PDGI Pharmanet Development Grp (MM)

PharmaNet Development Group, Inc. (NASDAQ: PDGI), a leading provider of drug development services to branded pharmaceutical, biotechnology, generic drug and medical device companies, today reported GAAP net earnings from continuing operations for its third quarter ended September 30, 2006 of $3.0 million or $0.16 per diluted share. �PharmaNet Development Group, Inc. had another solid quarter resulting from excellent late stage revenue growth, partially offset by lower revenues from the early stage segment,� commented Jeffrey P. McMullen, president and chief executive officer. �In addition to strong operational performance, we recently achieved two major financial objectives with the amendment of the credit facility and the execution of the agreement for the sale and subsequent lease of the Quebec City site.� Basis of presentation Due to the Company's decision to discontinue certain operations earlier this year all financial results for the periods presented reflect the Company's continuing operations only, unless otherwise stated. To better reflect ongoing operations for investors for the periods presented Adjusted (non-GAAP) results are used throughout this press release and the accompanying tables. The three months ended September 30, 2006 adjusted financial results exclude the following costs: a) non-cash amortization ($0.7 million) and b) non-cash compensation expense resulting from the adoption of SFAS 123(R) ($0.1 million). The Company adopted SFAS No. 123(R), Share Based Payment, on January 1, 2006. A reconciliation of GAAP results to Adjusted (non-GAAP) results can be found in the unaudited financial tables included in this press release. Third Quarter 2006 Financial Summary GAAP Direct revenue, which does not include reimbursed out-of-pocket expenses, increased 5.7% to $76.0 million compared to $71.9 million in the third quarter of 2005 primarily due to higher late stage revenues, offset partly by lower early stage revenues. GAAP corporate expenses increased to $5.0 million in third quarter 2006 compared to $3.2 million in third quarter 2005. Adjusted corporate expenses increased to $4.9 million in the third quarter of 2006 from $3.2 million in the third quarter of 2005 primarily due to the non-cash amortization of restricted stock units (RSUs), higher legal and professional fees, increased bonus and compensation expense resulting from organizational changes and the additional costs relating to the Company name change. GAAP operating margin was 7.8% in the third quarter 2006 compared with 16.2% in the third quarter 2005. Adjusted operating margin for the third quarter 2006 decreased to 8.9% from 17.6% in the third quarter of 2005 primarily due to lower direct revenues in the early stage segment, continued investment in early stage clinical and laboratory facilities and higher corporate expenses. GAAP net earnings were $3.0 million in the third quarter 2006 compared to $7.1 million in the third quarter 2005. Adjusted net earnings for the third quarter of 2006 were approximately $3.7 million compared to $8.0 million for the third quarter of 2005 primarily due to lower profits in the early stage segment and increased corporate expenses partly offset by increased profitability in the late stage segment. The Company�s backlog increased sequentially to $357.0 million at September 30, 2006 from $353.5 million at June 30, 2006. Backlog consists of anticipated direct revenue from signed contracts and letters of intent that either have not started or are in process and have not been completed. The combined book-to-bill ratio was 1.05:1. Cash, cash equivalents, and investments in marketable securities at September 30, 2006 were $53.8 million compared to $59.6 million at June 30, 2006. In October 2006, the Company received approximately $9.9 million in cash proceeds from the sale of the new Anapharm Quebec City headquarters currently under construction. Net cash provided by operating activities from continuing operations was $3.6 million. Capital expenditures were $7.8 million, depreciation was $2.8 million and amortization was $0.7 million in the third quarter 2006 compared with $2.8 million, $2.5 million and $1.0 million, respectively, in the third quarter 2005. Included in the $7.8 million is $4.4 million related to the construction of the new Quebec City facility. Net Days Sales Outstanding (DSO) for continuing operations, which includes accounts receivable and unbilled services less current and long-term advanced billings, were 31 days at September 30, 2006, reflecting a more normalized level, compared with 14 days at June 30, 2006. The Company�s effective tax rate in the quarter was 14.4% compared to 14.1% in the third quarter of 2005. For the segment financial results provided below, the Company has excluded an allocation of corporate expenses related to certain adjusted selling, general and administrative ("SG&A") expenses. Early Stage PharmaNet Development Group, Inc.�s early stage segment primarily includes the areas of Phase I clinical trials, support services and bioanalytical services. For the early stage segment, GAAP direct revenue, which does not include reimbursed out-of-pocket expenses, was approximately $25.9 million in the third quarter 2006 compared to approximately $31.4 million in the third quarter 2005 primarily due to lower pricing and volume resulting from a more competitive market environment. Early stage segment GAAP operating margins decreased to 15.4% in the third quarter 2006 compared to 30.0% in the third quarter 2005. Early stage segment adjusted operating margins decreased to 15.9% in the third quarter 2006 compared to 31.0% in the third quarter 2005 primarily due to lower direct revenues while maintaining the existing operational infrastructure. The backlog for the early stage segment increased 22% to approximately $37.6 million from $30.8 million reported at June 30, 2006 due to new generic, Phase I and bioanalytical business. The construction plan is in place and on schedule for the new Quebec City facility, which will house the staff and operations of the two existing facilities that comprise the Anapharm headquarters. As previously disclosed, the Company recently executed an agreement for the sale and subsequent lease of the Quebec City site. The Company continues to expect to occupy the facility in the second quarter 2007. The Company is completing the leasehold improvements at its Toronto site which will house clinical facilities. Based on forecasted operating levels, the Company continues to assess the time at which to commence operations in this location. Late Stage PharmaNet Development Group, Inc.