Quintiles Reports Second Quarter 2013 Results and Full Year 2013 Guidance

  • Net new business wins of $1.0 billion, up 13% compared to second quarter 2012; Backlog of $9.0 billion at the end of second quarter 2013
  • Second quarter diluted adjusted EPS of $0.50 and adjusted net income of $62.9 million, up 6.4% and 12.6%, respectively, compared to second quarter 2012
  • Second quarter GAAP reported diluted EPS of $0.30 and GAAP reported net income of $38.5 million, declined 25.0% and 18.4%, respectively, compared to second quarter 2012
  • Full year 2013 adjusted diluted EPS guidance of $1.95 - $2.05

RESEARCH TRIANGLE PARK, N.C.--Quintiles Transnational Holdings Inc. ("Quintiles" or the "Company") (NYSE: Q) today reported its financial results for the quarter ended June 30, 2013.

For the three months ended June 30, 2013, the growth in service revenues excluding the impact of foreign currency fluctuations ("constant currency revenue growth") was 2.2%, or $21.1 million compared to the same period last year. At actual foreign exchange rates, service revenues of $944.2 million were nearly unchanged compared to the same period last year due to an unfavorable foreign currency impact of 2.3%, or $21.8 million. Constant currency revenue growth was primarily from volume related increases in the Product Development segment compared to the same period in 2012.

Adjusted income from operations was $124.1 million in the second quarter of 2013 representing growth of 8.4% and 100 basis points of margin expansion compared to the same period last year. Adjusted net income was $62.9 million in the second quarter of 2013 representing growth of 12.6% compared to the same period last year. Diluted adjusted earnings per share was $0.50 in the quarter ended June 30, 2013 representing growth of 6.4% compared to the same period last year. Reported GAAP income from operations was $94.9 million, reported GAAP net income was $38.5 million and reported GAAP diluted earnings per share was $0.30 for the three months ended June 30, 2013. Reconciliations of the non-GAAP measures adjusted income from operations, adjusted net income and diluted adjusted earnings per share to the corresponding GAAP measures are attached to this press release.

Net new business grew 13% and 16% in the three and six months ended June 30, 2013 to $1.0 billion and $2.3 billion, respectively compared to the same periods last year. The second quarter of 2013 was the fourth sequential quarter of $1.0 billion or more in net new business which has contributed to an ending backlog at June 30, 2013 of $9.0 billion. The book-to-bill ratio, which represents net new business divided by service revenues during the respective period, was 1.07 for the second quarter and 1.21 for the six month period ending June 30, 2013.

"Quintiles delivered solid results overall with continued strength in new business wins," said Tom Pike, Quintiles' chief executive officer. "We have maintained the momentum following our initial public offering in May, which we believe demonstrates the confidence our customers have in us as well as the depth and diversity of our customer base. I am also pleased to report double-digit adjusted net income growth and improved margins on a year-to-date basis despite the negative impact on revenues that resulted from unfavorable foreign exchange rates."

"We continue to focus on growth areas that further differentiate us by deepening our scientific, therapeutic and data expertise as well as developing new capabilities. In doing so, we believe that we can improve the probability of development and commercial success for customers ultimately leading to shareholder success."

Product Development's constant currency revenue growth was 5.8%, or $40.4 million during the second quarter of 2013 compared to the same period last year. At actual foreign exchange rates, Product Development's service revenues grew 4.6% compared to the same period last year to $724.2 million. The constant currency revenue growth resulted from a volume related increase in clinical services partially offset by a decline in consulting services. Product Development's income from operations margin was 18.8% for the second quarter representing an expansion of 160 basis points compared to the same period last year of which 100 basis points was from contribution margin expansion and 60 basis points from a reduction in selling general and administrative expenses as a percentage of service revenues.

On a constant currency basis, Integrated Healthcare Services' service revenues declined 7.6%, or $19.3 million during the second quarter of 2013 compared to the same period last year primarily due to lower net new business, negative scope modifications and cancellations, and the impact of the conclusion of a major contract during 2012. At actual foreign exchange rates, Integrated Healthcare Services' service revenues declined 13.0%, or $32.8 million, compared to the same period last year to $220.0 million of which $13.5 million or 5.3% was due to unfavorable foreign currency fluctuations. Integrated Healthcare Services' income from operations margin was 5.7% for the second quarter, 230 basis points less than the same period last year, but 290 basis points higher than the first quarter of 2013.

