of $1.3 million in the three months ended March 31, 2010 partially offset by a $20.2 million increase in net income in the first three months of 2011 compared to the same period of 2010. The change in adjustments for accruals of expected future operating cash receipts and payments includes unearned income of $23.0 million, accrued income taxes of $11.9 million and other assets of $2.3 million. The change in adjustments to deferrals of past operating cash receipts and payments includes accounts receivable and unbilled services, net of ($57.1) million, other accrued expenses and deferred rent of ($9.6) million and payables to investigators of ($6.4) million. Fluctuations in receivables and unearned income occur on a regular basis as we perform services, achieve billing criteria, send invoices to clients and collect outstanding accounts receivable. This activity varies by individual client and contract. We attempt to negotiate payment terms that provide for payment of services prior to or soon after the provision of services, but the levels of unbilled services and unearned revenue can vary significantly from period to period.
In the first three months of 2011, our investing activities provided $27.1 million in cash. We used cash of $22.2 million for capital expenditures, $4.4 million for advances to a related party, and $1.8 million to purchase investments. These amounts were offset by maturity and sale of investments of $55.5 million. Our capital expenditures in the first three months of 2011 primarily consisted of $11.5 million for various facility improvements and furnishings, $5.6 million for computer software and hardware and $5.1 million for additional scientific equipment for our laboratory units.
In the first three months of 2011, our financing activities used $207.8 million of cash. In the first three months of 2011, we paid $200.0 million to repurchase common stock and $19.0 million of dividends to shareholders, which were partially offset by proceeds of $10.9 million from stock option exercises and purchases under our employee stock purchase plan.
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The following table sets forth amounts from our consolidated condensed balance sheet affecting our working capital, along with the dollar amount of the change from December 31, 2010 to March 31, 2011.
(in thousands) | December 31, 2010 |
March 31, 2011 |
$ Inc (Dec) | |||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 479,574 | $ | 349,778 | $ | (129,796 | ) | |||||
Short-term investments |
79,976 | 25,245 | (54,731 | ) | ||||||||
Accounts receivable and unbilled services, net |
435,876 | 467,276 | 31,400 | |||||||||
Income tax receivable |
12,327 | 6,570 | (5,757 | ) | ||||||||
Investigator advances |
16,032 | 16,024 | (8 | ) | ||||||||
Prepaid expenses |
24,535 | 28,424 | 3,889 | |||||||||
Deferred tax assets |
30,910 | 32,969 | 2,059 | |||||||||
Cash held in escrow |
10,304 | 9,701 | (603 | ) | ||||||||
Other current assets |
44,172 | 27,129 | (17,043 | ) | ||||||||
Total current assets |
$ | 1,133,706 | $ | 963,116 | $ | (170,590 | ) | |||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 29,858 | $ | 38,467 | $ | 8,609 | ||||||
Payables to investigators |
56,612 | 55,215 | (1,397 | ) | ||||||||
Accrued income taxes |
1,918 | 13,153 | 11,235 | |||||||||
Other accrued expenses |
208,128 | 193,188 | (14,940 | ) | ||||||||
Unearned income |
317,191 | 334,364 | 17,173 | |||||||||
Total current liabilities |
$ | 613,707 | $ | 634,387 | $ | 20,680 | ||||||
Working capital |
$ | 519,999 | $ | 328,729 | $ | (191,270 | ) |
Working capital as of March 31, 2011 was $328.7 million, compared to $520.0 million at December 31, 2010. The decrease in working capital was due primarily to a decrease in cash and cash equivalents and short-term investments of $129.8 million and $54.7 million, respectively, related to the repurchase of additional shares of our common stock, a decrease in other assets of $17.0 million, an increase in unearned income of $17.1 million, an increase in accrued income taxes of $11.2 million, partially offset by an increase in accounts receivable and unbilled services, net of $31.4 million and a decrease in other accrued expenses of $14.9 million.
For the three months ended March 31, 2011, DSO was 26 days, compared to 22 days for the year ended December 31, 2010. We calculate DSO by dividing accounts receivable and unbilled services less unearned income by average daily gross revenue for the applicable period. DSO will continue to fluctuate in the future depending on contract terms, the mix of contracts performed within a period, the levels of investigator advances and unearned income, and our success in collecting receivables.
In April 2011, we entered into a $50.0 million revolving line of credit facility with Barclays Bank PLC. The facility has a term of one-year and we can use borrowings for general corporate purposes. The credit facility contains normal, usual and customary affirmative, negative and financial covenants for financings of this size and kind. Outstanding borrowings under the credit facility bear interest at an annual fluctuating rate tied to certain financial indices plus an agreed upon margin. The credit facility is currently scheduled to expire in April 2012, at which time any outstanding balance will be due.
The annual cash dividend policy and the payment of future quarterly cash dividends under that policy are not guaranteed and are subject to the discretion of and continuing determination by our board of directors that the policy remains in the best interests of our shareholders and in compliance with applicable laws and agreements.
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In February 2008, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $350.0 million of its common stock from time to time. In February 2011, we entered into an accelerated share repurchase, or ASR, arrangement with Barclays Capital Inc. under which we used $200.0 million of the remaining amount to repurchase additional shares of our common stock. During the three months ended March 31, 2011, we repurchased approximately 6.5 million shares of our common stock under this arrangement for an aggregate purchase price of approximately $200.0 million.
The agreement with Barclays for the ASR includes a forward sale contract that is expected to settle prior to September 2011. Under the terms of the forward sale contract, Barclays is required to purchase, in the open market, $200.0 million of shares of our common stock during the term of the contract to fulfill its obligation related to the shares it borrowed from third parties and sold to us. At settlement, we, at our option, are required to either pay cash or issue registered or unregistered shares of our common stock to Barclays if Barclayss volume weighted average purchase price of open market purchases is higher than the average price of the 6.5 million shares purchased by us from Barclays, such average price is referred to as the hedge price. If Barclays volume weighted average price is lower than the hedge price, Barclays is required to pay us either cash or additional shares of our common stock, at our option.
As of March 31, 2011, $60.7 million remained available for stock repurchases authorized by the Board of Directors. The manner of purchases, the amount we spend and the number of shares repurchased will vary based on a variety of factors, including the status of the Barclays ASR program, the stock price and blackout periods in which we are restricted from repurchasing shares.
In 2009, we committed to invest up to $102.7 million in Celtic Therapeutics Holdings L.P., or Celtic, as a limited partner. Celtic is an investment partnership organized for the purpose of identifying, acquiring and investing in a diversified portfolio of novel therapeutic product candidates, with a focus on mid-stage compounds that have progressed through human proof of concept studies that are targeted to address unmet medical needs. As of March 31, 2011, we had a remaining commitment of $60.0 million and had an investment balance of $41.3 million. We expect to invest the remainder of our commitment over a period of three years.
In 2010, we entered into a non-revolving line of credit agreement to loan Celtic Pharma Development Services Bermuda Ltd., a subsidiary of Celtic Pharmaceutical Holdings L.P., up to $18.0 million to finance trade payables in connection with a specified drug candidate. Celtic Pharma Development Services Bermuda Ltd. has appointed us to conduct certain clinical studies on the specified drug candidate. Principal and interest are due and payable no later than June 30, 2013 and are secured by a guarantee of an affiliate of the borrower. As of March 31, 2011, we had advanced $13.6 million to the borrower.
As of March 31, 2011, we had commitments to invest up to an aggregate additional $10.1 million in several venture capital funds and $1.6 million in other investments. For further details, see Note 3 in the notes to consolidated condensed financial statements.
As of March 31, 2011, our total gross unrecognized tax benefits were $27.8 million of which $15.2 million, if recognized, would reduce our effective tax rate. We believe that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $4.7 million within the next twelve months due to the settlement of audits and the expiration of the statutes of limitations.
Our policy for recording interest and penalties associated with tax audits is to record them as a component of provision for income taxes. As of March 31, 2011, we accrued $4.6 million of interest and $0.9 million of penalties with respect to uncertain tax positions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, we will reduce amounts accrued and reflect them as a reduction of the overall income tax provision.
We analyzed filing positions in all of the significant federal, state and foreign jurisdictions where we are required to file income tax returns, as well as open tax years in these jurisdictions. The only periods subject to examination by the major tax jurisdictions where we do business are the 2007 through 2011 tax years. Various of our foreign and state income tax returns are under examination by taxing authorities. We do not believe that the outcome of any examination will have a material impact on our financial condition or results of operations.
Under most of our agreements for services, we typically agree to indemnify and defend the sponsor against third-party claims based on our negligence or willful misconduct. Any successful claims could have a material adverse effect on our financial statements.
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We expect to continue expanding our operations through internal growth, strategic acquisitions and investments. We expect to fund these activities, the payment of future cash dividends and repurchases of stock from existing cash, cash flows from operations and, if necessary or appropriate, borrowings under credit facilities. We believe that these sources of liquidity will be sufficient to fund our operations, dividends and stock repurchases for the foreseeable future. From time to time, we evaluate potential acquisitions, investments and other growth and strategic opportunities that might require additional external financing, and we might seek funds from public or private issuances of equity or debt securities. While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity and ability to pay dividends or repurchase our stock could be affected by current and anticipated difficult economic conditions; our dependence on a small number of industries and clients; compliance with regulations; reliance on key personnel; breach of contract, personal injury or other tort claims; international risks; environmental or intellectual property claims; or other factors described below under Potential Liability and Insurance, Potential Volatility of Quarterly Operating Results and Stock Price and Quantitative and Qualitative Disclosures about Market Risk. In addition, see Risk Factors, Contractual Obligations and Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2010.
Off-Balance Sheet Arrangements
From time to time, we cause letters of credit to be issued to provide credit support for guarantees, contractual commitments and insurance policies. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees competitively determined in the marketplace. As of March 31, 2011, we had four letters of credit outstanding for a total of $1.8 million. We have no other off-balance sheet arrangements except for operating leases entered into in the normal course of business.
Contractual Obligations
There have been no significant changes to the Contractual Obligation table included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2010. Other than the adoption of the new accounting standard related to accounting for revenue arrangements with multiple deliverables and milestone payments which requires additional disclosures, there were no material changes to our critical accounting policies and estimates in the first three months of 2011. For detailed information on our critical accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2010.