�s late stage segment primarily conducts Phase II through IV clinical trials, data management and biostatistics, medical and scientific affairs, regulatory affairs and submissions, and provides software tools and services for use in clinical trials. For the late stage segment, GAAP direct revenue, which does not include reimbursed out-of-pocket expenses, reached record levels increasing 23.8% to $50.1 million in the third quarter 2006 compared to $40.5 million, in the third quarter 2005. Late stage segment GAAP operating margins were 13.9% in the third quarter 2006 compared to 13.5% in the third quarter 2005. Late stage segment adjusted operating margins were 15.1% in the third quarter 2006 compared to 15.2% in the third quarter 2005. The backlog for the late stage segment is approximately $319.4 million compared to $322.7 million reported at June 30, 2006. Discontinued operations The Company has a remaining balance of expected cash costs relating to discontinued operations, totaling $3.6 million, for demolition and asbestos remediation, severance, contracted services and healthcare costs. The Company continues to proceed toward demolition of the building and is assessing options with respect to the sale of the land. Guidance For continuing operations in the fourth quarter 2006, the Company expects direct revenues to be in the range of $68.1 - $74.3 million, adjusted pre-tax earnings to be in the range of $3.2 - $5.2 million, adjusted fully diluted EPS of $0.16 - $0.22, capital expenditures to be in the range of $4.0 - $5.0 million, depreciation to be in the range of $2.8 - $3.1 million, amortization to be approximately $0.7 million, and the tax rate to be in the range of 10% to 20%. The Company expects to provide guidance for 2007 in its fourth quarter and year-end 2006 earnings press release. Conference Call and Webcast A conference call and webcast to discuss the third quarter financial results will be held on Thursday, November 2, 2006 at 8:30 a.m., Eastern Time. Dial-in: (866) 831-6272 for U.S. (617) 213-8859 for International Pass code: 24262818 Dial-in Replay: (888) 286-8010 for U.S. (617) 801-6888 for International Pass code: 94602754 The dial-in replay will be available approximately two hours after the call through Thursday, November 9, 2006. Webcast: Please visit www.pharmanet.com and select the investor tab to access the webcast. The archived webcast will be available for approximately thirty (30) days following the conference call. Non-GAAP Financial Measures This press release contains non-GAAP financial measures, which exclude, among other items, amortization of acquisition-related intangible assets, non-recurring charges related to financing, and non-cash impairment charges. PDGI excludes these items from the non-GAAP financial measures because they are outside of its operations and are a useful indicator, which allows management to monitor PDGI�s underlying business performance. Non-GAAP results also allow investors to compare the reported GAAP results and the non-GAAP First Call consensus estimate and to compare the Company�s operations against the financial results of other companies in the industry. The non-GAAP financial measures included in this press release should not be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of, and the accompanying tables to, this press release, and can also be found on the Company�s website. About PharmaNet Development Group, Inc. PharmaNet Development Group, Inc. is an international drug development services company offering a comprehensive range of clinical development, clinical and bioanalytical laboratory, and consulting services to the branded pharmaceutical, biotechnology, generic drug and medical device industries. PharmaNet Development Group, Inc. has more than 30 offices, facilities and laboratories with more than 2,000 employees strategically located throughout the world. For more information, visit the Company's website at http://www.pharmanet.com. Forward-Looking Statements Certain statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Additionally words such as "seek," "intend," "believe," "plan," "estimate," "expect," "anticipate" and other similar expressions are forward-looking statements within the meaning of the Act. Some or all of the results anticipated by these forward-looking statements may not occur. Factors that could cause or contribute to such differences include, but are not limited to, industry trends and information; whether adverse publicity relating to the Company�s discontinued Florida operations causes clients to select competitors, not only for early stage branded clinical trials but also for other aspects of the Company�s business; its ability to comply with the timeline agreed upon in the settlement reached with the Miami-Dade County Unsafe Structures Board and any related fines or expenses if we are unsuccessful complying with such timeline; the associated costs and expenses with discontinuing the Company's operations in Florida, including the potential costs of the demolition of the Miami facility; the Company's ability to determine its impairment charges and costs of discontinued operations; whether the Company will achieve its estimated value for its Miami property; developments with respect to the SEC's inquiry and securities class action lawsuits and derivative lawsuits; the Company�s ability to successfully achieve and manage the technical requirements of specialized clinical trial services, while complying with applicable rules and regulations; regulatory changes; changes affecting the clinical research industry; a reduction of outsourcing by pharmaceutical and biotechnology companies; the Company�s ability to compete