General corporate and unallocated expenses were $50.9 million during the second quarter compared to $26.2 million for the same period last year. This increase was primarily due to $26.5 million of fees paid in connection with the termination or amendment of agreements with certain shareholders.

The GAAP effective income tax rate was 18.9% for the second quarter of 2013 compared to 37.1% for the same period in 2012. The effective income tax rates for the three and six month periods ended June 30, 2013 were positively impacted by the Company asserting in the second quarter of 2013 that the undistributed earnings of most of the Company's foreign subsidiaries are indefinitely reinvested outside of the United States.

For the six months ended June 30, 2013, the Company's constant currency service revenue growth was 4.2%, or $77.2 million as compared to the same period in 2012. At actual foreign exchange rates, the Company's service revenues of $1.9 billion grew 2.1% compared to the same period in 2012 which included an unfavorable foreign currency impact of 2.1% or $38.4 million. Adjusted income from operations for the six months ended June 30, 2013 was $242.5 million representing growth of 9.8% and 90 basis points of margin expansion compared to the same period last year. Adjusted net income was $120.5 million for the six months ended June 30, 2013 representing growth of 11.6% compared to the same period last year. Diluted adjusted earnings per share was $0.98 for the six months ended June 30, 2013 representing year on year growth of 6.5% compared to the same period last year. Reported GAAP income from operations was $210.1 million, reported GAAP net income was $86.8 million and reported GAAP diluted earnings per share was $0.71 for the six months ended June 30, 2013.

Recent Events

On May 9, 2013, the Company's common stock began trading on the New York Stock Exchange under the symbol "Q." On May 14, 2013, the Company completed an initial public offering ("IPO") of its common stock at a price to the public of $40.00 per share. The Company issued and sold 13,125,000 shares of common stock in the IPO. The selling shareholders offered and sold 14,111,841 shares of common stock in the IPO, including 3,552,631 shares that were offered and sold by the selling shareholders pursuant to the full exercise of the underwriters' option to purchase additional shares. The IPO raised proceeds for the Company of approximately $489.9 million, after deducting underwriting discounts, commissions, and related expenses. The Company did not receive any of the proceeds from the sale of the shares sold by the selling shareholders.

The Company used the net proceeds from the IPO as follows: (i) approximately $308.9 million to pay all amounts outstanding under the $300.0 million term loan including accrued interest and related fees and expenses, (ii) approximately $50.0 million to repay indebtedness under the Company's senior secured credit facilities, and (iii) $25.0 million to pay a one-time fee to terminate a management agreement with affiliates of certain shareholders. The Company incurred a loss on debt extinguishment in the second quarter of 2013 of $16.5 million dollars in connection with the prepayment of the outstanding debt.

Financial Guidance

For 2013, the Company expects to achieve service revenues between $3.76 billion and $3.81 billion which represents a constant currency growth range of 3.8% to 5.2%. The Company also expects diluted adjusted earnings per share between $1.95 and $2.05 per share representing growth of 10.2% to 15.5%, diluted GAAP earnings per share between $1.63 and $1.73 per share, and an annual effective income tax rate estimated in the range of 30% to 32%. This financial guidance is based on the actual results for the first half of 2013 combined with the expected results for the second half of 2013, assuming that June foreign currency exchange rates stay in effect for the remainder of the year.

Webcast & Conference Call Details

Quintiles will host a conference call at 8:00 a.m. EDT today to discuss its second quarter 2013 financial results. To participate, please dial +1 (855) 484-7367 or +1 (631) 259-7541 outside the United States, approximately 15 minutes before the scheduled start of the call. The conference call will also be accessible, live via webcast, on the Investors section of the Quintiles website at www.quintiles.com. An archived replay of the conference call will be available online atwww.quintiles.com after 1:00 p.m. EDT on August 1, 2013.