Recent Accounting Pronouncements
In October 2009, the Financial Account Standard Board, or FASB, issued a new accounting standard related to accounting for revenue arrangements with multiple deliverables. This standard applies to all deliverables in contractual arrangements in all industries in which the vendor will perform multiple revenue-generating activities. This standard also addresses the unit of accounting for arrangement involving multiple deliverables and how arrangement consideration should be allocated. This standard was effective on January 1, 2011 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated condensed financial statements, other than requiring the additional disclosures included in Note 1 under Revenue recognition.
In March 2010, the FASB issued a new accounting standard, the objective of which is to establish a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. This consensus applies to milestones in single or multiple-deliverable arrangements involving research and development transactions and was effective on January 1, 2011 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated condensed financial statements, other than requiring additional disclosures.
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In April 2011, the FASB issued an accounting standard update clarifying the guidance as to whether a restructuring of accounts receivable constitutes a troubled debt restructuring. The guidance applies to modifications of receivables when a debtor is experiencing financial difficulties. This guidance will be effective for the first interim period beginning on or after June 15, 2011. We do not expect the adoption of this guidance to have a material impact on our consolidated condensed financial statements.
Income Taxes
Because we conduct operations on a global basis, our effective tax rate has and will continue to depend upon the geographic distribution of our pretax earnings among locations with varying tax rates. Our profits are also impacted by changes in the tax rates and tax laws of the various tax jurisdictions as applied to certain items of income and loss recognized for U.S. GAAP purposes. In particular, as the geographic mix of our pretax earnings among various tax jurisdictions changes, our effective tax rate might vary from period to period. The effective rate will also change due to the discrete recognition of tax benefits when tax positions are effectively settled or as a result of specific transactions, such as the receipt of nontaxable research benefits.
Inflation
Our long-term contracts, those in excess of one year, generally include an inflation or cost of living adjustment for the portion of the services to be performed beyond one year from the contract date. In the event that actual inflation rates are greater than our contractual inflation rates or cost of living adjustments, inflation could have a material adverse effect on our operations or financial condition.
Potential Liability and Insurance
Drug development services involve the testing of potential drug candidates on human volunteers pursuant to a study protocol. This testing exposes us to the risk of liability for personal injury or death to study volunteers, participants and patients resulting from, among other things, possible unforeseen adverse side effects, improper administration of the study drug or use of the drug following regulatory approval. We attempt to manage our risk of liability for personal injury or death to volunteers and participants from administration of study products through standard operating procedures, patient informed consent, contractual indemnification provisions with clients and insurance. We monitor clinical trials in compliance with government regulations and guidelines. We have established global standard operating procedures intended to satisfy regulatory requirements in all countries in which we have operations and to serve as a tool for controlling and enhancing the quality of clinical drug development and laboratory services. The contractual indemnifications generally do not protect us against all our own actions, such as gross negligence. We currently maintain professional liability insurance coverage with limits we believe are adequate and appropriate.
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Potential Volatility of Quarterly Operating Results and Stock Price
Our quarterly and annual operating results have fluctuated in the past, and we expect that they will continue to fluctuate in the future. Factors that could cause these fluctuations to occur include:
| the timing and level of new business authorizations; |
| project cancellations; |
| the timing of the initiation and progress of significant projects; |
| our dependence on a small number of industries and clients; |
| our ability to properly manage our growth or contraction in our business; |
| our ability to recruit and retain experienced personnel, including a new CEO; |
| the timing and amount of costs associated with integrating acquisitions; |
| the timing and extent of new government regulations; |
| impairment of investments or intangible assets; |
| variability of equity method investments; |
| litigation costs; |
| the timing of the opening of new offices; |
| the timing of other internal expansion costs; |
| exchange rate fluctuations between periods; |
| the mix of products and services sold in a particular period; |
| pricing pressure in the market for our services; |
| rapid technological change; |
| the timing and amount of start-up costs incurred in connection with the introduction of new products and services; and |
| intellectual property risks. |
Delays and terminations of trials are often the result of actions taken by our clients or regulatory authorities, and are not typically controllable by us. Because a large percentage of our operating costs are relatively fixed while revenue is subject to fluctuation, variations in the timing and progress of large contracts can materially affect our quarterly operating results. For these reasons, we believe that comparisons of our quarterly financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.
Fluctuations in quarterly results, actual or anticipated changes in our dividend policy or stock repurchase plan or other factors, including recent general economic and financial market conditions, could affect the market price of our common stock. These factors include ones beyond our control, such as changes in revenue and earnings estimates by analysts, market conditions in our industry, disclosures by product development partners and actions by regulatory authorities with respect to potential drug candidates, changes in pharmaceutical, biotechnology and medical device industries and the government sponsored clinical research sector and general economic conditions. Any effect on our common stock could be unrelated to our longer-term operating performance. For further details, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to foreign currency risk by virtue of our international operations. We derived 40.4% and 44.3% of our net revenue for the three months ended March 31, 2010 and 2011, respectively, from operations outside the United States. We generally reinvest funds generated by each subsidiary in the country where they are earned. Accordingly, we are exposed to adverse movements in foreign currencies, predominately in the pound sterling, euro and Brazilian real.
The vast majority of our contracts are entered into by our U.S., U.K. or Singapore subsidiaries. The contracts entered into by the U.S. subsidiaries are almost always denominated in U.S. dollars. Contracts entered into by our U.K. and Singapore subsidiaries are generally denominated in U.S. dollars, pounds sterling or euros, with the majority in U.S. dollars. Although an increase in exchange rates for the pound sterling or euro relative to the U.S. dollar increases net revenue from contracts denominated in these currencies, operating income is negatively affected due to an increase in operating expenses that occurs when we convert our expenses from local currencies into the U.S. dollar equivalent.
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We also have currency risk resulting from the passage of time between the recognition of revenue, invoicing of clients under contracts and the collection of client payments against those invoices. If a contract is denominated in a currency other than the subsidiarys local currency, we recognize an unbilled receivable at the time of revenue recognition and a receivable at the time of invoicing for the local currency equivalent of the foreign currency invoice amount. Changes in exchange rates from the time we recognize revenue until the time the client pays will result in our receiving either more or less in local currency than the amount that was originally invoiced. We recognize this difference as a foreign currency transaction gain or loss, as applicable, and report it in other income, net. If the exchange rate on accounts receivable balances denominated in pounds sterling and euros had increased by 10%, our foreign currency transaction loss would have increased by $5.2 million at March 31, 2011.
Our strategy for managing foreign currency risk relies primarily on receiving payment in the same currency used to pay expenses and other non-derivative hedging strategies. From time to time, we also enter into foreign currency hedging activities in an effort to manage our potential foreign exchange exposure. If the U.S. dollar had weakened an additional 10% relative to the pound sterling, euro and Brazilian real in the first quarter of 2011, income from continuing operations, including the impact of hedging, would have been approximately $0.3 million lower for the quarter based on revenues and the costs related to our foreign operations. From time to time, we also enter into foreign currency hedging activities in an effort to manage our potential foreign exchange exposure. We have entered into hedges designed to cover a significant portion of our foreign currency exposure for 2011.
Changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of foreign subsidiaries financial results into U.S. dollars for purposes of reporting our consolidated condensed financial results. The process by which we translate each foreign subsidiarys financial results to U.S. dollars is as follows:
| we translate statement of income accounts at average exchange rates for the period; |
| we translate balance sheet asset and liability accounts at end of period exchange rates; and |
| we translate equity accounts at historical exchange rates. |
Translation of the balance sheet in this manner affects shareholders equity through the cumulative translation adjustment account. This account exists only in the foreign subsidiarys U.S. dollar balance sheet and is necessary to keep the foreign balance sheet, stated in U.S. dollars, in balance. We report translation adjustments with accumulated other comprehensive income (loss) as a separate component of shareholders equity.
Currently, there are no material exchange control restrictions on the payment of dividends or otherwise prohibiting the transfer of funds out of any country in which we conduct operations. Although we perform services for clients located in a number of jurisdictions, we have not experienced any material difficulties in receiving funds remitted from foreign countries. However, new or modified exchange control restrictions could have an adverse effect on our financial condition. If we were to repatriate dividends from the cumulative amount of undistributed earnings in foreign entities, we would incur a tax liability not currently provided for in our consolidated condensed balance sheet.
We are exposed to changes in interest rates on our cash, cash equivalents, investments and advances to and lines of credit with related parties. We invest our cash and investments in financial instruments with interest rates based on market conditions. If the interest rates on cash, cash equivalents and investments decreased by 10%, our interest income would have decreased by approximately $0.1 million in the three months ended March 31, 2011.
We are also exposed to market risk related to our investments in auction rate securities. For further details, see Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources on our Form 10-K.
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Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.
Internal Control Over Financial Reporting
No change to our internal control over financial reporting occurred during the first quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer purchases of equity securities
In February 2008, the Companys Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $350.0 million of its common stock from time to time. The timing and amount of any share repurchases under this program is determined by the Companys management based on their evaluation of market conditions and other factors. The Company is not required to repurchase any specific number of shares or to make repurchases by any certain date under this program.
As of December 31, 2010, $260.7 million remained available under the stock repurchase program. In February 2011, the Company entered into an accelerated share arrangement with Barclays Capital Inc., as agent for Barclays Bank PLC, pursuant to which the Company paid $200.0 million from cash on hand to Barclays to repurchase outstanding shares of the Companys common stock. The cost of shares purchased through the accelerated share repurchase transaction is subject to adjustment upon final settlement. The following table summarizes the Companys repurchases for the three months ended March 31, 2011:
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
|||||||||||||
Period |
||||||||||||||||
January 1, 2011 to January 31, 2011 |
| $ | | | $ | 260,700,000 | ||||||||||
February 1, 2011 to February 28, 2011 |
4,152,250 | 30.93 | 4,152,250 | 60,700,000 | ||||||||||||
March 1, 2011 to March 31, 2011 |
2,313,185 | 30.93 | 2,313,185 | 60,700,000 | ||||||||||||
Total |
6,465,435 | $ | 30.93 | 6,465,435 | $ | 60,700,000 |
(1) | On February 14, 2011, the Company announced that it entered into an accelerated share repurchase arrangement under which the Company committed to repurchase $200 million of its common stock. The Company paid $200 million to Barclays in February 2011, and the shares were repurchased by the Company in February and March 2011. |
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Item 6. | Exhibits |
(a) | Exhibits |
10.278^ | Confirmation between Pharmaceutical Product Development, Inc. and Barclays Bank PLC acting through its agent Barclays Capital Inc., dated February 14, 2011. | |
10.279 | Twelfth Amendment dated January 31, 2011, to Lease Agreement, dated April 30, 2001, by and between Greenway Office Center, L.L.C and PPD Development, LP. | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) | |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Chief Executive Officer | |
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Chief Financial Officer | |
101 | Financials provided in XBRL format |
^ | Confidential treatment requested for portions of this exhibit. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. | ||
(Registrant) | ||
By | /s/ David L. Grange | |
Chief Executive Officer (Principal Executive Officer) | ||
By | /s/ Daniel G. Darazsdi | |
Chief Financial Officer | ||
(Principal Financial Officer) | ||
By | /s/ Peter Wilkinson | |
Chief Accounting Officer | ||
(Principal Accounting Officer) |
Date: May 3, 2011
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EXHIBIT 10.278
Portions of this exhibit marked [*] are requested to be treated confidentially.