internationally in attracting clients in order to develop additional business; the Company�s evaluation of its backlog and the potential cancellation of contracts; its ability to retain and recruit new employees; its clients' ability to provide the drugs and medical devices used in its clinical trials; the Company�s future stock price; its assessment of its effective tax rate; the Company�s financial guidance; our future effective tax rate; our anticipated 2006 capital expenditures; our 2006 costs of compliance of Section 404 of the Sarbanes-Oxley Act; our ability to remediate our material weaknesses; the impact of foreign currency transaction costs and the effectiveness of any hedging strategies that we implement; and the national and international economic climate as it affects drug development operations. Further information can be found in the Company�s risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2005, which were originally filed as SFBC International (NASDAQ: SFCC) and its most recent Quarterly Report on Form 10-Q. The Company does not undertake to update the disclosures made herein, and you are urged to read our filings with the Securities and Exchange Commission. PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Statement of Operations (Unaudited) For the Three Months Ended September 30, 2006 and 2005 � (As Revised) � � 2006� � 2005� REVENUE � � � � Direct revenue 76,018,774� 71,890,582� Reimbursed out-of-pockets � 27,235,490� � 21,852,492� TOTAL REVENUE � 103,254,264� � 93,743,074� COSTS AND EXPENSES � � � � Direct costs 45,769,899� 40,099,096� Reimbursable out-of-pocket expenses 27,235,490� 21,852,492� Selling, general and administrative expenses 24,337,454� 20,166,287� Impairment of goodwill -� -� Impairment of long-lived assets � -� � -� TOTAL COSTS AND EXPENSES � 97,342,843� � 82,117,875� EARNINGS (LOSS) FROM CONTINUING OPERATIONS � 5,911,421� � 11,625,199� OTHER INCOME (EXPENSE) � � � � Interest income 153,557� 140,309� Interest expense (1,676,517) (1,780,407) Foreign exchange transaction gain (loss), net � (647,315) � (1,456,276) TOTAL OTHER INCOME (EXPENSE) � (2,170,275) � (3,096,374) EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,741,146� 8,528,825� � � Income tax (benefit) � 538,771� � 1,204,844� EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE � 3,202,375� � 7,323,981� Minority interest in joint venture � 222,835� � 192,590� NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS � 2,979,540� � 7,131,391� Earnings (loss) from discontinued operations, net of tax � (3,242,289) � 2,030,825� NET EARNINGS (LOSS) � (262,749) � 9,162,216� � � � � � BASIC EARNINGS (LOSS) PER SHARE: � � � � Continuing operations $0.16� $0.39� Discontinued operations ($0.17) $0.11� Net earnings (loss) � ($0.01) � $0.50� DILUTED EARNINGS (LOSS) PER SHARE: � � � � Continuing operations $0.16� $0.37� Discontinued operations ($0.17) $0.11� Net earnings (loss) � ($0.01) � $0.48� NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE: � � � Basic 18,348,322� 18,459,258� Diluted � 18,473,375� � 19,158,308� PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Reconciliation of GAAP Operating Margin for Continuing Operations to Non-GAAP Operating Margins for Continuing Operations For the Three and Nine Months Ended September 30, 2006 and 2005 � Three Months Ended Nine Months Ended � � 2006� � 2005� � 2006� � 2005� DIRECT REVENUE 76,018,774� � 71,890,582� � 223,280,143� � 193,053,706� � � � � � � � � � EARNINGS FROM CONTINUING OPERATIONS GAAP 5,911,421� � 11,625,199� � 5,582,388� � 20,266,138� � � � � � � � � � OPERATING MARGIN GAAP 7.8% � 16.2% � 2.5% � 10.5% � � � � � � � � � ADD BACK: � � � � � � � FAS 123(R) expense 149,063� -� 958,515� -� Amortization of acquisition related intangibles 703,646� 993,798� 2,274,359� 3,031,317� Impairment of goodwill -� � -� � 7,873,000� � -� NON-GAAP OPERATING EARNINGS 6,764,130� � 12,618,997� � 16,688,262� � 23,297,455� � � � � � � � � � NON-GAAP OPERATING MARGIN 8.9% � 17.6% � 7.5% � 12.1% PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Statement of Operations (Unaudited) For the Nine Months Ended September 30, 2006 and 2005 � (As Revised)) � � 2006� � 2005� REVENUE � � � � Direct revenue 223,280,143� 193,053,706� Reimbursed out-of-pockets � 80,119,231� � 65,340,179� TOTAL REVENUE � 303,399,374� � 258,393,885� COSTS AND EXPENSES � � � � Direct costs 135,884,050� 112,089,743� Reimbursable out-of-pocket expenses 80,119,231� 65,340,179� Selling, general and administrative expenses 73,940,705� 60,697,825� Impairment of goodwill 7,873,000� -� Impairment of long-lived assets � -� � -� TOTAL COSTS AND EXPENSES � 297,816,986� � 238,127,747� EARNINGS (LOSS) FROM CONTINUING OPERATIONS � 5,582,388� � 20,266,138� OTHER INCOME (EXPENSE) � � � � Interest income 1,050,060� 694,641� Interest expense (6,432,619) (10,344,371) Foreign exchange transaction gain (loss), net � (3,002,126) � (678,259) TOTAL OTHER INCOME (EXPENSE) � (8,384,685) � (10,327,989) EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,802,297) 9,938,149� � � Income tax (benefit) � (5,874,452) � 1,131,324� EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE 3,072,155� 8,806,825� � � Minority interest in joint venture � 516,798� � 366,855� NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS � 2,555,357� � 8,439,970� Earnings (loss) from discontinued operations, net of tax � (26,667,552) � 12,865,324� NET EARNINGS (LOSS) � (24,112,195) � 21,305,294� � � � � � BASIC EARNINGS (LOSS) PER SHARE: � � � � Continuing operations $0.14� $0.48� Discontinued operations ($1.47) $0.73� Net earnings (loss) � ($1.33) � $1.21� DILUTED EARNINGS (LOSS) PER SHARE: � � � � Continuing operations $0.14� $0.46� Discontinued operations ($1.45) $0.71� Net earnings (loss) � ($1.31) � $1.17� NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE: � � � Basic 18,150,182� 17,543,438� Diluted � 18,376,696� � 18,217,963� PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Reconciliation of GAAP Net Earnings for Continuing Operations to Non-GAAP Net Earnings from Continuing Operations For the Three and Nine Months Ended September 30, 2006 and 2005 � � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2006� 2005� 