About Quintiles

Quintiles is the world's largest provider of biopharmaceutical development and commercial outsourcing services with a network of approximately 27,000 employees conducting business in approximately 100 countries. We have helped develop or commercialize all of the top-50 best-selling drugs on the market. Quintiles applies the breadth and depth of the company service offerings along with extensive therapeutic, scientific and analytics expertise to help our customers navigate an increasingly complex healthcare environment as they seek to improve efficiency and effectiveness in the delivery of better healthcare outcomes. To learn more about Quintiles, please visit www.quintiles.com

Forward-Looking Statements

This press release contains forward-looking statements that reflect, among other things, the Company's current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, market trends or industry results to differ materially from those expressed or implied by such forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may constitute forward-looking statements. Without limiting the foregoing, words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "should," "targets," "will" and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Actual results may differ materially from the Company's expectations due to a number of factors, including that most of the Company's contracts may be terminated on short notice, and that the Company may be unable to maintain large customer contracts or to enter into new contracts; the historical indications of the relationship of backlog to revenues may not be indicative of their future relationship; the market for the Company's services may not grow as the Company expects; the Company may under price contracts or overrun its cost estimates, and if the Company is unable to achieve operating efficiencies or grow revenues faster than expenses, operating margins will be adversely affected; the Company may be unable to maintain information systems or effectively update them; customer or therapeutic concentration could harm the Company's business; the Company's business is subject to risks associated with international operations, including economic, political and other risks; government regulators or customers may limit the scope of prescription or withdraw products from the market, and government regulators may impose new regulations affecting the Company's business; the Company may be unable to successfully develop and market new services or enter new markets; the Company's failure to perform services in accordance with contractual requirements, regulatory standards and ethical considerations may subject it to significant costs or liability, damage its reputation and cause it to lose existing business or not receive new business; the Company's services are related to treatment of human patients, and it could face liability if a patient is harmed; the Company has substantial indebtedness and may incur additional indebtedness in the future, which could adversely affect the Company's financial condition; and other factors that are set forth in the Company's filings with the Securities and Exchange Commission ("SEC"), including the final prospectus dated May 8, 2013 relating to the Company's initial public offering or the quarterly reports on Form 10-Q. The Company undertakes no obligation to update any forward-looking statement after the date of this release, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.

Use of Non-GAAP Financial Measures

This press release includes adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted net income per share, each of which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Management believes that these non-GAAP measures provide useful supplemental information to management and investors regarding the underlying performance of the Company's business operations and are more indicative of core operating results as they exclude certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business. These non-GAAP measures are performance measures only and are not measures of the Company's cash flows or liquidity, nor are they alternatives for measures of financial performance prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. Investors and potential investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures attached to this press release.

Internet Posting of Information: The Company routinely posts information that may be important to investors in the 'Investors' section of the Company's website atwww.Quintiles.com. The Company encourages investors and potential investors to consult the Company's website regularly for important information about the Company.

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

             
        Three Months Ended June 30,   Six Months Ended June 30,
        2013   2012   2013   2012
        (in thousands, except per share data)
Service revenues       $ 944,238     $ 944,914     $ 1,871,673     $ 1,832,949  
Reimbursed expenses         351,442       285,853       652,848       554,402  
Total revenues         1,295,680       1,230,767       2,524,521       2,387,351  
                     
Costs, expenses and other:                    
Costs of revenue, service costs         617,666       628,222       1,228,775       1,218,785  
Costs of revenue, reimbursed expenses         351,442       285,853       652,848       554,402  
Selling, general and administrative         228,838       203,544       428,140       409,339  
Restructuring costs         2,837       12,263       4,696       11,953  
Income from operations         94,897       100,885       210,062       192,872  
                     
Interest income         (785 )     (322 )     (1,237 )     (747 )
Interest expense         31,884       33,130       67,926       62,475  
Loss on extinguishment of debt         16,543             16,543        
Other expense (income), net         536       (6,159 )     (1,846 )     (8,578 )

Income before income taxes and equity in earnings (losses)

of unconsolidated affiliates

        46,719       74,236       128,676       139,722  
Income tax expense         8,830       27,558       40,948       51,809  

Income before equity in earnings (losses) of unconsolidated

affiliates

        37,889       46,678       87,728       87,913  

Equity in earnings (losses) of unconsolidated affiliates

        464       334       (1,219 )     1,907  
Net income         38,353       47,012       86,509       89,820  
Net loss attributable to noncontrolling interests         164       189       317       654  

Net income attributable to Quintiles Transnational Holdings

Inc.