Barclays Bank PLC 5 The North Colonnade Canary Wharf, London E14 4BB Facsimile:+44(20)77736461 Telephone: +44 (20) 777 36810
c/o Barclays Capital Inc. as Agent for Barclays Bank PLC 745 Seventh Ave New York, NY 10019 |
DATE: |
February 14, 2011 | |
TO: |
Pharmaceutical Product Development, Inc. | |
Attention: |
Mr. Judd Hartman | |
General Counsel | ||
Facsimile: | 910-558-6951 | |
Telephone: |
910-558-6928 | |
Email: |
judd.hartman@ppdi.com | |
FROM: |
Barclays Capital Inc., acting as Agent for Barclays Bank PLC | |
TELEPHONE: |
+1 212 412 4000 | |
SUBJECT: |
Share Repurchase Transaction |
The purpose of this letter agreement (this Confirmation) is to confirm the terms and conditions of the Transaction entered into between Barclays Bank PLC (Barclays), through its agent Barclays Capital Inc. (the Agent), and Pharmaceutical Product Development, Inc. (Counterparty) on the Trade Date specified below (the Transaction). This Confirmation constitutes a Confirmation as referred to in the Master Agreement specified below. Barclays Bank PLC is not a member of the Securities Investor Protection Corporation (SIPC). Barclays is regulated by the Financial Services Authority.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the Equity Definitions), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. For purposes of the Equity Definitions, this Transaction shall be deemed to be a Share Forward Transaction.
Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.
1. This Confirmation evidences a complete and binding agreement between Barclays and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to, an agreement in the form of the ISDA 1992 Master Agreement (Multicurrency Cross Border) (the Agreement) as if Barclays and Counterparty had executed an agreement in such form (without any Schedule but with the Cross-Default provisions of Section 5(a)(vi) applicable to Barclays and Counterparty with a Threshold of three percent of applicable partys shareholder equity as of its most recent fiscal year end and with such other elections set forth in this Confirmation) on the Trade Date. In the event of any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement.
2. The terms of the particular Transaction to which this Confirmation relates are as follows:
General Terms:
Trade Date: |
February 14, 2011 | |
Seller: |
Barclays | |
Buyer: |
Counterparty | |
Shares: |
The Common Stock, USD 0.05 par value per share of Counterparty (Ticker symbol PPDI). | |
Prepayment: |
Applicable | |
Variable Obligation |
Applicable | |
Prepayment Amount: |
As specified in Schedule A | |
Prepayment Date: |
The Trade Date. | |
Additional Payment: |
Counterparty shall pay to Barclays an amount equal to the Additional Payment as specified in Schedule A on the Prepayment Date. | |
Initial Hedge Period: |
The period (the Initial Hedge Period) commencing on the Trade Date and ending on the earlier of (i) [*], and (ii) the Exchange Business Day on which Barclays completes the purchase of a number of Shares (the Hedge Shares) necessary to establish its initial hedge position with respect to this Transaction (such date, the Hedge Period End Date). On the first Scheduled Trading Day immediately following the Hedge Period End Date, Barclays shall provide written notice (the Confirmation Pricing Supplement) to Counterparty in substantially the form attached hereto as Exhibit A, of the Hedging Price, Maximum Shares, Minimum Shares, Maximum Maturity Date, Minimum Maturity Date and first day of the Trading Period. Upon receipt of the Confirmation Pricing Supplement, Counterparty shall promptly execute and return the Confirmation Pricing Supplement to Barclays; provided that Counterpartys failure to so execute and return the Confirmation Pricing Supplement shall not affect the binding nature of the Confirmation Pricing Supplement, and the terms set forth therein, if accurately determined pursuant to the terms of this Confirmation, shall be binding on Counterparty to the same extent, and with the same force and effect, as if Counterparty had executed a written version of the Confirmation Pricing Supplement. | |
Hedging Price: |
The volume weighted average of the 10b-18 VWAPs for all Scheduled Trading Days on which Barclays purchases Shares on the Exchange during the Initial Hedge Period where the daily weight for the calculation of the volume weighted average is equal to the quotient of (i) the number of Shares Barclays purchases on such day as part of establishing its hedge position with respect to this Transaction divided by (ii) the total number of Shares Barclays purchases on the Exchange as part of establishing its hedge position with respect to this Transaction during the Initial Hedge Period. | |
[*] Confidential treatment requested; certain information omitted and filed separately with the SEC. |
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Exchange: |
NASDAQ Global Select Market | |
Related Exchange(s): |
All Exchanges | |
Calculation Agent: |
Barclays | |
Valuation: |
||
Trading Period: |
The period of consecutive Scheduled Trading Days from and including the first Scheduled Trading Day following the Hedge Period End Date to and including the Maximum Maturity Date, as specified in Schedule A; provided that, Barclays may designate any Scheduled Trading Day on or after the Minimum Maturity Date, as specified in Schedule A, as the last Scheduled Trading Day of the Trading Period. Barclays shall notify Counterparty of any designation made pursuant to this provision on the Scheduled Trading Day immediately following such designated day. | |
Market Disruption Event: |
Section 6.3(a) of the Equity Definitions shall be amended by deleting the words at any time during the one hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be and replacing them with the words at any time during the regular trading session on the Exchange, without regard to after hours or any other trading outside of the regular trading session hours, by amending and restating clause (a)(iii) thereof in its entirety to read as follows: (iii) an Early Closure that the Calculation Agent reasonably determines is material and by adding the words or (iv) a Regulatory Disruption after clause (a)(iii) as restated above.
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term Scheduled Closing Time in the fourth line thereof. | |
Regulatory Disruption: |
A Regulatory Disruption shall occur if Barclays, on the advice of counsel, determines in its reasonable discretion that it is appropriate in light of legal, regulatory or self-regulatory requirements or related policies or procedures for Barclays to refrain from all or any part of the market activity in which it would otherwise engage in connection with this Transaction. | |
Disrupted Day: |
The definition of Disrupted Day in Section 6.4 of the Equity Definitions shall be amended by adding the following sentence after the first sentence: A Scheduled Trading Day on which a Related Exchange fails to open during its regular trading session will not be a Disrupted Day if the Calculation Agent determines that such failure will not have a material impact on Barclayss ability to unwind any hedging transactions related to the Transaction. | |
Consequence of Disrupted Days: |
Notwithstanding anything to the contrary in the Equity Definitions, to the extent that a Disrupted Day occurs during the Initial Hedge Period or the Trading Period, the Calculation Agent may postpone the Maximum Maturity Date and/or the Minimum Maturity Date. If any Disrupted Day occurs during the Initial Hedge Period or the Trading Period, the Calculation Agent shall determine whether (i) such Disrupted Day is a Disrupted Day in whole, in which case the 10b-18 VWAP for such Disrupted Day shall not be included for purposes of determining the Hedging |
3
Price, if such Disrupted Date occurs during the Initial Hedge Period, or the Forward Price, if such Disrupted Date occurs during the Trading Period, or (ii) such Disrupted Day is a Disrupted Day only in part, in which case the 10b-18 VWAP for such Disrupted Day shall be determined by the Calculation Agent based on Rule 10b-18 eligible transactions in the Shares on such Disrupted Day effected before the relevant Market Disruption Event (if any) occurred and/or after the relevant Market Disruption Event (if any) ended. Any day on which the Exchange is scheduled to close prior to its normal closing time shall be considered a Disrupted Day in whole. | ||
Valuation Time: |
Scheduled Closing Time; provided that if the principal trading session is extended, the Calculation Agent shall determine the Valuation Time in its reasonable discretion. | |
Valuation Date: |
The last Scheduled Trading Day during the Trading Period. | |
Settlement Terms: |
||
Settlement Method Election: |
Not Applicable; provided that if the Number of Shares to be Delivered is a negative number, Counterparty may elect Cash Settlement in lieu of Physical Settlement by written notice to Barclays at any time no later than 9:00 a.m. (New York City time) on the second Scheduled Trading Day immediately following the earlier of (i) the Scheduled Trading Day on which Counterparty receives from Barclays a notice of designation of the last Scheduled Trading Day of the Trading Period and (ii) the Maximum Maturity Date; provided further that Counterparty on the date of such election provides the representation contained in paragraph 5(p) below. | |
Physical Settlement: |
Applicable if the Number of Shares to be Delivered is (1) a positive number, in which case it means that on the Settlement Date Barclays shall deliver to Counterparty the Number of Shares to be Delivered, or (2) a negative number and Counterparty does not make the election pursuant to the proviso under Settlement Method Election above, in which case it means that Counterparty shall deliver to Barclays the absolute value of such number subject to Physical Settlement by Counterparty and paragraph 5(i) below. | |
Forward Price: |
The amount equal to the arithmetic average of the 10b-18 VWAPs for all Exchange Business Days in the Trading Period (the Average 10b-18 VWAP). | |
10b-18 VWAP: |
(A) For any Scheduled Trading Day that is not a Disrupted Day, the volume-weighted average price at which the Shares trade as reported in the composite transactions for all United States securities exchanges on which such Shares are traded (or, if applicable, any successor Exchange), excluding (i) trades that do not settle regular way, (ii) opening (regular way) reported trades in the consolidated system on such Scheduled Trading Day, (iii) trades that occur in the last ten minutes before the scheduled close of trading on the Exchange on such Scheduled Trading Day and ten minutes before the scheduled close of the primary trading in the market where the trade is effected, and (iv) trades on such Scheduled Trading Day that do not satisfy the requirements of Rule 10b-18(b)(3) of the Securities Exchange Act of 1934, as |
4
amended (the Exchange Act), as determined in good faith by the Calculation Agent, or (B) for any Scheduled Trading Day that is a Disrupted Day, an amount determined in good faith and in a commercially reasonable manner by the Calculation Agent as 10b-18 VWAP pursuant to Consequence of Disrupted Days above. Counterparty acknowledges that the Calculation Agent may refer to the Bloomberg Page PPDI <Equity> AQR SEC (or any successor thereto) for any Scheduled Trading Day to determine the 10b-18 VWAP. | ||
Number of Shares to be Delivered: |
A number of Shares equal to the difference between (i) the Share Amount minus (ii) the number of Shares previously delivered pursuant to Initial Share Delivery and Minimum Share Delivery; provided that a number of Shares less than a whole number shall be rounded upward. | |
Share Amount: |
The quotient of the Prepayment Amount divided by the Forward Price; provided that if such quotient is (i) greater than the Maximum Shares, the Share Amount shall equal the Maximum Shares, and (ii) less than the Minimum Shares, the Share Amount shall equal the Minimum Shares. | |
Settlement Date: |
Three Exchange Business Days following the last Scheduled Trading Day during the Trading Period. | |
Initial Shares: |
As specified in Schedule A. | |
Initial Share Delivery: |
Barclays shall deliver a number of Shares equal to the Initial Shares to Counterparty on the Initial Share Delivery Date in accordance with Section 9.4 of the Equity Definitions, with the Initial Share Delivery Date being deemed to be a Settlement Date for purpose of such Section 9.4. | |
Initial Share Delivery Date: |
The Trade Date. | |
Minimum Shares: |
As specified in Schedule A. | |
Minimum Share Delivery: |
Barclays shall deliver the excess, if any, of (i) the Minimum Shares over (ii) the number of the Initial Shares on the Minimum Share Delivery Date in accordance with Section 9.4 of the Equity Definitions, with the Minimum Share Delivery Date being deemed to be a Settlement Date for purpose of such Section 9.4. | |
Minimum Share Delivery Date: |
Three Scheduled Trading Days following the Hedge Period End Date. | |
Maximum Shares: |
As specified in Schedule A. | |
Physical Settlement by Counterparty: |
If Physical Settlement applies and the Counterparty is required to deliver Shares hereunder, Counterparty shall deliver an initial number of Shares on the Cash Settlement Date (as defined in paragraph 5(h) below) as determined by the following formula (the Physical Settlement Shares): s p
Where, s = the absolute value of the Cash Settlement Amount (as defined in paragraph 5(h) below); and p = the Physical Settlement Price |
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provided, however, that if the Physical Settlement Shares (and any Make-Whole Shares) are not Free Shares or if the parties have not entered into an Underwriting Agreement, p shall be the price determined by Barclays in a commercially reasonable manner. No fractional Shares shall be delivered in connection with Physical Settlement by Counterparty, and the value of any fractional Share otherwise deliverable shall be rounded up to the nearest whole Share.