2006� 2005� � Net earnings from continuing operations GAAP 2,979,540� 7,131,391� 2,555,357� 8,439,970� � Add: Impairment of goodwill -� -� 7,873,000� -� � Add: Non-recurring charge related to financing -� -� 1,214,306� 3,278,279� � Add: FAS 123R expense 149,063� -� 958,515� -� � Add: Amortization of acquisition related intangibles 703,646� 993,798� 2,274,359� 3,031,317� � Subtotal 3,832,249� 8,125,189� 14,875,537� 14,749,566� � Less: Tax effect of non-GAAP adjustments (1)(2)(3) 122,790� 140,126� 4,207,249� 909,430� � Non-GAAP net earnings 3,709,459� 7,985,063� 10,668,288� 13,840,136� � Diluted non-GAAP net earnings per share $0.20� $0.42� $0.58� $0.76� � Number of shares used in computing diluted non-GAAP earnings per share 18,473,375� 19,158,308� 18,376,696� 18,217,963� � � (1) The revised tax rate used for the nine months ended September 30, 2006 is approximately a benefit of (17.5%) after taking into account adjustments reflected in this summary. � (2) The revised tax rate used for the nine months ended September 30, 2005 is approximately 12.6% after taking into account adjustments reflected in this summary. � (3) The quarterly tax effect for 2006 and 2005 have been tax effected at their respective quarterly tax rates. PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Summary of Operations of Early and Late Stage Clinical Development Segments For the Three and Nine Months Ended September 30, 2006 and 2005 � � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, EARLY CLINICAL DEVELOPMENT � 2006� � 2005� � 2006� � 2005� � Direct revenues 25,909,168� 31,419,515� 76,692,015� 77,462,605� � GAAP operating earnings (loss) 3,991,997� 9,412,359� (377,141) 15,598,571� � Amortization of intangibles 128,846� 315,746� 549,959� 1,017,358� � Non-GAAP operating earnings (loss) 4,120,843� 9,728,105� 172,818� 16,615,929� � GAAP operating margin 15.4% 30.0% -0.5% 20.1% � Non-GAAP operating margin 15.9% 31.0% 0.2% 21.5% � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, LATE CLINICAL DEVELOPMENT � 2006� � 2005� � 2006� � 2005� � Direct revenues 50,109,606� 40,471,067� 146,588,128� 115,591,101� � GAAP operating earnings (loss) 6,983,946� 5,454,775� 22,418,455� 12,694,977� � Amortization of intangibles 574,800� 678,052� 1,724,400� 2,013,959� � Non-GAAP operating earnings (loss) 7,558,746� 6,132,827� 24,142,855� 14,708,936� � GAAP operating margin 13.9% 13.5% 15.3% 11.0% � Non-GAAP operating margin 15.1% 15.2% 16.5% 12.7% PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Selected Consolidated Balance Sheet Information September 30, 2006 and 2005 � (Unaudited) (As Revised) September 30, December 31, � � � � � � 2006� � 2005� ASSETS � � � � � � � � Cash, equivalents and investments in marketable securities from continuing operations 53,820,203� 37,413,251� Cash, equivalents and investments in marketable securities from discontinued operations -� 1,421,451� Total cash, equivalents, and investments in marketable securities 53,820,203� 38,834,702� � Accounts receivable from continuing operations 109,782,587� 91,446,190� Accounts receivable from discontinued operations 6,289,490� 26,425,479� Accounts receivable 116,072,077� 117,871,669� � Current assets from continuing operations 180,061,293� 148,692,703� Current assets from discontinued operations 6,397,498� 29,335,006� Total current assets 186,458,791� 178,027,709� � Fixed assets from continuing operations 61,796,913� 48,563,461� Fixed assets held available for sale from discontinued operations 3,487,415� 24,701,651� Total fixed assets 65,284,328� 73,265,112� � Total assets from continuing operations 555,070,421� 514,328,567� Total assets from discontinued operations 9,884,913� 58,208,529� Total assets 564,955,334� 572,537,096� � � � � � � � � � LIABILITIES AND STOCKHOLDERS' EQUITY � � � � Current liabilities from continuing operations 125,070,285� 120,493,672� Current liabilities from discontinued operations 5,624,726� 5,940,389� Total current liabilities 130,695,011� 126,434,061� � Total liabilities from continuing operations 292,629,463� 284,315,108� Total liabilities from discontinued operations 5,642,726� 5,940,389� Total liabilities 298,272,189� 290,255,497� � Stockholders' equity 266,683,145� 282,281,599� � Total liabilities and stockholders' equity 564,955,334� 572,537,096� PharmaNet Development Group, Inc. (NASDAQ: PDGI), a leading provider of drug development services to branded pharmaceutical, biotechnology, generic drug and medical device companies, today reported GAAP net earnings from continuing operations for its third quarter ended September 30, 2006 of $3.0 million or $0.16 per diluted share. "PharmaNet Development Group, Inc. had another solid quarter resulting from excellent late stage revenue growth, partially offset by lower revenues from the early stage segment," commented Jeffrey P. McMullen, president and chief executive officer. "In addition to strong operational performance, we recently achieved two major financial objectives with the amendment of the credit facility and the execution of the agreement for the sale and subsequent lease of the Quebec City site." Basis of presentation Due to the Company's decision to discontinue certain operations earlier this year all financial results for the periods presented reflect the Company's continuing operations only, unless otherwise stated. To better reflect ongoing operations for investors for the periods presented Adjusted (non-GAAP) results are used throughout this press release and the accompanying tables. The three months ended September 30, 2006 adjusted financial results exclude the following costs: a) non-cash amortization ($0.7 million) and b) non-cash compensation expense resulting from the adoption of SFAS 123(R) ($0.1 million). The Company adopted SFAS No. 123(R), Share Based Payment, on January 1, 2006. A reconciliation of GAAP results to Adjusted (non-GAAP) results can be found in the unaudited financial tables included in this press release. Third Quarter 2006 Financial Summary -- GAAP Direct revenue, which does not include reimbursed out-of-pocket expenses, increased 5.7% to $76.0 million compared to $71.9 million in the third quarter of 2005 primarily due to higher late stage