      $ 38,517     $ 47,201     $ 86,826     $ 90,474  
                     
                     
                     
Earnings per share attributable to common shareholders:                    
Basic       $ 0.31     $ 0.41     $ 0.73     $ 0.78  
Diluted       $ 0.30     $ 0.40     $ 0.71     $ 0.77  
                     
Weighted average common shares outstanding:                    
Basic         122,709       115,670       119,239       115,739  
Diluted         126,578       117,706       122,659       117,606  
                                     

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

         
         
    June 30,

2013

  December 31,

2012

    (unaudited)    
    (in thousands, except per share data)
ASSETS        
Current assets:        
Cash and cash equivalents   $ 585,722     $ 567,728  
Restricted cash     2,321       2,822  
Trade accounts receivable and unbilled services, net     867,211       745,373  
Prepaid expenses     48,599       33,354  
Deferred income taxes     65,416       69,038  
Income taxes receivable     26,504       17,597  
Other current assets and receivables     78,087       74,082  
Total current assets     1,673,860       1,509,994  
         
Property and equipment, net     196,749       193,999  
Investments in debt, equity and other securities     35,943       35,951  
Investments in and advances to unconsolidated affiliates     22,179       19,148  
Goodwill     295,260       302,429  
Other identifiable intangibles, net     271,733       272,813  
Deferred income taxes     41,141       37,313  
Deposits and other assets     111,302       127,506  
Total assets   $ 2,648,167     $ 2,499,153  
         
LIABILITIES AND SHAREHOLDERS' DEFICIT        
Current liabilities:        
Accounts payable and accrued expenses   $ 708,583     $ 751,798  
Unearned income     459,569       456,587  
Income taxes payable     27,604       9,639  
Current portion of long-term debt and obligations held under capital leases     141       55,710  
Other current liabilities     42,830       44,230  
Total current liabilities     1,238,727       1,317,964  
         
Long-term debt and obligations held under capital leases, less current portion     2,045,142       2,366,268  
Deferred income taxes     8,362       11,616  
Other liabilities     153,824       162,349  
Total liabilities     3,446,055       3,858,197  
Commitments and contingencies        
Shareholders' deficit:        

Common stock and additional paid-in capital, 300,000 and 150,000 shares authorized at June 30,

               

2013 and December 31, 2012, respectively, $0.01 par value, 128,921 and 115,764 shares

               

issued and outstanding at June 30, 2013 and December 31, 2012, respectively

    505,074       4,554  
Accumulated deficit     (1,284,946 )     (1,371,772 )
Accumulated other comprehensive income     (18,186 )     7,695  
Deficit attributable to Quintiles Transnational Holdings Inc.'s shareholders     (798,058 )     (1,359,523 )
Equity attributable to noncontrolling interests     170       479  
Total shareholders' deficit     (797,888 )     (1,359,044 )
Total liabilities and shareholders' deficit   $ 2,648,167     $ 2,499,153  
                 

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

         
        Six Months Ended June 30,
          2013       2012  
        (in thousands)
Operating activities:            
Net income       $ 86,509     $ 89,820  
             
Adjustments to reconcile net income to cash provided by operating activities:            
Depreciation and amortization         49,626       46,990  
Amortization of debt issuance costs and discount         15,258       3,586  
Share-based compensation         11,091       10,469  
Gain on disposals of property and equipment, net         (558 )     (867 )
Loss (earnings) from unconsolidated affiliates         1,326       (1,838 )
(Benefit from) provision for deferred income taxes         (12,041 )     7,885  
Excess income tax benefits on stock option exercises         (409 )     (380 )
Changes in operating assets and liabilities:            
Change in accounts receivable, unbilled services and unearned income         (127,238 )     (38,944 )
Change in other operating assets and liabilities         (18,180 )     (29,390 )
Net cash provided by operating activities         5,384       87,331  
             
Investing activities:            
Acquisition of property, equipment and software         (64,276 )     (33,928 )
Acquisition of businesses, net of cash acquired               (3,940 )
Proceeds from disposition of property and equipment         1,032       1,501  
Purchases of equity securities and other investments               (13,204 )
Investments in and advances to unconsolidated affiliates, net of payments received         (4,668 )     (11,859 )
Other         513       (1,528 )
Net cash used in investing activities         (67,399 )     (62,958 )
             
Financing activities:            
Proceeds from issuance of debt, net of costs               287,790  
Repayment of debt and principal payments on capital lease obligations         (384,825 )     (11,512 )
Issuance of common stock, net of costs         489,941       1,000  
Exercise of stock options         253       296  
Repurchase of common stock               (10,466 )
Excess income tax benefits on stock option exercises         409       380  
Dividends paid to common shareholders               (326,148 )
Net cash provided by (used in) financing activities         105,778       (58,660 )
             