Counterparty has the right to elect that the Physical Settlement Shares (and any Make-Whole Shares, as such term is defined below) shall be (i) fully registered, freely tradable and free and clear of any lien, charge, claim or other encumbrance (Free Shares) with such election being conditional upon the agreement between Barclays and Counterparty of reasonable and customary underwriting terms including but not limited to indemnification and contribution and due diligence (the Underwriting Agreement), or (ii) unregistered Shares (Restricted Shares).
On the Cash Settlement Date a balance (the Settlement Balance) shall be established with an initial balance equal to the absolute value of the Cash Settlement Amount. Following the sale of the Physical Settlement Shares by Barclays, the Settlement Balance shall be reduced by an amount equal to the aggregate proceeds (net of any brokerage and underwriting commissions and fees, including any customary private placement fees) received by Barclays upon the sale of the Physical Settlement Shares. If following the sale of some but not all of the Physical Settlement Shares the Settlement Balance has been reduced to zero, no additional Physical Settlement Shares shall be sold by Barclays and Barclays shall redeliver to Counterparty any remaining Physical Settlement Shares. If following the sale of the Physical Settlement Shares the Settlement Balance has not been reduced to zero, then Counterparty shall (i) promptly deliver to Barclays an additional number of Shares (the Make-Whole Shares) equal to (x) the Settlement Balance as of such date divided by (y) the closing price per Share on the Exchange, as determined by the Calculation Agent, on the Exchange Business Day immediately preceding the date such Shares are delivered, or, if the Make-Whole Shares are not Free Shares or if the parties have not entered into an Underwriting Agreement with respect to such Make-Whole Shares, the price determined by Barclays in a commercially reasonable manner (the Make-Whole Price) or (ii) promptly deliver to Barclays cash in an amount equal to the then remaining Settlement Balance. This provision shall be applied successively until the Settlement Balance is reduced to zero.
For the avoidance of doubt, in the event that a Settlement Balance remains following the delivery by Counterparty to Barclays of the Maximum Number of Shares (as defined in paragraph 5(q) herein), Counterparty shall have no obligation to settle any remaining Settlement Balance via the delivery to of Shares, cash or other consideration to Barclays unless after having used its best efforts to do so, Counterparty was able to obtain all necessary approvals to issue additional Shares to satisfy such remaining Settlement Balance. |
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Physical Settlement Price: |
The closing price per Share as quoted by the Exchange at the Valuation Time on the Cash Settlement Date. | |
Cash Settlement: |
Applicable if the Number of Shares to be Delivered is a negative number and Counterparty makes the election above pursuant to the proviso under Settlement Method Election above, in which case it means that paragraph 5(h) below shall apply. | |
Settlement Currency: |
USD | |
Adjustments: |
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Method of Adjustment: |
Calculation Agent Adjustment; provided that the Equity Definitions shall be amended by (i) deleting Section 11.2(e)(iii) and (ii) replacing the words diluting or concentrative in Sections 11.2(a), 11.2(c) (in two instances) and 11.2(e)(vii) with the word economic and by adding the words or the Transaction after the words theoretical value of the relevant Shares in Section 11.2(a), 11.2(c) and 11.2(e)(vii); provided, further that adjustments may be made to account for changes in stock loan rate relative to the relevant Shares. | |
Extraordinary Events: |
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New Shares: |
Section 12.1(i) of the Equity Definitions is hereby amended by deleting the text in clause (i) in its entirety and replacing it with the phrase publicly quoted, traded or listed on any of the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or their respective successors). | |
Share-for-Share: |
The definition of Share-for-Share set forth in Section 12.1(f) of the Equity Definitions is hereby amended by the deletion of the parenthetical in clause (i) thereof. | |
Cancellation and Payment (Calculation Agent Determination): |
Section 12.7(b) of the Equity Definitions shall be amended by inserting the words or a Share Forward Transaction after the words Option Transaction in the first line thereof. | |
Consequence of Merger Events: |
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Share-for-Share: |
Modified Calculation Agent Adjustment. | |
Share-for-Other: |
Cancellation and Payment (Calculation Agent Determination). | |
Share-for-Combined: |
Cancellation and Payment (Calculation Agent Determination); provided that Barclays may elect Component Adjustment. | |
Consequence of Tender Offers: |
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Tender Offer: |
Applicable | |
Share-for-Share: |
Modified Calculation Agent Adjustment. | |
Share-for-Other: |
Modified Calculation Agent Adjustment. | |
Share-for-Combined: |
Modified Calculation Agent Adjustment. | |
Modified Calculation Agent Adjustment: |
For greater certainty, the definition of Modified Calculation Agent Adjustment in Sections 12.2 and 12.3 of the Equity Definitions shall be amended by (i) adding the following italicized language after the stipulated parenthetical provision: (including adjustments to account for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to |
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this Transaction) from the Announcement Date or the Determination Date, as applicable, to the Merger Date (Section 12.2) or Tender Offer Date (Section 12.3). and (ii) deleting the phrase expected dividends, from such stipulated parenthetical provision. | ||
Announcement Date: |
The definition of Announcement Date in Section 12.1 of the Equity Definitions shall be amended by (i) replacing the words leads to the in the third and the fifth lines thereof with the words , if completed, be the, (ii) replacing the words voting shares in the fifth line thereof with the word Shares, (iii) inserting the words by any entity after the word announcement in the second and the fourth lines thereof, (iv) inserting the words or to explore the possibility of engaging in after the words engage in in the second line thereto and (v) inserting the words or to explore the possibility of purchasing or otherwise obtaining after the word obtain in the fourth line thereto. | |
Announcement Event: |
If an Announcement Event has occurred, the Calculation Agent shall have the right to determine the economic effect of the Announcement Event on the theoretical value of this Transaction (including without limitation any change in volatility, stock loan rate or liquidity relevant to the Shares or to this Transaction) (i) at a time that it deems appropriate, from the Announcement Date to the date of such determination (the Determination Date), and (ii) on the Valuation Date, from the Announcement Date or the Determination Date, as applicable, to the Valuation Date. If any such economic effect is material, the Calculation Agent will either (i) adjust the terms of this Transaction to reflect such economic effect or (ii) terminate the Transaction, in which case the Determining Party will determine the Cancellation Amount payable by one party to the other. Announcement Event shall mean the occurrence of the Announcement Date of a Merger Event or Tender Offer or potential Merger Event or potential Tender Offer. | |
Composition of Combined Consideration: |
Not Applicable; provided that, notwithstanding Sections 12.5(b) and 12.1(f) of the Equity Definitions, to the extent that the composition of the consideration for the relevant Shares pursuant to a Tender Offer or Merger Event could be elected by an actual holder of the Shares, the Calculation Agent will, in its sole discretion, determine such composition. | |
Nationalization, Insolvency or Delisting: |
Cancellation and Payment (Calculation Agent Determination); provided that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange. | |
Additional Disruption Events: |
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Change in Law: |
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the phrase the interpretation in the third line thereof with the phrase or public |
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announcement of the formal or informal interpretation and (ii) immediately following the word Transaction in clause (X) thereof, adding the phrase in the manner contemplated by Barclays on the Trade Date. | ||
Failure to Deliver: |
Not Applicable. | |
Insolvency Filing: |
Applicable; provided that the definition of Insolvency Filing in Section 12.9 of the Equity Definitions shall be amended by deleting the clause provided that proceedings instituted or petitions presented by creditors and not consented to by the Issuer shall not be deemed an Insolvency Filing at the end of such definition and replacing it with the following: ; or it has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors rights, or a petition is presented for its winding-up or liquidation by a creditor and such proceeding is not dismissed, discharged, stayed or restrained in each case within 60 days of the institution or presentation thereof.