revenues, offset partly by lower early stage revenues. -- GAAP corporate expenses increased to $5.0 million in third quarter 2006 compared to $3.2 million in third quarter 2005. Adjusted corporate expenses increased to $4.9 million in the third quarter of 2006 from $3.2 million in the third quarter of 2005 primarily due to the non-cash amortization of restricted stock units (RSUs), higher legal and professional fees, increased bonus and compensation expense resulting from organizational changes and the additional costs relating to the Company name change. -- GAAP operating margin was 7.8% in the third quarter 2006 compared with 16.2% in the third quarter 2005. Adjusted operating margin for the third quarter 2006 decreased to 8.9% from 17.6% in the third quarter of 2005 primarily due to lower direct revenues in the early stage segment, continued investment in early stage clinical and laboratory facilities and higher corporate expenses. -- GAAP net earnings were $3.0 million in the third quarter 2006 compared to $7.1 million in the third quarter 2005. Adjusted net earnings for the third quarter of 2006 were approximately $3.7 million compared to $8.0 million for the third quarter of 2005 primarily due to lower profits in the early stage segment and increased corporate expenses partly offset by increased profitability in the late stage segment. -- The Company's backlog increased sequentially to $357.0 million at September 30, 2006 from $353.5 million at June 30, 2006. Backlog consists of anticipated direct revenue from signed contracts and letters of intent that either have not started or are in process and have not been completed. The combined book-to-bill ratio was 1.05:1. -- Cash, cash equivalents, and investments in marketable securities at September 30, 2006 were $53.8 million compared to $59.6 million at June 30, 2006. In October 2006, the Company received approximately $9.9 million in cash proceeds from the sale of the new Anapharm Quebec City headquarters currently under construction. -- Net cash provided by operating activities from continuing operations was $3.6 million. Capital expenditures were $7.8 million, depreciation was $2.8 million and amortization was $0.7 million in the third quarter 2006 compared with $2.8 million, $2.5 million and $1.0 million, respectively, in the third quarter 2005. Included in the $7.8 million is $4.4 million related to the construction of the new Quebec City facility. -- Net Days Sales Outstanding (DSO) for continuing operations, which includes accounts receivable and unbilled services less current and long-term advanced billings, were 31 days at September 30, 2006, reflecting a more normalized level, compared with 14 days at June 30, 2006. -- The Company's effective tax rate in the quarter was 14.4% compared to 14.1% in the third quarter of 2005. For the segment financial results provided below, the Company has excluded an allocation of corporate expenses related to certain adjusted selling, general and administrative ("SG&A") expenses. Early Stage PharmaNet Development Group, Inc.'s early stage segment primarily includes the areas of Phase I clinical trials, support services and bioanalytical services. For the early stage segment, GAAP direct revenue, which does not include reimbursed out-of-pocket expenses, was approximately $25.9 million in the third quarter 2006 compared to approximately $31.4 million in the third quarter 2005 primarily due to lower pricing and volume resulting from a more competitive market environment. Early stage segment GAAP operating margins decreased to 15.4% in the third quarter 2006 compared to 30.0% in the third quarter 2005. Early stage segment adjusted operating margins decreased to 15.9% in the third quarter 2006 compared to 31.0% in the third quarter 2005 primarily due to lower direct revenues while maintaining the existing operational infrastructure. The backlog for the early stage segment increased 22% to approximately $37.6 million from $30.8 million reported at June 30, 2006 due to new generic, Phase I and bioanalytical business. The construction plan is in place and on schedule for the new Quebec City facility, which will house the staff and operations of the two existing facilities that comprise the Anapharm headquarters. As previously disclosed, the Company recently executed an agreement for the sale and subsequent lease of the Quebec City site. The Company continues to expect to occupy the facility in the second quarter 2007. The Company is completing the leasehold improvements at its Toronto site which will house clinical facilities. Based on forecasted operating levels, the Company continues to assess the time at which to commence operations in this location. Late Stage PharmaNet Development Group, Inc.'s late stage segment primarily conducts Phase II through IV clinical trials, data management and biostatistics, medical and scientific affairs, regulatory affairs and submissions, and provides software tools and services for use in clinical trials. For the late stage segment, GAAP direct revenue, which does not include reimbursed out-of-pocket expenses, reached record levels increasing 23.8% to $50.1 million in the third quarter 2006 compared to $40.5 million, in the third quarter 2005. Late stage segment GAAP operating margins were 13.9% in the third quarter 2006 compared to 13.5% in the third quarter 2005. Late stage segment adjusted operating margins were 15.1% in the third quarter 2006 compared to 15.2% in the third quarter 2005. The backlog for the late stage segment is approximately $319.4 million compared to $322.7 million reported at June 30, 2006. Discontinued operations The Company has a remaining balance of expected cash costs relating to discontinued operations, totaling $3.6 million, for demolition and asbestos remediation, severance, contracted services and healthcare costs. The Company continues to proceed toward demolition of the building and is assessing options with respect to the sale of the land. Guidance For continuing operations in the fourth quarter 2006, the Company expects -- direct revenues to be in the range of $68.1 - $74.3 million, -- adjusted pre-tax earnings to be in the range of $3.2 - $5.2 million, -- adjusted fully diluted EPS of $0.16 - $0.22, -- capital expenditures to be in the range of $4.0 - $5.0 million, -- depreciation to be in the range of $2.8 - $3.1 million, -- amortization to be approximately $0.7 million, -- and the tax rate to be in the range of 10% to 20%. The Company expects to provide guidance for 2007 in its fourth quarter and year-end 2006 earnings press release. Conference Call and Webcast A conference call and webcast to discuss the third quarter financial results will be held on Thursday, November 2, 2006 at 8:30 a.m., Eastern Time. -0- *T Dial-in: (866) 831-6272 for U.S. (617) 213-8859 for International Pass code: 24262818 Dial-in Replay: (888) 286-8010 for U.S. (617) 801-6888 for International Pass code: 94602754 The dial-in replay will be available approximately two hours after the call through Thursday, November 9, 2006. Webcast: Please visit www.pharmanet.com and select the investor tab to access the webcast. The archived webcast will be available for approximately thirty (30) days following the conference call. *T Non-GAAP Financial Measures This press release contains non-GAAP financial measures, which exclude, among other items, amortization of acquisition-related intangible assets, non-recurring charges related to financing, and non-cash impairment charges. PDGI excludes these items from the non-GAAP financial measures because they are outside of its operations and are a useful indicator, which allows management to monitor PDGI's underlying business performance. Non-GAAP results also allow investors to compare the reported GAAP results and the non-GAAP First Call consensus estimate and to compare the Company's operations against the financial results of other companies in the industry. The non-GAAP financial measures included in this press release should not be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of, and the accompanying tables to, this press release, and can also be found on the Company's website. About PharmaNet Development Group, Inc. PharmaNet Development Group, Inc. is an international drug development services company offering a comprehensive range of clinical development, clinical and bioanalytical laboratory, and consulting services to the branded pharmaceutical, biotechnology, generic drug and medical device industries. PharmaNet Development Group, Inc. has more than 30 offices, facilities and laboratories with more than 2,000 employees strategically located throughout the world. For more information, visit the Company's website at http://www.pharmanet.com. Forward-Looking Statements Certain statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Additionally words such as "seek," "intend," "believe," "plan," "estimate," "expect," "anticipate" and other similar expressions are forward-looking statements within the meaning of the Act. Some or all of the results anticipated by these forward-looking statements may not occur. Factors that could cause or contribute to such differences include, but are not limited to, industry trends and information; whether adverse publicity relating to the Company's discontinued Florida operations causes clients to select competitors, not only for early stage branded clinical trials but also for other aspects of the Company's business; its ability to comply with the timeline agreed upon in the settlement reached with the Miami-Dade County Unsafe Structures Board and any related fines or expenses if we are unsuccessful complying with such timeline; the associated costs and expenses with discontinuing the Company's operations in Florida, including the potential costs of the demolition of the Miami facility; the Company's ability to determine its impairment charges and costs of discontinued operations; whether the Company will achieve its estimated value for its Miami property; developments with respect to the SEC's inquiry and securities class action lawsuits and derivative lawsuits; the Company's ability to successfully achieve and manage the technical requirements of specialized clinical trial services, while complying with applicable rules and regulations; regulatory changes; changes affecting the clinical research industry; a reduction of outsourcing by pharmaceutical and biotechnology companies; the Company's ability to compete internationally in attracting clients in order to develop additional business; the Company's evaluation of its backlog and the potential cancellation of contracts; its ability to retain and recruit new employees; its clients' ability to provide the drugs and medical devices used in its clinical trials; the Company's future stock price; its assessment of its effective tax rate; the Company's financial guidance; our future effective tax rate; our anticipated 2006 capital expenditures; our 2006 costs of compliance of Section 404 of the Sarbanes-Oxley Act; our ability to remediate our material weaknesses; the impact of foreign currency transaction costs and the effectiveness of any hedging strategies that we implement; and the national and international economic climate as it affects drug development operations. Further information can be found in the Company's risk factors contained in its Annual Report on Form 10-K for the year ended December 31, 2005, which were originally filed as SFBC International (NASDAQ: SFCC) and its most recent Quarterly Report on Form 10-Q. The Company does not undertake to update the disclosures made herein, and you are urged to read our filings with the Securities and Exchange Commission. -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Statement of Operations (Unaudited) For the Three Months Ended September 30, 2006 and 2005 (As Revised) 2006 2005 ---------------------------------------------------------------------- REVENUE ---------------------------------------------------------------------- Direct revenue 76,018,774 71,890,582 Reimbursed out-of-pockets 27,235,490 21,852,492 ---------------------------------------------------------------------- TOTAL REVENUE 103,254,264 93,743,074 ---------------------------------------------------------------------- COSTS AND EXPENSES ---------------------------------------------------------------------- Direct