Effect of foreign currency exchange rate changes on cash         (25,769 )     (5,770 )
             
Increase (decrease) in cash and cash equivalents         17,994       (40,057 )
Cash and cash equivalents at beginning of period         567,728       516,299  
Cash and cash equivalents at end of period       $ 585,722     $ 476,242  
                     

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED SEGMENT OPERATIONS

(unaudited)

             
        Three Months Ended June 30,   Six Months Ended June 30,
          2013       2012       2013       2012  
        (in thousands)
Service revenues                    
Product Development       $ 724,170     $ 692,123     $ 1,430,477     $ 1,348,485  
Integrated Healthcare Services         220,068       252,791       441,196       484,464  
Total service revenues         944,238       944,914       1,871,673       1,832,949  
                     
Costs of revenue, service costs                    
Product Development         441,895       428,936       870,902       833,246  
Integrated Healthcare Services         175,771       199,286       357,873       385,539  
Total costs of revenue, service costs         617,666       628,222       1,228,775       1,218,785  
                     
Selling, general and administrative expenses                    
Product Development         146,182       144,043       290,807       284,070  
Integrated Healthcare Services         31,790       33,266       64,571       64,369  
General corporate and unallocated expenses         50,866       26,235       72,762       60,900  
Total selling, general and administrative expenses         228,838       203,544       428,140       409,339  
                     
Income from operations                    
Product Development         136,093       119,144       268,768       231,169  
Integrated Healthcare Services         12,507       20,239       18,752       34,556  
General corporate and unallocated expenses         (50,866 )     (26,235 )     (72,762 )     (60,900 )
Restructuring costs         (2,837 )     (12,263 )     (4,696 )     (11,953 )

Total income from operations

      $ 94,897     $ 100,885     $ 210,062     $ 192,872  
                                     

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(unaudited)

             
        Three Months Ended June 30,   Six Months Ended June 30,
          2013       2012       2013       2012  
        (in thousands, except per share data)

Adjusted EBITDA

                   
Net income, as reported       $ 38,353     $ 47,012     $ 86,509     $ 89,820  
Interest expense, net         31,099       32,808       66,689       61,728  
Income tax expense         8,830       27,558       40,948       51,809  
Depreciation and amortization         24,986       23,719       49,626       46,990  
Restructuring costs         2,837       12,263       4,696       11,953  
Incremental share-based compensation expense (1)                           4,459  
Bonus paid to certain holders of stock options                           8,912  
Management fees (2)         26,360       1,334       27,694       2,640  
Loss on extinguishment of debt         16,543             16,543        
Other expense (income), net         536       (6,159 )     (1,846 )     (8,578 )
Equity in (earnings) losses from unconsolidated affiliates         (464 )     (334 )     1,219       (1,907 )
Adjusted EBITDA       $ 149,080     $ 138,201     $ 292,078     $ 267,826  
                     

Adjusted Income from Operations

                   
Income from operations, as reported       $ 94,897     $ 100,885     $ 210,062     $ 192,872  
Restructuring costs         2,837       12,263       4,696       11,953  
Incremental share-based compensation expense (1)                           4,459  
Bonus paid to certain holders of stock options                           8,912  
Management fees (2)         26,360       1,334       27,694       2,640  
Adjusted income from operations       $ 124,094     $ 114,482     $ 242,452     $ 220,836  
                     

Adjusted Net Income

                   
Net income, as reported       $ 38,353     $ 47,012     $ 86,509     $ 89,820  
Net loss attributable to noncontrolling interests         164       189       317       654  
Restructuring costs         2,837       12,263       4,696       11,953  
Incremental share-based compensation expense (1)                           4,459  
Bonus paid to certain holders of stock options                           8,912  
Management fees (2)         26,360       1,334       27,694       2,640  
Loss on extinguishment of debt         16,543             16,543        
Tax effect of adjustments (3)         (17,088 )     (4,928 )     (18,271 )     (10,467 )
Other income tax adjustments (4)         (4,244 )           3,057        
Adjusted net income       $ 62,925     $ 55,870     $ 120,545     $ 107,971  
                     