Section 12.9(b)(i) of the Equity Definitions is hereby amended by adding the following sentence at the end: If neither party elects to terminate the Transaction, the Calculation Agent may adjust the terms of the Transaction upon the occurrence of such an event pursuant to Modified Calculation Agent Adjustment (as if such event were a Tender Offer). | |
Hedging Disruption: |
Applicable. | |
Increased Cost of Hedging: |
Applicable. | |
Loss of Stock Borrow: |
Applicable; provided that Sections 12.9(a)(vii) and 12.9(b)(iv) of the Equity Definitions are amended by deleting the words at a rate equal to or less than the Maximum Stock Loan Rate and replacing it with the words at a Borrow Cost equal to or less than the Maximum Stock Loan Rate.
For purposes of Section 12.9 of the Equity Definitions, all references to Hedging Shares shall be deemed to be references to Barclayss short position in respect of the Transaction. | |
Borrow Cost: |
The cost to borrow the relevant Shares that would be incurred by a third party market participant borrowing such Shares, as determined by the Calculation Agent on the relevant date of determination. Such costs shall include (a) the spread below FED-FUNDS that would be earned on collateral posted in connection with such borrowed Shares, net of any costs or fees, and (b) any stock loan borrow fee that would be payable for such Shares, expressed as fixed rate per annum. | |
Maximum Stock Loan Rate: |
200 basis points. | |
Increased Cost of Stock Borrow: |
Applicable; provided that (a) Section 12.9(a)(viii) of the Equity Definitions shall be amended by deleting rate to borrow Shares and replacing it with Borrow Cost and (b) Section 12.9(b)(v) of the Equity Definitions shall be amended by replacing the word rate in clauses (X) and (Y) of the final sentence therein with the words Borrow Cost. | |
Initial Stock Loan Rate: |
25 basis points, as adjusted by the Calculation Agent to reflect any subsequent Price Adjustment due to an Increased Cost of Stock Borrow. |
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FED FUNDS: |
FED FUNDS means, for any day, the rate set forth for such day opposite the caption Federal funds, as such rate is displayed on the page FedsOpen <Index> <GO> on the BLOOMBERG Professional Service, or any successor page; provided that if no rate appears for any day on such page, the rate for the immediately preceding day for which a rate does so appear shall be used for such day. | |
Hedging Party: |
Barclays or an affiliate of Barclays that is involved in the hedging of this Transaction for all applicable Additional Disruption Events. | |
Determining Party: |
Barclays for all applicable Extraordinary Events. | |
Acknowledgments: |
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Non-Reliance: |
Applicable. | |
Agreements and Acknowledgments Regarding Hedging Activities: |
Applicable. | |
Additional Acknowledgments: |
Applicable. |
3. Mutual Representations, Warranties and Agreements.
Each of Barclays and Counterparty represents and warrants to, and agrees with, the other party that:
(a) | Commodity Exchange Act. It is an eligible contract participant within the meaning of Section 1a(12) of the U.S. Commodity Exchange Act, as amended (the CEA). The Transaction has been subject to individual negotiation by the parties. The Transaction has not been executed or traded on a trading facility as defined in Section 1a(33) of the CEA; |
(b) | Securities Act. It is a qualified institutional buyer as defined in Rule 144A under the Securities Act, or an accredited investor as defined in Section 2(a)(15)(ii) of the Securities Act; |
(c) | ERISA. The assets used in the Transaction (1) are not assets of any plan (as such term is defined in Section 4975 of the U.S. Internal Revenue Code (the Code)) subject to Section 4975 of the Code or any employee benefit plan (as such term is defined in Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA)) subject to Title I of ERISA, and (2) do not constitute plan assets within the meaning of Department of Labor Regulation 2510.3-101, 29 CFR Section 2510-3-101; |
(d) | If Barclays or Counterparty purchases any Shares pursuant to this Transaction, such purchase(s) will comply with (i) all laws and regulations applicable to it and (ii) all contractual obligations of such party; |
(e) | Barclays and Counterparty have not and will not directly or indirectly violate any applicable law (including, without limitation, the Securities Act and the Exchange Act) in connection with the Transaction; and |
(f) | Barclays and Counterparty are not entering into the Transaction for the purpose of (i) creating actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or (ii) raising or depressing or otherwise manipulating the price of the Shares (or any security convertible into or exchangeable for the Shares) or otherwise in violation of the Exchange Act. |
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4. Representations, Warranties and Agreements of Counterparty.
In addition to the representations and warranties in the Agreement and those contained elsewhere herein, Counterparty further represents, warrants and agrees that:
(a) | Counterparty shall immediately provide written notice to Barclays upon obtaining knowledge of the occurrence of any event that would constitute an Event of Default, a Potential Event of Default, a Potential Adjustment Event, a Merger Event or any other Extraordinary Event; provided, however, that should Counterparty be in possession of material non-public information regarding Counterparty, Counterparty shall not communicate such information to Barclays; |
(b) | (A) Counterparty is acting for its own account, and it has made its own independent decisions to enter into the Transaction and as to whether the Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary, (B) Counterparty is not relying on any communication (written or oral) of Barclays or any of its affiliates as investment advice or as a recommendation to enter into the Transaction (it being understood that information and explanations related to the terms and conditions of the Transaction shall not be considered investment advice or a recommendation to enter into the Transaction) and (C) no communication (written or oral) received from Barclays or any of its affiliates shall be deemed to be an assurance or guarantee as to the expected results of the Transaction; |
(c) | Counterparty has (and shall at all times during the Transaction have) the capacity and authority to invest directly in the Shares underlying the Transaction and has not entered into the Transaction with the intent to avoid any regulatory filings; |
(d) | Counterpartys financial condition is such that it has no need for liquidity with respect to its investment in the Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness; |
(e) | Counterpartys investments in and liabilities in respect of the Transaction, which it understands are not readily marketable, are not disproportionate to its net worth, and Counterparty is able to bear any loss in connection with the Transaction, including the loss of its entire investment in the Transaction; |
(f) | Counterparty is not as of the Trade Date, and shall not be after giving effect to the transactions contemplated hereby, insolvent (as such term is defined in Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the Bankruptcy Code)) and Counterparty would be able to purchase the number of Shares underlying the Transaction in compliance with the laws of the jurisdiction of Counterpartys incorporation or organization; |
(g) | the Transaction, and any repurchase of the Shares by Counterparty in connection with the Transaction, is pursuant to a publicly announced Share repurchase program that has been approved by Counterpartys board of directors (including engaging in related derivative transactions) and any such repurchase has been, or shall when so required be, publicly disclosed in its periodic filings under the Exchange Act and its financial statements and notes thereto; |
(h) | Counterparty understands, agrees and acknowledges that Barclays has no obligation or intention to register the Transaction under the Securities Act, any state securities law or other applicable federal securities law; |
(i) | each of Counterpartys filings under the Securities Act, the Exchange Act, or other applicable securities laws that are required to be filed have been filed and as of the respective dates thereof and as of the date of this representation, such filings when considered as a whole (with the more recent such filings deemed to amend inconsistent statements contained in any earlier such filings) do not contain any misstatement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; |
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(j) | Counterparty is not, and after giving effect to the transactions contemplated hereby will not be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended; |
(k) | Counterparty understands, agrees and acknowledges that no obligations of Barclays to it hereunder shall be entitled to the benefit of deposit insurance and that such obligations shall not be guaranteed by any affiliate of Barclays or any governmental agency; |
(l) | without limiting the generality of Section 13.1 of the Equity Definitions, Counterparty acknowledges that Barclays is not making any representations or warranties with respect to the treatment of the Transaction under FASB Statements 128, 133, as amended, 149 or 150, EITF Issue No. 00-19, 01-6, 03-6 or 07-5 (or any successor issue statements), under FASBs Liabilities & Equity Project or under FASB Staff Position or any other accounting guidance; and |
5. Other Provisions:
(a) | Method of Delivery. Whenever delivery of funds or other assets is required hereunder by or to Counterparty, such delivery shall be effected through Agent. In addition, all notices, demands and communications of any kind relating to the Transaction between Barclays and Counterparty shall be transmitted exclusively through Agent. |
(b) | Rule 10b-18. |
(i) | During the Initial Hedge Period (other than purchases (i) made by Barclays as part of its dynamic adjustment of its hedge of the options embedded in this Transaction or that Barclays reasonably believes are attributable solely to Barclays and (ii) from affiliates of the Counterparty) and the Cash Settlement Pricing Period (as defined below), if any, and with respect to any purchases executed as a result of an occurrence of an Additional Termination Event, Barclays agrees to use commercially reasonable efforts to make all purchases of Shares in a manner that would comply with the limitations set forth in clauses (b)(1), (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 under the Securities Exchange Act of 1934 (Rule 10b-18), as if such rule was applicable to such purchases. |
(ii) | Except as disclosed to Barclays in writing prior to the Trade Date, Counterparty represents and warrants to Barclays that it has not made any purchases of blocks by or for itself or any of its Affiliated Purchasers pursuant to the one block purchase per week exception in Rule 10b-18(b)(4) under the Exchange Act during each of the four calendar weeks preceding such date (Rule 10b-18 purchase, blocks and Affiliated Purchaser each as defined in Rule 10b-18). |
(iii) | Counterparty agrees that it (A) will not, on any day during the Initial Hedge Period, the Trading Period and the Cash Settlement Pricing Period, if any, make, or permit to be made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction or potential Merger Transaction unless such public announcement is made prior to the opening or after the close of the regular trading session on the Exchange for the Shares or unless Counterparty reasonably concludes, based on the advice of outside counsel, that it is required to make such an announcement during such a regular trading session; (B) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange in the case of such an announcement not made during such a regular trading session) notify Barclays following any such announcement that such announcement has been made; and (C) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) provide Barclays with written notice specifying (i) Counterpartys average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the announcement date that were not effected through Barclays or its affiliates and (ii) the number of Shares purchased pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the announcement date. Such written notice shall be deemed to be a certification by Counterparty to Barclays that such information is true and correct. In addition, |
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Counterparty shall promptly notify Barclays of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders. Merger Transaction means any merger, acquisition or similar transaction involving a recapitalization as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act. |