costs 45,769,899 40,099,096 Reimbursable out-of-pocket expenses 27,235,490 21,852,492 Selling, general and administrative expenses 24,337,454 20,166,287 Impairment of goodwill - - Impairment of long-lived assets - - ---------------------------------------------------------------------- TOTAL COSTS AND EXPENSES 97,342,843 82,117,875 ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS 5,911,421 11,625,199 ---------------------------------------------------------------------- OTHER INCOME (EXPENSE) ---------------------------------------------------------------------- Interest income 153,557 140,309 Interest expense (1,676,517) (1,780,407) Foreign exchange transaction gain (loss), net (647,315) (1,456,276) ---------------------------------------------------------------------- TOTAL OTHER INCOME (EXPENSE) (2,170,275) (3,096,374) ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,741,146 8,528,825 ---------------------------------------------------------------------- Income tax (benefit) 538,771 1,204,844 ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE 3,202,375 7,323,981 ---------------------------------------------------------------------- Minority interest in joint venture 222,835 192,590 ---------------------------------------------------------------------- NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS 2,979,540 7,131,391 ---------------------------------------------------------------------- Earnings (loss) from discontinued operations, net of tax (3,242,289) 2,030,825 ---------------------------------------------------------------------- NET EARNINGS (LOSS) (262,749) 9,162,216 ---------------------------------------------------------------------- ---------------------------------------------------------------------- BASIC EARNINGS (LOSS) PER SHARE: ---------------------------------------------------------------------- Continuing operations $0.16 $0.39 Discontinued operations ($0.17) $0.11 Net earnings (loss) ($0.01) $0.50 ---------------------------------------------------------------------- DILUTED EARNINGS (LOSS) PER SHARE: ---------------------------------------------------------------------- Continuing operations $0.16 $0.37 Discontinued operations ($0.17) $0.11 Net earnings (loss) ($0.01) $0.48 ---------------------------------------------------------------------- NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE: ---------------------------------------------------------------------- Basic 18,348,322 18,459,258 Diluted 18,473,375 19,158,308 ---------------------------------------------------------------------- *T -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Reconciliation of GAAP Operating Margin for Continuing Operations to Non-GAAP Operating Margins for Continuing Operations For the Three and Nine Months Ended September 30, 2006 and 2005 Three Months Ended Nine Months Ended 2006 2005 2006 2005 ---------------------------------------------------------------------- DIRECT REVENUE 76,018,774 71,890,582 223,280,143 193,053,706 ---------------------------------------------------------------------- ---------------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS GAAP 5,911,421 11,625,199 5,582,388 20,266,138 ---------------------------------------------------------------------- ---------------------------------------------------------------------- OPERATING MARGIN GAAP 7.8% 16.2% 2.5% 10.5% ---------------------------------------------------------------------- ---------------------------------------------------------------------- ADD BACK: ---------------------------------------------------------------------- FAS 123(R) expense 149,063 - 958,515 - Amortization of acquisition related intangibles 703,646 993,798 2,274,359 3,031,317 Impairment of goodwill - - 7,873,000 - ---------------------------------------------------------------------- NON-GAAP OPERATING EARNINGS 6,764,130 12,618,997 16,688,262 23,297,455 ---------------------------------------------------------------------- ---------------------------------------------------------------------- NON-GAAP OPERATING MARGIN 8.9% 17.6% 7.5% 12.1% ---------------------------------------------------------------------- *T -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Statement of Operations (Unaudited) For the Nine Months Ended September 30, 2006 and 2005 (As Revised)) 2006 2005 ---------------------------------------------------------------------- REVENUE ---------------------------------------------------------------------- Direct revenue 223,280,143 193,053,706 Reimbursed out-of-pockets 80,119,231 65,340,179 ---------------------------------------------------------------------- TOTAL REVENUE 303,399,374 258,393,885 ---------------------------------------------------------------------- COSTS AND EXPENSES ---------------------------------------------------------------------- Direct costs 135,884,050 112,089,743 Reimbursable out-of-pocket expenses 80,119,231 65,340,179 Selling, general and administrative expenses 73,940,705 60,697,825 Impairment of goodwill 7,873,000 - Impairment of long-lived assets - - ---------------------------------------------------------------------- TOTAL COSTS AND EXPENSES 297,816,986 238,127,747 ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS 5,582,388 20,266,138 ---------------------------------------------------------------------- OTHER INCOME (EXPENSE) ---------------------------------------------------------------------- Interest income 1,050,060 694,641 Interest expense (6,432,619) (10,344,371) Foreign exchange transaction gain (loss), net (3,002,126) (678,259) ---------------------------------------------------------------------- TOTAL OTHER INCOME (EXPENSE) (8,384,685) (10,327,989) ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,802,297) 9,938,149 ---------------------------------------------------------------------- Income tax (benefit) (5,874,452) 1,131,324 ---------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN JOINT VENTURE 3,072,155 8,806,825 ---------------------------------------------------------------------- Minority interest in joint venture 516,798 366,855 ---------------------------------------------------------------------- NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS 2,555,357 8,439,970 ---------------------------------------------------------------------- Earnings (loss) from discontinued operations, net of tax (26,667,552) 12,865,324 ---------------------------------------------------------------------- NET EARNINGS (LOSS) (24,112,195) 21,305,294 ---------------------------------------------------------------------- ---------------------------------------------------------------------- BASIC EARNINGS (LOSS) PER SHARE: ---------------------------------------------------------------------- Continuing operations $0.14 $0.48 Discontinued operations ($1.47) $0.73 Net earnings (loss) ($1.33) $1.21 ---------------------------------------------------------------------- DILUTED EARNINGS (LOSS) PER SHARE: ---------------------------------------------------------------------- Continuing operations $0.14 $0.46 Discontinued operations ($1.45) $0.71 Net earnings (loss) ($1.31) $1.17 ---------------------------------------------------------------------- NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE: ---------------------------------------------------------------------- Basic 18,150,182 17,543,438 Diluted 18,376,696 18,217,963 ---------------------------------------------------------------------- *T -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Reconciliation of GAAP Net Earnings for Continuing Operations to Non- GAAP Net Earnings from Continuing Operations For the Three and Nine Months Ended September 30, 2006 and 2005 Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2006 2005 2006 2005 Net earnings from continuing operations GAAP 2,979,540 7,131,391 2,555,357 8,439,970 Add: Impairment of goodwill - - 7,873,000 - Add: Non- recurring charge related to financing - - 1,214,306 3,278,279 Add: FAS 123R expense 149,063 - 958,515 - Add: Amortization of acquisition related intangibles 703,646 993,798 2,274,359 3,031,317 Subtotal 3,832,249 8,125,189 14,875,537 14,749,566 Less: Tax effect of non-GAAP adjustments (1)(2)(3) 122,790 140,126 4,207,249 909,430 Non-GAAP net earnings 3,709,459 7,985,063 10,668,288 13,840,136 Diluted non- GAAP net earnings per share $0.20 $0.42 $0.58 $0.76 Number of shares used in computing diluted non- GAAP earnings per share 18,473,375 19,158,308 18,376,696 18,217,963 (1) The revised tax rate used for the nine months ended September 30, 2006 is approximately a benefit of (17.5%) after taking into account adjustments reflected in this summary. (2) The revised tax rate used for the nine months ended September 30, 2005 is approximately 12.6% after taking into account adjustments reflected in this summary. (3) The quarterly tax effect for 2006 and 2005 have been tax effected at their respective quarterly tax rates. *T -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Summary of Operations of Early and Late Stage Clinical Development Segments For the Three and Nine Months Ended September 30, 2006 and 2005 Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, EARLY CLINICAL DEVELOPMENT 2006 2005 2006 2005 ---------------------------------------------------------------------- Direct revenues 25,909,168 31,419,515 76,692,015 77,462,605 GAAP operating earnings (loss) 3,991,997 9,412,359 (377,141) 15,598,571 Amortization of intangibles 128,846 315,746 549,959 1,017,358 Non-GAAP operating earnings (loss) 4,120,843 9,728,105 172,818 16,615,929 GAAP operating margin 15.4% 30.0% -0.5% 20.1% Non-GAAP operating margin 15.9% 31.0% 0.2% 21.5% Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, LATE CLINICAL DEVELOPMENT 2006 2005 2006 2005 ---------------------------------------------------------------------- Direct revenues 50,109,606 40,471,067 146,588,128 115,591,101 GAAP operating earnings (loss) 6,983,946 5,454,775 22,418,455 12,694,977 Amortization of intangibles 574,800 678,052 1,724,400 2,013,959 Non-GAAP operating earnings (loss) 7,558,746 6,132,827 24,142,855 14,708,936 GAAP operating margin 13.9% 13.5% 15.3% 11.0% Non-GAAP operating margin 15.1% 15.2% 16.5% 12.7% *T -0- *T PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES Selected Consolidated Balance Sheet Information September 30, 2006 and 2005 (Unaudited) (As Revised) September 30, December 31, 2006 2005 ---------------------------------------------------------------------- ASSETS ---------------------------------------------------------------------- Cash, equivalents and investments in marketable securities from continuing operations 53,820,203 37,413,251 Cash, equivalents and investments in marketable securities from discontinued operations - 1,421,451 ------------- ------------ Total cash, equivalents, and investments in marketable securities 53,820,203 38,834,702 Accounts receivable from continuing operations 109,782,587 91,446,190 Accounts receivable from discontinued operations 6,289,490 26,425,479 ------------- ------------ Accounts receivable 116,072,077 117,871,669 Current assets from continuing operations 180,061,293 148,692,703 Current assets from discontinued operations 6,397,498 29,335,006 ------------- ------------ Total current assets 186,458,791 178,027,709 Fixed assets from continuing operations 61,796,913 48,563,461 Fixed assets held available for sale from discontinued operations 3,487,415 24,701,651 ------------- ------------ Total fixed assets 65,284,328 73,265,112 Total assets from continuing operations 555,070,421 514,328,567 Total assets from discontinued operations 9,884,913 58,208,529 ------------- ------------ Total assets 564,955,334 572,537,096 ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY ---------------------------------------------------------------------- Current liabilities from continuing operations 125,070,285 120,493,672 Current liabilities from discontinued operations 5,624,726 5,940,389 ------------- ------------ Total current liabilities 130,695,011 126,434,061 Total liabilities from continuing operations 292,629,463 284,315,108 Total liabilities from discontinued operations 5,642,726 5,940,389 ------------- ------------ Total liabilities 298,272,189 290,255,497 Stockholders' equity 266,683,145 282,281,599 Total liabilities and stockholders' equity 564,955,334 572,537,096 *T