Diluted weighted average common shares outstanding         126,578       117,706       122,659       117,606  
Diluted adjusted earnings per share       $ 0.50     $ 0.47     $ 0.98     $ 0.92  
                     

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Continued)

(unaudited)

               
         

Three Months Ended

  Six Months Ended

June 30, 2013

          March 31, 2013   June 30, 2013  
          (in thousands, except per share data)

Adjusted Net Income

                 
Net income, as reported         $ 48,156     $ 38,353     $ 86,509  
Net loss attributable to noncontrolling interests           153       164       317  
Restructuring costs           1,859       2,837       4,696  
Management fees (2)           1,334       26,360       27,694  
Loss on extinguishment of debt                 16,543       16,543  
Tax effect of adjustments (3)           (1,183 )     (17,088 )     (18,271 )
Other income tax adjustments (4)           7,301       (4,244 )     3,057  
Adjusted net income         $ 57,620     $ 62,925     $ 120,545  
                   
Diluted weighted average common shares outstanding           118,740       126,578       122,659  
Diluted adjusted earnings per share         $ 0.49     $ 0.50     $ 0.98  

(1) Incremental expense incurred for repricings of share-based awards. The amount represents only the incremental amount of share-based compensation expense incurred in the quarter that the repricing occurred.

(2) Management fees were previously paid to affiliates of certain of the Company's shareholders pursuant to a management agreement. Both the three and six month periods ended June 30, 2013 include a $25.0 million fee paid in connection with the termination of the management agreement.

(3) The tax effect of adjustments was based on the respective transactions income tax rate, which was 38.5%, with the exception of restructuring costs which were tax effected at 26.4% in the 2013 periods and 36.0% in the 2012 periods.

(4) Other income tax adjustments remove the impact of certain discrete adjustments on the Company's income tax expense in both the three and six month periods in 2013. The Company's effective income tax rate in the 2013 periods was impacted by the Company's change in assertion regarding the undistributed earnings of most of the Company's foreign subsidiaries, which are now considered to be indefinitely reinvested outside of the United States. As a result of the assertion change, in the second quarter of 2013, we recorded an $8.1 million discrete income tax benefit to reverse the deferred income tax liability previously recorded on undistributed foreign earnings. In addition, the estimated annual effective income tax rate for 2013 decreased due to the indefinitely reinvested assertion which resulted in a $7.3 million one-time income tax benefit for the three months ended June 2013 to adjust income taxes recorded on the first quarter earnings to the new estimated annual effective income tax rate. Finally, in the second quarter of 2013, the Company settled certain intercompany notes that had previously been considered long term investments, which resulted in an $11.2 million discrete income tax expense. Below is a summary of other income tax adjustments:

       

Three Months Ended

  Six Months Ended

June 30, 2013

       

March 31, 2013

  June 30, 2013  
        (in thousands)
Change to indefinitely reinvested assertion:                
Impact of change on effective income tax rate       $ (7,301 )   $ 7,301     $  
Impact of reversal of deferred income tax liability               8,123       8,123  
Total from change in assertion         (7,301 )     15,424       8,123  
Impact from intercompany notes settlements               (11,180 )     (11,180 )
Total other income tax adjustments       $ (7,301 )   $ 4,244     $ (3,057 )
                             

 

QUINTILES TRANSNATIONAL HOLDINGS INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Continued)

(unaudited)

             
             

Reconciliation of GAAP to Non-GAAP Full Year 2013 Guidance

             
Adjusted Net Income and Diluted Adjusted Earnings Per Share       Adjusted Net Income  

Diluted Adjusted

Earnings Per Share

        (in millions, except per share data)
        Low   High   Low   High
Net income and diluted earnings per share       $ 208   $ 220     $ 1.63   $ 1.73  
Restructuring costs         15     15       0.12     0.12  
Management fees         28     28       0.22     0.22  
Loss on extinguishment of debt         17     17       0.13     0.13  
Tax effect of adjustments         (21 )   (21 )     (0.17 )   (0.17 )
Other income tax adjustments         3     3       0.02     0.02  
Adjusted net income and diluted adjusted earnings per share       $ 250   $ 262     $ 1.95   $ 2.05  

(1) The tax effect of adjustments is based on the respective transaction's income tax rate, which is 38.5% with the exception of restructuring costs which are tax effected at approximately 30%.

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