(c) | Rule 10b5-1. It is the intent of the parties that this Transaction comply with the requirements of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act (Rule 10b5-1), and the parties agree that this Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c), and Counterparty shall take no action that results in this Transaction not so complying with such requirements. Without limiting the generality of the preceding sentence, Counterparty acknowledges and agrees that (A) Counterparty does not have, and shall not attempt to exercise, any influence over how, when or whether Barclays effects any purchases in connection with this Transaction, (B) during the Initial Hedge Period, the Trading Period and the Cash Settlement Pricing Period, if any, neither Counterparty nor its officers or employees shall, directly or indirectly, communicate any information regarding Counterparty or the Shares to any employee of Barclays or its affiliates who is directly involved with the hedging of and trading with respect to this Transaction, (C) Counterparty is entering into this Transaction in good faith and not as part of a plan or scheme to evade compliance with federal securities laws including, without limitation, Rule 10b-5 and (D) Counterparty will not alter or deviate from this Confirmation or enter into or alter a corresponding hedging transaction with respect to the Shares. Counterparty also acknowledges and agrees that any amendment, modification, waiver or termination of this Confirmation must be effected in accordance with the requirements for the amendment or termination of a plan as defined in Rule 10b5-1(c). Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5 and no such amendment, modification or waiver shall be made at any time at which Counterparty or any officer or director of Counterparty is aware of any material non-public information regarding Counterparty or the Shares. Nothing in this section 5(c) shall limit any termination rights that the Counterparty may have pursuant to this Confirmation. |
(d) | Company Purchases. Without the prior written consent of Barclays, which consent will not be unreasonably delayed or denied, and except for purchases which are not solicited by or on behalf of Counterparty, its affiliates or affiliated purchasers (each as defined in Rule 10b-18 of the Exchange Act) or repurchase of unvested restricted stock upon termination of the holders of such stock employment by Counterparty or purchases executed by Barclays or an Affiliate of Barclays, Counterparty shall not purchase, and shall cause its affiliates or affiliated purchasers not to directly or indirectly (including, without limitation, by means of any cash-settled or other derivative instrument) purchase, offer to purchase, place any bid or limit order that would effect a purchase of, or commence any tender offer relating to, any Shares (or an equivalent interest, including a unit of beneficial interest in a trust or limited partnership or a depository share) or any security convertible into or exchangeable or exercisable for Shares during the Initial Hedge Period, the Trading Period and the Cash Settlement Pricing Period, if any. |
(e) | Regulation M. Counterparty is not on the date hereof and shall not become prior to the Settlement Date or the final Cash Settlement Date (as defined below), if applicable, engaged in a distribution, as such term is used in Regulation M under the Exchange Act, of any securities of Counterparty, other than a distribution meeting the requirements of the exception set forth in Section 102(b)(7) or (c)(1)(i) of Regulation M under the Exchange Act. |
(f) | Additional Termination Event. Notwithstanding any other provision hereof, an Additional Termination Event shall occur and Counterparty shall be the sole Affected Party pursuant to such Additional Termination Event if on any day occurring after the Trade Date and on or prior to the last Scheduled Trading Day in the Trading Period Counterparty declares a distribution, issue or dividend to existing holders of the Shares with an ex-dividend date on or prior to the Valuation Date of (i) an extraordinary cash dividend, (ii) a regular quarterly dividend in an amount greater than the Regular Dividend as specified in Schedule A, (iii) securities or share capital of another issuer acquired or owned (directly or indirectly) by Counterparty as a result of a spin-off or other similar transaction or (iv) any other type of securities (other than Shares, |
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which may constitute a Potential Adjustment Event), rights or warrants or other assets, in any case for payment (cash or other consideration) at less than the prevailing market price as determined by Barclays. |
(g) | Additional Adjustment Event. If on any day, occurring after the Trade Date and on or prior to the last Scheduled Trading Day in the Trading Period, Counterparty declares a distribution, issue or dividend to existing holders of the Shares with an ex-dividend date on or prior to the Valuation Date that is earlier than the expected ex-dividend date specified in Schedule A, the Calculation Agent shall make such adjustments to the exercise, settlement, payment or any other terms of the Transaction as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such event. |
(h) | Cash Settlement by Counterparty. If Cash Settlement applies, Counterparty may elect to pay to Barclays on each Cash Settlement Date an amount in cash equal to the Cash Settlement Amount for such Cash Settlement Date; provided that Counterparty on the date of such election provides the representation contained in paragraph 5(p) below. Cash Settlement Dates shall mean three Currency Business Days immediately following each Exchange Business Day on which Barclays delivers to Counterparty a Hedge Repurchase Notice. Cash Settlement Amount shall mean, with respect to each Cash Settlement Date, the product of (i) the number of Hedge Repurchase Shares, as specified in the applicable Hedge Repurchase Notice, multiplied by (ii) the volume weighted average price at which Barclays purchased such Shares on the Scheduled Trading Day related to such Cash Settlement Date. Cash Settlement Pricing Period shall mean the period commencing on the third Scheduled Trading Day immediately following the last Scheduled Trading Day of the Trading Period and ending on the Exchange Business Day on which Barclays completes the purchase of a number of shares equal to the absolute value of the Number of Shares to be Delivered (each such Share, a Hedge Repurchase Share). With respect to each Scheduled Trading Day during the Cash Settlement Pricing Period, Barclays shall deliver a notice (each such notice, a Hedge Repurchase Notice) to the Counterparty of the number of Hedge Repurchase Shares purchased by Barclays on such Scheduled Trading Day. |
(i) | Share Delivery Conditions. If Counterparty elects or is deemed to elect for Physical Settlement by Counterparty to apply, Counterparty may deliver Free Shares in respect of its settlement obligations only if the following conditions have been satisfied (the Registration Provisions): (i) a registration statement (Registration Statement) (which may be a shelf registration statement filed pursuant to Rule 415 under the Securities Act of 1933, as amended) covering public resale by Barclays (or an affiliate thereof) of any Shares delivered by Counterparty to Barclays under such Physical Settlement by Counterparty (Settlement Shares) shall have been filed with, and declared effective by, the Securities and Exchange Commission (the SEC) no later than one Scheduled Trading Day prior to the Settlement Date and such Registration Statement continues to be in effect at all times to and including the date that Barclays or its affiliate(s) has fully and finally sold any Settlement Shares hereunder, (ii) the contents of such registration statement and of any prospectus supplement to the prospectus included therein (including, without limitation, any sections describing the plan of distribution) shall be reasonably satisfactory to Barclays, (iii) Barclays shall have been afforded a reasonable opportunity to conduct a due diligence investigation with respect to Counterparty customary in scope for transactions pursuant to which Barclays (or an affiliate thereof) acts as an underwriter of equity securities and the results of such investigation are satisfactory to Barclays, in its discretion, and (iv) as of the Settlement Date, an agreement between Barclays and Counterparty of reasonable and customary underwriting terms including but not limited to indemnification and contribution and due diligence (the Underwriting Agreement) shall have been entered into with Barclays in connection with the public resale of the Settlement Shares by Barclays (or an affiliate thereof). Notwithstanding the foregoing, if Counterparty elects for Physical Settlement by Counterparty to apply and Counterparty delivers Restricted Shares in respect of its settlement obligation, Barclays shall attempt to sell the Settlement Shares, if any, pursuant to an exemption from registration under the Securities Act by soliciting bids from interested parties in a manner exempt from registration. |
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Counterparty agrees that any Registration Statement it files for purposes of Physical Settlement by Counterparty pursuant to the provisions above, at the time the same becomes effective, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein to make the statements therein not misleading. Counterparty represents that any prospectus delivered to Barclays in connection with sales made under the Registration Statement (as such prospectus may be supplemented from time to time) will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(j) | Transfer or Assignment. Counterparty may not transfer or assign any of its rights or obligations under the Transaction without the prior written consent of Barclays. Notwithstanding any provision of the Agreement to the contrary, Barclays may, subject to applicable law, freely transfer and assign all of its rights and obligations under the Transaction without the consent of Counterparty to any affiliate of Barclays whose obligations hereunder are guaranteed by Barclays. |
If at any time at which (1) the Equity Percentage exceeds 9.0% or (2) Barclays, Barclays Group (as defined below) or any person whose ownership position would be aggregated with that of Barclays or Barclays Group (Barclays, Barclays Group or any such person, a Barclays Person) under any relevant state corporate law or any state or federal bank holding company or banking laws, or other federal, state or local regulations or regulatory orders applicable to ownership of Shares (Applicable Laws), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership in excess of a number of Shares equal to (x) the number of Shares that would give rise to reporting or registration obligations or other requirements (including obtaining prior approval by a state or federal regulator) of a Barclays Person under Applicable Laws and with respect to which such requirements have not been met or the relevant approval has not been received minus (y) 1.0% of the number of Shares outstanding on the date of determination (either such condition described in clause (1) or (2), an Excess Ownership Position) and Barclays is unable, after commercially reasonable efforts, to effect a transfer or assignment on pricing terms and within a time period reasonably acceptable to it of all or a portion of the Transaction such that an Excess Ownership Position no longer exists, Barclays may designate any Scheduled Trading Day as an Early Termination Date with respect to a portion (the Terminated Portion) of the Transaction, such that an Excess Ownership Position no longer exists. In the event that Barclays so designates an Early Termination Date with respect to a portion of this Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if (x) an Early Termination Date had been designated in respect of a Transaction having terms identical to this Transaction and a Number of Shares equal to the Terminated Portion, (y) Counterparty shall be the sole Affected Party with respect to such partial termination and (z) such Transaction shall be the only Terminated Transaction (and, for the avoidance of doubt, the provisions of paragraph 5(o) shall apply to any amount that is payable by Barclays to Counterparty pursuant to this sentence). The Equity Percentage as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Barclays and any of its affiliates subject to aggregation with Barclays, for purposes of the beneficial ownership test under Section 13 of the Exchange Act, and all persons who may form a group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) with Barclays (Barclays Group), beneficially own (within the meaning of Section 13 of the Exchange Act) on such day and (B) the denominator of which is the number of Shares outstanding on such day.
Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Barclays to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Barclays may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Barclays obligations in respect of the Transaction and any such designee may assume such obligations. Barclays shall be discharged of its obligations to Counterparty to the extent of any such performance.
(k) | Role of Agent. Each of Barclays and Counterparty acknowledges to and agrees with the other party hereto and to and with the Agent that (i) the Agent is acting as agent for Barclays under |
15
the Transaction pursuant to instructions from such party, (ii) the Agent is not a principal or party to the Transaction, and may transfer its rights and obligations with respect to the Transaction, (iii) the Agent shall have no responsibility, obligation or liability, by way of issuance, guaranty, endorsement or otherwise in any manner with respect to the performance of either party under the Transaction, (iv) Barclays and the Agent have not given, and Counterparty is not relying (for purposes of making any investment decision or otherwise) upon, any statements, opinions or representations (whether written or oral) of Barclays or the Agent, other than the representations expressly set forth in this Confirmation or the Agreement, and (v) each party agrees to proceed solely against the other party, and not the Agent, to collect or recover any money or securities owed to it in connection with the Transaction. Each party hereto acknowledges and agrees that the Agent is an intended third party beneficiary hereunder. Counterparty acknowledges that the Agent is an affiliate of Barclays. For the avoidance of doubt, any performance by Counterparty of its obligations (including notice obligations) through or by means of the Agents agency for Barclays shall constitute good performance of Counterpartys obligations hereunder to Barclays; however, performance by Barclays of its obligations hereunder (including notice obligations) to Counterparty through or by means of the Agents agency for Barclays shall not constitute good performance of Barclayss obligations hereunder unless and then only to the extent that Counterparty actually receives the benefit of such performance. |
(l) | Regulatory Provisions. The time of dealing for the Transaction will be confirmed by Barclays upon written request by Counterparty. The Agent will furnish to Counterparty upon written request a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with a Transaction. |
(m) | Netting and Setoff. Obligations under the Transaction shall not be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against obligations under the Transaction, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff, netting or recoupment; provided that both parties agree that subparagraph (ii) of Section 2(c) of the Agreement shall apply to the Transaction, except that upon the occurrence of an Event of Default or Termination Event with respect to a party who is the Defaulting Party or the Affected Party (X), the other party (Y) will have the right (but not be obliged) without prior notice to X or any other person to set-off or apply any obligation of X under the Transaction owed to Y (or any Affiliate of Y) (whether or not matured or contingent and whether or not arising under the Agreement, and regardless of the currency, place of payment or booking office of the obligation) against any obligation of Y (or any Affiliate of Y) under an Equity Contract owed to X (whether or not matured or contingent and whether or not arising under the Agreement, and regardless of the currency, place of payment or booking office of the obligation). Y will give notice to the other party of any set-off effected under this paragraph. Equity Contract shall mean for purposes of this paragraph any transaction relating to Shares between X and Y (or any Affiliate of Y) that qualifies as equity under applicable accounting rules. Amounts (or the relevant portion of such amounts) subject to set-off may be converted by Y into the Termination Currency at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. If any obligation is unascertained, Y may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this section shall be effective to create a charge or other security interest. |
(n) | Staggered Settlement. Barclays may, by notice to Counterparty on or prior to any Settlement Date (a Nominal Settlement Date), elect to deliver any Shares deliverable on such Nominal Settlement Date on two or more dates (each, a Staggered Settlement Date) or at two or more times on the Nominal Settlement Date as follows: (i) in such notice, Barclays will specify to Counterparty the related Staggered Settlement Dates (each of which will be on or prior to such |
16
Nominal Settlement Date) or delivery times and how it will allocate the Shares it is required to deliver under the applicable settlement method above among the Staggered Settlement Dates or delivery times; and (ii) the aggregate number of Shares that Barclays will deliver to Counterparty hereunder on all such Staggered Settlement Dates and delivery times will equal the number of Shares that Barclays would otherwise be required to deliver on such Nominal Settlement Date. |
(o) | Alternative Calculations and Counterparty Payment on Early Termination and on Certain Extraordinary Events. If Barclays owes Counterparty or if Counterparty owes Barclays any amount in connection with the Transaction (i) pursuant to Sections 12.2, 12.3, 12.6, 12.7 or 12.9 of the Equity Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement (a Payment Obligation), Counterparty shall have the right, in its sole discretion, to satisfy or to require Barclays to satisfy, as the case may be, any such Payment Obligation by delivery of Termination Delivery Units (as defined below) by giving irrevocable telephonic notice to Barclays, confirmed in writing within one Scheduled Trading Day, no later than noon New York time on the Early Termination Date or other date the Transaction is cancelled or terminated, as applicable, where such notice shall include a representation and warranty from Counterparty that it is not, as of the date of the telephonic notice and the date of such written notice, aware of any material non-public information concerning itself or the Shares (where material shall have the meaning set forth in paragraph 5(p) below) (Notice of Counterparty Termination Delivery); provided that if Counterparty does not elect to require Barclays to satisfy its Payment Obligation by delivery of Termination Delivery Units, Barclays shall have the right (without regard to the exceptions set forth in clauses (i) and (ii) above), in its sole discretion, to elect to satisfy its Payment Obligation by delivery of Termination Delivery Units, notwithstanding Counterpartys failure to elect or election to the contrary; and provided further that Counterparty shall not have the right to so elect (but, for the avoidance of doubt, Barclays shall have the right to so elect) in the event of (i) an Insolvency, a Nationalization or a Merger Event, in each case, in which the consideration or proceeds to be paid to holders of Shares consists solely of cash or (ii) an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party, which Event of Default or Termination Event resulted from an event or events within Counterpartys control. Within a commercially reasonable period of time following receipt of a Notice of Counterparty Termination Delivery, Barclays shall deliver to Counterparty or Counterparty shall deliver to Barclays, as the case may be, a number of Termination Delivery Units having a fair market value (net of any brokerage and underwriting commissions and fees, including any customary private placement fees) equal to the amount of such Payment Obligation (such number of Termination Delivery Units to be delivered to be determined by the Calculation Agent as the number of whole Termination Delivery Units that could be sold over a commercially reasonable period of time to generate proceeds equal to the cash equivalent of such payment obligation). If the provisions set forth in this paragraph are applicable, the provisions of Sections 9.8, 9.9, 9.10, 9.11 (modified as described above) and 9.12 of the Equity Definitions shall be applicable, except that all references to Shares shall be read as references to Termination Delivery Units. Termination Delivery Units means in the case of a Termination Event, Event of Default or Delisting, one Share or, in the case of Nationalization, Insolvency, Tender Offer or Merger Event, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency, Tender Offer or Merger Event; provided that if such Nationalization, Insolvency, Tender Offer or Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash. |
(p) | No Material Non-Public Information. On the Trade Date, Counterparty represents and warrants to Barclays that it is not aware of any material non-public information concerning itself or the Shares. Material information for these purposes is any information to which an investor would reasonably attach importance in reaching a decision to buy, sell or hold Shares. |
17
(q) | Maximum Number of Shares. The number of Shares that may be issued under any settlement by Counterparty pursuant to this Confirmation, the Definitions or the Agreement will be limited to the total Shares authorized but not outstanding, reduced by the total amount of contingently issuable Shares. In any event, the number of Shares issuable by Counterparty at settlement shall not exceed [*] Shares. If the number of Shares to be issued at settlement by Counterparty exceeds the limit in the first sentence of this provision, Counterparty will use its best efforts to obtain all necessary approvals to issue additional Shares to enable it to satisfy all obligations hereunder. |
(r) | Tax Disclosure. Notwithstanding anything to the contrary herein, in the Equity Definitions or in the Agreement, and notwithstanding any express or implied claims of exclusivity or proprietary rights, the parties (and each of their employees, representatives or other agents) are authorized to disclose to any and all persons, beginning immediately upon commencement of their discussions and without limitation of any kind, the tax treatment and tax structure of the Transaction, and all materials of any kind (including opinions or other tax analyses) that are provided by either party to the other relating to such tax treatment and tax structure. |
(s) | Status of Claims in Bankruptcy. Barclays acknowledges and agrees that this Confirmation is not intended to convey to Barclays rights with respect to the Transaction that are senior to the claims of common stockholders in any U.S. bankruptcy proceedings of Counterparty; provided that nothing herein shall limit or shall be deemed to limit Barclays right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to the Transaction; provided, further, that nothing herein shall limit or shall be deemed to limit Barclays rights in respect of any transactions other than the Transaction. |
(t) | No Collateral. Notwithstanding any provision of this Confirmation, the Agreement, Equity Definitions or any other agreement between the parties to the contrary, the obligations of Counterparty under the Transaction are not secured by any collateral. |
(u) | Securities Contract; Swap Agreement. The parties hereto agree and acknowledge that Barclays is one or more of a financial institution, swap participant and financial participant within the meaning of Sections 101(22), 101(53C) and 101(22A) of the Bankruptcy Code. The parties hereto further agree and acknowledge (A) that this Confirmation is (i) a securities contract, as such term is defined in Section 741(7) of the Bankruptcy Code, with respect to which each payment and delivery hereunder or in connection herewith is a termination value, payment amount or other transfer obligation within the meaning of Section 362 of the Bankruptcy Code and a settlement payment or a transfer within the meaning of Section 546 of the Bankruptcy Code, and (ii) a swap agreement, as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect to which each payment and delivery hereunder or in connection herewith is a termination value, a payment amount or other transfer obligation within the meaning of Section 362 of the Bankruptcy Code and a transfer within the meaning of Section 546 of the Bankruptcy Code, and (B) that Barclays is entitled to the protections afforded by, among other sections, Section 362(b)(6), 362(b)(17), 362(b)(27), 362(o), 546(e), 546(g), 546(j), 548(d)(2), 555, 560 and 561 of the Bankruptcy Code. |
(v) | Payments on Early Termination. The parties hereto agree that for the Transaction, for the purposes of Section 6(e) of the Agreement, Second Method and Loss will apply. |
(w) | Binding Contract. This Confirmation, as supplemented by the Confirmation Pricing Supplement, is a qualified financial contract, as such term is defined in Section 5-701(b)(2) of the General Obligations Law of New York (the General Obligations Law); (ii) the Confirmation Pricing Supplement constitutes a confirmation in writing sufficient to indicate that a contract has been made between the parties hereto, as set forth in Section 5-701(b)(3)(b) of the General Obligations Law; and (iii) this Confirmation constitutes a prior written contract as set forth in Section 5-701(b)(1)(b) of the General Obligations Law, and each party hereto intends and agrees to be bound by this Confirmation, as supplemented by the Confirmation Pricing Supplement. Barclays and Counterparty further agree and acknowledge that this Confirmation, as supplemented by the Confirmation Pricing Supplement, constitutes a contract |
[*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
18
for the sale or purchase of a security, as set forth in Section 8-113 of the Uniform Commercial Code of New York. |
(x) | Right to Extend. Barclays may postpone any potential Valuation Date or postpone or extend any other date of valuation or delivery with respect to some or all of the relevant Shares, if Barclays determines, in its reasonable discretion, that such postponement or extension is reasonably necessary or appropriate to preserve Barclays hedging or hedge unwind activity hereunder in light of existing liquidity conditions (including but not limited to the liquidity in the stock borrow market) or to enable Barclays to effect purchases or sale of Shares in connection with its hedging, hedge unwind or settlement activity hereunder in a manner that would, if Barclays were Issuer or an affiliated purchaser of Issuer, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Barclays. |
(y) | Governing Law. The law of the State of New York (without reference to choice of law doctrine). |
(y) | Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THE TRANSACTION. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THE TRANSACTION, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS PROVIDED HEREIN. |
6. Account Details:
(a) | Account for payments to Counterparty: |
Pharmaceutical Product Development, Inc.
ABA: 026009593
Acct: PPD Inc
Acct No.: 002373417894
Account for delivery of Shares to Counterparty:
Pharmaceutical Product Development, Inc.
Bank: Bank of New York
ABA#: 021000018
A/C # 8900692839
A/C Name: Barclays Capital
F/B/O: Pharmaceutical Product Development
A/C #: 938-91205-11-200
(b) | Account for payments to Barclays: |
Bank: Barclays Bank plc NY
ABA# 026 00 2574
BIC: BARCUS33
Acct: 50038524
Beneficiary: BARCGB33
Ref: Barclays Bank plc London Equity Derivatives
7. Offices:
The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch Party.
The Office of Barclays for the Transaction is: Inapplicable, Barclays is not a Multibranch Party.
19
8. Notices:
For purposes of this Confirmation:
(a) | Address for notices or communications to Counterparty: |
Pharmaceutical Product Development, Inc.
Attention: General Counsel
Telephone No.: 910-558-6928
Facsimile No.: 910-558-6951
(b) | Address for notices or communications to Barclays: |
Barclays Bank PLC
c/o Barclays Capital Inc.
745 Seventh Ave.
New York, NY 10019
Attn: Paul Robinson
Telephone: (+1) 212-526-0111
Facsimile: (+1) 917-522-0458
This Confirmation may be executed in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
20
Counterparty hereby agrees to check this Confirmation and to confirm that the foregoing correctly sets forth the terms of the Transaction by signing in the space provided below and returning to Barclays a facsimile of the fully-executed Confirmation to Barclays at (+1) 917-522-0458. Originals shall be provided for your execution upon your request.
Very truly yours, | ||||
BARCLAYS CAPITAL INC., acting solely as Agent in connection with this Transaction | ||||
By: | ||||
Name: | ||||
Title: |
Accepted and confirmed as of the Trade Date: | ||||
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. | ||||
By: | ||||
Name: | ||||
Title: |
21
SCHEDULE A
For the purposes of the Transaction, the following terms shall have the following values/meanings:
1. Prepayment Amount: |
USD 200,000,000.00 | |
2. Additional Payment: |
USD [*] | |
3. Maximum Maturity Date: |
[*] | |
4. Minimum Maturity Date: |
[*] | |
5. Initial Shares: |
4,152,250 | |
6. Minimum Shares: |
The number of Shares equal to the quotient of (i) the Prepayment Amount divided by (ii) [*]% of the Hedging Price. | |
7. Maximum Shares: |
The number of Shares equal to the quotient of (i) the Prepayment Amount divided by (ii) [*]% of the Hedging Price. | |
8. Regular Dividend: |
USD 0.15 per Share per quarter, with ex-dividend dates occurring on March 11, 2011, June 13, 2011, and September 13, 2011. |
[*] | Confidential treatment requested; certain information omitted and filed separately with the SEC. |
EXHIBIT A
CONFIRMATION PRICING SUPPLEMENT
This Confirmation Pricing Supplement is the Confirmation Pricing Supplement referred to in the Confirmation dated as of February 14, 2011 between Barclays Bank PLC and Pharmaceutical Product Development, Inc.
For all purposes under the Confirmation, the following terms of the Confirmation shall be as specified below:
1. | Hedging Price: USD[ ] | |
2. | Maximum Maturity Date: [DATE] | |
3. | Minimum Maturity Date: [DATE] | |
4. | Maximum Shares: [ ] | |
5. | Minimum Shares: [ ] | |
6. | First day of Trading Period: [ ] |
Please acknowledge the foregoing by signing this Confirmation Pricing Supplement and returning a copy to us at facsimile number 646-885-9546 (United States of America), Attention: Documentation.
Yours Sincerely,
| ||||
BARCLAYS CAPITAL INC., acting solely as Agent in connection with this Transaction | ||||
By: | ||||
Name: | ||||
Title: |
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. | ||||
By: | ||||
Name: | ||||
Title: |
23
Exhibit 10.279
TWELFTH LEASE AMENDMENT
THIS TWELFTH LEASE AMENDMENT (this Amendment) is entered into by and between GREENWAY OFFICE CENTER L.L.C. (the Landlord) and PPD DEVELOPMENT, LP (the Tenant).
RECITALS:
A. Tenant (as successor to PPD Development, LLC) and Landlord (as successor to Greenway Properties, Inc. f/k/a Western Center Properties, Inc.) have entered into that certain Lease dated April 30, 2001, as amended on August 15, 2001, August 25, 2003, March 22, 2004, May 17, 2004, December 14, 2004, June 3, 2005, July 29, 2005, March 1, 2006, August 31, 2007, September 25, 2007, and March 31, 2008, with respect to certain space in the building located at 8551 Research Way, Middleton, Wisconsin (collectively, the Lease); and
B. Tenant desires to add Suite 140 and remove Suite 150 from the Premises, subject to the terms and conditions set forth herein.
AGREEMENT:
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which the parties hereby acknowledge, Landlord and Tenant agree as follows:
1. Addition of Suite 140. Effective February 1, 2011 (the Suite 140 Expansion Date), Suite 140, consisting of 20,646 rentable square feet (depicted on the attached Exhibit A-1) (Suite 140), shall be added to the Premises. As of the Suite 140 Expansion Date, Tenant shall pay to Landlord the following monthly base rent for Suite 140:
Period or Months of Term |
Annual Rate Per Square Foot |
Monthly Base Rent | ||||||
02/01/2011 to 07/31/2011 |
$ | 14.75 | $ | 16,027.10 | * | |||
08/01/2011 to 02/29/2012 |
$ | 14.75 | $ | 25,377.38 | ||||
03/01/2012 to 02/28/2013 |
$ | 15.12 | $ | 26,011.81 | ||||
03/01/2013 to 02/28/2014 |
$ | 15.50 | $ | 26,662.10 | ||||
03/01/2014 to 02/28/2015 |
$ | 15.88 | $ | 27,328.66 | ||||
03/01/2015 to 02/29/2016 |
$ | 16.28 | $ | 28,011.87 | ||||
03/01/2016 to 02/28/2017 |
$ | 16.69 | $ | 28,712.17 | ||||
03/01/2017 to 02/28/2018 |
$ | 17.11 | $ | 29,429.97 | ||||
03/01/2018 to 05/30/2018 |
$ | 17.53 | $ | 30,165.72 |
* | From February 1, 2011 through July 31, 2011, Tenants monthly base rent for Suite 140 shall only be based on 13,039 square feet, even though Tenant is permitted to occupy all of Suite 140. |
In accordance with the Lease, Tenant shall pay its prorated share of Common Area Expenses (as defined in Section 4.4 of the Lease) to Landlord. As of the Suite 140 Expansion Date, Tenants prorated share of Common Area Expenses shall be 10.82 percent.
2. Right to Reduce Premises. Tenant shall have the right to reduce the size of Suite 140 by 7,607 rentable square feet (depicted on the attached Exhibit A-2 as Suite 145) effective February 1, 2012 (Reduction Date), upon providing at least 150 days advance written notice to Landlord. Tenant will be responsible for all construction costs associated with the demising of the Suite 140 space from Suite 145 and Tenant shall have the option to complete such work using Tenants contractors that are reasonably acceptable to Landlord. Tenants rental obligations under the Lease shall be reduced to reflect the removal of Suite 145 from the Premises as of the Reduction Date regardless of whether the construction associated with the demise of Suite 140 from Suite 145 has been completed. In the event Tenant does not exercise its right to reduce Suite 140 as stated above, Landlord shall pay to Tenant the amount of $76,070.00 by February 1, 2012 (the Suite 140 Payment). Notwithstanding anything to the contrary in the Lease, in the event Tenant is entitled to the Suite 140 Payment and Landlord does not make the full Suite 140 Payment by February 1, 2010, Tenant may, in its sole discretion, after giving Landlord written notice of
such failure to make such payment and thirty (30) days to make the payment, credit the amount of the February 1, 2012 Payment that Landlord has failed to make against any monthly base rent or other rent obligation that may be payable under the Lease.
3. Termination of Suite 150. Effective February 1, 2011, Suite 150, consisting of 13,039 rentable square feet, shall be deleted from the Premises, without penalty or future obligation.
4. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original. All capitalized terms not defined herein shall have the meaning ascribed to them in the Lease. Except as otherwise expressly stated in this Amendment, the terms and conditions of the Lease are hereby ratified and affirmed and shall remain in full force and effect. In the event of conflict between the provisions of this Amendment and the terms of the Lease, the provisions of this Amendment will control.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Amendment as of the date it is executed by both of the parties.
TENANT: | LANDLORD: | |||||||||
PPD DEVELOPMENT, LP | GREENWAY OFFICE CENTER L.L.C. | |||||||||
By: PPD GP, LLC, Its General Partner | By: T. Wall Properties L.L.C., Its Manager | |||||||||
By: | /s/ William J. Sharbaugh | By: | /s/ Randall J. Guenther | |||||||
Name: | William J. Sharbaugh | Randall J. Guenther, | ||||||||
Title: | Chief Operating Officer | President & Chief Financial Officer | ||||||||
Date: | January 31, 2011 | Date: | February 10, 2011 |
2
EXHIBIT A-1
OUTLINE AND LOCATION OF SUITE 140
3
EXHIBIT A-2
OUTLINE AND LOCATION OF DEMISED SPACE IN SUITE 140
4
EXHIBIT 31.1
CERTIFICATION
I, David L. Grange, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Product Development, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2011 | By: | /s/ David L. Grange | ||||||
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Daniel G. Darazsdi, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Product Development, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2011 | By: | /s/ Daniel G. Darazsdi | ||||||
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Pharmaceutical Product Development, Inc. (PPD) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David L. Grange, Chief Executive Officer of PPD, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPD as of, and for, the periods presented in the Report.
Date: May 3, 2011
/s/ David L. Grange |
David L. Grange |
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Pharmaceutical Product Development, Inc. (PPD) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Daniel G. Darazsdi, Chief Financial Officer of PPD, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPD as of, and for, the periods presented in the Report.
Date: May 3, 2011
/s/ Daniel G. Darazsdi |
Daniel G. Darazsdi |
Chief Financial Officer |
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